92494_Cov-Insert.qxp 3/20/08 11:47 AM Page 1
2007 Annual Report
USA Truck, Inc.
3200 Industrial Park Road
Van Buren, Arkansas 72956
(479) 471-2500
usa-truck.com
Selected Financial Data
(Dollars in thousands except per share amounts)
Year Ended December 31,
2007
2006
2005
2004
2003
Base revenue ..............................................
Operating income .......................................
Net income ..................................................
Diluted earnings per share .........................
Total assets ..................................................
Long-term debt ...........................................
Stockholders’ equity ...................................
Operating ratio* ..........................................
Total tractors (end of period) ....................
Total trailers (end of period) .....................
Average miles per tractor per week ...........
$391,188
8,310
140
0.01
332,938
70,212
$143,191
97.9%
2,557
7,024
2,313
$ 385,301
26,404
12,441
1.08
339,494
67,817
$ 159,558
93.1%
2,571
6,770
2,271
$ 376,629
33,497
15,568
1.51
308,079
67,589
$ 149,833
91.1%
2,414
5,542
2,415
$ 335,880
17,799
7,432
0.79
288,154
115,114
$ 85,528
94.7%
2,231
5,682
2,361
$ 286,080
10,850
3,355
0.36
222,549
74,300
77,496
96.2%
2,079
4,461
2,341
$
* Operating ratio as reported above is based upon total operating expenses, net of fuel surcharge, as a percentage of base revenue.
* EBITDA is defined in the Financial Statistics section of the ten year statistical history on the last page of this Annual Report.
92494_Cov-Insert.qxp 3/20/08 11:48 AM Page 3
Ten Year Statistical History
Balance Sheet Statistics
(Dollars in thousands)
Current assets ..................................................................................
$
$
$
2007
2006
2005
2004
To Our Stockholders
Our industry is changing. USA Truck’s historical bread-and-butter, the
medium length of haul (800-1,200 mile) segment of the truckload market,
is being eroded by a growing intermodal railroad option for our customers
and by the proliferation of the regional distribution center concept among
big box retailers. Customers continue to shrink their bases of core carriers
while simultaneously raising the bars for service and capacity
requirements. Cost pressures abound from inflationary forces that can
often outpace growth in our industry’s pricing power and from increasing
regulatory hurdles.
USA Truck must and will change to meet these challenges. While we have
always taken pride in offering premium services, the changes in our
industry now also require us to broaden the range of services we offer to
our customers. By expanding our service offerings, we intend to generate
demand for our services that will lead to greater consistency of earnings
and pave the way for us to improve our margins. We must also overcome
cost pressures in the labor, energy, regulatory and safety arenas.
USA Truck’s core business strategy for revenue and earnings growth is to
increase and sustain demand for our services by positioning ourselves as
a premium service provider for all of our customers’ dry van, full truckload
needs, thus serving a greater portion of their needs. This strategy requires
a two-pronged approach to execute: (1) consistently providing our
customers with a reliability of service not generally available in our
industry, and (2) providing a greater scope of service beyond our
traditional medium length-of-haul business.
Since the summer of 2007, we have undertaken an extensive effort to refine
USA Truck’s corporate strategy. We have implemented sweeping
organizational/cultural, technological and business model changes within
the company to set the stage for successful execution of our strategy.
■ Culturally, we believe that employees who are challenged,
empowered and rewarded are the key to total customer
satisfaction. Total customer satisfaction is the key to
shareholder returns. Our three-legged-stool concept
focuses equally on
the employee, customer and
shareholder and is the foundation of our organization.
We value intellectual honesty, a “do the right thing”
ethical environment, strong leadership in addition to
results-oriented,
capable management,
performance-driven culture that promotes teamwork
and continual improvement. We have also devoted
considerable attention to reorganizing our various
operating departments to execute our strategy, placing
the right people into the right jobs where they can add the
most value and providing them the proper training and
tools. That process is still underway.
and
a
■ In order to serve our customers effectively and efficiently,
we must provide our employees with the proper technology.
After an exhaustive process, we have determined that our legacy
mainframe software applications no longer provide the
competitive advantage that they once did. Over the next three
years, we will redesign our technology system and will replace
our enterprise-wide software applications with more user-
friendly, higher capacity products that will dramatically improve
our visibility into our operations and the speed at which critical
information is made available to decision-makers. Once
complete, we believe that our enhanced technological
capability should improve our competitiveness in our industry
from both cost and service perspectives. We are not, however,
relying on the software migration to drive our strategy; rather,
(continues)
Net income ......................................................................................
$
Diluted shares outstanding (in thousands) ......................................
Diluted earnings per share ..............................................................
$
$
$
$
$ 7,432
$
1.51
$
Revenue, before fuel surcharge - year-to-year change .........................
Operating ratio* ...............................................................................
Financial Statistics
(Dollars in thousands - except per share amounts)
Net income (“Earnings”) .................................................................
$
$
12,442
$
$
2007
2006
2005
2004
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)
Base revenue ...................................................................................
$
Fuel surcharge .................................................................................
Total revenue ...................................................................................
Operating expenses, net of fuel surcharge .......................................
Operating income ............................................................................
Other expenses, net .........................................................................
Income before income taxes ............................................................
Income taxes ...................................................................................
Interest ............................................................................................
Income taxes (“Taxes”) ...................................................................
Earnings before interest and taxes (“EBIT”) ...................................
Depreciation and amortization .........................................................
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)
EBIT per diluted share .....................................................................
EBITDA per diluted share ................................................................
Operating cash flow per diluted share .............................................
Stockholders’ equity per diluted share .............................................
Return on average assets .................................................................
Return on average equity .................................................................
Funded debt to total capital** ..........................................................
Operating Statistics
(All numbers include owner-operators except as noted “Company”)
Total tractors (end of period) ..........................................................
Average months in service – Company tractors ................................
Total Company trailers (end of period) ...........................................
Average months in service – Company trailers .................................
Trailer to tractor ratio ......................................................................
Average miles per tractor per week .................................................
Drivers (excluding students in training) ..........................................
Non-drivers ......................................................................................
Total drivers and non-drivers ...........................................................
Driver to non-driver ratio ................................................................
65,807
332,938
66,701
70,212
189,747
143,191
2007
391,188
90,922
482,109
473,797
8,312
5,153
3,159
3,019
140
10,690
0.01
1.5%
97.9%
140
5,131
3,019
8,290
49,093
57,383
0.78
5.37
-
13.39
0.0%
0.1%
36.4%
2,557
7,071
22
39
2.77:1
2,313
2,508
812
3,320
3.09
2006
$
2005
$
2004
63,805
339,494
66,588
67,818
179,936
159,558
385,301
80,317
465,618
439,213
26,405
4,059
22,346
9,904
12,442
11,561
1.08
2.3%
93.2%
4,192
9,904
26,538
46,739
73,277
2.30
6.34
5.26
13.80
3.8%
8.0%
34.6%
2,571
21
6,770
36
2.65:1
2,271
2,497
840
3,337
2.97
$
$
60,791
308,079
53,617
67,589
158,246
149,833
376,629
63,074
439,703
406,205
33,498
4,811
28,687
13,119
15,568
10,330
12.1%
91.1%
2,414
5,542
19
38
2.3:1
2,415
2,474
730
3,204
3.39
56,659
288,154
56,148
115,114
202,626
85,528
335,880
27,225
363,105
345,306
17,799
3,572
14,227
6,795
9,398
0.79
17.4%
94.7%
7,432
3,539
6,795
17,766
35,871
2,231
18
5,682
39
2.55:1
2,361
2,218
702
2,920
3.16
15,568
4,829
13,119
33,516
41,900
7.30
5.56
14.50
5.2%
13.2%
37.4%
$
75,416
$ 3.24
$
$
$
$
53,637
$ 1.89
$ 5.71
$ 4.05
$
9.10
2.9%
9.1%
61.6%
2007
2006
2005
2004
$
$
$
$
$
$
$
$
$
$
92494_Cov-Insert.qxp 3/20/08 11:48 AM Page 4
we intend to use it as a catalyst to accelerate the pace of change
within our organization.
■ Our customers want a more diversified bundle of services
from their core carriers. Our strategy is to provide those
additional services in carefully selected areas where we believe
we can provide superior service and reliability.
1. We began offering intermodal railroad services to our
customers in late 2007 and have set a modest revenue goal
for 2008. To reach that goal, we have staffed intermodal
with just a few strong, experienced employees, and given
them clear responsibilities and goals, and we have done it
in a way that did not detract from our focus on our core
Trucking operations.
2. We are expanding our capabilities to outsource truckload
freight through our Strategic Capacity Solutions (“SCS”)
division. To execute this, we have streamlined the
interaction between our Trucking divisions and SCS and we
have employed several new freight brokers.
3. We are aggressively pursuing opportunities to move
tractors from our General Freight and Regional Freight
divisions where considerable pricing and empty mile
pressures exist into our Dedicated Freight division where
freight lanes and volumes are more consistent. Our goal is
to move at least 100 tractors during 2008. To accomplish
that goal, and as part of a broader reorganization of our
sales force, we have injected a more focused effort into
Dedicated Freight sales which has provided us with more
opportunities and leads.
4. We nearly tripled the size of our small owner-operator fleet
to 66 in 2007. We intend to grow the size of that fleet by
another 82% to 120 during 2008. Owner-operators
provide a flexible source of capacity for our fleet and have
proven to be reliable, safe and productive. With our driver
turnover at its lowest level this decade and while the driver
hiring market has softened during this economic
slowdown, we have utilized our considerable driver
recruiting resources to target owner-operators. We will
continue to do so during 2008 until we reach our goal.
While we believe that we must improve our ability to consistently
produce revenue volume throughout the economic cycle, we know
that controlling costs will always be critical to our success. We
typically post one of the lowest operating costs per mile in the
truckload industry, but we can do much better, particularly in the area
of insurance and claims costs, which continue to run a nickel per mile
higher than our historical average. Our efforts to contain safety-
related costs have not produced the sustained results that we desired
over the past several years. In response, we are implementing a
comprehensive loss prevention program rooted in hiring quality
drivers and training them effectively. We will continue marketing safety
to all our drivers, but to get the costs under control we must ensure
that safety is the key factor in our future hiring decisions and driver
training.
Our management team is deeply dissatisfied with our 2007
performance, and we are committed to taking the necessary steps to
return USA Truck to its historic place of prominence in the truckload
industry. Ultimately, we want to be the company that everyone wants
to work for, the company that customers call when service matters and
the stock that investors want to own. Our passion and decision-
making are driven by that overarching mission.
As always, thank you for your support.
Robert M. Powell
Chairman of the Board
Clifton R. Beckham
President and Chief
Executive Officer
Directors and Officers
Clifton R. Beckham
Rick A. Davis
President, Chief Executive Officer
Vice President, Information Services
Robert M. Powell
Chairman of the Board
Bryce C. Van Kooten
Vice President, Sales
Donald B. Weis
Terry V. Biehl
Controller
Vice President, Customer Service
Terry A. Elliott
and Director
Garry R. Lewis
Executive Vice President,
Chief Operating Officer
Michael E. Brown
Senior Vice President, Operations
Darron R. Ming
Vice President, Finance,
Chief Financial Officer
and Treasurer
Michael R. Weindel, Jr.
Vice President, Human
Resources, Recruiting
and Training
J. Rodney Mills
Vice President, Safety,
General Counsel and Secretary
Craig S. Shelly
Vice President,
Corporate Strategy
Richard B. Beauchamp
Director (General Partner, Norris
Taylor & Company, Accounting Firm)
Director (Chief Administrative Officer
and Chief Financial Officer,
Safe Foods Corporation, Food
Safety Company)
William H. Hanna
Director (President, Hanna Oil
and Gas, Oil and Gas Exploration)
Joe D. Powers
Director (Retired Chairman and
CEO of Merchants National
Bank of Fort Smith, Arkansas
and Former Chairman of the
Advisory Board of Regions Bank
of Fort Smith, Arkansas)
James B. Speed
Director (Retired Chairman of
the Board, USA Truck, Inc.)
Corporate Information
This annual report and the statements contained herein are submitted for the general information of shareholders of the Company
and are not intended to induce any sale or purchase of securities or to be used in connection therewith.
Corporate Headquarters
3200 Industrial Park Road
Van Buren, Arkansas 72956
Telephone: (479) 471-2500
Common Stock
Traded on the NASDAQ Global Select
Market under the Symbol: USAK
Annual Meeting
May 7, 2008
10:00 a.m. local time
USA Truck, Inc.
3200 Industrial Park Road
Van Buren, Arkansas 72956
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Web Site
www.usa-truck.com
Upon written request of any shareholder, the Company will furnish without charge a copy of the Company’s 2007 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 J. Rodney Mills, 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 10, 2008, the person making the request was a
beneficial owner of shares of the Common Stock of the Company.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 1
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
0-19858
(Commission file number)
USA Truck, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
71-0556971
(I.R.S. Employer Identification No.)
3200 Industrial Park Road
Van Buren, Arkansas
(Address of principal executive offices)
72956
(Zip Code)
(479) 471-2500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act
Title of each class
Name of each exchange on which registered
Common Stock, $.01 Par Value
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
Large Accelerated Filer____ Accelerated Filer __X__ Non-Accelerated Filer _____ Smaller Reporting Company____
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the Registrant computed by reference to the price at which the
common equity was last sold as of the last business day of the Registrant’s most recently completed second quarter was $128,399,954 (the
characterization of officers and directors of the Registrant as affiliates for purposes of this computation should not be construed as an admission
for any other purpose that any such person is in fact an affiliate of the Registrant).
The number of shares outstanding of the Registrant’s Common Stock, par value $ .01, as of February 25, 2008 is 10,236,560.
DOCUMENTS INCORPORATED BY REFERENCE
Document
Portions of the Proxy Statement to be sent to stockholders
in connection with 2008 Annual Meeting
Part of Form 10-K into which the Document is Incorporated
Part III
Item
USA TRUCK, INC.
TABLE OF CONTENTS
Caption
PART I
Page
1. Business ...............................................................................................................................
1A. Risk Factors .........................................................................................................................
1B. Unresolved Staff Comments................................................................................................
2. Properties .............................................................................................................................
3. Legal Proceedings................................................................................................................
4. Submission of Matters to a Vote of Security Holders .........................................................
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.............................................................................................
6. Selected Financial Data .......................................................................................................
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations............................................................................................................................
7A. Quantitative and Qualitative Disclosure about Market Risk ...............................................
8. Financial Statements and Supplementary Data....................................................................
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure ............................................................................................................................
9A. Controls and Procedures......................................................................................................
9B. Other Information ................................................................................................................
PART III
10. Directors, Executive Officers and Corporate Governance ..................................................
11. Executive Compensation .....................................................................................................
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.............................................................................................................
13. Certain Relationships and Related Transactions and Director Independence .....................
14. Principal Accountant Fees and Services..............................................................................
15. Exhibits and Financial Statement Schedules .......................................................................
Signatures ............................................................................................................................
PART IV
2
10
14
14
14
14
15
17
18
30
32
54
54
55
55
55
55
56
56
57
58
Item 1. BUSINESS
PART I
We are a dry van truckload carrier transporting general commodities throughout the continental United States
and into and out of Mexico and portions of Canada. For shipments into Mexico, we transfer our trailers to tractors
operated by Mexican trucking companies, with which we have contracts, at our facility in Laredo, Texas. We
transport many types of freight and provide complementary third party logistics and freight brokerage services for a
diverse customer base. We provide our services for such industries as industrial machinery and equipment, rubber
and plastics, retail stores, paper products, durable consumer goods, metals, electronics and chemicals.
Our truckload freight services, which we conduct through three divisions that comprise the Trucking segment
of our operations, consist of transportation services in which we use equipment that we own or owner-operator
equipment for the pick-up and delivery of freight. Our General Freight division transports freight over irregular
routes, with a medium length of haul, generally defined as between 800 and 1,200 miles per trip. Our Dedicated
Freight division provides similar transportation services, but pursuant to agreements whereby we make our
equipment available to a specific customer for shipments over particular routes at specified times. In the early
2000’s, a combination of customer demand for additional services, changes in freight distribution patterns and a
desire to reduce the impact on our business of the more cyclical medium-haul markets caused us to begin providing
regional freight services. Our Regional Freight division, which we established in 2004, provides truckload
transportation services with a length of haul of approximately 500 miles in areas surrounding three of our facilities.
Our Regional Freight division allows us access to the large market for regional freight services and provides
lifestyle advantages to our drivers. At December 31, 2007, our Trucking fleet consisted of 2,499 tractors and 7,024
trailers.
Through our Strategic Capacity Solutions and Third Party Logistics divisions, which comprise our USA
Logistics operating segment, we provide services such as transportation scheduling, routing and mode selection,
which typically do not involve the use of our equipment or owner-operator equipment. We have traditionally
provided these services primarily as supplemental services to customers who have also engaged us to provide
truckload freight services. In 2006, we started strategically redeploying our resources and attention away from the
more complicated third party logistics services and toward our Trucking and Strategic Capacity Solutions
operations.
For reporting purposes, we aggregate the financial data for our Trucking operating segment and our USA
Logistics operating segment. The discussion of our business in this Item 1 focuses primarily on Trucking, which is
our dominant segment, producing 97.7% of our total base revenue in 2007.
In November 2004, we received certification by TÜV America, an independent auditor, of conformance to the
International Organization for Standardization’s 9001:2000 Quality Management Systems standard. ISO 9001:2000
is currently the most rigorous international standard for Quality Management and Assurance. The International
Organization for Standardization is the source of the ISO 9000 and 14000 families of quality and environmental
management standards, as well as multiple international standards for business, government and society. In
achieving and maintaining this certification, we have successfully identified and demonstrated our ability to meet
customer requirements and enhance customer satisfaction.
We were incorporated in Delaware in September 1986 as a wholly owned subsidiary of ABF Freight System,
Inc. and the company was purchased by management in December 1988. The initial public offering of our common
stock was completed in March 1992.
Our principal offices are located at 3200 Industrial Park Road, Van Buren, Arkansas 72956, and our telephone
number is (479) 471-2500.
Our internet address is http://www.usa-truck.com. You can review the filings we have made with the United
States Securities and Exchange Commission (“SEC”) free of charge by linking directly from the Investor Relations
section of our website to EDGAR, a database maintained by the SEC. EDGAR is the Electronic Data Gathering,
Analysis and Retrieval system where you can find our annual reports on Form 10-K, quarterly reports on Form 10-
Q and current reports on Form 8-K, as well as amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934.
2
Strategic Objectives
We have studied our business carefully over the past year to determine the best path to narrowing the current
and historic disparity between our stock’s valuation and those of our peers. Going forward, we will pursue three
primary strategic objectives.
(cid:120) More closely manage our financial returns. Our goal is to produce a return on capital that meets or
exceeds 10% while simultaneously managing our cost of capital below that 10% threshold, thus adding
economic value for our shareholders. Over the years, we have consistently injected capital into our
business but have not generally been satisfied with the return on that capital. We are now utilizing our own
internal cost of capital as the basis for establishing internal rates of return objectives on various business
activities.
(cid:120)
Improve earnings consistency relative to the Standard & Poor’s 500. Since our initial public stock
offering, our earnings per share results have been inconsistent, which we believe has contributed to a
disparity in valuations between our common stock and that of our peers. The inconsistency is caused by
many factors including unpredictable insurance and claims costs and our relatively low outstanding share
count. However, the most fundamental factor is the volatility inherent in our traditional business model.
Our model, which is primarily medium length of haul, has produced industry-leading operating margins
when freight demand is plentiful, but it has conversely struggled when freight demand is scarce. Our basic
model is unchanged. A significant majority of our revenue is still derived from medium length of haul
trucking, thus we cannot expect to meet our objective unless we make some changes to our business model.
We have begun to make significant changes to our business model as described in Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Results of Operations -
Executive Overview.”
While our revenue production has been volatile throughout the economic cycles, our cost discipline has
not. We are consistently one of the lowest cost operators in the truckload industry. We are committed to
controlling costs and we are one of the very best in the industry at utilizing our equipment. Maintaining
our cost discipline will be crucial if we are to achieve our objective of improved earnings consistency.
(cid:120) Position USA Truck for long-term revenue growth. Historically, we have grown base revenue at a 13%
compounded annual growth rate. Our objective is to create enough operating margin to consistently
produce a 10% return on capital. Once that occurs, profitable top-line revenue growth will again be our
primary vehicle to grow shareholder value. We are laying the foundations to position ourselves for future
growth opportunities.
Operating Objectives
Our operating strategy includes the following important elements:
(cid:120) Provide superior service to shippers. Our principal competitive strength is our ability and commitment to
consistently provide superior service. Although price is a primary concern to all shippers, many of our
customers are high-volume shippers that require a flexible and dependable source of motor carrier service.
These customers often have specific requirements, including pick-up or delivery within narrow time
windows or real-time information about shipment status. Our strategy is to provide a premium service to
meet these needs and to charge competitive rates for that service. Key elements of our premium service
include the following:
(cid:120) We are committed to consistent on-time performance.
(cid:120) We provide dispatching and maintenance services twenty-four hours a day, seven days a week.
(cid:120) We maintain trailer pools at strategic locations to minimize the time it takes to respond to a customer order.
We also provide extra trailers to high-volume shippers for loading and unloading at their convenience.
(cid:120) We have strict hiring and performance standards for our drivers and emphasize safety, customer
satisfaction and on-time service in our training.
(cid:120) Control costs through benchmarking. Our goal is to achieve an operating ratio that will allow us to earn
sufficient returns on investment. To attain that goal, we are committed to a thorough cost-control system
using benchmarks. We compare our current performance in more than 300 statistical areas with our
performance in prior years.
3
(cid:120) Earn Premium Rates. We are committed to earning premium rates that are commensurate with our
superior service. To achieve the rates we desire, we utilize technology, leverage customer relationships
and our premium service reputation and continually upgrade our freight mix by eliminating or repricing the
least profitable trips.
