2016 Annual Report
Corporate Information
This annual report and the statements contained herein are submitted for the general information of the stockholders
of the Company and are not intended to induce any sale or purchase of securities or to be used in connection therewith.
Home Office
3200 Industrial Park Road
Van Buren, AR 72956
Telephone: (479) 471-2500
Annual Meeting
May 10, 2017
10:00 a.m. Central Daylight Time (CDT)
USA Truck, Inc.
3200 Industrial Park Road
Van Buren, AR 72956
Independent Registered Public Accounting Firm
Grant Thornton LLP
2431 E. 61st Street, Suite 500
Tulsa, OK 74136
Transfer Agent and Registrar
Continental Stock Transfer and Trust Company
17 Battery Place
New York, NY 10004
Telephone: 800-509-5586
Common Stock
Traded on the Nasdaq
Global Select Market under
the Symbol: USAK
Website
usa-truck.com
On March 4, 2017, the Company filed its Sarbanes-Oxley Section 302 Certifications as exhibits to the Company’s Annual Report
on Form 10-K for the period ended December 31, 2016.
Upon written request of any stockholder, the Company will furnish without charge a copy of the Company’s 2016 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 David F. Marano, 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 16, 2017, the person
making the request was a beneficial owner of shares of the common stock of the Company.
Whistleblower Hotline
To confidentially report issues of theft or fraud, contact AuditCommittee@usa-truck.com or call 800-326-9847.
USA Truck Stockholders:
“We Win Together” is more than just a catch phrase at USA Truck, it is a unifying call to action that a new day has
arrived, that we expect to win, and that the only way we do that is together, as a team. Our team works to win every
day, in every interaction, in every pursuit, so that we can exceed expectations for all our stakeholders.
The tone has changed among our team members.
Safety. First. Foremost. Forever. That is our focus. It is a way of life and a habit for which every team member is
responsible.
Our culture is changing. Accountability is the rule of the day and positive results are expected. We keep score every
day. We communicate expectations and report progress with regular Company-wide communications. We hold each
other accountable in our daily interactions. Above all, we work together to give our drivers the best experience in
trucking. The old “discount carrier” mentality in our pricing has been completely abolished.
Our Purpose: To be the employer, carrier, and investment people can be proud of.
Our goal is to assemble a team that addresses each of our stakeholders’ needs – team members, customers, and
stockholders. Each constituent has a role in our success and we acknowledge the stewardship and responsibility to
make them proud.
Team members and our community. They deserve to be part of a winning team, to have meaningful and gainful
employment, and to contribute to our community. They also deserve to have engaged, committed, and effective
leadership.
Customers. High performing, well-executing teams deliver measurable value to our customers. In 2016, our renewed
focus on service levels improved the customer experience and reestablished USA Truck’s credibility as a carrier of
choice. We expect the success begun in the past year will continue to advance as we move forward.
Stockholders. Stockholder value creation is the driving factor in our business, and our leadership team is measured
on the creation of return on invested capital. We endeavor to represent stockholders in every decision. We recognize
the ultimate measure of our success as a team is the creation and preservation of stockholder value.
2016 — Lessons learned, never to be forgotten
In 2016, every constituent was disappointed. Team members were concerned about their livelihood; customers were
worried about the long-term viability of the business; and stockholders were apprehensive about drastically reduced
value. Market conditions undoubtedly hurt USA Truck and the industry as a whole during the past year. Price was
down, capacity was up, and driver issues persisted. And, the lessons learned are now reflected in our approach. We
needed more discipline and accountability. Our execution needed improvement.
It would be easy to dismiss 2016 due to “market conditions,” but to do so would be irresponsible. We believe we
are better positioned now than ever because of what we have learned. And, we are now on a mission to establish
winning habits.
Business Overview
Trucking remains essential to our operations. As a strong asset-based carrier, we create opportunities to support
our asset-light businesses, control our destiny in what is expected to be a tightening capacity market, and design
solutions for customers and drivers that allow us to improve return. We are determined to maximize the latent
profitability locked within our network by tightening our lanes, driving density, and realizing the driver and supplier
economies of scale that subsequently arise.
USAT Logistics is core to our growth strategy. Value-added services like intermodal, Mexico expansion, and core
account growth are helping USATL achieve our long-term revenue goal of 50/50 revenue mix of assets and logistics.
We reiterate that having assets gives market credibility and weight to our logistics business. Our businesses are
clearly complementary, providing greater value through collaboration than as independent service offerings.
The environment is changing. Most who follow us know that December 2017 is when electronic logging devices
become mandatory for all truckload carriers, which is expected to reduce truck capacity. Importantly, USA Truck has
been 100% ELD-compliant for several years. We believe the timing works in our favor. We are improving execution,
delivering better service, positioning for price and driving daily accountability. Tighter capacity will help us in our
quest to raise price and improve returns.
Leadership
Until five years ago, many would cite our leadership stability as a solid advantage in the market. And yet, the reality
of the last five years has been the opposite. We are frequently asked about our leadership turnover, our collective
commitment to success, and our plan for a return to stability.
My personal commitment to all our stakeholders is this – I am here and wholly committed to the success of this
Company. I am giving every bit of energy, focus, and passion I have to our collective goals and so is our team. Our
efforts are being directed to build a team that is every bit as smart, every bit as hard working, and every bit as capable
as ANY team in transportation.
There has been change, lots of it. We believe we are on the path to a brighter future. We thank you for being part of
this team and for your support as we make USA Truck a Company you can be proud of.
We win together!
James D. Reed
President, Chief Executive Officer and Director
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
For the fiscal year ended December 31, 2016
OR
1-35740
(Commission file number)
USA Truck, Inc.
(Exact name of registrant as specified in its charter)
71-0556971
(I.R.S. Employer Identification No.)
Delaware
(State or other jurisdiction of incorporation)
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, $0.01 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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). 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 common equity held by non-affiliates of the Registrant (assuming for these purposes that all executive
officers, directors, and affiliated holders of more than 10% of the Registrant’s outstanding common stock are “affiliates” of the Registrant) as of
June 30, 2016, the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $145,507,942 (based on
the closing sale price of the Registrant's common stock on that date as reported by Nasdaq).
As of February 17, 2017, 8,226,963 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
Item No.
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. Mine Safety Disclosures .....................................................................................................
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 .............................................................................
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26
39
40
60
60
63
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63
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Cautionary Note Regarding Forward-Looking Statements
Part I.
This Annual Report on Form 10-K for the year ended December 31, 2016 (this “Form 10-K”) contains certain
statements that may be considered forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), and such statements are
subject to the safe harbor created by those sections, and the Private Securities Litigation Reform Act of 1995, as
amended. All statements, other than statements of historical or current fact, are statements that could be deemed
forward-looking statements, including without limitation:
any projections of earnings, revenue, or other financial items;
any statement of projected future operations or processes;
any statement of plans, strategies, goals, and objectives of management for future operations;
any statement concerning proposed new services or developments;
any statement regarding future economic conditions or performance; and
any statement of belief and any statement of assumptions underlying any of the foregoing.