(cid:120) Adhere to disciplined equipment replacement cycles and maintenance schedules. We believe that late
model, well-maintained revenue equipment is essential to profitability, customer service, driver satisfaction
and a positive public image. Our policy is to operate our tractors for 36 to 42 months and our trailers for
84 to 120 months before replacement, subject to temporary changes in response to market conditions. We
believe that replacing equipment at those intervals generally yields the most economically feasible balance
of maintenance costs and sale or trade-in values. We also perform preventive maintenance on our tractor
and trailer fleets at regular intervals to improve their sale or trade-in values, to maintain driver satisfaction
and to reduce long-term maintenance costs and customer service failures.
(cid:120) Continue investing in new technology. We continually invest in new and upgraded technology to provide
the most efficient service possible to our customers. We provide electronic data interchange arrangements
with larger customers, real-time shipment status information, two-way satellite-based messaging and
position-locating equipment in all of our tractors, operational software packages designed to enhance
service and economic efficiencies and an interactive website providing load tendering and tracing to
customers. We use a number of computing platforms to operate software packages such as satellite
communications, load matching and optical document storage. Historically, we have developed many of
our software applications internally. We have recently begun to implement new software systems
purchased from third-party vendors for a number of our key processes. We believe the new systems should
both increase the efficiency of our operations and require less time from internal technical personnel.
(cid:120) Develop our management team. We are committed to developing a management team capable of leading
our company well into the future. We have invested time and resources to cultivate talent within our
organization and believe that we have a management team in place to guide our business for the long term.
Our management personnel are partially compensated with performance-based incentives and equity
awards designed to provide managers with a long-term equity interest in the company.
Industry and Competition
The trucking industry includes both private fleets and for-hire carriers. Private fleets consist of trucks owned
and operated by shippers that move their own goods. For-hire carriers include both truckload and less-than-
truckload operations. Truckload carriers dedicate an entire trailer to one customer from origin to destination. Less-
than-truckload carriers pick up multiple shipments from multiple shippers on a single truck and then route the goods
through terminals or service centers, where freight may be transferred to other trucks with similar destinations for
delivery. Truckload carriers typically transport shipments weighing more than 10,000 pounds, while less-than-
truckload carriers typically transport shipments weighing less than 10,000 pounds.
We operate primarily in the highly fragmented for-hire truckload segment of the market. The for-hire segment
is highly competitive and includes thousands of carriers, none of which dominates the market. This segment is
characterized by many small carriers having revenues of less than $1 million per year and relatively few carriers
with revenues exceeding $100 million per year. Measured by annual revenue, the 47 largest truckload carriers
accounted for approximately $31.2 billion, or approximately 10%, of the truckload market in 2006. We were
ranked number 20 of the largest truckload carriers based on total revenue for 2006, according to Transport Topics.
The industry continues to undergo consolidation. In addition, the recent challenging economic times have
contributed to the failure of many trucking companies and made entry into the industry more difficult.
We compete primarily with other truckload carriers, shipper-owned fleets and, to a lesser extent, railroads and
less-than-truckload carriers. A number of truckload carriers have greater financial resources, own more revenue
equipment and carry a larger volume of freight than we do. We also compete with truckload and less-than-
truckload carriers for qualified drivers.
The principal means of competition in the truckload segment of the industry are service and price, with rate
discounting being particularly intense during economic downturns. Although we compete more on the basis of
service rather than rates, rate discounting continues to be a factor in obtaining and retaining business. Furthermore,
a depressed economy tends to increase both price and service competition from alternative modes such as less-than-
truckload carriers and railroads, as well as intermodal carriers. We believe that successful truckload carriers are
4
likely to grow primarily by offering additional services to their customers and acquiring greater market share and, to
a lesser extent, through an increase in the size of the market.
Marketing and Sales
We focus our marketing efforts on customers with premium service requirements and heavy shipping needs
within our primary operating areas. This permits us to concentrate available equipment strategically so that we can
be more responsive to customer needs. It also helps us achieve premium rates and develop long-term, service-
oriented relationships. Our employees have a thorough understanding of the needs of shippers in many industries.
These factors allow us to provide reliable, timely service to our customers. For 2007, approximately 96.6% of our
total revenue was derived from customers that were customers before 2007, and we have provided services to our
top 10 customers for an average of more than 15 years. We provided service to approximately 860 customers in
2007, and approximately 38.9% of our total revenue for 2007 was derived from Standard & Poor’s 500 companies.
The table below shows the percentage of our total revenue attributable to our top ten and top five customers and
largest customer for the periods indicated.
Top 10 customers ............................................................
Top 5 customers...............................................................
Largest customer .............................................................
Year Ended December 31,
2005
2006
2007
37%
23%
6%
36%
23%
8%
34%
22%
6%
Our Marketing department solicits and responds to customer orders and maintains close customer contact
regarding service requirements and rates. We typically establish rates through individual negotiations with
customers. For our Dedicated Freight services, rates are fixed under contracts tailored to the specific needs of
shippers.
While we prefer direct relationships with our customers, we recognize that obtaining shipments through other
providers of transportation or logistics services is a significant marketing opportunity. Securing freight through a
third party enables us to provide services for high-volume shippers to which we might not otherwise have access
because many of them require their carriers to conduct business with their designated third party logistics provider.
We require customers to have credit approval before dispatch. We bill customers at or shortly after delivery
and, during 2007, receivables collection averaged approximately 30 days from the billing date.
Operations
While we provide our services throughout the continental United States, we conduct most of our freight
transport operations east of the Rocky Mountains. The following table shows our total company average length of
haul and the average length of haul for the three operating divisions in our Trucking segment, in miles, for the
periods indicated.
Total company...............................................................
Trucking divisions:
Year Ended December 31,
2005
2006
2007
837
837
784
General Freight..........................................................
Regional Freight .......................................................
Dedicated Freight ......................................................
904
501
493
941
537
562
942
518
567
The empty mile factor is also a standard measurement in the truckload industry. The empty mile factor
generally decreases as average length of haul and density of trucks in an area increase. Therefore, our efforts to
decrease our empty mile factor are offset somewhat by the growth of our regional operations. Additionally, our
commitment to on-time pickup often requires a tractor to travel farther to complete a pickup than it would have to
travel if we delayed the pickup until a tractor became available in the area. For 2007, our empty mile factor was
11.1% and in 2006 it was 10.3%.
Our Operations department consists primarily of our fleet managers and load planners. Each fleet manager
supervises approximately 20 to 50 drivers in our various divisions and is the primary contact with our drivers. They
5
monitor the location of equipment and direct its movement in the safest and most efficient manner practicable.
Load planners assign all available units and loads in a manner that maximizes profit and minimizes costs. The
Operations department focuses on achieving continual improvement in the areas of customer service, equipment
utilization, driver retention and safety.
Safety
We are committed to continually improving our safety performance. In October 2006, we formed a new
operating department that combined safety, risk management and certain elements of our driver training program.
The Safety department’s mission is to more sharply focus our efforts to create the safest possible environment for
our drivers and the motoring public, provide the safest possible service to our customers, reduce insurance and
claims costs and foster a top-to-bottom culture of safety throughout the company.
We emphasize safe work habits as a core value throughout our organization, and we engage in continual,
proactive training and education relating to safety concepts, processes and procedures for all employees. The
evaluation of an applicant’s safety record is one of several essential criteria we use to hire drivers. We conduct pre-
employment, random, reasonable suspicion and post-accident alcohol and substance abuse testing in accordance
with the U.S. Department of Transportation regulations.
Safety training for new drivers begins in orientation, when newly hired employees are taught safe driving and
work techniques that emphasize the importance of our commitment to safety. Upon completion of orientation, new
student drivers are required to undergo on-the-road training for four to six weeks with experienced commercial
motor vehicle drivers who have been selected for their professionalism and commitment to safety and who are
trained to communicate safe driving techniques to our new drivers. New drivers must successfully complete the
training period and pass a road test before being assigned to their own truck. We also offer a Driver Skills
Development Course, with one-on-one training tailored to assist drivers in developing a specific skill.
In addition to our ongoing efforts to promote safety concepts company wide, all drivers attend safety training
classes each quarter and receive other training designed to keep them up-to-date on safety topics and to reinforce
and advance professional driving skills. Additionally, the Safety department conducts safety meetings with dispatch
personnel to address specific safety-related issues and concerns.
The Safety department also conducts “safety blitzes” at our high-traffic terminals, in addition to the regular
quarterly safety meetings. These periodic blitzes are designed to keep safety at the forefront for our drivers and
other employees, and supplement our regular quarterly meetings by targeting specific safety issues such as proper
backing techniques, DOT inspections or mirror check stations and require active participation from the drivers.
We also have in place a corrective action program designed to evaluate each driver’s safety record to help
determine whether a driver needs additional training and whether the driver is eligible for continued employment.
We have a company-wide communication network designed to facilitate rapid response to safety issues and a driver
counseling and retraining system to assist drivers who need additional assistance or training.
We have established an awards program to recognize those drivers who have met specified safety milestones.
Drivers are recognized at the President’s Million Mile Banquet and outstanding drivers are also recognized in
Company-wide publications and media releases announcing the driver’s achievements. Driver safety achievements
are noted with special uniform patches, caps and door decals for their tractors that identify the driver as having
reached a safety milestone.
We maintain a modern fleet of tractors and trailers. This factor, in conjunction with the regular safety
inspections that our drivers and our Maintenance department conduct on our equipment, helps to ensure that the
equipment is well-maintained and safe. Our tractors are equipped with anti-lock braking systems and electronic
governing equipment that limits the maximum speed of our tractors to 63 miles per hour. In addition, the tractors
we added in 2007 are equipped with automatic transmissions and stability control systems, which will assist in
further reducing the potential for accidents.
Insurance and Claims
The primary risks for which we obtain insurance are cargo loss and damage, personal injury, property damage,
workers’ compensation and employee medical claims. We self-insure for a portion of claims exposure in each of
these areas.
Our self-insurance retention levels are $0.5 million for workers’ compensation claims per occurrence, $0.05
million for cargo loss and damage claims per occurrence and $1.0 million for bodily injury and property damage
claims per occurrence. We are completely self-insured for physical damage to our tractors and trailers, except that
6
we carry catastrophic physical damage coverage to protect against natural disasters. For medical benefits, we self-
insure up to $0.25 million per plan participant per year with an aggregate claim exposure limit determined by our
year-to-date claims experience and our number of covered lives. We maintain insurance above the amounts for
which we self-insure, to certain limits, with licensed insurance carriers. We have excess general, auto and
employer’s liability coverage in amounts substantially exceeding minimum legal requirements, and we believe this
coverage is sufficient to protect us against catastrophic loss. Depending on the volatility of the insurance market,
our insurance and claims expense could increase or we could raise our self-insured retention levels when our
policies are renewed. We believe that our policy of self-insuring up to set limits, together with our safety and loss
prevention programs, are effective means of managing insurance costs. We reevaluate all our coverage decisions on
an annual basis.
Drivers and Other Personnel
Driver recruitment and retention are vital to success in our industry. Recruiting drivers is challenging because
our standards are high and enrollment in driving schools has been declining. Retention is difficult because of wage
and job fulfillment considerations. Driver turnover, especially in the early months of employment, is a significant
problem in our industry, and the competition for qualified drivers is intense. Although we have had significant
driver turnover during certain periods in the past, we have been able to attract and retain a sufficient number of
qualified drivers to support our operations. To attract and retain drivers we must continue to provide safe, attractive
and comfortable equipment, direct access to management and competitive wages and benefits designed to encourage
longer-term employment.
Drivers’ pay is calculated primarily on the basis of miles driven, and it increases with tenure. We believe our
current pay scale is competitive with industry peers.
One of the steps we have taken to control compensation expense is the implementation in 2002 of a per diem
driver pay program. Per diem pay, which is not taxable to the driver, is designed to approximately reimburse
drivers for meals and other incidental expenses incurred while away from home overnight on business, and is
typically paid in lieu of a taxable portion of salary. Although our ability to deduct per diem payments is limited,
there are certain tax benefits to drivers that allow us to decrease overall wages per mile for those drivers who elect
to receive the per diem payments. Since per diem payments are slightly lower than the foregone portion of salary,
this difference, in addition to certain tax benefits, results in savings to us. As of December 31, 2007, drivers who
drove approximately 67.2% of our total miles had elected to receive per diem payments.
On February 25, 2008, we had approximately 3,560 employees, including approximately 2,745 drivers. We do
not have any employees represented by a collective bargaining unit. In the opinion of management, our relationship
with our employees is good.
Revenue Equipment and Maintenance
Our policy is to replace most tractors within 36 to 42 months and most trailers within 84 to 120 months from
the date of purchase. Because maintenance costs increase as equipment ages, we believe these trade intervals allow
us to control our maintenance costs and to economically balance them with the equipment’s expected sale or trade
values. Such trade intervals also permit us to maintain substantial warranty coverage throughout our period of
ownership.
We make equipment purchasing and replacement decisions on the basis of various factors, including new
equipment prices, the used equipment market, demand for our freight services, prevailing interest rates,
technological improvements, regulatory changes, fuel efficiency, durability of the equipment, equipment
specifications and the availability of drivers. Therefore, depending on the circumstances, we may accelerate or
delay the acquisition and disposition of our tractors or trailers from time to time.
7
The following table shows the number of units and average age of revenue equipment that we owned or
operated under capital leases as of the indicated dates.
Year Ended December 31,
2005
2006
2007
Tractors:
Acquired ............................................................................
442
Disposed ............................................................................
495
End of period total............................................................ 2,499
Average age at end of period (in months) ....................
25
Trailers:
Acquired ............................................................................
583
Disposed ............................................................................
329
End of period total............................................................ 7,024
Average age at end of period (in months) ....................
42
818
668
2,552
21
1,642
414
6,770
36
803
587
2,402
19
679
819
5,542
38
Late in 2006, we decided to address pressures on our utilization rate by adjusting our equipment replacement
schedule. As a result, we purchased fewer tractors and trailers in 2007 than in recent periods. We will add
equipment as the freight market and driver availability dictate.
To simplify driver and mechanic training, control the cost of spare parts and tire inventory and provide for a
more efficient vehicle maintenance program, we buy tractors and trailers manufactured to our specifications. In
deciding which equipment to buy, we consider a number of factors, including safety, fuel economy, expected resale
value and driver comfort. We have a strict preventive maintenance program designed to minimize equipment
downtime and enhance sale or trade-in values.
We finance revenue equipment purchases through our Senior Credit Facility, capital lease-purchase
arrangements, the proceeds from sales or trades of used equipment and cash flows from operations. Substantially all
of our tractors and trailers are pledged to secure our obligations under financing arrangements.
In addition to tractors that we own, we contract with owner-operators for the use of their tractors and drivers in
our operations. At December 31, 2007, 66 owner-operator tractors were under contract with us. During the third
quarter of 2007, we introduced a lease-purchase program to drivers interested in owning their own equipment and
becoming independent owner-operators. The program offers qualified drivers the opportunity to purchase their own
tractors through a third party financing program. The drivers may purchase tractors directly from us or from outside
sources. During 2007, 8 drivers became independent owner-operators through this program.
Beginning January 1, 2007, all newly manufactured truck engines had to comply with a new set of more
stringent engine emission standards mandated by the Environmental Protection Agency. To address the risk of
buying new engines without adequate testing and to delay the cost impact of these new emission standards, we
accelerated our revenue equipment acquisition program and trade intervals before January 1, 2007. In addition,
approximately 87% of the tractors we purchased in 2007 were equipped with engines produced prior to January
2007. This strategic decision has allowed us additional time to analyze the industry-wide evaluations concerning
the longevity and reliability of the emission-compliant engines.
Technology
We maintain a data center using several different computing platforms ranging from personal computers to an
IBM mainframe system. We have developed the majority of our software applications internally, including payroll,
billing, dispatch, accounting and maintenance programs. In order to enhance the service we provide our customers,
after an extensive review, we determined that our mainframe software applications need to be replaced.
Accordingly, over the next three years we will replace those applications with off-the-shelf, server-based products.
Our computer systems are monitored 24 hours a day by experienced information services professionals. While we
employ many preventive measures, including daily back-up of our information system processes, we do not
currently have a comprehensive catastrophic disaster recovery plan for our information systems.
The technology we use in our business enhances the efficiency of all aspects of our operations and enables us to
consistently deliver superior service to our customers. This technology includes a Qualcomm satellite-based
equipment tracking and driver communication system, which allows us to closely monitor the location of all our
tractors and to communicate with our drivers in real time. This enables us to efficiently dispatch drivers in response
8
to customers’ requests, to provide real-time information to our customers about the status of their shipments and to
provide documentation supporting our assessorial charges, which are charges to customers for things such as
loading, unloading or delays. We have also implemented load optimization software, which is designed to match
available equipment with shipments in a way that best satisfies a number of criteria including empty miles, the
driver’s available hours of service and home-time needs. This licensed software assists us in planning for transfers
of loaded trailers between our tractors, allowing us to further enhance efficient allocation of our equipment, improve
customer service and take full advantage of our drivers’ available hours of service.
Regulation
We are a motor carrier regulated by the U.S. Department of Transportation and other federal and state agencies.
Our business activities in the United States are subject to broad federal, state and local laws and regulations beyond
those applicable to most business activities. Our regulated business activities include, but are not limited to, service
area, routes traveled, equipment specifications, commodities transported, rates and charges, accounting systems,
financial reporting and insurance coverages. Our Canadian business activities are subject to similar requirements
imposed by the laws and regulations of the Dominion of Canada and provincial laws and regulations.
Motor carrier operations are subject to safety requirements prescribed by the U.S. Department of
Transportation, governing interstate operation, and by Canadian provincial authorities. Matters such as weight and
equipment dimensions are also subject to federal, state and provincial regulations.
In 2003, the Federal Motor Carrier Safety Administration of the U.S. Department of Transportation issued the
first significant revisions to the industry hours-of-service regulations in more than 60 years. The Administration
implemented additional, but less significant, revisions in 2005. In general, the new regulations are intended to
increase safety by giving drivers more opportunity to rest and obtain restorative sleep during each work cycle by,
for example, increasing the minimum off-duty time during each work cycle. The maximum on-duty period after
which a driver may no longer drive was shortened and can no longer be extended by time spent off duty (such as
meal stops and other rest breaks) once the on-duty period has begun. Therefore, delays during a driver’s on-duty
time (such as those caused by loading/unloading problems) may limit drivers’ available hours behind the wheel,
particularly if such delays occur late in an on-duty period.
On July 24, 2007, the U.S. Court of Appeals for the District of Columbia Circuit ordered that two provisions of
the hours-of-service regulations be set aside. Those provisions govern the maximum allowable number of daily
driving hours and the number of hours that drivers must be off duty before they can begin a new weekly driving
cycle. The court’s order requires the Administration to re-examine the impact of the affected provisions on safety.
The Administration has issued an Interim Final Rule that will allow the current hours-of-service provisions to
remain in effect until it completes the re-examination and rulemaking, which the Administration has said it expects
to do in 2008. The prior revisions of the hours-of-service rules created operational issues for us and increased our
operating costs, and any further revisions that may result from the re-examination and rulemaking process may
cause us to incur additional costs and could have an adverse effect on our operations or financial condition.
The Environmental Protection Agency adopted emissions control regulations that require progressive
reductions in exhaust emissions from diesel engines manufactured on or after October 1, 2002. More stringent
reductions became effective on January 1, 2007 for engines manufactured on or after that date, and further
reductions are scheduled to become effective in 2010. Compliance with the regulations has increased the cost of
our new tractors and operating expenses while reducing fuel economy, and it is anticipated that the 2007 and 2010
changes will further adversely impact those areas.
We believe that we are in substantial compliance with applicable federal, state, provincial and local
environmental laws and regulations and that costs of such compliance will not have a material adverse effect on our
competitive position, operations or financial condition or require a material increase in currently anticipated capital
expenditures.
Seasonality
See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations(cid:326)Seasonality.”
Forward-Looking Statements
This report contains forward-looking statements and information that are based on our current beliefs and
expectations and assumptions we have made based upon information currently available. Forward-looking
statements include statements relating to our plans, strategies, objectives, expectations, intentions and adequacy of
resources, and may be identified by words such as “will,” “could,” “should,” “may,” “believe,” “expect,” “intend,”
9
“plan,” “schedule,” “estimate,” “project” and similar expressions. These statements are based on current
expectations and are subject to uncertainty and change. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we cannot assure you that such expectations will be realized. If one or
more of the risks or uncertainties underlying such expectations materialize, or if underlying assumptions prove
incorrect, actual results may vary materially from those expected. Among other things, we cannot assure you that
we will be able to continue the recent positive trends identified in this annual report under the heading
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” such as increased miles
per tractor per week and reduced driver recruiting costs. Among the key factors that are not within our control and
that have a direct bearing on operating results are increases in fuel prices, adverse weather conditions, increased
regulatory burdens and the impact of increased rate competition. Our results have also been, and will continue to
be, significantly affected by fluctuations in general economic conditions, as our tractor utilization rates are directly
related to business levels of shippers in a variety of industries. In addition, shortages of qualified drivers and
intense or increased competition for drivers have adversely impacted our operating results and our ability to grow
and will continue to do so. Results for any specific period could also be affected by various unforeseen events, such
as unusual levels of equipment failure or vehicle accident claims. Some of the risks, uncertainties and assumptions
that could cause actual results to differ materially from these forward-looking statements are described in “Item 1A.
Risk Factors” of this report.
All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by this cautionary statement.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events
and circumstances discussed in this report might not occur.
Item 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the following risks
and uncertainties which could cause our actual results to differ materially from the results contemplated by the
forward-looking statements contained in this report and in our other filings with the Securities and Exchange
Commission.
Our business is subject to economic and business factors affecting the trucking industry that are largely out of
our control, any of which could have a material adverse effect on our operating results.
The factors that have negatively affected us, and may do so in the future, include volatile fuel prices, excess
capacity in the trucking industry, surpluses in the market for used equipment, higher interest rates, higher license
and registration fees, increases in insurance premiums, higher self-insurance levels, increases in accidents and
adverse claims and difficulty in attracting and retaining qualified drivers and independent contractors.
We are also affected by recessionary economic cycles and downturns in customers’ business cycles. Economic
conditions may adversely affect our customers and their ability to pay for our services. It is not possible to predict
the effects of armed conflicts or terrorist attacks and subsequent events on the economy or on consumer confidence
in the United States, or the impact, if any, on our future results of operations.
We operate in a highly competitive and fragmented industry, and our business may suffer if we are unable to
adequately address downward pricing pressures and other factors that may adversely affect our ability to compete
with other carriers.
Numerous competitive factors could impair our ability to maintain our current profitability. These factors
include:
(cid:120) We compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-
truckload carriers and railroads, some of which have more equipment or greater capital resources, or other
competitive advantages.
(cid:120) Some of our competitors periodically reduce their freight rates to gain business, especially during times of
reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates,
maintain our margins or maintain significant growth in our business.
(cid:120) Many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved
service providers, and in some instances we may not be selected.
(cid:120) Many customers periodically accept bids from multiple carriers for their shipping needs, and this process
may depress freight rates or result in the loss of some of our business to competitors.
10
(cid:120) The trend toward consolidation in the trucking industry may create large carriers with greater financial
resources and other competitive advantages relating to their size, and we may have difficulty competing
with these larger carriers.
(cid:120) Advances in technology require increased investments to remain competitive, and our customers may not
be willing to accept higher freight rates to cover the cost of these investments.
(cid:120) Competition from internet-based and other logistics and freight brokerage companies may adversely affect
our customer relationships and freight rates.
(cid:120) Economies of scale that may be passed on to smaller carriers by procurement aggregation providers may
improve their ability to compete with us.
Increased prices for new revenue equipment and decreases in the value of used revenue equipment may
adversely affect our earnings and cash flows.
If we are unable to obtain favorable prices for our used equipment, or if the cost of new equipment continues to
increase, we will increase our depreciation expense or recognize less gain (or a loss) on the disposition of our
tractors and trailers. This has affected and may again adversely affect our earnings and cash flows. During certain
periods in the past, a depressed market for used equipment has caused us to decrease the amount of used equipment
we traded, sometimes significantly. Decreases in our trading activity have increased the average age of our tractors
during those periods and contributed, often significantly, to increases in maintenance costs, and have negatively
affected our utilization rates. These factors, coupled with a change in salvage values, have also yielded increased
depreciation charges to pre-tax earnings in certain periods. Although the condition of the used equipment market
has improved in recent periods, due to an excess of used equipment in the marketplace, values of used tractors
remain depressed.
In addition, manufacturers have recently raised the prices of new equipment significantly, in part to offset their
costs of compliance with new Environmental Protection Agency tractor engine design requirements intended to
reduce emissions. The initial requirements took effect October 1, 2002, and more restrictive Environmental
Protection Agency engine design requirements took effect on January 1, 2007 for engines manufactured on or after
that date, and further reductions are scheduled to become effective in 2010. Further equipment price increases may
result from the implementation of the 2007 requirement. If new equipment prices increase more than anticipated,
we may be required to increase our depreciation and financing costs and/or retain some of our equipment longer,
with a resulting increase in maintenance expenses. To the extent we are unable to offset any such increases in
expenses with rate increases, our results of operations would be adversely affected.
Compliance with the regulations has increased the cost of our new tractors and operating expenses while
reducing fuel economy, and it is anticipated that the 2007 and 2010 changes will further adversely impact those
areas.
Ongoing insurance and claims expenses could significantly reduce our earnings.
In recent periods, we experienced significant increases in costs associated with adverse claims. If the number
or severity of claims increases or does not return to historical levels, or if the costs associated with claims otherwise
increase, our operating results will be adversely affected. The time that such costs are incurred may significantly
impact our operating results for a particular quarter, as compared to the comparable quarter in the prior year. In
addition, if we were to lose our ability to self-insure for any significant period of time, our insurance costs would
materially increase and we could experience difficulty in obtaining adequate levels of coverage.
In the last several years, insurance carriers increased premiums for many trucking companies. This factor,
coupled with an increase in coverage, a reduction in our self-insurance retention level and our claims experience,
resulted in significant increases in our insurance premiums in recent periods. We could experience additional
increases in our insurance premiums in the future. If our insurance or claims expense increases, and we are unable
to offset the increase with higher freight rates, our earnings could be materially and adversely affected.
We have significant ongoing capital requirements that could affect our profitability if we are unable to generate
sufficient cash from operations.
The trucking industry is very capital intensive. If we are unable to generate sufficient cash from operations in
the future, we may have to limit our growth, enter into additional financing arrangements or operate our revenue
equipment for longer periods, any of which could have a material adverse effect on our profitability.
We depend on the proper functioning and availability of our information systems.
11
We depend on the proper functioning and availability of our communications and data processing systems in
operating our business. Our information systems are protected through physical and software safeguards.
However, they are still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or
software break-ins and similar events. We do not have a catastrophic disaster recovery plan or a fully redundant
alternate processing capability. If any of our critical information systems fail or become otherwise unavailable, we
would have to perform the functions manually, which could temporarily impact our ability to manage our fleet
efficiently, to respond to customers’ requests effectively, to maintain billing and other records reliably and to bill for
services accurately or in a timely manner. Our business interruption insurance may be inadequate to protect us in
the event of a catastrophe. Any system failure, security breach or other damage could interrupt or delay our
operations, damage our reputation and cause us to lose customers.
We depend on our major customers, the loss of one or more of which could have a material adverse effect on our
business.
A significant portion of our revenue is generated from our major customers. For fiscal year 2007, our top 10
customers accounted for approximately 34% of our revenue, our top five customers accounted for approximately
22% of our revenue and our largest customer accounted for approximately 6% of our revenue. Generally, we do not
have long-term contracts with our major customers and we cannot assure you that our customer relationships will
continue as presently in effect. A reduction in or termination of our services by one or more of our major customers
could have a material adverse effect on our business and operating results.
If we are unable to retain our key executives, our business, financial condition and results of operations could be
harmed.
We are dependent upon the services of our executive management team. We do not maintain key-man life
insurance on any members of our management team. The loss of their services could have a material adverse effect
on our operations and future profitability. We must continue to develop and retain a core group of managers if we
are to realize our goal of expanding our operations and continuing our growth.
We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of,
existing or future regulations could have a material adverse effect on our business.
The U.S. Department of Transportation and various state agencies exercise broad powers over our business,
generally governing such activities as authorization to engage in motor carrier operations, safety, insurance
requirements and financial reporting. We may also become subject to new or more restrictive regulations relating to
fuel emissions and ergonomics. Our Canadian business activities are subject to similar requirements imposed by the
laws and regulations of the Dominion of Canada and provincial laws and regulations. Compliance with such
regulations could substantially reduce equipment productivity, and the costs of compliance could increase our
operating expenses. Our employee drivers and independent contractors also must comply with the safety and fitness
regulations promulgated by the Department of Transportation, including those relating to drug and alcohol testing
and hours of service. The Transportation Security Administration of the U.S. Department of Homeland Security
adopted regulations that will require all new drivers and drivers who renew their licenses who carry hazardous
materials to undergo background checks by the Federal Bureau of Investigation. While we have historically
required all our drivers to obtain this qualification, these new regulations could reduce the availability of qualified
drivers, which could require us to adjust our driver compensation package, limit the growth of our fleet or let trucks
sit idle. These regulations could also complicate the process of matching available equipment with shipments that
include hazardous materials, thereby increasing the time it takes us to respond to customer orders and increasing our
empty miles.
The Federal Motor Carrier Safety Administration of the U.S. Department of Transportation is currently
conducting a rulemaking process in response to a federal court order that set aside certain of the Administration’s
hours-of-service regulations governing the maximum allowable number of daily driving hours and the number of
hours that drivers must be off duty before they can begin a new weekly driving cycle. If the Administration
determines that these rules should be changed, the number of driving hours allowed per week or per day may
change. If so, we would incur costs in transitioning our operating practices to the new allowable hours of service
and could also see a longer term increase in operating costs. We cannot predict what impact any changes to the
hours-of-service rules may have on our operations, or to what extent, if any, we might be able to recoup any
increased costs through rate increases. Therefore, any such changes could have a material adverse effect on our
business and operating results.
Failures to comply with Department of Transportation safety regulations or downgrades in our safety rating
could have a material adverse impact on our operations or financial condition. A downgrade in our safety rating
12
could cause us to lose the ability to self-insure. The loss of our ability to self-insure for any significant period of
time would materially increase our insurance costs. In addition, we may experience difficulty in obtaining adequate
levels of coverage in that event.
Decreases in the availability of new tractors and trailers could have a material adverse effect on our operating
results.
From time to time, some tractor and trailer vendors have reduced their manufacturing output due, for example,
to lower demand for their products in economic downturns or a shortage of component parts. As conditions
changed, some of those vendors have had difficulty fulfilling the increased demand for new equipment. There have
been periods when we were unable to purchase as much new revenue equipment as we needed to sustain our desired
growth rate and to maintain a late-model fleet. We may experience similar difficulties in future periods. Also,
vendors have had to introduce new engines meeting the more restrictive Environmental Protection Agency
emissions standards in 2007. An inability to continue to obtain an adequate supply of new tractors or trailers could
have a material adverse effect on our results of operations and financial condition.
13
Item 1B.
UNRESOLVED STAFF COMMENTS
There are no unresolved written SEC staff comments regarding our periodic or current reports under the
Securities Exchange Act of 1934 received 180 days or more before the end of the fiscal year to which this annual
report on Form 10-K relates.
Item 2.
PROPERTIES
Our executive offices and headquarters are located on approximately 104 acres in Van Buren, Arkansas. This
facility consists of approximately 117,000 square feet of office, training and driver facilities and approximately
30,000 square feet of maintenance space within two structures. The facility also has approximately 11,000 square
feet of warehouse space and two other structures with approximately 22,000 square feet of office and warehouse
space leased to another party.
We operate a network of nine additional facilities, including one in Laredo, Texas, which is one of the largest
inland freight gateway cities between the U.S. and Mexico. These additional facilities contain maintenance shops,
driver facilities, fuel tanks and/or office space. Our facilities currently are located in or near the following cities:
Van Buren, Arkansas
West Memphis, Arkansas
Blue Island, Illinois
East Peoria, Illinois
Shreveport, Louisiana
Vandalia, Ohio
Bethel, Pennsylvania
Spartanburg, South Carolina
Laredo, Texas
Roanoke, Virginia
Shop
Yes
Yes
No
No
Yes
Yes
Yes
Yes
Yes
Yes
Driver
Facilities
Yes
Yes
No
No
Yes
Yes
No
Yes
Yes
No
Fuel
Yes
Yes
No
No
Yes
Yes
No
No
No
Yes
Office
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Own or
Lease
Own
Own/Lease
Lease
Lease
Own
Own
Lease
Own
Own
Lease
Item 3. LEGAL PROCEEDINGS
We are a party to routine litigation incidental to our business, primarily involving claims for personal injury and
property damage incurred in the transportation of freight. Though we believe these claims to be routine and
immaterial to our long-term financial position, adverse results of one or more of these claims could have a material
adverse effect on our financial position, results of operations or cash flow.
On May 22, 2006, a former independent sales agent filed a lawsuit against us entitled All-Ways Logistics, Inc. v.
USA Truck, Inc., in the U.S. District Court for the Eastern District of Arkansas, Jonesboro Division, alleging, among
other things, breach of contract, breach of implied duty of good faith and fair dealing, and tortious interference with
business relations. The plaintiff alleged that we breached and wrongfully terminated our commission sales agent
agreement with it and improperly interfered with its business relationship with certain of its customers. In early
August, the jury returned an unfavorable verdict in this contract dispute. The jury held that we breached the
contract and awarded the plaintiff damages of approximately $3.0 million, which was accrued during the quarter
ended September 30, 2007. In its December 4, 2007 order, the court denied substantially all of USA Truck’s
motions for post-trial relief and granted the plaintiff’s motions for pre-judgment interest, attorney’s fees and costs in
an amount totaling approximately $1.7 million, which was accrued during the fourth quarter. On January 2, 2008,
we filed an appeal of the verdict and the court’s order.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
We did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered
by this annual report.
14
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Common Stock is quoted on the NASDAQ Global Select Market under the symbol “USAK.” The
following table sets forth, for the periods indicated, the high and low sale prices of our Common Stock as reported
by the NASDAQ National Market (before July 1, 2006) and by the NASDAQ Global Select Market (beginning July
1, 2006).
Price Range
High
Low
Year Ended December 31, 2007
Fourth Quarter.............................................................................................. $
Third Quarter ................................................................................................
Second Quarter..............................................................................................
First Quarter..................................................................................................
15.88
19.13
17.16
17.62
Year Ended December 31, 2006
Fourth Quarter ................................................................................................. $
Third Quarter...................................................................................................
Second Quarter................................................................................................
First Quarter ....................................................................................................
19.39
20.35
27.44
31.37
$
12.52
15.11
15.43
15.45
$ 16.00
16.45
17.16
23.66
As of February 25, 2008, there were 211 holders of record (including brokerage firms and other nominees) of
our Common Stock. We estimate that there were approximately 1,860 beneficial owners of the Common Stock as
of that date. On February 25, 2008, the last reported sale price of our Common Stock on the NASDAQ Global
Select Market was $13.43 per share.
Dividend Policy
We have not paid any dividends on our Common Stock to date, and we do not anticipate paying any dividends
at the present time. We currently intend to retain all of our earnings, if any, for use in the expansion and
development of our business. The covenants of our Senior Credit Facility would prohibit us from paying dividends
if such payment would cause us to be in violation of any of the covenants in that Facility.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of December 31, 2007. The
equity compensation plans that have been approved by our stockholders are our 2004 Equity Incentive Plan and our
2003 Restricted Stock Award Plan and two plans under which options remain outstanding, but no new options may
be granted, which include our Employee Stock Option Plan and our 1997 Nonqualified Stock Option Plan for
Nonemployee Directors. We do not have any equity compensation plans under which equity awards are
outstanding or may be granted that have not been approved by our stockholders.
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
(a)
Weighted-average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
320,450(1)
$15.61(2)
698,500(3)
--
320,450
--
$15.61
--
698,500
Plan Category
Equity Compensation Plans
Approved by Security Holders .......
Equity Compensation Plans Not
Approved by Security Holders .......
Total ............................................
15
(1) Includes 22,000 unvested shares of restricted stock, which will vest in annual increments, subject to the
attainment of specified performance goals, and which do not require the payment of exercise prices; and
298,450 shares of Common Stock subject to outstanding stock options.
(2) Excludes shares of restricted stock, which do not require the payment of exercise prices.
(3) Pursuant to the terms of our 2004 Equity Incentive Plan, on the day of each annual meeting of our
stockholders for a period of nine years, beginning with the 2005 annual meeting and ending with the 2013
annual meeting, the maximum number of shares of Common Stock available for issuance under this plan
(including shares issued prior to each such adjustment) is automatically increased by a number of shares
equal to the lesser of (i) 25,000 shares or (ii) such lesser number of shares (which may be zero or any
number less than 25,000) as determined by our Board of Directors. Pursuant to this adjustment provision,
the maximum number of shares available for issuance under this plan will increase from 975,000 to
1,000,000 on May 7, 2008, the date of our 2008 annual meeting. The share numbers included in the table
do not reflect this adjustment or any future adjustments. The shares that remain available for future grants
include 624,500 shares that may be granted as stock options under our 2004 Equity Incentive Plan, 24,000
shares that may be issued as performance-based restricted stock under our 2003 Restricted Stock Award
Plan and an additional 50,000 shares that may be awarded under the 2003 Restricted Stock Award Plan
upon contribution of such shares to us by our current Chairman of the Board, in his discretion, in
accordance with the Plan. The 624,500 shares subject to future grant under our 2004 Equity Incentive Plan
may, alternatively, be issued as restricted stock, stock units, performance shares, performance units or other
incentives payable in cash or stock.
Repurchase of Equity Securities
On January 24, 2007, we publicly announced that our Board of Directors authorized the repurchase of up to
2,000,000 shares of our outstanding Common Stock over a three-year period ending January 24, 2010. We may
make Common Stock purchases under this program on the open market or in privately negotiated transactions at
prices determined by our Chairman of the Board or President. Our Board had previously approved an authorization,
publicly announced on October 19, 2004, to repurchase up to 500,000 shares and the remaining balance of 264,000
shares was repurchased during the first quarter of 2007 at a total cost of approximately $4.3 million. During the
year ended December 31, 2007, we repurchased a total of 834,099 shares of our Common Stock under the current
authorization, at a total cost of approximately $13.1 million. Our current repurchase authorization has 1,165,901
shares remaining.
Common Stock repurchases during the quarter ended December 31, 2007 are as follows:
Total Number
of
Shares (or
Units)
Purchased
Average
Price Paid
per Share (or
Unit)
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that
May Yet Be
Purchased Under the
Plans or Programs
Period
October 1, 2007 - October 31, 2007 ..........
November 1, 2007 - November 30, 2007 ...
December 1, 2007 - December 31, 2007 ....
Total ...........................................................
--
144,500
20,100
164,600
--
$13.82
$14.42
$13.89
--
144,500
20,100
164,600
1,330,501
1,186,001
1,165,901
1,165,901
16
Item 6.
SELECTED FINANCIAL DATA
You should read the following selected consolidated financial data and other operating information along with
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8.
Financial Statements and Supplementary Data.” We derived the selected consolidated Statement of Income and
Balance Sheet data as of and for each of the five years ended December 31, 2007 from our audited financial
statements.
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(in thousands, except per share data and key operating statistics)
Year Ended December 31,
2006
2005
2004
2007
2003
Statements of Income Data:
Revenue:
Trucking revenue .................................... $ 382,064
USA Logistics revenue ...........................
9,124
Base revenue ......................................
391,188
Fuel surcharge revenue ...........................
90,921
Total revenue .....................................
482,109
$ 370,780
14,521
385,301
80,317
465,618
$ 358,522
18,107
376,629
63,074
439,703
$ 314,431
21,449
335,880
27,225
363,105
$ 268,102
17,978
286,080
12,583
298,663
Operating expenses and costs:
Salaries, wages and employee benefits ...
Fuel and fuel taxes ..................................
Depreciation and amortization ................
Insurance and claims...............................
Operations and maintenance ...................
Purchased transportation.........................
Operating taxes and licenses ...................
Litigation verdict ....................................
Communications and utilities..................
Gain on disposal of assets
....................
Other .......................................................
Total operating expenses and costs ...
Operating income .......................................
Other expenses (income):
Interest expense.......................................
Other, net ................................................
Total other expenses, net ..................
Income before income taxes .......................
Income tax expense ....................................
162,236
153,023
49,093
31,144
25,815
18,609
6,368
4,690
3,787
(395)
19,429
473,799
8,310
5,130
22
5,152
3,158
3,018
152,998
138,629
46,739
27,006
21,919
19,815
6,610
--
3,362
(541)
22,677
439,214
143,164
121,026
41,890
26,172
21,178
24,710
6,224
--
3,220
(1,144)
19,766
406,206
125,953
81,722
35,871
26,224
24,736
28,317
5,653
--
3,039
(1,040)
14,831
345,306
109,616
58,740
30,611
18,390
26,518
24,183
4,682
--
2,967
(743)
12,849
287,813
26,404
33,497
17,799
10,850
4,192
(134)
4,058
22,346
9,905
4,829
(19)
4,810
28,687
13,119
3,539
33
3,572
14,227
6,795
2,557
65
2,622
8,228
4,873
Net income.................................................. $
140
$ 12,441
$ 15,568
$
7,432
$
3,355
Per share information:
Average shares outstanding (Basic) ...........
Basic earnings per share ............................. $
Average shares outstanding (Diluted) ........
Diluted earnings per share ......................... $
10,596
0.01
10,689
0.01
11,353
1.10
11,561
1.08
$
$
10,034
1.55
10,328
1.51
$
$
9,268
0.80
9,398
0.79
$
$
9,327
0.36
9,370
0.36
$
$
17
SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION (continued)
Other Financial Data:
2007
Year Ended December 31,
2006
2005
2004
2003
Operating ratio (1) ............................................
Cash flows from operations .............................. $ 58,585
Capital expenditures, net (2) .............................
39,967
97.9 %
93.1 %
91.1 %
94.7 %
96.2 %
$ 76,249
74,583
$ 56,552 $ 37,292
89,379
56,525
$ 36,865
53,406
Key Operating Statistics:
Base revenue per total mile............................... $
Average miles per tractor per week ..................
Empty mile factor (3)........................................
Average number of tractors (4).........................
Total miles (loaded and empty) (in thousands).
Average miles per tractor .................................
Average miles per trip (5) .................................
Average unmanned tractor percentage (6) ........
Average age of tractors, at end of period (in
months)..........................................................
Average age of trailers, at end of period (in
months)..........................................................
Balance Sheet Data:
Cash and cash equivalents ................................ $
Total assets .......................................................
Long-term debt, capital leases and note
1.302
2,313
11.1 %
2,578
300,577
116,593
784
2.9 %
$
$
1.346
2,271
10.3 %
2,512
286,317
113,980
837
5.3 %
$
1.327
2,415
8.7 %
2,342
$
1.293
2,361
8.4 %
1.236
2,341
9.0 %
283,921
121,230
837
3.9 %
2,174
259,725
119,469
839
4.9 %
1,961
231,389
117,995
851
3.9 %
25
43
21
36
19
38
18
39
25
54
8,014
332,938
$
7,132
339,494
$
994
308,079
$
1,189
288,154
$
1,323
222,549
payable, including current portion.................
Stockholders’ equity .........................................
96,162
143,191
95,406
159,558
89,232
149,833
140,442
85,528
85,147
77,496
(1) Operating ratio is based upon total operating expenses, net of fuel surcharge revenue, as a percentage of
base revenue.
(2) Capital expenditures, net, is based upon purchases of property and equipment for cash and under capital
lease arrangements less proceeds from the sale of property and equipment.
(3) The empty mile factor is the number of miles traveled for which we are not typically compensated by any
customer as a percentage of total miles traveled.
(4) Average number of tractors includes company-operated tractors plus owner-operator tractors.
(5) Average miles per trip is based upon loaded miles divided by the number of Trucking shipments.
(6) Average unmanned tractor percentage is the weighted average percentage of company-operated tractors to
which a driver is not assigned.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (or
MD&A) is intended to help the reader understand USA Truck, Inc., our operations and our present business
environment. MD&A is provided as a supplement to and should be read in conjunction with our consolidated
financial statements and notes thereto and other financial information that appears elsewhere in this report. This
overview summarizes the MD&A, which includes the following sections:
Our Business – a general description of our business, the organization of our operations and the divisions that
comprise our operations.