In this Form 10-K, statements relating to:
future insurance and claims and litigation experience;
future driver market;
future driver compensation;
future acquisitions and dispositions of revenue equipment and the size and age of the Company’s fleet;
future prices of revenue equipment;
future profitability;
future fuel prices, hedging arrangements, and efficiency;
our ability to recover costs through our fuel surcharge program;
future purchased transportation expense;
future operations and maintenance costs;
future depreciation and amortization;
expected capital resources and sources of liquidity;
future indebtedness;
future share repurchases and dividends, if any;
future effects of restructuring activities;
our strategy relating to our USAT Logistics and Trucking businesses, including relating to the use of
independent contractors, process and efficiency improvements, growing market share, structure of equipment
maintenance operations and the Company’s turnaround plan in general;
inflation;
anticipated impacts of current and future industry regulations;
expected capital expenditures; and
future income tax rates,
among others, are forward-looking statements. Such statements may be identified by their use of terms or phrases
such as “expects,” “estimates,” “projects,” “believes,” “anticipates,” “focus,” “intends,” “plans,” “goals,”
“may,” “if,” “will,” “should,” “could,” “potential,” “continue,” “future” and similar terms and phrases.
Forward-looking statements are based on currently available operating, financial, and competitive information.
Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or
quantified, which could cause future events and actual results to differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in the section entitled “Item 1A., Risk Factors.” Readers
should review and consider the factors discussed under the heading “Risk Factors” in Item 1A of this Form 10-K,
along with various disclosures in our press releases, stockholder reports, and other filings with the Securities and
Exchange Commission (the “SEC”).
All such forward-looking statements speak only as of the date of this Form 10-K. You are cautioned not to
place undue reliance on such forward-looking statements. We expressly disclaim any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change
in our expectations with regard thereto or any change in the events, conditions, or circumstances on which any such
information is based, except as required by law.
All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in
their entirety by this cautionary statement.
References to the “Company,” “we,” “us,” “our,” and words of similar import refer to USA Truck, Inc., and
its subsidiary.
Item 1. BUSINESS
General
USA Truck is the nation's thirtieth largest truckload carrier based on 2015 operating revenue according to
Transport Topics. In 2016, the Company generated $429.1 million in operating revenue. As of December 31, 2016,
the Company’s fleet consisted of 1,701 tractors, which included 286 independent contractor tractors, and 5,605
trailers.
USA Truck is headquartered in Van Buren, Arkansas, with Trucking facilities concentrated in the eastern half
of the United States for density and efficiency and asset-light operations providing services throughout the United
States. The Company transports commodities throughout the contiguous United States and into and out of portions
of Canada. USA Truck also transports general commodities into and out of Mexico by offering through-trailer
service from its terminal in Laredo, Texas. In addition to truckload and dedicated freight service offerings, the
Company provides freight brokerage and rail intermodal service offerings through its logistics segment, which was
rebranded during the first quarter of 2016 as USAT Logistics. This segment was formerly referred to as Strategic
Capacity Solutions, or “SCS”.
The Company has two reportable segments: (i) Trucking, consisting of the Company’s truckload and dedicated
freight service offerings and (ii) USAT Logistics, consisting of the Company’s freight brokerage and rail intermodal
service offerings. The Company’s truckload segment transports customer freight over irregular routes utilizing
equipment owned by either the Company or independent contractors as a medium- to long-haul common carrier.
Our dedicated freight services provide similar freight transport services, but do so pursuant to agreements whereby
the Company makes equipment available to a specific customer for shipments over particular routes at specified
times. USAT Logistics provides services which complement USA Truck’s Trucking services. USAT Logistics has
represented approximately 30% of USA Truck’s consolidated operating revenue in each of the past three
consecutive years and our goal is to grow it to a run rate of approximately 45% of consolidated operating revenue by
the end of 2017. Financial information regarding these segments and assets and revenues relating to foreign
operations is provided in the notes to the consolidated financial statements in Part II, Item 8 of this Form 10-K.
Turnaround Plan
In January 2017, USA Truck appointed a new Chief Executive Officer, James Reed, and appointed Jim Craig as
Executive Vice President Chief Commercial Officer, in addition to his role as President USAT Logistics. Martin
Tewari continues to lead our Trucking operations as President Trucking. Through the realignment of its senior
management team, the Company believes that it will be better able to execute profit improvement initiatives and
develop a strong focus on capitalizing growth opportunities that are expected to drive greater value for the
Company’s stockholders. During 2016, the loss of several customers, driver retention challenges, and lower
seasonal freight volumes, combined with an unfavorable rate environment and a higher number of unseated tractors,
produced disappointing results in both of the Company’s operating segments. The Company remains committed to
its turnaround plan, which has the following main components:
Profitable Revenue Growth. During 2017, the Company intends to focus on profitable revenue growth in both
of its segments.
Growth of Trucking revenue: The combination of lower demand and excess industry-wide trucking
capacity led to pressure on volumes and freight rates throughout 2016. Customer bid activity trends during
the first half of 2016 were mixed, as some customers took advantage of the favorable shorter-term rate
trends to the detriment of carriers. Based on these factors, our base revenue per loaded mile decreased
year-over-year by 7.4%. The Company believes its rates are below its peers and there is significant
opportunity for improvement, principally due to improvements in its operations and service levels as well
as in the second half of 2017, when capacity is expected to tighten with the scheduled implementation of
the electronic logging device (“ELD”) regulatory mandate in December 2017. Moving into 2017,
2
management expects to continue refining the Company’s freight network toward a more optimal mix of
lanes and markets in its Trucking business, work toward seating a higher percentage of the Company’s fleet
and growing the independent contractor fleet, and focus on improving rates, all with the goal of better
utilizing Company tractors and improving key operating metrics.
Growth of USAT Logistics market share: USAT Logistics captured market share during 2016, as
demonstrated by load count despite a soft market, by implementing new client- and carrier-focused roles,
and increased its load count by approximately 3% year-over-year while maintaining its gross margin
percentage. The Company launched several initiatives it expects will drive further market share expansion,
including the introduction of an outside sales agent program, growing its trailer-on-flatcar offering to
specific strategic markets, the creation of USAT Logistics de Mexico, and growing its Plus Power fleet.
The Company intends to aggressively pursue opportunities in this segment and grow the percentage of
revenue attributable to the asset-light marketplace throughout 2017, with a goal of growing it to a run rate
of approximately 45% of consolidated operating revenues by the end of 2017.
Operational Execution and Cost Effectiveness. During 2016, the Company continued to focus on improving
customer service and reducing controllable costs, particularly for Trucking maintenance expense. Attention to these
items will be accentuated during 2017 with greater internal accountability measures and focus on timely delivery of
objectives. The initiatives undertaken by the Company during 2016 include:
Disposal of high cost equipment The Company-owned tractor fleet was reduced by approximately 150 or
10% year over year to match capacity demand, and to bring the trailer to tractor ratio closer to 3:1. This
reduction in fleet contributed to improved utilization and greater mileage for our professional drivers. The
Company expects to take delivery of approximately 40 tractors in 2017 and plans to defer any future tractor
purchases until industry conditions improve.
Focus on cost control The Company continued transitioning maintenance costs from fixed to variable
while identifying additional opportunities to reduce controllable costs. Building upon the closure of four
maintenance facilities over the last two years, the Company outsourced a significant portion of its direct
repair and maintenance spend, including its entire mounted tire program. In addition, USA Truck
restructured its road assistance program to reduce costs and increase reliability, which included eliminating
unnecessary call fees, making better use of engine diagnostics capabilities and offering better service to
drivers. The restructured road assistance program contributed to a $1.7 million improvement in operations
and maintenance expense in the fourth quarter of 2016 as compared to the fourth quarter of 2015. The
Company still maintains a small footprint of strategic shops with a focus on preventative maintenance and
equipment sales preparation with the goal of further reducing maintenance costs. With respect to overhead,
USA Truck implemented a further reduction in force and decided not to fill certain open positions and has
taken additional steps in the first quarter of 2017 that the Company expects will decrease ongoing fixed
costs. USAT Logistics reconfigured its regional center network in the fourth quarter of 2016, converting
several smaller offices to sales offices, supported operationally by larger regional centers. This
restructuring in USAT Logistics is expected to reduce annual fixed costs by $0.6 million while maintaining
revenue contribution from those smaller offices.
Operations
The Company focuses marketing efforts on customers who have consistent shipping needs within USA Truck’s
primary operating areas which are predominantly located in the eastern half of the United States. Over 90% of the
Company’s top 100 customers utilized more than one of the Company’s service offering in 2016. This focused
operating area for Trucking, nationwide service for USAT Logistics, and cross-marketing of service offerings
permits the strategic positioning of available equipment and allows the Company to provide its customers with a full
array of supply chain transportation solutions. In addition, USA Truck team members have cultivated a thorough
understanding of the needs of shippers in key industries. The Company believes this helps it develop long-term,
service-oriented relationships with its customers.
USA Truck has a diversified freight and customer base. During 2016, the Company’s largest 5, 10, 25 and 50
customers comprised approximately 29%, 40%, 57% and 72% of its operating revenue, respectively. The Company
provided service to more than 900 customers in 2016 across all USA Truck service offerings. The Company
believes its broad customer base has allowed it to remain appropriately diversified, as no single customer generated
more than 10% of the Company’s revenue in 2016.
3
While the Company prefers direct relationships with customers, obtaining shipments through other providers of
transportation or logistics services is a significant opportunity. Securing freight through a third party enables USA
Truck to provide services for high-volume shippers to which it might not otherwise have access because many of
these shippers require their carriers to conduct business with their designated third party logistics provider.
Customers are billed at or shortly after delivery. During 2016, receivables collection averaged approximately
47 days from the billing date, compared to an average of approximately 38 days and 44 days during 2015 and 2014,
respectively. The increase in days to collection resulted in part to customer requests for longer payment terms
during the 2016 bid season. In addition, a few of the Company’s larger customers extended their payment terms to
60 days and greater. A primary goal of management is to reduce the number of days from billing to collection.
The Company primarily operates in the United States and provides services into and out of Mexico and Canada.
Most of the Company’s operating revenue is generated from within the eastern half of the United States. During
2016, 2015 and 2014 approximately 9%, 8% and 10%, respectively, of the Company’s operating revenue was
generated in Mexico and Canada. All foreign revenue is collected in United States dollars. All Company-owned
tractors are domiciled in the United States. The Company does not separately track domestic and foreign long-lived
assets, providing such information would not be meaningful to the business. Substantially all of the Company’s
long-lived assets are, and have been for the last three fiscal years, located within the United States.
The Company’s Trucking segment is supported primarily by driver managers, load planners and customer
service representatives. These teams monitor the location of equipment and direct its movement in a safe, efficient
and practicable manner. Each driver manager supervises assigned professional drivers and is the primary contact
with the professional drivers. Load planners assign all available units and loads in a manner intended to maximize
profit and minimize costs. Customer service representatives work to fulfill shippers’ needs, solicit freight, and
ensure on-time delivery by monitoring loads. The Company makes trucks available for dispatch, selecting freight
with a network and yield management focus, and efficiently matches that freight to available truck capacity, all of
which the Company strives to achieve without sacrificing customer service, equipment utilization, driver retention
or safety.
The USAT Logistics segment has a network of both regional and sales offices located throughout the
continental United States. We believe that regionalization allows greater market insight and strengthens
relationships with customers while capitalizing on the skills of the leaders managing these centers. The specific
locations of branch offices are selected for the availability of talent in those markets. USAT Logistics employed
approximately 110 people as of December 31, 2016. Most of the USAT Logistics team interacts directly with
customers and carriers, matching customers’ freight needs with available third-party capacity in the marketplace.
USAT Logistics also has staff that screen, validate and select third-party carriers that are used to transport the
freight.
Revenue Equipment
We operate a modern Company tractor fleet to help attract drivers, promote safe operations, and reduce
maintenance and repair costs. The following table shows the age of the Company owned and leased tractors and
trailers as of December 31, 2016:
Model Year:
Tractors(1)(2)
Trailers
2017 ...........................................................................................................
2016 ...........................................................................................................
2015 ...........................................................................................................
2014 ...........................................................................................................
2013 ...........................................................................................................
2012 ...........................................................................................................
2011 ...........................................................................................................
2010 ...........................................................................................................
2009 ...........................................................................................................
2008 ...........................................................................................................
2007 ...........................................................................................................
2006 ...........................................................................................................
2005 and earlier .......................................................................................
Total .....................................................................................................
310
400
298
249
158
--
--
--
--
--
--
--
--
1,415
847
1,543
498
400
298
--
--
392
431
557
567
50
22
5,605
4
(1) Excludes 286 independent contractor tractors.
(2) Includes 377 tractors financed by operating leases and 542 tractors financed by capital leases.
The Company expects the average age of its tractor fleet to be approximately 2.7 years by the end of 2017. The
Company’s equipment purchase and replacement decisions are based on a number of factors, including but not
limited to, new equipment prices, the used equipment market, demand for freight services, prevailing interest rates,
technological improvements, regulatory changes, cost per mile, fuel efficiency, equipment durability, equipment
specifications and driver comfort. Therefore, depending on the circumstances, the Company may accelerate or
delay the acquisition and disposition of its tractors or trailers from time to time.
During 2016, the Company downsized the Company-owned tractor fleet by disposing of its oldest model year
units, resulting in a net decrease of approximately 150 tractors. Goals of this initiative were to further improve fuel
economy, reduce maintenance costs and improve the reliability of the Company’s equipment for the benefit of its
professional drivers and customers.
To simplify driver and mechanic training, control the cost of spare parts and tire inventory and provide for a
more efficient vehicle maintenance program, the Company purchases tractors and trailers manufactured to its
specifications. The Company has in place a preventive maintenance program intended to minimize equipment
downtime and enhance sale or trade-in values.