Critical Accounting Estimates – a discussion of accounting policies that require critical judgment and estimates.
18
Results of Operations – an analysis of our consolidated results of operations for the three years presented in our
consolidated financial statements and a discussion of seasonality, the potential impact of inflation and fuel
availability and cost.
Off-Balance Sheet Arrangements – a discussion of significant financial arrangements, if any, that are not
reflected on our balance sheet.
Liquidity and Capital Resources – an analysis of cash flows, sources and uses of cash, debt, equity and
contractual obligations.
Our Business
We operate in the for-hire truckload segment of the trucking industry. Customers in a variety of industries
engage us to haul truckload quantities of freight, with the trailer we use to haul that freight being assigned
exclusively to that customer’s freight until delivery. We have five operating divisions, which we combine into two
operating segments, through which we provide various transportation services. We aggregate the financial data for
these operating segments into one reportable segment for purposes of our public reporting.
We previously organized our divisions into three segments, as described in “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year
ended December 31, 2005. Due to the evolution of our business over the past few years, during the quarter ended
June 30, 2006 we reclassified our five divisions into two segments for internal reporting and monitoring purposes.
The information we present in this report reflects this change.
The five divisions are classified into the Trucking segment and the USA Logistics segment. Trucking includes
those transportation services in which we use tractors that we own or owner-operator tractors. USA Logistics
consists of services such as freight brokerage, transportation scheduling, routing and mode selection, which
typically do not involve the use of our equipment or owner-operator equipment. Both Trucking and USA Logistics
have similar economic characteristics and are impacted by virtually the same economic factors as discussed
elsewhere in this report.
Substantially all of our base revenue from both segments is generated by transporting, or arranging for the
transportation of, freight for customers, and is predominantly affected by the rates per mile received from our
customers and similar operating costs. For the years ended December 31, 2007, 2006 and 2005, Trucking base
revenue represented 97.7%, 96.2% and 95.2% of total base revenue, respectively, with remaining base revenue
being generated through USA Logistics.
We generally charge customers for our services on a per-mile basis. Currently, our most challenging costs
include recruiting, retaining and compensating qualified drivers, insurance and claims, fuel and capital equipment
costs.
We refer to our five divisions as General Freight, Regional Freight, Dedicated Freight, Strategic Capacity
Solutions and Third Party Logistics.
Trucking. Trucking includes three divisions providing the following services to our customers:
(cid:120) General Freight. Our General Freight division provides truckload freight services as a medium-haul
common carrier. In the truckload industry, companies whose average length of haul is more than 800 miles
but less than 1,200 miles are often referred to as medium-haul carriers. The average length of haul for our
general freight services has been within that range throughout our history. We have provided general
freight services since our inception, and we derive the largest portion of our revenues from these services.
(cid:120) Regional Freight. Beginning in 2004, in order to aid in driver recruitment and retention and to participate
in the largest segment within the truckload market, we began to accept shipments that originate and
terminate within a smaller geographic area. Our Regional Freight division provides truckload freight
services that involve a length of haul of approximately 500 miles. As of December 31, 2007, we
conducted Regional Freight operations in the areas around our facilities located in or near Van Buren,
Arkansas, Vandalia, Ohio and Spartanburg, South Carolina.
(cid:120) Dedicated Freight. Our Dedicated Freight division is a variation of our General Freight and Regional
Freight divisions, whereby we agree to make our equipment and drivers available to a specific customer for
shipments over particular routes at specified times. In addition to serving specific customer needs, our
Dedicated Freight division aids in driver recruitment and retention.
USA Logistics. USA Logistics includes two divisions providing the following services to our customers:
19
(cid:120)
Strategic Capacity Solutions. Our Strategic Capacity Solutions division provides freight brokerage
services by matching customer shipments with available equipment of other carriers when it is not feasible
to use our own equipment.
(cid:120) Third Party Logistics. Our Third Party Logistics division provides a variety of freight handling services
for our customers, including arranging for the transportation of freight, scheduling, routing and mode
selection.
Our Strategic Capacity Solutions and Third Party Logistics divisions provide complementary services to
Trucking. We provide these services primarily to our existing Trucking customers, many of whom prefer to rely on
a single carrier, or a small group of carriers, to provide all of their transportation needs. To date, a majority of our
Strategic Capacity Solutions and Third Party Logistics customers have also engaged us to provide Trucking
services.
Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. We base our assumptions, estimates and judgments on historical
experience, current trends and other factors that management believes to be relevant at the time our consolidated
financial statements are prepared. Actual results could differ from those estimates, and such differences could be
material.
The most significant accounting policies and estimates that affect our financial statements include the
following:
(cid:120) Revenue recognition and related direct expenses based on relative transit time in each period. Revenue
generated by Trucking is recognized in full upon completion of delivery of freight to the receiver’s
location. For freight in transit at the end of a reporting period, we recognize revenue pro rata based on
relative transit time completed as a portion of the estimated total transit time in accordance with EITF 91-9,
Method 5 issued by the Emerging Issues Task Force of the Financial Accounting Standards Board.
Expenses are recognized as incurred.
Revenue generated by USA Logistics is recognized upon completion of the services provided. Revenue is
recorded on a gross basis, without deducting third party purchased transportation costs, as we act as a
principal with substantial risks as primary obligor.
Management believes these policies most accurately reflect revenue as earned and direct expenses,
including third party purchased transportation costs, as incurred.
(cid:120)
Selections of estimated useful lives and salvage values for purposes of depreciating tractors and trailers.
We operate a significant number of tractors and trailers in connection with our business. We may purchase
this equipment or acquire it under leases. We depreciate purchased equipment on the straight-line method
over the estimated useful life down to an estimated salvage or trade-in value. We initially record
equipment acquired under capital leases at the net present value of the minimum lease payments and
amortize it on the straight-line method over the lease term. Depreciable lives of tractors and trailers range
from three years to ten years. We estimate the salvage value at the expected date of trade-in or sale based
on the expected market values of equipment at the time of disposal.
We make equipment purchasing and replacement decisions on the basis of various factors, including, but
not limited to, new equipment prices, the condition of the used equipment market, demand for our freight
services, prevailing interest rates, technological improvements, fuel efficiency, durability of the equipment,
equipment specifications and the availability of drivers. Therefore, depending on the circumstances, we
may accelerate or delay the acquisition and disposition of our tractors and trailers from time to time, based
on an operating principle whereby we pursue trade intervals that economically balance our maintenance
costs and expected trade-in values in response to the circumstances existing at that time. Such adjustments
in trade intervals may cause us to adjust the useful lives or salvage values of our tractors or trailers. By
changing the relative amounts of older equipment and newer equipment in our fleet, adjustments in trade
intervals also increase and decrease the average age of our tractors and trailers, whether or not we change
the useful lives or salvage values of any tractors or trailers. We also adjust depreciable lives and salvage
values based on factors such as changes in prevailing market prices for used equipment. We periodically
monitor these factors in order to keep salvage values in line with expected market values at the time of
disposal. Adjustments in useful lives and salvage values are made as conditions warrant and when we
20
believe that the changes in conditions are other than temporary. These adjustments result in changes in the
depreciation expense we record in the period in which the adjustments occur and in future periods. These
adjustments also impact any resulting gain or loss on the ultimate disposition of the revenue equipment.
Management believes our estimates of useful lives and salvage values have been materially accurate as
demonstrated by the insignificant amounts of gains and losses on revenue equipment dispositions in recent
periods.
To the extent depreciable lives and salvage values are changed, such changes are recorded in accordance
with the applicable provisions of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 154, Accounting Changes and Error Corrections, a replacement of APB
Opinion No. 20 and FASB Statement No. 3.
(cid:120) Estimates of accrued liabilities for claims involving bodily injury, physical damage losses, employee health
benefits and workers’ compensation. We record both current and long-term claims accruals at the
estimated ultimate payment amounts based on information such as individual case estimates, historical
claims experience and an estimate of claims incurred but not reported. The current portion of the accrual
reflects the amounts of claims expected to be paid in the next twelve months. In making the estimates we
rely on past experience with similar claims, negative or positive developments in the case and similar
factors. We do not discount our claims liabilities.
(cid:120)
Stock option valuation. The assumptions used to value stock options are dividend yield, expected
volatility, risk-free interest rate, expected life and anticipated forfeiture. As we do not pay any dividends
on our Common Stock, the dividend yield is zero. Expected volatility represents the measure used to
project the expected fluctuation in our share price. We use the historical method to calculate volatility with
the historical period being equal to the expected life of each option. This calculation is then used to
determine the potential for our share price to increase over the expected life of the option. The risk-free
interest rate is based on an implied yield on United States zero-coupon treasury bonds with a remaining
term equal to the expected life of the outstanding options. Expected life represents the length of time we
anticipate the options to be outstanding before being exercised. Based on historical experience, that time
period is best represented by the option’s contractual life. Anticipated forfeiture represents the number of
shares under options we expect to be forfeited over the expected life of the option.
(cid:120) Accounting for Income Taxes. Our deferred tax assets and liabilities represent items that will result in
taxable income or a tax deduction in future years for which we have already recorded the related tax
expense or benefit in our consolidated statements of income. Deferred tax accounts arise as a result of
timing differences between when items are recognized in our consolidated financial statements compared
to when they are recognized in our tax returns. Significant management judgment is required in
determining our provision for income taxes and in determining whether deferred tax assets will be realized
in full or in part. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled.
We periodically assess the likelihood that all or some portion of deferred tax assets will be recovered from
future taxable income. To the extent we believe recovery is not probable, a valuation allowance is
established for the amount determined not to be realizable. We have not recorded a valuation allowance at
December 31, 2007, as all deferred tax assets are more likely than not to be realized.
We believe that we have adequately provided for our future tax consequences based upon current facts and
circumstances and current tax law. During 2007, we made no material changes in our assumptions
regarding the determination of income tax liabilities. However, should our tax positions be challenged,
different outcomes could result and have a significant impact on the amounts reported through our
consolidated statements of income.
We periodically reevaluate these policies as circumstances dictate. Together these factors may significantly impact
our consolidated results of operations, financial position and cash flow from period to period.
Results of Operations
Executive Overview
Our industry is changing. USA Truck’s historical bread-and-butter, the medium length of haul (800-1,200
mile) segment of the truckload market, is being eroded by a growing intermodal railroad option for our customers
and by the proliferation of the regional distribution center concept among big box retailers. Customers continue to
21
shrink their bases of core carriers while simultaneously raising the bars for service and capacity requirements. Cost
pressures abound from inflationary forces that can often outpace growth in our industry’s pricing power and from
increasing regulatory hurdles.
USA Truck must and will change to meet these challenges. While we have always taken pride in offering
premium services, the changes in our industry now require us to broaden the range of services we offer to our
customers. By expanding our service offerings, we intend to generate demand for our services that will lead to
greater consistency of earnings and pave the way for us to improve our margins. We must also overcome cost
pressures in the labor, energy, regulatory and safety arenas.
USA Truck’s core business strategy for revenue and earnings growth is to increase and sustain demand for our
services by positioning ourselves as a premium service provider for all of our customers’ dry van, full truckload
needs, thus capturing a greater portion of their business at a slightly higher price. This strategy requires a two-
pronged approach to execute: (1) consistently providing our customers with a reliability of service not generally
available in our industry, and (2) providing a greater scope of service beyond our traditional medium length-of-haul
business.
Since the summer of 2007, we have undertaken an intensive effort to refine USA Truck’s corporate strategy.
We have implemented sweeping organizational/cultural, technological and business model changes to set the stage
for successful execution of our strategy.
(cid:120) Culturally, we believe that employees who are challenged, empowered and rewarded are the key to
total customer satisfaction. Total customer satisfaction is the key to shareholder returns. Our three-
legged-stool concept focuses equally on the employee, customer and shareholder and is the foundation
of our organization. We are implementing programs designed to foster intellectual honesty, integrity
and strong leadership. We have also reorganized our various operating departments to get the right
people into the right jobs where they can add the most value and providing them the proper training
and tools. That process is still underway.
(cid:120)
Over the next three years, we will redesign our technology system and will replace our enterprise-
wide software applications with more user friendly, higher capacity server-based products that will
dramatically improve our visibility into our operations and the speed at which critical information is
made available to decision-makers. This enhanced technological capability should improve our
competiveness from both cost and service perspectives.
(cid:120) Our customers want a more diversified bundle of services from their core carriers. Our strategy is to
provide those additional services in carefully selected areas where we believe we can provide superior
service and reliability.
o We began offering intermodal railroad services to our customers in late 2007 and have set a
modest revenue goal for 2008. To reach that goal, we have staffed intermodal with just a few
strong, experienced employees, and given them clear responsibilities and goals, and we have done
it in a way that did not detract from our focus on our core trucking operations.
o We are expanding our capabilities to outsource truckload freight through our Strategic Capacity
Solutions (“SCS”) division. To execute the strategy, we have streamlined the interaction between
our Trucking operations and SCS and we have employed several new freight brokers.
o We are aggressively pursuing opportunities to move tractors from our General Freight and
Regional Freight divisions where considerable pricing and empty mile pressures exist into our
Dedicated Freight division where freight lanes and volumes are more consistent. Our goal is to
move at least 100 tractors during 2008. To accomplish that goal, and as part of a broader
reorganization of our sales force, we have injected a more focused effort into Dedicated Freight
sales which has provided us with more opportunities and leads.
o We nearly tripled the size of our small owner-operator fleet to 66 in 2007. We intend to grow the
size of that fleet by another 82% to 120 during 2008. Owner-operators provide a flexible source
of capacity for our fleet and have proven to be reliable, safe and productive.
While we believe that we must improve our ability to consistently produce revenue volume throughout the
economic cycle, we know that controlling costs will always be critical to our success. We typically post one of the
lowest operating costs per mile in the truckload industry, but we can do much better, particularly in the area of
insurance and claims costs, which continue to run a nickel per mile higher than our historical average. Our efforts
to contain safety-related costs have not produced the sustained results that we desired over the past several years. In
22
response, we are implementing a comprehensive loss prevention program. We will continue our recent strategy of
marketing safety to all our drivers, but if we are to get the costs under control we must ensure that safety is the key
factor in our future hiring decisions and driver training.
Note Regarding Presentation
By agreement with our customers, and consistent with industry practice, we add a graduated surcharge to the
rates we charge our customers as diesel fuel prices increase above an agreed upon baseline price per gallon. The
surcharge is designed to approximately offset increases in fuel costs above the baseline. Fuel prices are volatile, and
the fuel surcharge increases our revenue at different rates for each period. We believe that comparing operating
costs and expenses to total revenue, including the fuel surcharge, could provide a distorted comparison of our
operating performance, particularly when comparing results for current and prior periods. Therefore, we have used
base revenue, which excludes the fuel surcharge revenue, and instead taken the fuel surcharge as a credit against the
fuel and fuel taxes line item in the tables setting forth the percentage relationship of certain items to base revenue
below.
We do not believe that a reconciliation of the information presented on this basis and corresponding
information comparing operating costs and expenses to total revenue would be meaningful. Data regarding both
total revenue, which includes the fuel surcharge, and base revenue, which excludes the fuel surcharge, is included in
the consolidated statements of income included in this report.
Base revenues from our Strategic Capacity Solutions and Third Party Logistics divisions have fluctuated in
recent periods. The services provided by these divisions do not involve the use of our tractors and trailers.
Therefore, an increase in these revenues tends to cause expenses related to our operations that do involve our
equipment—including depreciation and amortization expense, operations and maintenance expense, salaries, wages
and employee benefits and insurance and claims expense—to decrease as a percentage of base revenue, and a
decrease in these revenues tends to cause those expenses to increase as a percentage of base revenue. Since changes
in Strategic Capacity Solutions and Third Party Logistics revenues generally affect all such expenses, as a
percentage of base revenue, we do not specifically mention it as a factor in our discussion of increases or decreases
in those expenses in the period-to-period comparisons below.
Relationship of Certain Items to Base Revenue
The following table sets forth the percentage relationship of certain items to base revenue for the years
indicated. The period-to-period comparisons below should be read in conjunction with this table and our
consolidated statements of income and accompanying notes.
23
Base revenue...............................................................
Operating expenses and costs:
Salaries, wages and employee benefits ..................
Fuel and fuel taxes (1)............................................
Depreciation and amortization ...............................
Insurance and claims ..............................................
Operations and maintenance ..................................
Purchased transportation ........................................
Operating taxes and licenses ..................................
Litigation verdict....................................................
Communications and utilities.................................
Gain on disposal of revenue equipment, net ..........
Other.......................................................................
Total operating expenses and costs...................
Operating income ......................................................
Other expenses:
Interest expense......................................................
Other, net................................................................
Total other expenses, net ..................................
Income before income taxes......................................
Income tax expense....................................................
Net income..................................................................
(1) Net of fuel surcharges
Year Ended December 31,
2006
100.0 %
2007
100.0 %
2005
100.0 %
41.5
15.9
12.4
8.0
6.6
4.8
1.6
1.2
1.0
(0.1)
5.0
97.9
2.1
1.3
--
1.3
0.8
0.8
-- %
39.7
15.1
12.1
7.0
5.6
5.2
1.7
--
0.9
(0.1)
5.9
93.1
6.9
1.1
--
1.1
5.8
2.6
3.2 %
38.0
15.4
11.1
6.9
5.6
6.6
1.7
--
0.9
(0.3)
5.2
91.1
8.9
1.3
--
1.3
7.6
3.5
4.1 %
Fiscal Year Ended December 31, 2007 Compared to Fiscal Year Ended December 31, 2006
Results of Operations – Combined Services
Our base revenue grew 1.5% from $385.3 million to $391.2 million, for the reasons addressed in the Trucking
and the USA Logistics sections, below.
Net income for all divisions was $0.1 million as compared to $12.4 million for 2006.
Overall, our operating ratio increased by 4.8 percentage points of base revenue to 97.9% due primarily to lower
freight volumes and as a result of the following factors:
(cid:120)
(cid:120)
(cid:120)
Salaries, wages and employee benefits increased by 1.8 percentage points of base revenue due to a
17.1% increase in non-driver wages, a 2.5% increase in driver wages per mile and a 3.3% decrease in
base revenue per mile.
Fuel and fuel taxes increased by 0.8 percentage points of base revenue primarily due to 6.5% increase
in the price paid for diesel fuel, and a 3.3% decrease in base revenue per mile.
Insurance and claims increased by 1.0 percentage point of base revenue primarily due to settlement of
prior year claims and an elevated frequency of accidents.
(cid:120) Operations and maintenance increased by 1.0 percentage point of base revenue primarily due to a
16.3% increase in the average age of the tractor fleet for the year from 19.0 months to 22.1 months,
which contributed to an increase in direct repair costs per unit by an average of 20.7%.
(cid:120)
(cid:120)
Purchased transportation decreased by 0.4 percentage points of base revenue due primarily to the
decrease in carrier expense associated with our Third Party Logistics division, partially offset by an
increase in owner-operator costs.
In early August, a jury returned an unfavorable verdict in a litigated contract dispute. The jury held
that USA Truck breached a contract and awarded the plaintiff damages of approximately $3.0 million.
This verdict had a negative impact on third quarter diluted earnings per share of approximately $0.17.
24
In December, the court ruled that we owed approximately $1.7 million in pre-judgment interest and
legal fees. This ruling negatively impacted fourth quarter diluted earnings per share by approximately
$0.10. As of December 31, 2007, we have accrued all amounts awarded to the plaintiff, in the
aggregate amount of the $4.7 million. On January 2, 2008, the Company filed an appeal of the verdict
and the court’s order.
(cid:120) Other expenses decreased by 0.9 percentage points of base revenue due primarily to a 33.7 percentage
point decrease in driver turnover, which decreased the cost associated with recruiting and retaining
qualified drivers 27.7%.
(cid:120) Our effective tax rate increased from 44.3% in 2006 to 95.6% in 2007. Income tax expense varies
from the amount computed by applying the federal tax rate to income before income taxes primarily
due to state income taxes, net of federal income tax effect and due to permanent differences, the most
significant of which is the effect of the per diem pay structure for drivers. Due to the partially
nondeductible effect of per diem payments, our tax rate will vary in future periods based on
fluctuations in earnings and in the number of drivers who elect to receive this pay structure.
Results of Operations – Trucking
Key Operating Statistics:
Total miles (in thousands) (1) .....................
Empty mile factor (2) ..................................
Base revenue per loaded mile...................... $
Average number of tractors (3) ...................
Average miles per tractor per period ...........
Average miles per tractor per week .............
Average miles per trip (4)............................
Average unmanned tractor percentage (5)...
Base revenue per tractor per week............... $
Total miles (in thousands) (1) .....................
Empty mile factor (2) ..................................
Base revenue per loaded mile...................... $
Average number of tractors (3) ...................
Average miles per tractor per period ...........
Average miles per tractor per week .............
Average miles per trip (4)............................
Average unmanned tractor percentage (5)...
Base revenue per tractor per week............... $
Fiscal Year Ended December 31, 2007
General
Freight
244,814
11.3 %
1.42
2,053
119,247
2,366
904
2.7 %
$
Regional
Freight
33,271
15.5 %
1.54
330
100,822
2,000
501
3.7 %
$
Dedicated
Freight
22,492
2.1 %
1.36
195
115,343
2,289
493
3.6 %
$
Total
Trucking
300,577
11.1 %
1.43
2,578
116,593
2,313
784
2.9 %
2,986
$
2,598
$
3,039
$
2,941
Fiscal Year Ended December 31, 2006
General
Freight
237,160
10.7 %
1.44
2,046
115,914
2,309
941
4.7 %
$
Regional
Freight
23,578
13.8 %
1.55
230
102,513
2,042
537
6.1 %
$
Dedicated
Freight
25,579
3.7 %
1.37
236
108,385
2,159
562
9.4 %
$
Total
Trucking
286,317
10.3 %
1.44
2,512
113,980
2,271
837
5.3 %
2,976
$
2,727
$
2,843
$
2,940
(1) Total miles include both loaded and empty miles.
(2)
The empty mile factor is the number of miles traveled for which we are not typically compensated by
any customer as a percentage of total miles traveled.
(3) Average number of tractors includes company-operated tractors plus owner-operator tractors.