The Company finances the purchase of revenue equipment through its cash flows from operations, revolving
credit agreement, capital lease arrangements, operating lease agreements and proceeds from sales or trades of used
equipment. Substantially all of the Company’s tractors and trailers are pledged to secure its obligations under
financing arrangements.
During 2016, all Company and independent contractor tractors were equipped with PeopleNet in-cab
technology, enabling two-way communications between the Company and its drivers, through both standardized and
freeform messaging, including electronic logging. The Company has proactively installed ELDs on 100% of its
tractor fleet. This technology enables USA Truck to dispatch drivers efficiently in response to customers’ requests,
to provide real-time information to customers about the status of their shipments and to provide documentation
supporting accessorial charges. Accessorial charges are charges to customers for additional services such as
loading, unloading or equipment delays. In addition, the Company utilizes satellite-based equipment tracking
devices and cargo sensors on virtually all of its trailers. These tracking devices provide the Company with visibility
on the locations and load status of its trailers.
Safety and Risk Management
The Company emphasizes safe work habits as a core value throughout the entire organization, and provides
proactive training and education relating to safety concepts, processes and procedures. The Company conducts
pre-employment, random, reasonable suspicion and post-accident alcohol and substance abuse testing in accordance
with the Department of Transportation (“DOT”) regulations and the Company’s own policies.
Safety training for new drivers begins in orientation, when newly hired team members are taught safe driving
and work techniques that emphasize the Company’s 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 new drivers. New drivers who graduate from the program must
also successfully complete post-training classroom and road testing before being assigned to their own tractor.
Additionally, all Company drivers participate in on-going training that focuses on collision and injury prevention,
among other safety concepts.
The primary risks for which the Company is insured are cargo loss and damage, general liability, personal
injury, property damage, workers’ compensation and employee medical expenses. USA Truck also self-insures for
a portion of claims exposure in each of these areas. 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 team members. The Company maintains
insurance above the amounts for which it self-insures, subject to certain limits, with licensed insurance carriers. The
Company has excess general, auto and employer’s liability coverage in amounts substantially exceeding minimum
5
legal requirements. 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.
Although the Company believes the aggregate insurance limits should be sufficient to cover reasonably
expected claims, it is possible that one or more claims could exceed the Company’s aggregate coverage limits. An
unexpected loss or changing conditions in the insurance market could adversely affect premium levels. As a result,
the Company’s insurance and claims expense could increase, or USA Truck could raise its self-insured retention or
decrease the Company’s aggregate coverage limits when its policies are renewed or replaced. If these costs
increase, if reserves are increased, if claims in excess of coverage limits are experienced, or if a claim is experienced
where coverage is not provided, the Company’s results of operations and financial condition in any one quarter or
annual period could be materially and adversely affected.
Team Members
As of December 31, 2016, the Company had approximately 2,000 team members, of which about 72% were
Company drivers. No team members are subject to union contracts or part of a collective bargaining unit. The
Company believes team member relations to be good.
Recruitment, training, and retention of a professional driver workforce, the Company’s most valuable asset, are
essential to the Company’s continued growth and fulfillment of customer needs. USA Truck hires qualified
professional drivers who hold a valid commercial driver’s license, satisfy applicable federal and state safety
performance and measurement requirements, and meet USA Truck’s hiring parameters. These guidelines relate
primarily to safety history, road test evaluations, and various other evaluations, which include physical examinations
and mandatory drug and alcohol testing. In order to attract and retain safe drivers who are committed to customer
service and safety, the Company focuses its operations for drivers around a collaborative and supportive team
environment. The Company provides comfortable, late model equipment, direct communication with senior
management, competitive wages and benefits, and other incentives intended to encourage driver safety, retention,
and long-term employment. The Company values its relationship with its drivers and structures its driver retention
model with a focus on a long-term career with USA Truck. Drivers are compensated on a per mile basis, based on
the length of haul and a predetermined number of miles. Drivers are also compensated for accessorial services
provided to customers. Drivers and other employees are encouraged to participate in the Company’s 401(k)
program, and Company-sponsored health, life, and dental plans. The Company believes these factors help in
attracting, recruiting, and retaining professional drivers in a competitive driver market.
Independent Contractors
In addition to Company drivers, USA Truck enters into contracts with independent contractors, who provide a
tractor and a driver and are responsible for all operating expenses in exchange for a fixed rate per mile. As of
December 31, 2016, the Company had contracts with 286 independent contractors, which was an 8.3% increase
compared to the prior year end. The Company intends to further increase the size of its independent contractor fleet
to approximately 20% to 25% of its fleet in 2017.
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. 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 as few as one truck and relatively few carriers with revenues exceeding $100 million per
year.
USA Truck competes primarily with other truckload carriers, private fleets and, to a lesser extent, railroads and
less-than-truckload carriers. The principal competitive factors in the truckload segment of the industry are service
and price, with rate discounting becoming particularly important during economic downturns or periods of
uncertainty. USA Truck’s focus is to differentiate itself primarily on the basis of service rather than rates. Although
an increase in the size of the market would benefit all truckload carriers, management believes that successful
carriers are likely to grow by offering additional services to its customers based on customer needs and acquiring a
greater market share.
6
Environmental Regulation
In 2011, the National Highway Traffic Safety Administration (“NHTSA”) and the EPA adopted final rules that
established the first-ever fuel economy and greenhouse gas standards for medium- and heavy-duty vehicles. These
standards apply to model years 2014 to 2018, which are required to achieve an approximate 20 percent reduction in
fuel consumption by 2018, which equates to approximately four fewer gallons of fuel used for every 100 miles
traveled. In 2016 the EPA adopted new stricter greenhouse gas standards that will apply to trailers beginning with
model year 2018 and tractors beginning with model year 2021. The NHTSA additionally adopted stricter fuel
consumption standards in 2016 with voluntary standards beginning with model year 2018 trailers and mandatory
standards beginning with model year 2021 trailers. The Company believes these requirements could result in
increased new tractor prices and additional parts and maintenance costs incurred to retrofit its tractors with
technology to achieve compliance with such standards, which could adversely affect its operating results and
profitability, particularly if such costs are not offset by potential fuel savings. The Company cannot predict,
however, the extent to which its operations and productivity will be impacted.
The California Air Resources Board ("CARB") also adopted emission control regulations that will apply to all
heavy-duty tractors that pull 53-foot or longer box-type trailers within the State of California. The tractors and
trailers subject to these CARB regulations must be either EPA SmartWay certified or equipped with low-rolling
resistance tires and retrofitted with SmartWay-approved aerodynamic technologies. The Company currently
purchases Smart Way certified equipment in its new tractor and trailer acquisitions. Enforcement of these CARB
regulations for 2011 model year equipment began in January 2010 and will be phased in over several years for older
equipment. In addition, in February 2017 CARB proposed California phase 2 standards that generally align with the
federal standards that apply to model year 2018 to 2021 tractors, with some minor additional requirements, and as
proposed would stay in place even if the federal standards are affected by action from the Trump
administration. We will continue monitoring our compliance with the CARB regulations. Federal and state
lawmakers also have proposed potential limits on carbon emissions under a variety of climate-change
proposals. Compliance with such regulations has increased the cost of our new tractors, may increase the cost of
any new trailers that will operate in California, may require us to retrofit certain of our pre-2011 model year trailers
that operate in California, and could impair equipment productivity and increase our operating expenses, including
with respect to our Plus Power fleet. These adverse effects, combined with the uncertainty as to the reliability of the
newly designed diesel engines and the residual values of these vehicles, could materially increase our costs or
otherwise adversely affect our business or operations.
Other Regulation
The Company’s operations are regulated and licensed by various United States federal and state, Canadian
provincial, and Mexican federal agencies. Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. Matters such as weight and equipment dimensions are also subject to United States federal
and state regulation and Canadian provincial regulations. The Company operates in the United States pursuant to
operating authority granted by the DOT, in various Canadian provinces pursuant to operating authority granted by
the Ministries of Transportation and Communications in such provinces, and within Mexico pursuant to operating
authority granted by Secretaria de Comunicaciones y Transportes. To the extent that the Company conducts
operations outside the United States, it is subject to the Foreign Corrupt Practices Act, which prohibits United States
companies and their intermediaries from bribing foreign officials for the purpose of obtaining or retaining favorable
treatment.
The DOT, through the Federal Motor Carrier Safety Administration (the “FMCSA”), imposes safety and fitness
regulations on the Company and its drivers, including rules that restrict driver hours-of-service. In December 2011,
the FMCSA published its 2011 Hours-of-Service Final Rule (the “2011 Rule”). The 2011 Rule requires drivers to
take 30-minute breaks after eight hours of consecutive driving and reduces the total number of hours a driver is
permitted to work during each week from 82 hours to 70 hours. The 2011 Rule provides that the 34-hour restart
may only be used once per week and must include two rest periods between one a.m. and five a.m. (together, the
“2011 Restart Restrictions”).
In December 2014, the 2015 Omnibus Appropriations bill was signed into law. Among other things, the
legislation provided temporary relief from the 2011 Restart Restrictions while the FMCSA conducted a study to
determine whether such restrictions had a positive result on driver safety (the “Study”), and essentially reverted to
the more straightforward 34-hour restart rule that was in effect before the 2011 Rule became effective. In December
2016, a short-term funding bill was signed into law that directly ties the reinstatement of the 2011 Restart
Restrictions to the outcome of the Study and requires the Study to demonstrate that the 2011 Restart Restrictions
7
offer a “statistically significant improvement” in safety related matters in order for the 2011 Restart Restrictions to
be reinstated. If the 2011 Restart Restrictions are reinstated, the Company may experience a decrease in production
similar to that experienced during 2013 and 2014 when the 2011 Restart Restrictions were in effect.
There are two methods of evaluating the safety and fitness of carriers. The first method is the application of a
safety rating that is based on an onsite investigation and affects a carrier’s ability to operate in interstate commerce.
The Company currently has a satisfactory DOT safety rating under this method, which is the highest available rating
under the current safety rating scale. If the Company were to receive a conditional or unsatisfactory DOT safety
rating, it could adversely affect the Company’s business, as some of its existing customer contracts require a
satisfactory DOT safety rating. In January 2016, the FMCSA published a Notice of Proposed Rulemaking outlining
a revised safety rating measurement system, which would replace the current methodology. Under the proposed
rules, the current three safety ratings of “satisfactory,” “conditional,” and “unsatisfactory” would be replaced with a
single safety rating of “unfit.” Moreover, data from roadside inspections and the results from all investigations
would be used to determine a carrier’s fitness on an ongoing basis. This would replace the current methodology of
determining a carrier’s fitness based solely on infrequent comprehensive onsite reviews. The proposed rules
underwent a 90-day public comment period, which led to a determination by the FMCSA that a Supplemental
Notice of Proposed Rulemaking would be necessary in 2017. It is therefore uncertain when or if a final rule could
be published or whether the rule will become subject to further legislative reviews and delays.
In addition to the safety rating system, the FMCSA has adopted the Compliance Safety Accountability program
(“CSA”) as an additional safety enforcement and compliance model that evaluates and ranks fleets on certain
safety-related standards. The CSA program analyzes data from roadside inspections, moving violations, crash
reports from the last two years, and investigation results. The data is organized into seven categories. Carriers are
grouped by category with other carriers that have a similar number of safety events (e.g., crashes, inspections, or
violations) and carriers are ranked and assigned a rating percentile to prioritize them for interventions if they are
above a certain threshold. Currently, these scores do not have a direct impact on a carrier’s safety rating. However,
the occurrence of unfavorable scores in one or more categories may (i) affect driver recruiting and retention by
causing high-quality drivers to seek employment with other carriers, (ii) cause the Company’s customers to direct
their business away from the Company and to carriers with higher fleet safety rankings (iii), subject the Company to
an increase in compliance reviews and roadside inspections, or (iv) cause the Company to incur greater than
expected expenses in its attempts to improve unfavorable scores, any of which could adversely affect the Company’s
results of operations and profitability.
Under CSA, these scores were initially made available to the public in five of the seven categories. However,
pursuant to the Fixing America’s Surface Transportation Act, which was signed into law in December 2015, the
FMCSA is required to remove from public view the previously available CSA scores while it reviews the reliability
of the scoring system. During this period of review by the FMCSA, the Company will continue to have access to its
own scores and will still be subject to intervention by the FMCSA when such scores are above the intervention
thresholds. The Company continues to maintain a satisfactory rating with the DOT, and will continue to promote
improvement of scores in all seven categories with ongoing reviews of all safety-related policies, programs and
procedures for their effectiveness.
In 2015, the FMCSA issued final rules that would require nearly all carriers, including the Company, to install
ELDs in their tractors to electronically monitor truck miles and enforce hours-of-service. The final rule was
published in December 2015, and requires the use of ELDs by nearly all carriers by December 2017. The Company
has proactively installed ELDs on 100% of its tractor fleet.
In the aftermath of the September 11, 2001 terrorist attacks, federal, state and municipal authorities
implemented and continue to implement various security measures, including checkpoints and travel restrictions on
large trucks. The Transportation Security Administration (the “TSA”) has adopted regulations that require
determination by the TSA that each driver who applies for or renews his license for carrying hazardous materials is
not a security threat.
In November 2015, the FMCSA published its final rule related to driver coercion, which took effect in January
2016. Under this rule, carriers, shippers, receivers, or transportation intermediaries that are found to have coerced
drivers to violate certain FMCSA regulations (including hours-of-service rules) may be fined up to $16,000 for each
offense.