(4) Average miles per trip is based upon loaded miles divided by the number of Trucking shipments.
(5) Average unmanned tractor percentage is the weighted average percentage of company-operated tractors
to which a driver is not assigned.
Base Revenue
Base revenue from Trucking grew by 3.0% to $382.1 million. The increase was the result of several factors:
25
(cid:120) Regional Freight base revenue grew 37.2% on a 43.5% increase in tractors. Most measures of
operating performance took a step backwards in this difficult freight environment. For this reason we
do not plan to grow our Regional fleet until we make improvements in the key performance measures
of this division, particularly base revenue per tractor per week, which decreased 4.7%.
(cid:120) Dedicated Freight base revenue decreased 11.3% due mostly to a reduction in the tractor count by
17.4% while the base revenue per tractor per week increased 6.9%. Over the past year we have made
several changes to our freight mix by adding new customer accounts that provide fewer miles, but
higher revenue per mile and removing certain customer accounts that provided more miles but lower
revenue per mile.
(cid:120) General Freight base revenue increased 1.1%, and base revenue per tractor per week increased 0.3%.
This slight increase was primarily due to a 2.5% increase in miles per tractor per week. General
Freight had a decrease in base revenue per loaded mile of 1.4%. Our General Freight division model
is more dependent on miles per tractor per week, thus it was impacted more by softer freight demand.
(cid:120) Overall, we grew the average size of our Trucking tractor fleet by 2.6%. We grew the average size of
the company-owned tractor fleet by 1.8% to 2,540 tractors and increased the average size of our
owner-operator fleet by 137.5% to 38 tractors. We plan to aggressively grow our owner-operator fleet
primarily by converting company drivers to owner-operator drivers through our new lease-purchase
program.
Results of Operations – USA Logistics
Base revenue from USA Logistics decreased by 37.2% to $9.1 million. Strategic Capacity Solutions base
revenue decreased to $8.2 million, a 0.3% decrease. During 2006, we implemented a strategic redeployment of our
resources toward less complex third party logistics services in which we can provide a level of on-time, quality
service commensurate with the services we provide through our Trucking divisions. As a result, our Third Party
Logistics division base revenue decreased by 85.2% to $0.9 million.
Fiscal Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31, 2005
Results of Operations – Combined Services
Our base revenue grew 2.3% from $376.6 million to $385.3 million, for the reasons addressed in the Trucking
and the USA Logistics sections, below.
Net income for all divisions was $12.4 million, or 3.2% of base revenue, as compared to $15.6 million, or 4.1%
of base revenue for 2005.
Overall, our operating ratio increased by 2.0 percentage points of base revenue to 93.1% due primarily to lower
freight volumes and as a result of the following factors:
(cid:120) Salaries, wages and employee benefits increased by 1.7 percentage points of base revenue primarily
due to a 5.2% increase in driver compensation per mile. We have been steadily increasing driver pay
for the past few years to stay competitive in the marketplace and ensure that we maintain an adequate
supply of qualified drivers to achieve our growth goals.
(cid:120) Fuel and fuel taxes decreased by 0.3 percentage points of base revenue. The improvement was made
possible primarily by the continued efficiency of our fuel surcharge program and, to a lesser extent, by
our efforts to increase fuel economy through various management programs.
(cid:120) Depreciation and amortization increased by 1.0 percentage points of base revenue primarily due to a
decrease in tractor utilization and an increased cost of new tractors equipped with EPA mandated
emission-compliant engines.
(cid:120) Purchased transportation decreased by 1.4 percentage points of base revenue due primarily to the
decrease in carrier expense associated with our Third Party Logistics division. At the end of the third
quarter we completed our strategic exit from the more complex portion of the third party logistics
market.
(cid:120) Other expenses increased by 0.7 percentage points of base revenue due primarily to the increase in
cost associated with recruiting and retaining qualified drivers.
Our effective tax rate decreased from 45.7% in 2005 to 44.3% in 2006. Income tax expense varies from the
amount computed by applying the federal tax rate to income before income taxes primarily due to state income
26
taxes, net of federal income tax effect and due to permanent differences, the most significant of which is the effect
of the per diem pay structure for drivers. Due to the partially nondeductible effect of per diem payments, our tax
rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive
this pay structure.
Results of Operations – Trucking
Key Operating Statistics:
Total miles (in thousands) (1) .....................
Empty mile factor (2) ..................................
Base revenue per loaded mile...................... $
Average number of tractors (3) ...................
Average miles per tractor per period ...........
Average miles per tractor per week .............
Average miles per trip (4)............................
Average unmanned tractor percentage (5)...
Base revenue per tractor per week............... $
Total miles (in thousands) (1) .....................
Empty mile factor (2) ..................................
Base revenue per loaded mile...................... $
Average number of tractors (3) ...................
Average miles per tractor per period ...........
Average miles per tractor per week .............
Average miles per trip (4)............................
Average unmanned tractor percentage (5)...
Base revenue per tractor per week............... $
Fiscal Year Ended December 31, 2006
General
Freight
237,160
10.7 %
1.44
2,046
115,914
2,309
941
4.7 %
$
Regional
Freight
23,578
13.8 %
1.55
230
102,513
2,042
537
6.1 %
$
Dedicated
Freight
25,579
3.7 %
1.37
236
108,385
2,159
562
9.4 %
$
Total
Trucking
286,317
10.3 %
1.44
2,512
113,980
2,271
837
5.3 %
2,976
$
2,727
$
2,843
$
2,940
For The Year Ended December 31, 2005
General
Freight
234,726
9.2 %
1.40
1,896
123,801
2,466
942
3.1 %
$
Regional
Freight
15,935
13.6 %
1.49
170
93,734
1,867
518
8.2 %
$
Dedicated
Freight
33,260
3.2 %
1.24
276
120,508
2,401
567
6.6 %
$
Total
Trucking
283,921
8.7 %
1.38
2,342
121,230
2,415
837
3.9 %
3,132
$
2,401
$
2,882
$
3,049
(1) Total miles include both loaded and empty miles.
(2)
The empty mile factor is the number of miles traveled for which we are not typically compensated by
any customer as a percentage of total miles traveled.
(3) Average number of tractors includes company-operated tractors plus owner-operator tractors.
(4) Average miles per trip is based upon loaded miles divided by the number of Trucking shipments.
(5) Average unmanned tractor percentage is the weighted average percentage of company-operated tractors
to which a driver is not assigned.
Base Revenue
Base revenue from Trucking grew by 3.4% to $370.8 million. The increase was the result of several factors:
(cid:120)
Regional Freight base revenue grew 53.6%. Despite the more challenging freight environment,
Regional Freight improved in many key statistical categories including base revenue per mile, tractor
count, miles per tractor per week and unmanned tractors. Overall it produced 13.6% more base
revenue per tractor per week than it did in 2005. In 2006, we began to see the potential of our
Regional Freight division as it continued to grow and become a larger portion of our business. We
intend to continue working to further improve its operating model. We opened our third regional
market in the Southeast United States in the first quarter of 2007.
(cid:120) Dedicated Freight base revenue per tractor per week decreased 1.4% due to a decrease of 23.5% in
loaded miles. This degradation was offset by a 10.3% increase in base revenue per loaded mile.
During 2006, we made several changes to our freight mix by adding new customer accounts that
provide fewer miles, but higher revenue per mile and removing certain customer accounts that provide
27
more miles but lower revenue per mile. The challenging driver recruitment and retention environment
had a negative impact on our unmanned tractor percentage.
(cid:120) General Freight’s base revenue per tractor per week decreased 5.0%. This decrease was primarily due
to a 6.4% decrease in miles per tractor per week. General Freight was able to increase base revenue
per loaded mile by 2.9%. Our General Freight division model is more dependent on miles per tractor
per week, thus it was impacted more by softer freight demand and changes in the U.S. Department of
Transportation Hours of Service rules than were our other Trucking divisions.
(cid:120) Overall, we grew the average size of our Trucking tractor fleet by 7.3%. We grew the average size of
the company-owned tractor fleet by 7.6% to 2,496 tractors and decreased the average size of our
owner-operator fleet by 30.4% to 16 tractors.
Results of Operations – USA Logistics
Base revenue from USA Logistics decreased by 19.8% to $14.5 million. Strategic Capacity Solutions base
revenue grew to $8.2 million, a 30.7% increase. During 2006, we strategically began redeploying our resources
toward less complex third party logistics services in which we can provide a level of on-time, quality service
commensurate with Trucking. As a result, our Third Party Logistics division revenue decreased by 46.7% to $6.3
million. We intend to continue aggressively growing Strategic Capacity Solutions and pursuing less of the complex
portion of the third party logistics market.
Seasonality
In the trucking industry, revenues generally 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 our customers,
particularly those with manufacturing operations, reduce shipments due to temporary plant closings. Historically,
many of our customers have closed their plants for maintenance or other reasons during January and July.
Inflation
Although most of our operating expenses are inflation sensitive, the effect of inflation on revenue and operating
costs has been minimal in recent years. The effect of inflation-driven cost increases on our overall operating costs
would not be expected to be greater for us than for our competitors.
Fuel Availability and Cost
The motor carrier industry is dependent upon the availability of fuel. Fuel shortages or increases in fuel taxes
or fuel costs have adversely affected our profitability and will continue to do so. Fuel prices have fluctuated widely
and fuel taxes have generally increased in recent years. We have not experienced difficulty in maintaining
necessary fuel supplies, and in the past we generally have been able to partially offset increases in fuel costs and
fuel taxes through increased freight rates and through a fuel surcharge that increases incrementally as the price of
fuel increases above a certain baseline price. Typically, we are not able to fully recover increases in fuel prices
through rate increases and fuel surcharges, primarily because those items do not provide any benefit with respect to
empty and out-of-route miles, for which we do not typically receive compensation from customers. We do not have
any long-term fuel purchase contracts and we have not entered into any hedging arrangements that protect us
against fuel price increases. Overall, the market fuel prices per gallon were higher in 2007 and 2006 than in 2005.
Off-Balance Sheet Arrangements
We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a
material current or future effect on our financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources. From time to time we enter into operating leases for certain facilities and
office equipment that are not reflected in our balance sheet.
Liquidity and Capital Resources
The continued growth of our business has required significant investments in new revenue equipment. We
have financed new tractor and trailer purchases predominantly with cash flows from operations, the proceeds from
sales or trades of used equipment, borrowings under our Senior Credit Facility and capital lease-purchase
arrangements. We have historically met our working capital needs with cash flows from operations and with
borrowings under our Facility. We use the Facility to minimize fluctuations in cash flow needs and to provide
flexibility in financing revenue equipment purchases. Management is not aware of any known trends or
uncertainties that would cause a significant change in our sources of liquidity. We expect our principal sources of
28
capital to be sufficient to finance our operations, annual debt maturities, lease commitments, letter of credit
commitments, stock repurchases and capital expenditures for the next several years. There can be no assurance,
however, that such sources will be sufficient to fund our operations and all expansion plans for the next several
years, or that any necessary additional financing will be available, if at all, in amounts required or on terms
satisfactory to us.
Cash Flows
Year Ended December 31,
(in thousands)
2006
2007
Net cash provided by operating activities........................... $
Net cash used in investing activities...................................
Net cash (used in) provided by financing activities............
58,585
(16,394)
(41,309)
$
76,249
(70,496)
385
$
2005
56,552
(31,945)
(24,802)
Cash generated from operations decreased $17.7 million during 2007 as compared to 2006. The change was
primarily due to a decrease in net income of $12.3 million and a decrease in deferred income taxes of $5.7 million
from 2006 to 2007. Cash generated from operations increased $19.7 million during 2006 as compared to 2005. The
change was primarily due to an increase in depreciation expense related to new equipment purchases and an
increase in trade payables combined with a reduction in accounts receivable.
Cash used in investing activities decreased $54.1 million during 2007 as compared to 2006, due to a decrease in
expenditures for revenue equipment. In 2006, our cash used in investing activities increased $38.6 million from
2005 due to an increase in expenditures for revenue equipment.
Cash used in financing activities was $41.3 million in 2007 compared to cash provided by financing activities
of $0.4 million in 2006. The $41.7 million difference is due primarily to a reduction in net borrowings on our
Senior Credit Facility and an increase in repurchases of our common stock. Cash provided by financing activities
was $0.4 million in 2006 compared to cash used in financing activities of $24.8 million in 2005. The $25.2 million
difference was due primarily to increased net borrowings on our Senior Credit Facility.
Debt
On September 1, 2005, we entered into an Amended and Restated Senior Credit Facility, which restated in its
entirety and made certain amendments to our previously amended facility dated as of April 28, 2000. The Facility
was amended to, among other things, increase the maximum borrowing amount to $100.0 million, subject to a
borrowing base calculation. The Facility includes a sublimit of up to $25.0 million for letters of credit and matures
September 1, 2010.
The Facility is collateralized by revenue equipment having a net book value of approximately $178.0 million at
December 31, 2007 and all trade and other accounts receivable. The Facility provides an accordion feature allowing
us to increase the maximum borrowing amount by up to an additional $75.0 million in the aggregate in one or more
increases no less than six months prior to the maturity date, subject to certain conditions. The maximum borrowing
including the accordion feature may not exceed $175.0 million without the consent of the lenders. At December 31,
2007, $43.1 million was outstanding under the Facility.
The Facility bears variable interest based on the agent bank’s prime rate, the federal funds rate plus a certain
percentage or the London Interbank Offered Rate (commonly referred to as “LIBOR”) plus a certain percentage,
which is determined based on our attainment of certain financial ratios. For the year ended December 31, 2007, the
effective interest rate was 6.5%. A quarterly commitment fee is payable on the unused credit line at a rate which is
determined based on our attainment of certain financial ratios. At December 31, 2007, the rate was 0.2% per
annum.
The Facility contains various covenants, which require us to meet certain quarterly financial ratios. In the event
we fail to cure an event of default, the loan can become immediately due and payable. As of December 31, 2007,
we were in compliance with the covenants.
Certain leases contain cross-default provisions with our other financing agreements.
29
Equity
At December 31, 2007, we had stockholders’ equity of $143.2 million and debt of $96.2 million, resulting in a
debt to total capitalization ratio of 40.2% compared to 37.4% at December 31, 2006.
On August 17, 2005, we issued and sold in an underwritten public offering 2.0 million shares of Common
Stock in exchange for proceeds of $47.3 million, after deducting underwriting discounts and commissions and
offering expenses. We used the net proceeds of our sale of stock in the offering to repay outstanding borrowings
under our Senior Credit Facility. In addition to the shares sold by us in this public offering, certain officers and
directors sold 1.2 million shares of Common Stock.
Purchases and Commitments
As of December 31, 2007, our forecasted capital expenditures, net of proceeds from the sale of revenue
equipment, for 2008 were $78.8 million, $67.9 million of which relates to revenue equipment. We expect to use the
balance of $10.9 million primarily for property acquisitions, facility construction, improvements and maintenance
and office equipment. We routinely evaluate our equipment acquisition needs and adjust our purchase and
disposition schedules from time to time based on our analysis of factors such as freight demand, the availability of
drivers and the condition of the used equipment market. During the year ended December 31, 2007, we made $40.0
million of net capital expenditures, including $36.4 million for revenue equipment purchases ($23.7 million of
which were capital lease obligations), $2.4 million for facility expansions and $1.2 million for non-revenue
equipment.
The following table represents our outstanding contractual obligations at December 31, 2007:
Total
2008
Payments Due By Period
(in thousands)
2009-2010
2011-2012
Thereafter
Contractual Obligations:
Long-term debt obligations (1) ........... $
Capital lease obligations (2) ...............
Purchase obligations ...........................
Rental obligations ...............................
Total .................................................. $
43,093 $
54,658
98,496
1,704
-- $
26,106
98,496
641
197,951 $ 125,243 $
43,093
25,708
--
621
69,422
$
$
-- $
2,844
--
103
2,947 $
--
--
--
339
339
(1) Long-term debt obligations, excluding letters of credit in the amount of $6.2 million, consist of our Senior
Credit Facility, which matures on September 1, 2010.
(2) Capital lease obligations in this table include interest payments not included in the balance sheet.
New Accounting Pronouncements
See “Item 8. Financial Statements and Supplementary Data—Note 1. to the Financial Statements: New
Accounting Pronouncements.”
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We experience various market risks, including changes in interest rates, foreign currency exchange rates and
commodity prices. These risks have not materially changed between fiscal year 2006 and fiscal year 2007.
Interest Rate Risk. We are exposed to interest rate risk primarily from our Senior Credit Facility. Our Senior
Credit Facility, as amended, provides for borrowings that bear variable interest based on the agent bank’s prime
rate, the federal funds rate plus a certain percentage or the London Interbank Offered Rate (commonly referred to as
“LIBOR”) plus a certain percentage. At December 31, 2007, we had $43.1 million outstanding pursuant to our
Senior Credit Facility. Assuming the outstanding balance at year end remained constant throughout the upcoming
year, a hypothetical one-percentage point increase in interest rates applicable to the Senior Credit Facility would
increase our annual interest expense by approximately $0.43 million.
Foreign Currency Exchange Rate Risk. We require all customers to pay for our services in U.S. dollars.
Although the Canadian government makes certain payments, such as tax refunds, to us in Canadian dollars, any
foreign currency exchange risk associated with such payments is not material.
Commodity Price Risk. Fuel prices have fluctuated greatly and have generally increased in recent years. In
some periods, our operating performance was adversely affected because we were not able to fully offset the impact
30
of higher diesel fuel prices through increased freight rates and fuel surcharges. We cannot predict the extent to
which high fuel price levels will continue in the future or the extent to which fuel surcharges could be collected to
offset such increases. We do not have any long-term fuel purchase contracts, and we have not entered into any
hedging arrangements, that protect us against fuel price increases. Volatile fuel prices will continue to impact us
significantly. A significant increase in fuel costs, or a shortage of diesel fuel, could materially and adversely affect
our results of operations. These costs could also exacerbate the driver shortages our industry experiences by forcing
independent contractors to cease operations.
31
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
USA TRUCK, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2007
INDEX TO FINANCIAL STATEMENTS
PART I
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm .........................................
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm..........................................
Consolidated Balance Sheets as of December 31, 2007 and 2006...................................................................
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005 .......................
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005..
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005.................
Notes to Consolidated Financial Statements ....................................................................................................
Page
33
34
35
36
37
38
39
32
REPORT OF GRANT THORNTON LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and
Stockholders of USA Truck, Inc.
We have audited the accompanying consolidated balance sheets of USA Truck, Inc. (a Delaware Corporation) and
subsidiary (collectively referred to as the “Company”) as of December 31, 2007 and 2006, and the related
consolidated statements of income, stockholders’ equity, and cash flows for each of the years then ended. 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 the standards of the Public Company Accounting Oversight Board
(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 consolidated financial statements referred to above present fairly, in all material respects, the
financial position of USA Truck, Inc. and subsidiary as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the years then ended in conformity with accounting principles generally
accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the effectiveness of USA Truck, Inc.’s internal control over financial reporting as of December 31,
2007, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 25, 2008, expressed
an unqualified opinion on the effectiveness of internal control over financial reporting.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
February 25, 2008
33
REPORT OF ERNST & YOUNG LLP
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Stockholders and Board of Directors
USA Truck, Inc.
We have audited the accompanying consolidated statements of income, stockholders’ equity, and cash flows of
USA Truck, Inc., for the year ended December 31, 2005. 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
audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
consolidated results of operations and cash flows of USA Truck, Inc., for the year ended December 31, 2005, in
conformity with accounting principles generally accepted in the United States.
Tulsa, Oklahoma
February 24, 2006
/s/ ERNST & YOUNG LLP
34
USA Truck, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
Assets
Current assets:
Cash and cash equivalents.................................................................................$
Accounts receivable:
Trade, less allowance for doubtful accounts of $81 in 2007 and $96 in
2006 ..........................................................................................................
Other ..............................................................................................................
Inventories.........................................................................................................
Deferred income taxes.......................................................................................
Prepaid expenses and other current assets.........................................................
Total current assets .................................................................................................
Property and equipment:
Land and structures ...........................................................................................
Revenue equipment ...........................................................................................
Service, office and other equipment..................................................................
Accumulated depreciation and amortization .....................................................
Other assets.............................................................................................................
Total assets .............................................................................................................$
Liabilities and stockholders’ equity
Current liabilities:
Bank drafts payable...........................................................................................$
Trade accounts payable .....................................................................................
Current portion of insurance and claims accruals .............................................
Accrued expenses..............................................................................................
Note payable......................................................................................................
Current maturities of long-term debt and capital leases....................................
Total current liabilities............................................................................................
Long-term debt and capital leases, less current maturities .....................................
Deferred income taxes ............................................................................................
Insurance and claims accruals, less current portion................................................
Commitments and contingencies ............................................................................
Stockholders’ equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued .....
Common Stock, $.01 par value; authorized 30,000,000 shares; issued
11,560,160 shares in 2007 and 11,473,022 shares in 2006 ...........................
Additional paid-in capital..................................................................................
Retained earnings ..............................................................................................
Less treasury stock, at cost (1,098,099 shares in 2007 and 230,401 shares in
2006)..............................................................................................................
Unearned compensation ....................................................................................
Total stockholders’ equity ......................................................................................
Total liabilities and stockholders’ equity................................................................$
See accompanying notes.
35
December 31,
2007
2006
8,014
$
7,132
44,563
2,187
1,172
5,420
4,451
65,807
35,382
338,036
18,448
391,866
(125,090)
266,776
355
332,938
$
11,785 $
7,429
11,965
9,572
1,538
24,412
66,701
70,212
48,024
4,810
--
--
116
63,487
101,560
(21,972)
--
143,191
332,938 $
40,856
4,828
930
1,792
8,266
63,804
32,992
326,083
17,746
376,821
(101,314)
275,507
183
339,494
11,539
10,419
6,233
10,808
1,791
25,798
66,588
67,817
41,565
3,966
--
--
115
62,230
101,420
(4,207)
--
159,558
339,494
USA Truck, Inc.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Revenue:
Base revenue ................................................................... $
Fuel surcharge revenue ...................................................
Total revenue ...............................................................
$
391,188
90,921
482,109
$
385,301
80,317
465,618
376,629
63,074
439,703
Year Ended December 31,
2006
2005
2007
Operating expenses and costs:
Salaries, wages and employee benefits ...........................
Fuel and fuel taxes ..........................................................
Depreciation and amortization ........................................
Insurance and claims .......................................................
Operations and maintenance ...........................................
Purchased transportation .................................................
Operating taxes and licenses ...........................................
Litigation verdict.............................................................
Communications and utilities..........................................
Gain on disposal of assets ...............................................
Other................................................................................
Total operating expenses and costs..............................
Operating income .................................................................
Other expenses (income):
Interest expense...............................................................
Other, net.........................................................................
Total other expenses, net .............................................
Income before income taxes .................................................
Income tax expense:
Current ............................................................................
Deferred ..........................................................................
Total income tax expense ............................................
Net income............................................................................ $
Net income per share:
Basic earnings per share.................................................. $
Diluted earnings per share............................................... $
See accompanying notes.
162,236
153,023
49,093
31,144
25,815
18,609
6,368
4,690
3,787
(395)
19,429
473,799
8,310
5,130
22
5,152
3,158
188
2,830
3,018
140
0.01
0.01
$
$
$
152,998
138,629
46,739
27,006
21,919
19,815
6,610
--
3,362
(541)
22,677
439,214
26,404
4,192
(134)
4,058
22,346
1,422
8,483
9,905
12,441
1.10
1.08
$
$
$
143,164
121,026
41,890
26,172
21,178
24,710
6,224
--
3,220
(1,144)
19,766
406,206
33,497
4,829
(19)
4,810
28,687
6,791
6,328
13,119
15,568
1.55
1.51
36
USA Truck, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Balance at January 1, 2005 ...............
Common Stock Additional
Par
Shares Value
Paid-in
Capital
9,342 $ 93 $ 13,211
Retained
Earnings
$ 73,411
Treasury Comprehensive Unearned
Income/(Loss) Compensation
Total
Stock
$
(84) $
Accumulated
Other
1
--
--
--
73
522
--
20
--
--
2,000
--
24
47,307
9
Exercise of stock options .................
Tax benefit on exercise of stock
options ...........................................
Issuance of Common Stock ............
Stock based compensation ..............
Purchase of 3 shares of Common
Stock into treasury.........................
Sale of 6 shares of treasury stock to
employee stock purchase plan.......
Restricted stock forfeiture...............
Restricted stock award grant...........
Adjustments to unearned
compensation ................................
Amortization of unearned
compensation.................................
Net income for 2005 .......................
Change in fair value of interest rate
swap, net of taxes of ($5) .............
Total comprehensive income ..........
Balance at December 31, 2005 ....... 11,415 $ 114 $ 62,086
66
--
53
--
--
--
--
--
--
894
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
15,568
--
--
--
--
--
(53)
77
(500)
500
--
--
--
--
$ 88,979 $
(60)
$
1
--
--
--
--
58
485
213
Exercise of stock options ................
Tax benefit on exercise of stock
options ...........................................
Purchase of 230 shares of Common
Stock into treasury.........................
Sale of 2 shares of treasury stock to
employee stock purchase plan.......
Stock based compensation ..............
Elimination of unearned
compensation.................................
Net income for 2006 .......................
Balance at December 31, 2006 ......... 11,473 $ 115 $ 62,230 $ 101,420 $ (4,207) $
(1,286)
--
--
12,441
21
711
(4,199)
52
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
Exercise of stock options ................
Tax charge on exercise of stock
options ...........................................
88
--
1
--
894
(12)
--
--
--
--
Purchase of 1,098 shares of
Common Stock into treasury.........
Retirement of forfeited restricted
stock ..............................................
--
Stock based compensation ..............
--
Net income for 2007 .......................
140
Balance at December 31, 2007 .......... 11,561 $ 116 $ 63,487 $ 101,560
362
13
--
--
--
--
--
--
--
--
--
--
--
(17,403)
(362)
--
--
$(21,972) $
See accompanying notes.
37
8
--
--
--
--
--
--
--
--
--
--
--
(8)
--
--
--
--
--
--
$
(1,111) $
85,528
--
--
--
--
--
--
271
(553)
(894)
1,001
--
--
$
(1,286) $
--
--
--
--
--
523
24
47,327
9
(53)
143
(229)
--
--
1,001
15,568
(8)
15,560
149,833
486
213
(4,199)
73
711
--
--
-- $
--
--
--
--
--
--
-- $
1,286
--
-- $
--
12,441
159,558
--
--
--
895
(12)
(17,403)
--
--
--
-- $
--
13
140
143,191
USA Truck, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2006
2005
2007
Operating activities
Net income ................................................................................................. $
Adjustments to reconcile net income to net cash provided by
operating activities:
140
$ 12,441
$
15,568
Depreciation and amortization...............................................................
Provision for doubtful accounts.............................................................
Deferred income taxes ...........................................................................
Excess tax benefit from exercise of stock options.................................
Write off of tax asset on exercise of stock options................................
Stock based compensation.....................................................................
Tax benefit from restricted stock...........................................................
Expense from accelerated vesting of stock options...............................
Gain on disposal of property and equipment.........................................
Changes in operating assets and liabilities:
Accounts receivable ............................................................................
Inventories, prepaid expenses and other current assets.......................
Trade accounts payable, accrued expenses and note payable .............
Insurance and claims accruals.............................................................
Net cash provided by operating activities........................................
49,093
(15)
2,831
(39)
51
13
--
--
(395)
(1,051)
3,573
(2,192)
6,576
58,585
46,739
36
8,482
(213)
--
711
--
--
(541)
5,491
(2,939)
7,043
(1,001)
76,249
41,890
(43)
6,328
--
--
772
24
9
(1,144)
(5,189)
566
(1,402)
(827)
56,552
Investing activities
Purchases of property and equipment...................................................
Proceeds from sale of property and equipment.....................................
Change in other assets ..........................................................................
Net cash used in investing activities................................................
(32,338)
16,116
(172)
(16,394)
(100,921)
30,442
(17)
(70,496)
(59,277)
27,345
(13)
(31,945)
Financing activities
Borrowings under long-term debt.........................................................
Principal payments on long-term debt ..................................................
Principal payments on capitalized lease obligations.............................
Principal payments on note payable .....................................................
Net increase in bank drafts payable ......................................................
Payments to repurchase Common Stock...............................................
Proceeds from issuance of Common Stock ..........................................
Excess tax (charge) benefit from exercise of stock options..................
Proceeds from sale of treasury stock ....................................................
Proceeds from exercise of stock options...............................................
Net cash provided by (used in) financing activities ........................
Increase (decrease) in cash and cash equivalents.........................................
Cash and cash equivalents:
Beginning of period.........................................................................
End of period................................................................................... $
155,278
(150,178)
(27,836)
(2,299)
246
(17,403)
--
(12)
--
895
(41,309)
882
7,132
8,014
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest............................................................................................. $
Income taxes....................................................................................
Supplemental schedule of non-cash investing and financing activities:
Liability incurred for leases on revenue equipment..............................
Liability incurred for note payable .......................................................
5,154
560
23,745
2,046
See accompanying notes.
201,431
(177,007)
(22,202)
(2,534)
4,124
(4,199)
--
213
73
486
385
6,138
186,226
(236,200)
(24,688)
(3,727)
5,647
(53)
47,327
--
143
523
(24,802)
(195)
$
$
994
7,132
$
1,189
994
$
3,977
2,206
5,295
6,420
4,104
2,178
24,593
2,586
38
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
1. Summary of Significant Accounting Policies
Description of Business
USA Truck (the “Company”) is a medium haul, dry van truckload carrier transporting general commodities
throughout the continental United States and between locations in the United States and Canada. The Company
transports general commodities into Mexico by allowing through-trailer service on our trailers through our facility
in the city of Laredo, Texas.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary.
All intercompany accounts and significant intercompany transactions have been eliminated in consolidation. The
Company has no investments in or contractual obligations with variable interest entities.
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.
Accounts Receivable and Concentration of Credit Risk
The Company extends credit to its customers in the normal course of business. The Company performs
ongoing credit evaluations and generally does not require collateral. Trade accounts receivable are recorded at their
invoiced amounts, net of allowance for doubtful accounts. The Company evaluates the adequacy of its allowance
for doubtful accounts quarterly. Accounts outstanding longer than contractual payment terms are considered past
due and are reviewed individually for collectibility. The Company maintains reserves for potential credit losses
based upon its loss history and specific receivables aging analysis. Receivable balances are written off when
collection is deemed unlikely. Such losses have been within management’s expectations.
Accounts receivable are comprised of a diversified customer base that results in a lack of concentration of
credit risk. During 2007, 2006 and 2005, the Company’s top ten customers comprised 34%, 36% and 37% of total
revenue, respectively. During the three year period ended December 31, 2007, no single customer represented more
than 10% of total revenue. Other accounts receivable consists primarily of proceeds from the sale of revenue
equipment. The carrying amount reported in the balance sheet for accounts receivable approximates fair value
based on the fact that the receivables collection averaged approximately 30 days from the billing date.
The following table provides a summary of the activity in the allowance for doubtful accounts for 2007, 2006
and 2005:
Balance at beginning of year .....................................................
Amounts (credited) charged to expense ....................................
Uncollectible accounts written off, net of recovery...................
Balance at end of year ...............................................................
$
$
Use of Estimates
(in thousands)
Year Ended December 31,
2007
2006
2005
96
(15)
--
81
$
$
104
36
(44)
96
$
$
166
(43)
(19)
104
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States 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.
Inventories
Inventories consist of tires, fuel, supplies and Company store merchandise and are stated at the lower of cost
(first-in, first-out basis) or market.
39
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Significant Accounting Policies (continued)
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.
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 10 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.
Claims Liabilities
The Company is self-insured up to certain limits for bodily injury, property damage, workers’ compensation,
cargo loss and damage claims and medical benefits. Provisions are made for both the estimated liabilities for known
claims as incurred and estimates for those incurred but not reported.
The Company’s self-insurance retention levels are $0.5 million for workers’ compensation claims per
occurrence, $0.05 million for cargo loss and damage claims per occurrence and $1.0 million for bodily injury and
property damage claims per occurrence. For medical benefits, the Company self-insures up to $0.25 million per
plan participant per year with an aggregate claim exposure limit determined by the Company’s year-to-date claims
experience and its number of covered lives. The Company is completely self-insured for physical damage to its
own tractors and trailers, except that the Company carries catastrophic physical damage coverage to protect against
natural disasters. The Company maintains insurance above the amounts for which it self-insures, to certain limits,
with licensed insurance carriers. The Company has excess general, auto and employer’s liability coverage in
amounts substantially exceeding minimum legal requirements, and the Company believes this coverage is sufficient
to protect against material loss.
The Company records claims accruals at the estimated ultimate payment amounts based on information such as
individual case estimates or historical claims experience. The current portion reflects the amounts of claims
expected to be paid in the next twelve months. In making the estimates of ultimate payment amounts and the
determinations of the current portion of each claim the Company relies on past experience with similar claims,
negative or positive developments in the case and similar factors. The Company re-evaluates these estimates and
determinations each reporting period based on developments that occur and new information that becomes available
during the reporting period.
Interest
The Company capitalizes interest on major projects during construction. Interest is capitalized based on the
average interest rate on related debt. Capitalized interest was $0.02 million, $0.02 million and $0.20 million in
2007, 2006 and 2005, respectively. Interest expense was $5.1 million, $4.2 million and $4.8 million in 2007, 2006
and 2005, respectively.
Earnings Per Share
Basic earnings per share is computed based on the weighted average number of shares of Common Stock
outstanding during the year. Diluted earnings per share is computed by adjusting the weighted average shares
outstanding by Common Stock equivalents attributable to dilutive stock options and restricted stock.
40
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Significant Accounting Policies (continued)
Segment Reporting
In the past, the Company organized its five operating divisions into three operating segments, which were
aggregated into one segment for financial reporting purposes in accordance with Financial Accounting Standards
Board (“FASB”) Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information (“SFAS 131”). Due to the evolution of the Company’s business over the past
few years, during the quarter ended June 30, 2006, the five divisions were reclassified into two operating segments,
Trucking and USA Logistics, which were aggregated into one segment for financial reporting purposes in
accordance with SFAS 131. Trucking consists of the General Freight, Regional Freight and Dedicated Freight
divisions, which provide truckload freight services. USA Logistics consists of the Strategic Capacity Solutions and
Third Party Logistics divisions, which provide services such as transportation scheduling, routing and mode
selection, which do not typically involve the use of Company-owned or owner-operator equipment.
The decision to aggregate operating segments into one reporting segment was based on factors such as the
similar economic and operating characteristics of the divisions and the Company’s centralized internal management
structure. Except with respect to the relatively minor components of the Company’s operations that do not involve
the use of Company-owned trucks, key operating statistics include, for example, revenue per mile and miles per
tractor per week. While the operations of the Third Party Logistics and Strategic Capacity Solutions divisions do
not involve the use of Company-owned equipment and drivers, the Company nevertheless provides truckload
freight services to its customers through arrangements with third-party carriers who are subject to the same general
regulatory environment and cost sensitivities imposed upon the Company’s Trucking operations.
The services provided by the Company through its five divisions relate to the transportation of truckload
quantities of general freight for customers in a variety of industries, and generate revenue, and to a great extent
incur expenses, primarily on a per mile basis. In addition, the two divisions within the USA Logistics segment are
intended to provide services complementary to the Company’s Trucking services, primarily to existing customers of
the Company’s Trucking segment. A majority of the customers of USA Logistics have also engaged the Company
to provide services through one or more of its Trucking divisions. The USA Logistics segment represents a
relatively minor part of the Company’s business, generating approximately 2% of the Company’s total base revenue
for the year ended December 31, 2007, and less than 5% of total base revenue in 2006 and 2005.
Revenue Recognition
Revenue generated by the Company’s Trucking segment is recognized in full upon completion of delivery of
freight to the receiver’s location. For freight in transit at the end of a reporting period, the Company recognizes
revenue pro rata based on relative transit time completed as a portion of the estimated total transit time in
accordance with EITF 91-9, Method 5 issued by the Emerging Issues Task Force (“EITF”) of the FASB. Expenses
are recognized as incurred.
Revenue generated by the Company’s USA Logistics segment is recognized upon completion of the services
provided. Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as the
Company acts as a principal with substantial risks as primary obligor.
Management believes these policies most accurately reflect revenue as earned and direct expenses, including
third party purchased transportation costs, as incurred.
Reclassifications
In 2006, the Company classified bank drafts payable as a financing activity for purposes of the consolidated
statement of cash flows. Bank drafts payable have been appropriately reclassified in the consolidated statements of
cash flows for the year ended December 31, 2005.
41
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities (“SFAS 159”), which provides companies with an option to
report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both complexity
in accounting for financial instruments and the volatility in earnings caused by measuring related assets and
liabilities differently. SFAS 159 establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for similar types of assets and
liabilities and to more easily understand the effect on earnings of a company’s choice to use fair value. SFAS 159
also requires entities to display the fair value of the selected assets and liabilities on the face of the balance sheet.
SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value
measurement disclosures in Statement of Financial Accounting Standards No. 157, Fair Value Measurements
(“SFAS 157”), discussed below. Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. This statement is effective as of the beginning of an entity’s first fiscal year
beginning after November 15, 2007. Management is in the process of determining the impact of SFAS 159.
Presently, SFAS 159 is not expected to have a material impact on the Company’s financial position, results of
operations and cash flows.
In September 2006, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements (“SAB 108”). SAB 108 provides interpretive guidance on how the effects of the carryover or reversal of
prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes
that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate
whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative
factors are considered, is material. The guidance in SAB 108 became effective for the Company on January 1,
2007. SAB 108 has not had a material effect on the Company’s consolidated financial position, results of
operations and cash flows.
In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosures about fair
value measurements. This statement was published due to the different definitions of fair value that are among the
many accounting pronouncements that require fair value measurements and the limited guidance for applying those
definitions in GAAP. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. This statement is
effective for financial statements issued for fiscal years beginning after November 15, 2007. Additionally,
prospective application of this statement is required as of the beginning of the fiscal year in which it is initially
applied. The Company is currently evaluating the impact SFAS 157 will have upon its consolidated financial
position, results of operations and cash flows.
In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”). FIN 48 clarifies the
accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 applies to all
tax positions related to income taxes subject to FASB Statement No. 109 and utilizes a two-step approach for
evaluating those positions. Recognition (step one) occurs when an enterprise concludes that a tax position, based
solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) is
only addressed if step one has been satisfied. Those tax positions failing to qualify for initial recognition are
recognized in the first subsequent interim period in which they meet the more-likely-than-not standard or are
otherwise resolved to qualify for recognition. Derecognition of previously recognized tax positions occurs when a
company subsequently determines that a tax position no longer meets the recognition threshold. FIN 48 specifically
prohibits the use of a valuation allowance as a substitute for derecognition of tax positions. The provisions of FIN
48 became effective for the Company as of January 1, 2007. FIN 48 has not had a material impact upon the
Company’s consolidated financial position, results of operations and cash flows.
42
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consist of the following:
(in thousands)
December 31,
2007
2006
Prepaid licenses, permits and tolls....................................................
..........................................................................................................
Prepaid insurance .............................................................................
..........................................................................................................
Other.................................................................................................
$
Total prepaid expenses and other current assets ......................... $
2,121
1,552
778
4,451
$
$
2,248
4,967
1,051
8,266
3. Accrued Expenses
Accrued expenses consist of the following:
Salaries, wages, bonuses and employee benefits.............................. $
Other (1) ...........................................................................................
Total accrued expenses ............................................................... $
3,869
5,703
9,572
$
$
4,859
5,949
10,808
(in thousands)
December 31,
2007
2006
(1) As of December 31, 2007 and 2006, no single item included within other accrued expenses exceeded 5.0%
of the Company’s total current liabilities.
43
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Note Payable
At December 31, 2007, the Company had an unsecured note payable of $1.5 million payable in monthly
installments of principal and interest of approximately $174,600 that matures on September 1, 2008, bearing interest
at 5.3%. At December 31, 2006, the Company had an unsecured note payable of $1.8 million that matured on
September 1, 2007 bearing interest at 6.0%. Both of these notes payable were used to finance a portion of the
Company’s annual insurance premiums at a favorable fixed rate of interest.
5. Long-term Debt
Long-term debt consists of the following:
Revolving credit agreement (1) ............................................................. $
Capitalized lease obligations (2) ...........................................................
Less current maturities ..........................................................................
Long-term debt, less current maturities................................................. $
(in thousands)
December 31,
2007
2006
43,093
51,531
94,624
24,412
70,212
$
$
37,993
55,622
93,615
25,798
67,817
(1) The Company’s Amended and Restated Senior Credit Facility (“Facility”) provides for available
borrowings of $100.0 million, including letters of credit not exceeding $25.0 million. Availability may be
reduced by a borrowing base limit as defined in the Facility. At December 31, 2007, we had approximately
$50.7 million available under the Facility. The Facility matures on September 1, 2010. The Facility can
also be increased to $175.0 million at the Company’s option, with the additional availability provided by
the current lenders, at their election, or by other lenders. The Facility bears variable interest based on the
agent bank’s prime rate or the federal funds rate plus a certain percentage or the London Interbank Offered
Rate 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 Facility for the year ended
December 31, 2007 was 6.5% and the rate at December 31, 2007 was 6.1%. A quarterly commitment fee
is payable on the unused portion of the credit line and bears a rate which is determined based on the
Company’s attainment of certain financial ratios. At December 31, 2007, the rate was 0.2% per annum.
The Facility is collateralized by revenue equipment having a net book value of $178.0 million at December
31, 2007, and all trade and other accounts receivable. We had outstanding letters of credit of
approximately $6.2 million at December 31, 2007. The Facility requires us to meet certain financial
covenants and to maintain a minimum tangible net worth of approximately $130.5 million at December 31,
2007. In the event the Company fails to cure an event of default, the loan can become immediately due and
payable. We were in compliance with these covenants at December 31, 2007. The covenants would
prohibit the payment of dividends by us if such payment would cause us to be in violation of any of the
covenants. The carrying amount reported in the balance sheet for borrowings under the Facility
approximates its fair value as the applicable interest rates fluctuate with changes in current market
conditions.
(2) The Company’s capitalized lease obligations have various termination dates extending through May 2011
and contain renewal or fixed price purchase options. The effective interest rates on the leases range from
3.1% to 5.0% at December 31, 2007. The lease agreements require us to pay property taxes, maintenance
and operating expenses.
6. Leases and Commitments
The Company leases certain revenue equipment under capital leases with terms from three to five years. At
December 31, 2007, property and equipment included capitalized leases, which had capitalized costs of $78.7
million, accumulated amortization of $27.4 million and a net book value of $51.3 million. At December 31, 2006,
property and equipment included capitalized leases, which had capitalized costs of $88.1 million, accumulated
amortization of $33.1 million and a net book value of $55.0 million. Amortization of leased assets is included in
depreciation and amortization expense and totaled $14.2 million, $15.9 million and $16.4 million for the years
ended December 31, 2007, 2006 and 2005, respectively.
44
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Leases and Commitments (continued)
At December 31, 2007, the future minimum payments under capitalized leases with initial terms of one year or
more were $26.1 million for 2008, $11.9 million for 2009, $13.8 million for 2010 and $2.8 million for 2011. The
present value of net minimum lease payments was $51.5 million, which excludes amounts representing interest of
$3.1 million. The current portion of net minimum lease payments is $24.4 million.
From time to time we enter into operating leases for certain facilities and office equipment. Rent expense under
those operating leases was $1.2 million, $0.9 million and $0.7 million in 2007, 2006 and 2005, respectively. At
December 31, 2007 the Company was obligated to pay future rentals under those operating leases of $0.6 million,
$0.4 million, $0.2 million, $0.1 million, $0.01 million and $0.3 million for 2008, 2009, 2010, 2011, 2012 and
thereafter, respectively.
Certain leases contain cross-default provisions with other financing agreements of the Company.
Commitments to purchase revenue equipment (including capital leases) and other fixed assets aggregated
approximately $98.5 million at December 31, 2007.
7. Federal and State Income Taxes
Significant components of the Company’s deferred tax liabilities and assets are as follows:
(in thousands)
December 31,
2007
2006
Current deferred tax assets:
Accrued expenses not deductible until paid............................................ $
Equity Incentive Plan ..............................................................................