8
In August 2016, the NHTSA and FMCSA published a Notice of Proposed Rulemaking proposing to establish
regulations requiring a speed limiting device on trucks with a gross vehicle weight over 26,000 pounds to cap
maximum truck speeds at 60, 65 or 68 mph. The proposed rules underwent a 90-day public comment period ending
in December 2016, but no further action has been announced. Because the proposed rules could become subject to
further legislative reviews and delays, it is uncertain if or when these proposed rules could take effect. If these rules
become effective, it could result in a decrease in fleet production, which could adversely affect the Company’s
results of operations and profitability.
In December 2016, FMCSA and DOT published the Commercial Driver’s License Drug and Alcohol
Clearinghouse rule as mandated by the Moving Ahead for Progress in the 21st Century Act. The rule establishes
and mandates a query to the Clearinghouse by employers and prospective employers to determine if current or
prospective drivers have had any drug/alcohol positives or refusals. The rule went into effect in January 2017 and
mandates compliance by January 2020 to allow time for the design and implementation of the clearinghouse IT
systems. When compliance becomes mandatory, it could result in a decrease in driver availability and adversely
affect the Company’s operations.
For further discussion regarding such laws and regulations, refer to the “Risk Factors” section under Part 1,
Item 1A of this Form 10-K.
Seasonality
In the trucking industry, revenue has historically followed a seasonal pattern for various commodities and
customer businesses. Peak freight demand has historically occurred in the months of September, October and
November. After the December holiday season and during the remaining winter months, freight volumes are
typically lower as many customers reduce shipment levels. Operating expenses have historically been higher in the
winter months due primarily to decreased fuel efficiency, increased cold weather-related maintenance costs of
revenue equipment and increased insurance and claims costs attributed to adverse winter weather conditions.
Revenue can also be impacted by weather, holidays and the number of business days that occur during a given
period, as revenue is directly related to the available working days of shippers.
Available Information
USA Truck was incorporated in Delaware in September 1986 as a wholly owned subsidiary of ABF Freight
System, Inc., and was purchased by management in December 1988. The initial public offering of the Company’s
common stock was completed in March 1992.
The Company’s principal offices are located at 3200 Industrial Park Road, Van Buren, Arkansas 72956, and its
telephone number is (479) 471-2500.
The Company maintains a website where additional information regarding USA Truck’s business and
operations may be found. The website address is www.usa-truck.com. The website provides certain investor
information available free of charge, including the Company’s Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K, stock ownership reports filed under Section 16 of the Exchange Act, and
any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. The
website also includes Interactive Data Files required to be posted pursuant to Rule 405 of SEC Regulation S-T.
Information provided on the Company website is not incorporated by reference into this Form 10-K, and you should
not consider information on our website to be part of this Form 10-K.
ITEM 1A. RISK FACTORS
The following risks and uncertainties may cause our actual results, business, financial condition and cash flows
to differ from those anticipated in the forward-looking statements included in this Form 10-K. You should not place
undue reliance on forward-looking statements made herein because such statements speak only to the date they were
made. We undertake no obligation or duty to revise or update any forward-looking statements contained herein to
reflect subsequent events or circumstances or the occurrence of unanticipated events, except as required by law.
Also refer to the Cautionary Note Regarding Forward-Looking Statements in Part I of this Form 10-K.
9
Our business is subject to general economic, credit, 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 truckload industry is highly cyclical, and our business is dependent on a number of factors that may have a
materially adverse effect on our results of operations, many of which are beyond our control. We believe that some
of the most significant of these factors include (i) excess tractor and trailer capacity in the trucking industry in
comparison with shipping demand; (ii) declines in the resale value of used equipment, (iii) strikes, work stoppages,
or work slowdowns at our facilities or at customer, port, border crossing, or other shipping-related facilities; (iv)
increases in interest rates, fuel taxes, tolls, and license and registration fees; and (v) rising costs of healthcare.
We are affected by (i) recessionary economic cycles, such as the period from 2007 through 2009 and the 2016
freight environment, which was characterized by weak demand and downward pressure on rates; (ii) changes in
customers’ inventory levels and in the availability of funding for their working capital; and (iii) downturns in our
customers’ business cycles, particularly in market segments and industries, such as retail and manufacturing, where
we have significant customer concentration, and regions of the country, such as the Midwest and Southeast, where
we have a significant amount of business. Economic conditions may adversely affect our customers and their
demand for and ability to pay for our services. We may be required to increase our allowance for doubtful accounts
for customers encountering adverse economic conditions. These economic conditions may adversely affect our
ability to execute our turnaround plan.
Economic conditions that decrease shipping demand or increase the supply of available tractors and trailers can
exert downward pressure on rates and equipment utilization, thereby decreasing asset productivity. The risks
associated with these factors are heightened when the United States economy is weakened. Some of the principal
risks during such times, which risks we have experienced during prior recessionary periods, are as follows:
we may experience low overall freight levels, which may reduce our asset utilization;
freight patterns may change as supply chains are redesigned, resulting in an imbalance between our
capacity and our customers’ freight demand;
customers may bid out freight or select competitors that offer lower rates in an attempt to lower their costs,
and we might be forced to lower our rates or lose freight;
we may be forced to accept more loads from freight brokers, where freight rates are typically lower, or may
be forced to incur more non-revenue generating miles to obtain loads; and
lack of access to current sources of capital, leading to an inability to secure financing on satisfactory terms,
or at all.
We are subject to cost increases that are outside our control that could materially reduce our profitability if we
are unable to increase our rates sufficiently. Such costs include, but are not limited to, increases in fuel prices,
driver and office employee wages, purchased transportation costs, taxes, interest rates, tolls, license and registration
fees, insurance and claims, revenue equipment and related maintenance, tires and other components, and healthcare
and other benefits for our employees. Further, we may not be able to appropriately adjust our costs to changing
market demands. In order to maintain high variability in our business model, it is necessary to adjust staffing levels
to changing market demands. In periods of rapid change, it is more difficult to match our staffing level to our
business needs.
Changing impacts of regulatory measures could adversely impact our operating efficiency and productivity,
decrease our operating revenues and profitability, and result in higher operating costs. In addition, declines in the
resale value of revenue equipment can also affect our profitability and cash flows. From time to time, various U.S.
federal, state, or local taxes could also increase, including taxes on fuels. We cannot predict whether, or in what
form, any such increase applicable to us will be enacted, but such an increase could adversely affect our results of
operations.
In addition, we cannot predict future economic conditions, fuel price fluctuations, or how consumer confidence
could be affected by actual or threatened armed conflicts or terrorist attacks, government efforts to combat terrorism,
military action against a foreign state or group located in a foreign state, or heightened security requirements.
Enhanced security measures in connection with such events could impair our operating efficiency and productivity
and result in higher operating costs.
10
We operate in a highly competitive and fragmented industry, and numerous competitive factors could impair our
ability to improve our results of operations.
Numerous competitive factors present in our industry could impair our ability to maintain or improve our
current profitability and could have a materially adverse effect on our results of operations. These factors include
the following:
We compete with many other truckload carriers of varying sizes and, to a lesser extent, with
less-than-truckload carriers, railroads, and other transportation and logistics companies, many of which
have access to more equipment and greater capital resources than we do.
Many of our competitors periodically reduce their freight rates to gain business, especially during times of
reduced growth rates in the economy or overcapacity, which may limit our ability to maintain or increase
freight rates or maintain significant growth in our business.
Some of our customers also operate their own private trucking fleets, and they may decide to transport
more of their own freight.
Many customers reduce the number of carriers they use by selecting so-called "core carriers" as approved
service providers or by engaging dedicated providers, and in some instances we may not be selected.
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.
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.
The market for qualified drivers is increasingly competitive, and our inability to attract and retain drivers
could reduce our equipment utilization or cause us to increase compensation, both of which would
adversely affect our profitability.
Competition from non-asset-based and other logistics and freight brokerage companies may adversely
affect our customer relationships and freight rates.
Economies of scale that may be passed on to smaller carriers by procurement aggregation providers may
improve their ability to compete with us.
Advances in technology may require us to increase investments in order to remain competitive, and our
customers may not be willing to accept higher freight rates to cover the cost of these investments.
Higher fuel prices and, in turn, higher fuel surcharges to our customers may cause some of our customers to
consider freight transportation alternatives, including rail transportation.
We face various risks associated with stockholder activists, which may be disruptive to our business.
Activist stockholders have in the past advocated for certain changes at USA Truck and may attempt to gain
representation on or control of our board of directors, through a proxy contest or other means, the possibility of
which may create uncertainty regarding our future. These perceived uncertainties may make it more difficult to
attract and retain qualified personnel, raise customer concerns, or cause volatility in the price of our common
stock. The presence of such activist stockholders, a potential proxy contest, or an activist stockholder lawsuit also
may create a significant distraction for our management team and require us to expend significant time and
resources, depending on the nature of the activists’ agendas, and could interfere with our ability to execute our
turnaround plan and other strategic initiatives. Although we are not currently aware of any activist stockholders
who own a substantial portion of our stock at this time, we cannot assure you that we will be able to agree to
favorable terms with activist stockholders that might acquire an interest in our Company.
11
Certain provisions of our corporate documents and Delaware law could deter acquisition proposals and make it
difficult for a third party to acquire control of the Company.
Provisions in our Restated and Amended Certificate of Incorporation (“Certificate of Incorporation”) may
discourage, delay, or prevent a change of control or changes in our board of directors or management that our
stockholders may consider favorable. For example, our Certificate of Incorporation authorizes the board of directors
to issue up to 1,000,000 shares of “blank check” preferred stock. Without stockholder approval, our board of
directors has the authority to attach special rights, including voting and dividend rights, to this preferred stock,
which could make it more difficult for a third party to acquire the Company. Our Certificate of Incorporation also
provides:
for a classified board of directors, whereby directors serve for staggered three-year terms, making it more
difficult for a third party to obtain control of the board of directors through a single proxy contest;
that vacancies on the board of directors may be filled only by the remaining directors in office, even if only
one director remains in office;
that directors may only be removed for “cause” and only by the affirmative vote of the holders of at least a
majority of our outstanding common stock;
that the affirmative vote of the holders of at least 66 2/3% of the voting power of our outstanding common
stock is required to approve any merger or consolidation with any other business entity that requires
approval of the stockholders;
that stockholders can only act by written consent if such consent is signed by the holders of at least 66
2/3% of our outstanding common stock; and
that each of the provisions set forth above may only be amended by the holders of at least 66 2/3% of our
outstanding common stock.
Our Amended and Restated Bylaws also require advance notice of all stockholder proposals, including
nominations for election as director, and provide that a special meeting of stockholders may be called only by the
Chairman of the Board, the Chief Executive Officer, the President, or by a majority of the entire board of directors.
We have in the past adopted a stockholder rights plan, which was voluntarily terminated by the board of directors in
April 2014, and may in the future adopt new stockholder rights plans. We are also subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. Under these provisions, if anyone becomes an
“interested stockholder,” we may not enter into a “business combination” with that person for three years without
special approval, which could discourage a third party from making a takeover offer and could delay or prevent a
change of control. For purposes of Section 203, “interested stockholder” means, generally, someone owning 15% or
more of our outstanding voting stock during the prior three years, subject to certain exceptions as described in
Section 203. These provisions will apply even if the change may be considered beneficial by some of our
stockholders, and thereby negatively affect the price that investors might be willing to pay in the future for our
common stock. In addition, to the extent that these provisions discourage an acquisition of our Company or other
change of control transaction, they could deprive stockholders of opportunities to realize takeover premiums for
their shares of our common stock.
We could become subject to unsolicited takeover proposals, which may be disruptive to our business.
The trading price of our common stock is currently at a level that we believe may make us a target for an
unsolicited takeover proposal. We have in the past been subject to unsolicited takeover proposals and could become
subject to such proposals in the future. Responding to such proposals, exploring the availability of alternative
transactions that reflect our full intrinsic value and instituting legal action in connection therewith has in the past
created a significant distraction for our management team and required us to expend significant time and resources,
and we believe any future unsolicited proposals would cause similar disruptions to our business. Such proposals
may disrupt our business by causing uncertainty among current and potential employees, suppliers, and customers,
which could negatively impact our financial condition, results of operations and strategic initiatives and cause
volatility in our stock price. These consequences, alone or in combination, may have a materially adverse effect on
our business. Although, we have entered into a change of control/severance plan with certain of our officers and
members of our management team, the change of control arrangements may not be adequate to allow us to retain
critical employees during a time when a change of control is being proposed or is imminent.
12
Our indebtedness and capital and operating lease obligations could adversely affect our ability to respond to
changes in our industry or business.
Our level of indebtedness and lease obligations has increased in recent periods. As a result of our level of debt,
capital leases, operating leases, and encumbered assets, we believe:
our vulnerability to adverse economic conditions and competitive pressures is heightened;
we will continue to be required to dedicate a substantial portion of our cash flows from operations to lease
and interest payments and repayment of debt, limiting the availability of cash for other purposes;
our flexibility in planning for, or reacting to, changes in our business and industry will be limited;
our results of operations and cash flows are sensitive to fluctuations in interest rates because some of our
debt obligations are subject to variable interest rates, and future borrowings and lease financing
arrangements will be affected by any such fluctuations;
our ability to obtain additional financing in the future for working capital, capital expenditures,
acquisitions, or other purposes may be limited; and
we may be required to issue additional equity securities to raise funds, which would dilute the ownership
position of our stockholders
Our financing obligations could negatively impact our future operations, our ability to satisfy our capital needs,
or our ability to engage in other business activities. We also cannot assure you that additional financing will be
available to us when required or, if available, will be on terms satisfactory to us.
Our revolving credit agreement and other financing arrangements contain certain covenants, restrictions, and
requirements that we may be unable to comply with. A default could result in the acceleration of all or part of
any outstanding indebtedness, which could have an adverse effect on our financial condition, liquidity, results of
operations, and the market price of our common stock.