Alternative Minimum Tax credit ............................................................
Revenue recognition ...............................................................................
Allowance for doubtful accounts ............................................................
Total current deferred tax assets...................................................................
$
6,355
289
278
174
31
7,127
Current deferred tax liability:
Prepaid expenses deductible when paid..................................................
Total current deferred tax liability................................................................
Net current deferred tax assets ..................................................................... $
(1,707)
(1,707)
5,420
$
Noncurrent deferred tax assets:
Capitalized leases.................................................................................... $
Non-compete agreement .........................................................................
Total noncurrent deferred tax assets.............................................................
49 $
151
200
Noncurrent deferred tax liabilities:
Tax over book depreciation ....................................................................
Other .......................................................................................................
Total noncurrent deferred tax liabilities .......................................................
Net deferred tax liabilities ............................................................................ $
(48,201)
(23)
(48,224)
$
(48,024)
3,837
392
379
190
37
4,835
(3,043)
(3,043)
1,792
186
173
359
(41,903)
(21)
(41,924)
(41,565)
For the year ended December 31, 2007, the Company’s effective tax rate increased approximately 51.3% from
that of the prior year primarily due to a reduction in taxable income. The change in the effective tax rate resulted in
increases of the deferred tax liability and the deferred tax asset amounts by approximately $6.5 million and
approximately $3.6 million, respectively.
45
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Federal and State Income Taxes (continued)
Significant components of the provision for income taxes are as follows:
Current:
Federal ....................................................................... $
State ...........................................................................
Total current.............................................................
Deferred:
Federal .......................................................................
State ...........................................................................
Total deferred ...........................................................
Total income tax expense......................................... $
(in thousands)
Year Ended December 31,
2007
2006
2005
156
32
188
2,344
486
2,830
3,018
$
1,178 $
244
1,422
7,027
1,456
8,483
9,905
$
$
5,678
1,113
6,791
5,304
1,024
6,328
13,119
A reconciliation between the effective income tax rate and the statutory federal income tax rate is as follows:
Income tax at statutory federal rate .................................$
Federal income tax effects of:
State income taxes....................................................
Nondeductible meals and entertainment .................
Other ........................................................................
Federal income taxes................................................
State income taxes .........................................................
Total income tax expense .............................................. $
Effective tax rate ...........................................................
(in thousands)
Year Ended December 31,
2006
2007
2005
1,074
$
7,572
$
10,040
(189)
1,685
(109)
2,461
557
3,018
95.6%
$
(615)
1,634
(494)
8,097
1,808
9,905
44.3%
$
(748)
1,753
(63)
10,982
2,137
13,119
45.7%
The effective rates varied from the statutory federal tax rate primarily due to state income taxes and certain non-
deductible expenses including a per diem pay structure for drivers. Due to the partially nondeductible effect of per
diem pay, the Company’s tax rate will fluctuate in future periods based on fluctuations in earnings and in the
number of drivers who elect to receive this pay structure.
The Company adopted the provisions of FIN 48 on January 1, 2007 and has analyzed filing positions in its
federal tax returns as well as in all open tax years. The only periods subject to examination for its federal returns are
the 2005 and 2006 tax years. The Company’s policy is to recognize interest related to unrecognized tax benefits as
interest expense and penalties as operating expenses. The Company believes that its income tax filing positions and
deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to
its consolidated financial position, results of operations and cash flows. Therefore, no reserves for uncertain income
tax positions have been recorded pursuant to FIN 48. At January 1, 2007, the Company had no unrecognized tax
benefits. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48.
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 50% of their compensation, subject to statutory limits, with the Company matching 50% of the first 4% of
compensation contributed by each employee. Employees’ rights to employer contributions vest after three years
from their date of employment. Company matching contributions to the plan were approximately $0.8 million, $0.7
million and $0.7 million for 2007, 2006 and 2005, respectively.
46
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock Plans
The current equity compensation plans that have been approved by the Company’s stockholders are the 2004
Equity Incentive Plan and the 2003 Restricted Stock Award Plan. There are also two plans under which options
remain outstanding, but no new options may be granted, which are the Employee Stock Option Plan and the 1997
Nonqualified Stock Option Plan for Nonemployee Directors. The Company does not have any equity compensation
plans under which equity awards are outstanding or may be granted that have not been approved by its stockholders.
The USA Truck, Inc. 2004 Equity Incentive Plan provides for the granting of incentive or nonqualified options
or other equity-based awards covering up to 975,000 shares of Common Stock to directors, officers and other key
employees. On the day of each annual meeting of stockholders of the Company for a period of nine years, which
commenced with the annual meeting of stockholders in 2005 and will end with the annual meeting of stockholders
in 2013, the maximum number of shares of Common Stock that is available for issuance under the Plan is
automatically increased by that number of shares equal to the lesser of 25,000 shares or such lesser number of
shares (which may be zero or any number less than 25,000) as determined by the Board. No options were granted
under this plan for less than the fair market value of the Common Stock as defined in the plan at the date of the
grant. Although the exercise period is determined when options are granted, no option may be exercised later than
10 years after it is granted. Options granted under this plan generally vest ratably over five years. The option price
under this plan is the fair market value of the Company’s common stock at the date the options were granted, except
that the exercise prices of options granted to the Chairman of the Board are equal to 110% of the fair market value
of the Company’s common stock at the date those options were granted. The exercise prices of outstanding options
granted under the 2004 Equity Incentive Plan range from $11.47 to $30.22 as of December 31, 2007. At December
31, 2007, approximately 624,500 shares were available for granting future options or other equity awards under this
plan.
Prior to January 1, 2006, the Company accounted for its incentive and nonqualified stock options using the
intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (“APB 25”). Under APB 25, if the exercise price of employee stock options equaled the market price of
the underlying stock on the grant date, no compensation expense was recorded. The Company had adopted the
disclosure-only provisions of FASB Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (“SFAS 123”). Accordingly, no stock-based compensation cost for the Company’s incentive
and nonqualified stock options was recognized in the Consolidated Statement of Income for 2005. Effective
January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement of Financial
Accounting Standards No. 123 (Revised 2004), Share-Based Payment (“SFAS 123(R)”), using the modified-
prospective transition method. Under the modified-prospective transition method, the prior period’s financial
statements are not restated. Compensation cost recognized in 2006 includes: (a) compensation cost for all share-
based payments granted prior to, but not yet vested as of January 1, 2006 and (b) compensation cost for all share-
based payments granted subsequent to January 1, 2006. The compensation cost is based on the grant-date fair value
calculated using a Black-Scholes-Merton option-pricing formula and is amortized over the vesting period in
accordance with provisions of SFAS 123(R). For each of the years ended December 31, 2007 and 2006, the
Company recognized approximately $0.3 million in compensation expense related to incentive and non-qualified
stock options granted under its 2004 Equity Incentive Plan. The adoption of SFAS 123(R) impacted the Company’s
results of operations by increasing salaries, wages and employee benefits expense and increasing deferred income
taxes. Such increases were immaterial in amount. Accordingly, the adoption of SFAS 123(R) had no effect on the
Company’s basic and diluted earnings per share for the year ended December 31, 2006.
Prior to the adoption of SFAS 123(R), the Company presented all tax benefits of deductions resulting from the
exercise of stock options as operating cash flows in the Consolidated Statements of Cash Flows. SFAS 123(R)
requires the cash flows resulting from the tax benefits of tax deductions in excess of the compensation cost
recognized for those options (excess tax benefits) to be classified as financing cash flows. For the year ended
December 31, 2007, approximately $0.01 million of excess tax charge and for the year ended December 31, 2006
approximately $0.2 million of excess tax benefit classified as a financing cash inflow would have been classified as
operating cash inflows if the Company had not adopted SFAS 123(R).
47
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock Plans (continued)
Information related to option activity for the year ended December 31, 2007 is as follows:
Number of
Options
380,550
48,400
(104,800)
(25,700)
298,450
110,450
Weighted
Average
Exercise Price
13.99
$
16.81
11.01
12.65
15.61
13.50
$
Weighted
Average
Remaining
Contractual
Life (in years)
Aggregate
Intrinsic Value
(1)
484,752
2.5 $
$
0.7
618,634
344,915
Outstanding - beginning of year ...........
Granted .................................................
Exercised ..............................................
Cancelled/forfeited/expired ..................
Outstanding at December 31, 2007 ......
Exercisable at December 31, 2007 (2)..
(1) The intrinsic value of a stock option is the amount by which the market value of the underlying stock
exceeds the exercise price of the option. The per share market value of the Company’s Common Stock, as
determined by the closing price on December 31, 2007 (the last trading day of the fiscal year), was $15.40.
The intrinsic value for options exercised in 2007 was $484,752 and in 2006 was $839,907.
(2) The fair value of the options exercisable at December 31, 2007 was $0.5 million.
Information related to the weighted average fair value of stock option activity for the year ended December 31,
2007 is as follows:
Nonvested options - December 31, 2006.............
Granted (1) ..........................................................
Forfeited ..............................................................
Vested..................................................................
Nonvested options - December 31, 2007.............
Number of Shares
Under Options
227,000
48,400
(21,800)
(65,600)
188,000
Weighted Average
Fair Value
$
5.70
7.74
4.68
4.11
6.90
(1) Weighted average fair value for options granted in 2007 was $7.74 and in 2006 was $11.67.
The exercise price, number, weighted average remaining contractual life of options outstanding and the number
of options exercisable as of December 31, 2007 is as follows:
48
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock Plans (continued)
Exercise
Price
$
7.52
11.47
12.10
12.62
12.66
14.50
15.83
16.08
17.06
22.54
22.93
30.22
Number of Options
Outstanding
Weighted Average
Remaining Contractual
Life (in years)
Number of
Options
Exercisable
3,000
119,400
18,400
10,000
12,800
2,400
5,000
6,000
41,000
70,700
6,000
3,750
298,450
0.1
1.8
0.6
0.8
2.1
6.7
6.6
1.2
4.6
3.3
1.8
3.1
2.5
3,000
58,300
18,400
5,000
6,400
--
--
1,500
--
15,600
1,500
750
110,450
The following assumptions were used to value the stock options granted during the years indicated:
2007
2005
2006
Dividend yield ......................................
Expected volatility................................
Risk-free interest rate ...........................
Expected life.........................................
0%
38.7% - 49.9%
4.2% - 5.0%
3 to 9 years
0%
40.2% - 52.1%
4.4% - 5.0%
2 to 7 years
0%
28.6% - 31.0%
3.3% - 4.7%
2 to 9 years
Expected volatility is a measure of the expected fluctuation in share price. The Company uses the historical
method to calculate volatility with the historical period being equal to the expected life of each option. This
calculation is then used to determine the potential for the share price to increase over the expected life of the option.
Expected life represents the length of time the options are anticipated to be outstanding before being exercised.
Based on historical experience, that time period is best represented by the option’s contractual life. The risk-free
interest rate is based on an implied yield on United States zero-coupon treasury bonds with a remaining term equal
to the expected life of the outstanding options. In addition to the above, the Company also includes a factor for
anticipated forfeiture, which represents the number of shares under options expected to be forfeited over the
expected life of the option.
The 2003 Restricted Stock Award Plan allows the Company to issue up to 150,000 shares of Common Stock as
awards of restricted stock to its officers, 100,000 shares of which have been awarded. Awards under the Plan vest
over a period of no less than five years and vesting of awards is also subject to the achievement of performance
goals set by the Board of Directors based on criteria set forth in the Plan. The fair value of the 100,000 shares of
Common Stock subject to the awards previously granted are being amortized over the vesting period as
compensation expense based on management’s assessment as to whether achievement of the performance goals is
probable. To the extent the performance goals are not achieved and there is not full vesting in the shares awarded,
the compensation expense recognized to the extent of the non-vested and forfeited shares will be reversed. Prior to
the adoption of SFAS 123(R) on January 1, 2006, the Company recorded any unamortized compensation related to
the restricted stock awards as unearned compensation in equity. At December 31, 2005, the Company had $1.3
million in unearned compensation, which was subsequently eliminated from Additional Paid-In Capital in
compliance with SFAS 123(R). Also, prior to the adoption of SFAS 123(R), the Company adjusted the amount of
compensation expense each quarter based on changes in the market value of its Common Stock. Upon adoption of
SFAS 123(R), the compensation expense recognized is based on the market value of the Company’s Common Stock
on the date the restricted stock award is granted and is not adjusted in subsequent periods. The amount recognized
is amortized over the vesting period. The stock-based compensation (credit) expense that was recognized related to
49
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock Plans (continued)
the Company’s restricted stock awards was ($0.2) million, $0.4 million and $0.8 million in 2007, 2006 and 2005,
respectively, and is included in salaries, wages and employee benefits in the consolidated statements of income.
The stock-based compensation expense related to restricted stock awards decreased in 2007 because of the
forfeiture of shares previously awarded due to the Company not meeting designated performance goals and
termination of the employment of an officer of the Company. Accordingly, the compensation expense previously
recognized for the 24,000 shares that were to vest on March 1, 2008, based on 2007 performance, has been
reversed. The shares will remain outstanding until their scheduled vesting date of March 1, 2008, at which time
their forfeiture will become effective. For financial statement purposes, the forfeited shares have been recorded as
treasury stock at December 31, 2007.
Information related to the 2003 Restricted Stock Award Plan for the year ended December 31, 2007 is as
follows:
Nonvested shares - December 31, 2006 ............
Granted ..............................................................
Forfeited ............................................................
Vested................................................................
Nonvested shares - December 31, 2007 ............
Number of
Shares
Weighted Average
Fair Value
$
65,000
--
(24,000)
(19,000)
22,000
16.56
--
14.30
15.00
20.37
The following table illustrates the pro forma effect on net income and earnings per share as if the Company had
applied the fair value recognition provisions of SFAS 123(R) to options granted under its stock option plans in the
period presented. For purposes of the pro forma disclosure, the fair value of each option grant is estimated on the
date of grant and amortized to expense over the option’s vesting periods. This information should be read in
conjunction with the Company’s consolidated financial statements and notes thereto and other financial information
that appears elsewhere in this report.
(in thousands, except
per share amounts)
2005
Net income................................................................................ $
Stock-based compensation expense included in the
Consolidated Statements of Income, net of tax.....................
Stock-based compensation expense determined under fair
value-based method for all awards, net of tax ......................
Pro forma net income ............................................................... $
Basic earnings per share, as reported........................................ $
Pro forma basic earnings per share........................................... $
Diluted earnings per share, as reported .................................... $
Pro forma diluted earnings per share........................................ $
15,568
475
(764)
15,279
1.55
1.52
1.51
1.48
As of December 31, 2007, unrecognized compensation expense that related to stock options and restricted stock
was $0.5 million and $0.2 million, respectively, which is expected to be recognized over a weighted average period
of approximately 2.5 years for stock options and 1.7 years for restricted stock.
50
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
(in thousands, except per share amounts)
Year Ended December 31,
2006
2005
2007
Numerator:
Net income........................................................................ $
140
$
12,441
$ 15,568
Denominator:
Denominator for basic earnings per share – weighted
average shares .................................................................
Effect of dilutive securities:
Restricted Stock Award Plan.........................................
Employee stock options ................................................
10,596
11,353
10,034
38
55
93
68
140
208
80
214
294
Denominator for diluted earnings per share – adjusted
weighted average shares and assumed conversions ........
Basic earnings per share ....................................................... $
Diluted earnings per share.................................................... $
Anti-dilutive employee stock options...................................
10,689
0.01
0.01
132
$
$
11,561
1.10
1.08
90
$
$
10,328
1.55
1.51
--
11. Common Stock Transactions
Repurchase of Equity Securities
On January 24, 2007, the Company publicly announced that its Board of Directors authorized the repurchase of
up to 2,000,000 shares of its outstanding Common Stock over a three-year period ending January 24, 2010. The
Company may make Common Stock purchases under this program on the open market or in privately negotiated
transactions at prices determined by its Chairman of the Board or President. The Board had previously approved an
authorization, publicly announced on October 19, 2004, to repurchase up to 500,000 shares and the remaining
balance of 264,000 shares was repurchased during the first quarter of 2007 at a total cost of approximately $4.3
million. During the year ended December 31, 2007, the Company repurchased a total of 834,099 shares of its
Common Stock under the current authorization, at a total cost of approximately $13.1 million. The Company’s
current repurchase authorization has 1,165,901 shares remaining.
Stock Offering
In August 2005, the Company completed a stock offering of 2,000,000 shares of common stock which
generated net proceeds to the Company of approximately $47.3 million. The proceeds from the stock offering were
used to retire long-term debt.
12. Fair Value of Financial Instruments
At December 31, 2007 and 2006, the amount reported in the Company’s balance sheets for its Senior Credit
Facility approximated its fair value.
51
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Litigation
The Company is a party to routine litigation incidental to its business, primarily involving claims for personal
injury and property damage incurred in the transportation of freight. It maintains insurance covering liabilities in
excess of certain self-insured retention levels. Though management believes these claims to be routine and
immaterial to the long-term financial position of the Company, adverse results of one or more of these claims could
have a material adverse effect on the financial position or results of operations of the Company.
On May 22, 2006, a former independent sales agent filed a lawsuit against us entitled All-Ways Logistics, Inc. v.
USA Truck, Inc., in the U.S. District Court for the Eastern District of Arkansas, Jonesboro Division, alleging, among
other things, breach of contract, breach of implied duty of good faith and fair dealing, and tortious interference with
business relations. The plaintiff alleged that the Company breached and wrongfully terminated the commission
sales agent agreement with it and improperly interfered with its business relationship with certain of its customers.
In early August 2007, the jury returned an unfavorable verdict in this contract dispute. The jury held that the
Company breached the contract and awarded the plaintiff damages of approximately $3.0 million, which was
accrued during the quarter ended September 30, 2007. In its December 4, 2007 order, the court denied substantially
all of USA Truck’s motions for post-trial relief and granted the plaintiff’s motions for pre-judgment interest,
attorney’s fees and costs in an amount totaling approximately $1.7 million, which was accrued during the fourth
quarter. On January 2, 2008, the Company filed an appeal of the verdict and the court’s order.
14. Quarterly Results of Operations (Unaudited)
The tables below present quarterly financial information for 2007 and 2006:
(in thousands, except per share amounts)
2007
Three Months Ended
Operating revenues.................................... $
Operating expenses and costs....................
Operating income (loss) ............................
Other expenses, net ...................................
Income (loss) before income taxes ............
Income tax expense (benefit) ....................
Net income (loss)....................................... $
Average shares outstanding (basic)...........
Basic earnings (loss) per share .................. $
Average shares outstanding (diluted) ........
Diluted earnings (loss) per share ............... $
March 31
June 30
112,451
110,362
2,089
1,230
859
779
80
11,062
0.01
11,188
0.01
$
$
$
$
124,389
119,555
4,834
1,428
3,406
1,786
1,620
10,671
0.15
10,780
0.15
$
September 30 December 31
$
122,526
123,173
(647)
1,244
(1,891)
(314)
(1,577)
122,743
120,708
2,035
1,250
785
769
16
$
$
10,429
--
10,535
--
$
$
10,370
(0.15)
10,370
(0.15)
$
$
Note - The above amounts have been previously reported in the Company’s quarterly reports on Form 10-Q.
Certain line items in those quarterly reports may not total the corresponding amount reported in this Annual Report
on Form 10-K due to rounding.
52
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Quarterly Results of Operations (Unaudited) (continued)
(in thousands, except per share amounts)
2006
Three Months Ended
Operating revenues.................................... $
Operating expenses and costs....................
Operating income ......................................
Other expenses, net ...................................
Income before income taxes......................
Income tax expense ...................................
Net income ................................................ $
Average shares outstanding (basic)...........
Basic earnings per share ............................ $
Average shares outstanding (diluted) ........
Diluted earnings per share......................... $
March 31
June 30
114,208
106,989
7,219
867
6,352
2,904
3,448
11,349
0.30
11,643
0.30
$
$
$
$
121,941
112,745
9,196
1,098
8,098
3,739
4,359
11,382
0.38
11,583
0.38
$
$
$
$
September 30
119,802
112,322
7,480
1,035
6,445
3,030
3,415
December 31
$
109,667
107,159
2,508
1,057
1,451
232
1,219
$
11,389
0.30
11,558
0.30
$
$
11,293
0.11
11,456
0.11
Note - The above amounts have been previously reported in the Company’s quarterly reports on Form 10-Q.
Certain line items in those quarterly reports may not total the corresponding amount reported in this Annual Report
on Form 10-K due to rounding.
53
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On March 14, 2006, we dismissed our independent auditors, Ernst & Young LLP, and on March 15, 2006,
engaged Grant Thornton LLP as our independent auditors for the fiscal year ending December 31, 2006. Each of
these actions was approved by our Audit Committee. Information with respect to this matter was previously
reported in our current report on Form 8-K filed March 17, 2006. There were no disagreements between us and our
former auditors and no reportable events required to be disclosed in this Item 9.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with
the participation of our management, including our Chief Executive Officer (the “CEO”) and our Chief Financial
Officer (the “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on that evaluation, our management, including the CEO and CFO, concluded that, as of the end of the period
covered by this report, our disclosure controls and procedures were effective. There have been no significant
changes in our internal control over financial reporting during the quarter ended December 31, 2007, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rule 13a-15(f) of the Securities Exchange Act of 1934. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the
supervision and with the participation of management, including the CEO and the CFO, an evaluation was
conducted of the effectiveness of our internal control over financial reporting based on criteria established in
Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Management concluded that we maintained effective internal control over financial reporting as of
December 31, 2007. As stated below, Grant Thornton LLP, the independent registered public accounting firm that
audited our consolidated financial statements included in this annual report on Form 10-K, has also audited the
effectiveness of our internal control over financial reporting as of December 31, 2007, as stated in their
accompanying report.
Attestation Report of the Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
USA Truck, Inc.
We have audited USA Truck, Inc. (a Delaware Corporation) and subsidiary, collectively, the “Company’s”, internal
control over financial reporting as of December 31, 2007, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
54
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2007, based on criteria established in Internal Control—Integrated Framework issued by
COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of USA Truck, Inc. and subsidiary, as of December 31, 2007 and
2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years
then ended and our report dated February 25, 2008, expressed an unqualified opinion on those consolidated
financial statements.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
February 25, 2008
Item 9B. OTHER INFORMATION
There is no information that we are required to report, but did not report, on Form 8-K during the fourth
quarter of 2007.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections entitled “Additional Information Regarding the Board of Directors—Biographical Information”,
“Executive Officers” “Section 16(a) Compliance,” “Security Ownership of Certain Beneficial Owners, Directors
and Executive Officers,” “Audit Committee,” and “Corporate Governance and Related Matters” in our proxy
statement for the annual meeting of stockholders to be held on May 7, 2008, set forth certain information with
respect to the directors, nominees for election as directors and executive officers and are incorporated herein by
reference.
Our Code of Business Conduct and Ethics (“Code of Ethics”) applicable to all directors, officers and
employees, which sets forth the conduct and ethics expected of all affiliates and employees of the company, is
available at our Internet address http://www.usa-truck.com, under the “Corporate Governance” tab of the “Investor
Relations” page. Any amendment to, or waivers of, any provision of the Code of Ethics that apply to our principal
executive, financial and accounting officers, or persons performing similar functions, will be posted at that same
location on our website.
Item 11. EXECUTIVE COMPENSATION
The sections entitled “Executive Compensation,” “Director Compensation,” “Compensation Committee
Interlocks and Insider Participation” and “Compensation Committee Report” in our proxy statement for the annual
meeting of stockholders to be held on May 7, 2008, set forth certain information with respect to the compensation of
management and directors and related matters and is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
55
The section entitled “Security Ownership of Certain Beneficial Owners, Directors and Executive Officers” in
our proxy statement for the annual meeting of stockholders to be held on May 7, 2008, sets forth certain information
with respect to the ownership of our voting securities and is incorporated herein by reference. See “Item 5. Market
for Registrant’s Common Equity and Related Stockholder Matters,” of this annual report on Form 10-K, which sets
forth certain information with respect to our equity compensation plans.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The sections entitled “Certain Transactions” and “Director Independence” in our proxy statement for the annual
meeting of stockholders to be held on May 7, 2008, set forth certain information with respect to relations of and
transactions by management and the independence of our directors and nominees for election as directors and is
incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The section entitled “Independent Registered Public Accounting Firm” in our proxy statement for the annual
meeting of stockholders to be held on May 7, 2008, sets forth certain information with respect to the fees billed by
our independent registered public accounting firm and the nature of services rendered for such fees for each of the
two most recent fiscal years and with respect to our audit committee’s policies and procedures pertaining to pre-
approval of audit and non-audit services rendered by our independent registered public accounting firm and is
incorporated herein by reference.
56
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)
The following documents are filed as a part of this report:
Page
1. Financial statements.
The following financial statements of the Company are included in Part II, Item 8 of this report:
Consolidated Balance Sheets as of December 31, 2007 and 2006 ................................................................... 35
Consolidated Statements of Income for the years ended December 31, 2007, 2006 and 2005........................ 36
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2007, 2006 and 2005.. 37
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005 ................. 38
Notes to Consolidated Financial Statements .................................................................................................... 39
2. Schedules have been omitted since the required information is not applicable or not present in amounts
sufficient to require submission of the schedule, or because the information required is included in the
financial statements or the notes thereto.
3. Listing of exhibits.
The exhibits filed with this report are listed in the Exhibit Index, which is a separate section of this report,
and incorporated in this Item 15(a) by reference.
Management Compensatory Plans:
-Employee Stock Option Plan (Exhibit 10.1)
-Executive Profit-Sharing Incentive Plan (Exhibit 10.2)
-1997 Nonqualified Stock Option Plan for Nonemployee Directors (Exhibit 10.3)
-2003 Restricted Stock Award Plan (Exhibit 10.4)
-Form of Restricted Stock Award Agreement (Exhibit 10.5)
-USA Truck, Inc. 2004 Equity Incentive Plan (Exhibit 10.6)
57
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
USA TRUCK, INC.
(Registrant)
By:
/s/ Clifton R. Beckham
Clifton R. Beckham
President and Chief Executive Officer
By:
/s/ Darron R. Ming
Darron R. Ming
Vice President, Finance, Chief Financial
Officer and Treasurer
Date: March 25, 2008
Date: March 25, 2008
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Robert M. Powell
Robert M. Powell
/s/ Clifton R. Beckham
Clifton R. Beckham
/s/ Darron R. Ming
Darron R. Ming
/s/ James B. Speed
James B. Speed
/s/ Terry A. Elliott
Terry A. Elliott
/s/ William H. Hanna
William H. Hanna
/s/ Joe D. Powers
Joe D. Powers
/s/ Richard B. Beauchamp
Richard B. Beauchamp
Chairman of the Board and Director
March 25, 2008
President, Chief Executive Officer and Director
March 25, 2008
Vice President, Finance, Chief Financial Officer
and Treasurer (principal financial and accounting
officer)
March 25, 2008
Director
Director
Director
Director
Director
March 25, 2008
March 25, 2008
March 25, 2008
March 25, 2008
March 25, 2008
58
EXHIBIT INDEX
Exhibits to the Annual Report on Form 10-K have been filed with the Securities and Exchange Commission.
Copies of the omitted exhibits are available to any shareholder free of charge. Copies may be obtained either
through the Securities and Exchange Commission’s website: http://www.sec.gov or by submitting a written request
to Mr. J. Rodney Mills, Secretary, USA Truck, Inc., 3200 Industrial Park Road, Van Buren, Arkansas 72956. If
submitting a written request, please mark “2007 10-K Request” on the outside of the envelope containing the
request.
The Annual Report on Form 10-K/A included herein is a composite copy of our Annual Report on Form 10-
K filed with the SEC on March 3, 2008 and Amendment No. 1 to that report on Form 10-K/A filed with the
SEC on March 25, 2008.
59
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among USA Truck, Inc., The Dow Jones US Index
And The Dow Jones US Trucking Index
$450
$400
$350
$300
$250
$200
$150
$100
$50
$0
12/02
12/03
12/04
12/05
12/06
12/07
USA Truck, Inc.
Dow Jones US
Dow Jones US Trucking
* $100 invested on 12/31/02 in stock or index-including reinvestment of dividends.
Fiscal year ending December 31.
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92494_Cov-Insert.qxp 3/20/08 11:48 AM Page 4
we intend to use it as a catalyst to accelerate the pace of change
truckload industry, but we can do much better, particularly in the area
within our organization.
of insurance and claims costs, which continue to run a nickel per mile
higher than our historical average. Our efforts to contain safety-
■ Our customers want a more diversified bundle of services
related costs have not produced the sustained results that we desired
from their core carriers. Our strategy is to provide those
over the past several years. In response, we are implementing a
additional services in carefully selected areas where we believe
comprehensive loss prevention program rooted in hiring quality
we can provide superior service and reliability.
drivers and training them effectively. We will continue marketing safety
1. We began offering intermodal railroad services to our
that safety is the key factor in our future hiring decisions and driver
to all our drivers, but to get the costs under control we must ensure
customers in late 2007 and have set a modest revenue goal
training.
for 2008. To reach that goal, we have staffed intermodal
with just a few strong, experienced employees, and given
Our management team is deeply dissatisfied with our 2007
them clear responsibilities and goals, and we have done it
performance, and we are committed to taking the necessary steps to
in a way that did not detract from our focus on our core
return USA Truck to its historic place of prominence in the truckload
Trucking operations.
industry. Ultimately, we want to be the company that everyone wants
2. We are expanding our capabilities to outsource truckload
to work for, the company that customers call when service matters and
freight through our Strategic Capacity Solutions (“SCS”)
the stock that investors want to own. Our passion and decision-
division. To execute this, we have streamlined the
making are driven by that overarching mission.
interaction between our Trucking divisions and SCS and we
have employed several new freight brokers.
As always, thank you for your support.
3. We are aggressively pursuing opportunities to move
tractors from our General Freight and Regional Freight
divisions where considerable pricing and empty mile
pressures exist into our Dedicated Freight division where
freight lanes and volumes are more consistent. Our goal is
to move at least 100 tractors during 2008. To accomplish
that goal, and as part of a broader reorganization of our
sales force, we have injected a more focused effort into
Dedicated Freight sales which has provided us with more
opportunities and leads.
4. We nearly tripled the size of our small owner-operator fleet
to 66 in 2007. We intend to grow the size of that fleet by
another 82% to 120 during 2008. Owner-operators
provide a flexible source of capacity for our fleet and have
proven to be reliable, safe and productive. With our driver
turnover at its lowest level this decade and while the driver
hiring market has softened during this economic
slowdown, we have utilized our considerable driver
recruiting resources to target owner-operators. We will
continue to do so during 2008 until we reach our goal.
While we believe that we must improve our ability to consistently
produce revenue volume throughout the economic cycle, we know
that controlling costs will always be critical to our success. We
typically post one of the lowest operating costs per mile in the
Robert M. Powell
Chairman of the Board
Clifton R. Beckham
President and Chief
Executive Officer
Directors and Officers
Clifton R. Beckham
President, Chief Executive Officer
and Director
Garry R. Lewis
Executive Vice President,
Chief Operating Officer
Michael E. Brown
Senior Vice President, Operations
Darron R. Ming
Vice President, Finance,
Chief Financial Officer
and Treasurer
Michael R. Weindel, Jr.
Vice President, Human
Resources, Recruiting
and Training
J. Rodney Mills
Vice President, Safety,
General Counsel and Secretary
Craig S. Shelly
Vice President,
Corporate Strategy
Rick A. Davis
Vice President, Information Services
Robert M. Powell
Chairman of the Board
Bryce C. Van Kooten
Vice President, Sales
Donald B. Weis
Vice President, Customer Service
Terry V. Biehl
Controller
Richard B. Beauchamp
Director (General Partner, Norris
Taylor & Company, Accounting Firm)
Terry A. Elliott
Director (Chief Administrative Officer
and Chief Financial Officer,
Safe Foods Corporation, Food
Safety Company)
William H. Hanna
Director (President, Hanna Oil
and Gas, Oil and Gas Exploration)
Joe D. Powers
Director (Retired Chairman and
CEO of Merchants National
Bank of Fort Smith, Arkansas
and Former Chairman of the
Advisory Board of Regions Bank
of Fort Smith, Arkansas)
James B. Speed
Director (Retired Chairman of
the Board, USA Truck, Inc.)
Corporate Information
This annual report and the statements contained herein are submitted for the general information of shareholders of the Company
and are not intended to induce any sale or purchase of securities or to be used in connection therewith.
Corporate Headquarters
3200 Industrial Park Road
Van Buren, Arkansas 72956
Telephone: (479) 471-2500
Common Stock
Traded on the NASDAQ Global Select
Market under the Symbol: USAK
Annual Meeting
May 7, 2008
10:00 a.m. local time
USA Truck, Inc.
3200 Industrial Park Road
Van Buren, Arkansas 72956
Transfer Agent and Registrar
Registrar and Transfer Company
10 Commerce Drive
Cranford, New Jersey 07016
Web Site
www.usa-truck.com
Upon written request of any shareholder, the Company will furnish without charge a copy of the Company’s 2007 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 J. Rodney Mills, 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 10, 2008, the person making the request was a
beneficial owner of shares of the Common Stock of the Company.
92494_Cov_Wraps.qxp 3/25/08 8:42 PM Page 3
Ten Year Statistical History
To Our Stockholders
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)
Base revenue ...................................................................................
Fuel surcharge .................................................................................
Total revenue ...................................................................................
Operating expenses, net of fuel surcharge .......................................
Operating income ............................................................................
Other expenses, net .........................................................................
Income before income taxes ............................................................
Income taxes ...................................................................................
Net income ......................................................................................
Diluted shares outstanding (in thousands) ......................................
Diluted earnings per share ..............................................................
Revenue, before fuel surcharge - year-to-year change .........................
Operating ratio* ...............................................................................
Financial Statistics
(Dollars in thousands - except per share amounts)
Net income (“Earnings”) .................................................................
Interest ............................................................................................
Income taxes (“Taxes”) ...................................................................
Earnings before interest and taxes (“EBIT”) ...................................
Depreciation and amortization .........................................................
Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)
EBIT per diluted share .....................................................................
EBITDA per diluted share ................................................................
Operating cash flow per diluted share .............................................
Stockholders’ equity per diluted share .............................................
Return on average assets .................................................................
Return on average equity .................................................................
Funded debt to total capital** ..........................................................
Operating Statistics
(All numbers include owner-operators except as noted “Company”)
Total tractors (end of period) ..........................................................
Average months in service – Company tractors ................................
Total Company trailers (end of period) ...........................................
Average months in service – Company trailers .................................
Trailer to tractor ratio ......................................................................
Average miles per tractor per week .................................................
Drivers (excluding students in training) ..........................................
Non-drivers ......................................................................................
Total drivers and non-drivers ...........................................................
Driver to non-driver ratio ................................................................
2007
2006
2005
2004
$
65,807
332,938
66,701
70,212
189,747
143,191
$
63,804
339,494
66,588
67,817
179,936
159,558
$
60,791
308,079
53,616
67,589
158,246
149,833
56,659
288,154
56,148
115,114
202,626
85,528
2007
2006
2005
2004
$
$
391,188
90,921
482,109
473,799
8,310
5,152
3,158
3,108
140
10,689
0.01
1.5%
97.9%
$
$
2007
$
140
5,130
3,018
8,288
49,093
57,381
$
0.78
$
5.37
$
$ 5.48
13.40
$
0.0%
0.1%
36.4%
385,301
80,317
465,618
439,214
26,404
4,058
22,346
9,905
12,441
11,561
1.08
2.3%
93.1%
$
$
$
376,629
63,074
439,703
406,206
33,497
4,810
28,687
13,119
15,568
10,328
1.51
12.1%
91.1%
2006
2005
$
$
$
$
12,441
4,192
9,905
26,538
46,739
73,277
2.30
6.34
6.60
13.80
3.8%
8.1%
34.6%
$
15,568
4,829
13,119
33,516
41,890
$
75,406
$ 3.25
7.30
$
5.48
$
14.51
$
5.2%
13.2%
36.9%
$
$
$
$
$
$
335,880
27,225
363,105
345,306
17,799
3,572
14,227
6,795
$ 7,432
9,398
0.79
17.4%
94.7%
$
2004
$
7,432
3,539
6,795
17,766
35,871
$
53,637
$ 1.89
$ 5.71
$ 3.97
9.10
$
2.9%
9.1%
61.6%
2007
2006
2005
2004
2,557
22
7,024
39
2.7:1
2,313
2,582
808
3,390
3.2:1
2,571
21
6,770
36
2.6:1
2,271
2,497
840
3,337
3.0:1
2,414
19
5,542
38
2.3:1
2,415
2,474
730
3,204
3.4:1
2,231
18
5,682
39
2.5:1
2,361
2,218
702
2,920
3.2:1
Our industry is changing. USA Truck’s historical bread-and-butter, the
■ Culturally, we believe that employees who are challenged,
medium length of haul (800-1,200 mile) segment of the truckload market,
empowered and rewarded are the key to total customer
is being eroded by a growing intermodal railroad option for our customers
satisfaction. Total customer satisfaction is the key to
and by the proliferation of the regional distribution center concept among
shareholder returns. Our three-legged-stool concept
big box retailers. Customers continue to shrink their bases of core carriers
focuses equally on
the employee, customer and
while simultaneously raising the bars for service and capacity
shareholder and is the foundation of our organization.
requirements. Cost pressures abound from inflationary forces that can
We value intellectual honesty, a “do the right thing”
often outpace growth in our industry’s pricing power and from increasing
ethical environment, strong leadership in addition to
regulatory hurdles.
capable management,
and
a
results-oriented,
performance-driven culture that promotes teamwork
USA Truck must and will change to meet these challenges. While we have
and continual improvement. We have also devoted
always taken pride in offering premium services, the changes in our
considerable attention to reorganizing our various
industry now also require us to broaden the range of services we offer to
operating departments to execute our strategy, placing
our customers. By expanding our service offerings, we intend to generate
the right people into the right jobs where they can add the
demand for our services that will lead to greater consistency of earnings
most value and providing them the proper training and
and pave the way for us to improve our margins. We must also overcome
tools. That process is still underway.
cost pressures in the labor, energy, regulatory and safety arenas.
■ In order to serve our customers effectively and efficiently,
USA Truck’s core business strategy for revenue and earnings growth is to
we must provide our employees with the proper technology.
increase and sustain demand for our services by positioning ourselves as
After an exhaustive process, we have determined that our legacy
a premium service provider for all of our customers’ dry van, full truckload
mainframe software applications no longer provide the
needs, thus serving a greater portion of their needs. This strategy requires
competitive advantage that they once did. Over the next three
a two-pronged approach to execute: (1) consistently providing our
years, we will redesign our technology system and will replace
customers with a reliability of service not generally available in our
our enterprise-wide software applications with more user-
industry, and (2) providing a greater scope of service beyond our
friendly, higher capacity products that will dramatically improve
traditional medium length-of-haul business.
our visibility into our operations and the speed at which critical
information is made available to decision-makers. Once
Since the summer of 2007, we have undertaken an extensive effort to refine
complete, we believe that our enhanced technological
USA Truck’s corporate strategy. We have implemented sweeping
capability should improve our competitiveness in our industry
organizational/cultural, technological and business model changes within
from both cost and service perspectives. We are not, however,
the company to set the stage for successful execution of our strategy.
relying on the software migration to drive our strategy; rather,
(continues)
92494_Cov-Insert.qxp 3/25/08 4:10 AM Page 2
Selected Financial Data
(Dollars in thousands except per share amounts)
Base revenue ..............................................
Operating income .......................................
Net income ..................................................
Diluted earnings per share .........................
Total assets ..................................................
Long-term debt ...........................................
Stockholders’ equity ...................................
Operating ratio* ..........................................
Total tractors (end of period) ....................
Total trailers (end of period) .....................
Average miles per tractor per week ...........
Year Ended December 31,
2007
2006
2005
2004
2003
$391,188
$ 385,301
$ 376,629
$ 335,880
$ 286,080
8,312
140
0.01
332,938
70,212
97.9%
2,557
7,071
2,313
26,404
12,441
1.08
339,494
67,817
93.1%
2,571
6,770
2,271
33,497
15,568
1.51
308,079
67,589
91.1%
2,414
5,542
2,415
17,799
7,432
0.79
288,154
115,114
94.7%
2,231
5,682
2,361
10,850
3,355
0.36
222,549
74,300
77,496
96.2%
2,079
4,461
2,341
$143,191
$ 159,558
$ 149,833
$ 85,528
$
* Operating ratio as reported above is based upon total operating expenses, net of fuel surcharge, as a percentage of base revenue.
December 31,
$
2003
2002
2001
2000
1999
1998
$
45,541
222,549
42,962
74,300
145,053
77,496
$
35,387
188,851
38,263
49,451
114,759
74,092
$
34,414
182,411
31,770
56,451
111,238
71,173
$
41,739
189,919
30,357
65,660
119,938
69,981
$
39,449
182,040
28,277
64,453
111,932
70,108
20,459
119,611
21,151
19,058
56,877
62,734
Year ended December 31,
2003
2002
2001
2000
1999
$
$
$
286,080
12,583
298,663
287,813
10,850
2,622
8,228
4,873
3,355
9,370
0.36
6.5%
96.2%
$
$
$
268,510
5,263
273,773
264,301
9,472
3,105
6,367
3,765
2,602
9,348
0.28
9.9%
96.5%
Year ended December 31,
2002
2003
$
3,355
2,557
4,873
10,785
30,611
$ 41,396
$ 1.15
4.42
$
3.99
$
8.27
$
1.6%
4.4%
51.5%
$
2,602
3,127
3,765
9,494
27,811
$ 37,305
$ 1.02
$ 3.99
3.52
$
7.93
$
1.4%
3.6%
47.2%
December 31,
$
244,396
8,045
252,441
246,466
5,975
4,196
1,779
692
1,087
9,279
$ 0.12
11.8%
97.6%
$
$
218,593
7,992
226,585
220,940
5,645
5,490
155
61
$ 94
9,260
0.01
31.6%
97.4%
$
$
166,091
272
166,363
150,517
15,846
1,633
14,213
5,571
8,642
9,354
$ 0.92
14.4%
90.5%
$
1998
$
145,140
76
145,216
126,219
18,997
1,817
17,180
6,683
$ 10,497
9,466
$ 1.11 *
12.5%
86.9%
2001
$
1,087
4,344
692
6,123
26,418
$
32,541
$ 0.66
$ 3.51
$ 3.87
7.67
$
0.6%
1.5%
48.0%
2000
$
94
5,408
61
5,563
26,793
$ 32,356
$ 0.60
$ 3.49
$ 3.15
7.56
$
0.1%
0.1%
51.7%
1999
$
8,642
1,656
5,571
15,869
18,592
$ 34,461
$ 1.70
$ 3.68
$ 1.37
7.49
$
5.7%
13.0%
50.3%
1998
$
10,497
1,715
6,683
18,895
16,179
$
35,074
$ 2.00
$ 3.71
$ 3.02
$ 6.63
9.0%
18.2%
26.7%
* EBITDA is defined in the Financial Statistics section of the ten year statistical history on the last page of this Annual Report.
2003
2002
2001
2000
1999
1998
2,079
25
4,461
54
2.1:1
2,341
2,029
635
2,664
3.2:1
1,916
30
4,311
52
2.3:1
2,332
1,810
529
2,339
3.4:1
1,780
22
3,668
51
2.1:1
2,364
1,741
507
2,248
3.4:1
1,738
23
3,400
43
2.0:1
2,190
1,685
488
2,173
3.5:1
1,713
23
3,525
46
2.1:1
2,404
1,637
469
2,106
3.5:1
1,104
19
2,054
39
1.9:1
2,441
1,057
347
1,404
3.0:1
* Operating ratio as reported above is based upon total operating expenses, net of fuel surcharge, as a percentage of base revenue.
**Funded debt to total capital as reported above is based upon net debt (both current and long-term, less cash) divided by total debt plus stockholders' equity.
92494_Cov-Insert.qxp 3/20/08 11:47 AM Page 1
2007 Annual Report
USA Truck, Inc.
3200 Industrial Park Road
Van Buren, Arkansas 72956
(479) 471-2500
usa-truck.com