In February 2015, we entered into a new senior secured revolving credit agreement (the “Credit Facility”) with
a group of lenders and Bank of America, N.A., as agent. We also have other financing arrangements.
The Credit Facility contains a single springing financial covenant, which requires us to maintain a consolidated
fixed charge coverage ratio of at least 1.0 to 1.0. The financial covenant springs only in the event excess availability
under the Credit Facility drops below 10% of the lenders’ total commitments under the Credit Facility. We may be
subject to certain additional restrictions in the event excess availability under the Credit Facility drops below 20% of
the lenders' total commitments under the Credit Facility. The fixed charge ratio is affected by our level of earnings
and is adversely affected by operating losses and other charges such as severance costs and impairment charges. In
recent periods, we have incurred operating losses, severance and restructuring costs and impairment charges relating
to, among others, a decline in the appraised value of our Company-owned revenue equipment fleet. Future
operating losses, severance and restructuring actions and further declines in the appraised value of our
Company-owned revenue equipment fleet would adversely affect our fixed charge ratio and could impair our ability
to make further borrowings under our Credit Facility.
The Credit Facility contains certain restrictions and covenants related to, among other things, dividends, liens,
acquisitions and dispositions, affiliate transactions, and the incurrence of other indebtedness. The Credit Facility is
secured by a pledge of substantially all of our assets, with the exclusion of any real estate or revenue equipment
financed outside the Credit Facility. The Credit Facility includes usual and customary events of default for a facility
of this nature and provides that, upon the occurrence and continuation of an event of default, payment of all amounts
payable under the Credit Facility may be accelerated, and the lenders’ commitments may be terminated.
If we fail to comply with any of our financing arrangement covenants, restrictions, or requirements, we would
be in default under the relevant agreement. In the event of any such default, if we failed to obtain replacement
financing or amendments to, or waivers under, the applicable financing arrangements, existing lenders could cease
to make further advances, declare existing debt to be immediately due and payable, fail to renew letters of credit,
impose significant restrictions and requirements on our operations, institute foreclosure proceedings against
13
collateralized assets, or impose significant fees. If acceleration occurs, it may be difficult or expensive to refinance
the accelerated debt and the issuance of additional equity securities could dilute stock ownership. Even if new
financing can be procured, more stringent borrowing terms could mean that credit is not available to us on
acceptable terms. A default under these financing arrangements could cause a materially adverse effect on the
liquidity, financial condition, and results of operations.
We have significant ongoing capital requirements that could adversely affect our profitability if we are unable to
generate sufficient cash from operations, or obtain financing on favorable terms.
The truckload industry is capital intensive, and our policy of operating newer equipment requires us to expend
significant amounts annually. We expect to pay for projected capital expenditures with funds provided by
operations, borrowings under the Credit Facility, proceeds from the sale of used revenue equipment, and capital and
operating leases. We base our equipment purchase and replacement decisions on a number of factors, including the
state of the economic environment, new equipment prices, the used equipment market, demand for freight services,
prevailing interest rates, technological improvements, regulatory changes, cost per mile, fuel efficiency, equipment
durability, equipment specifications, and driver comfort.
While we do not have plans to acquire significant amounts of equipment in 2017, absent an improvement in
economic conditions, in the future, if we are unable to generate sufficient cash from operations or obtain borrowing
on favorable terms, we may be forced to further limit our growth, enter into less favorable financing arrangements,
or operate revenue equipment for longer periods, any of which could have a materially adverse effect on our results
of operations.
We self-insure for a portion of our claims exposure, which could significantly increase the volatility of, and
decrease the amount of, our earnings.
Our business results in a number of claims and litigation related to personal injuries, property damage, workers’
compensation, healthcare, and other issues. We self-insure a portion of our claims exposure, which could increase
the volatility of, and decrease the amount of, our earnings, and could have a materially adverse effect on our results
of operations. Our future insurance and claims expenses may exceed historical levels, which could reduce our
earnings. We currently accrue amounts for liabilities based on our assessment of claims that arise and our insurance
coverage for the periods in which the claims arise and we evaluate and revise these accruals from time-to-time based
on additional information. Due to our high self-insured amounts, we have significant exposure to fluctuations in the
number and severity of claims and the risk of being required to accrue or pay additional amounts if our estimates are
revised or the claims ultimately prove to be more severe than originally assessed. At certain times in the past, we
have had to adjust our reserves, and future significant adjustments may occur. Further, our self-insured retention
levels could change and result in more volatility than in recent years.
We maintain insurance for most risks above the amounts for which we self-insure with licensed insurance
carriers. If any claim were to exceed our coverage, or fall outside the aggregate coverage limit, we would bear the
excess or uncovered amount, in addition to our self-insured amount. Although we believe our aggregate insurance
limits are sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed those
limits. Insurance carriers have recently raised premiums for the trucking industry. Our insurance and claims
expense could increase if we have a similar experience at renewal, or we could find it necessary to raise our
self-insured retention or decrease our aggregate coverage limits when our policies are renewed or replaced. Should
these expenses increase, we become unable to find excess coverage in amounts we deem sufficient, we experience a
claim in excess of our coverage limits, we experience a claim for which we do not have coverage, or we have to
increase our reserves, there could be a materially adverse effect on our results of operations and financial condition.
Healthcare legislation and cost inflation also could negatively impact financial results by increasing annual
employee healthcare costs going forward. In addition, rising healthcare costs could force us to make changes to
existing benefits program, which could negatively impact our ability to attract and retain employees.
Fluctuations in the price or availability of fuel, the volume and terms of diesel fuel purchase commitments,
surcharge collection, and hedging activities may increase our costs of operations.
Fuel is one of our largest operating expenses. Diesel fuel prices fluctuate greatly due to factors beyond our
control, such as political events, terrorist activities, armed conflicts, commodity futures trading, devaluation of the
dollar against other currencies, and hurricanes and other natural or man-made disasters, each of which may lead to
an increase in the cost of fuel. Fuel prices also are affected by the rising demand for fuel in developing countries,
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and could be materially adversely affected by the use of crude oil and oil reserves for purposes other than fuel
production and by diminished drilling activity. Such events may lead not only to increases in fuel prices, but also to
fuel shortages and disruptions in the fuel supply chain. Because our operations are dependent upon diesel fuel,
significant diesel fuel cost increases, shortages, or supply disruptions could materially adversely affect our business,
financial condition and results of operations.
Fuel also is subject to regional pricing differences and is often more expensive in certain areas where we
operate. Increases in fuel costs, to the extent not offset by rate per mile increases or fuel surcharges, have a
materially adverse effect on our results of operations. While we have fuel surcharge programs in place with a
majority of our customers, which historically have helped us offset the majority of the negative impact of rising fuel
prices associated with loaded or billed miles, we also incur fuel costs that cannot be recovered, such as those
associated with non-revenue generating miles or time when our engines are idling. Moreover, the terms of each
customer’s fuel surcharge program vary, and certain customers have sought to modify the terms of their fuel
surcharge programs to minimize recoverability for fuel price increases. In addition, because our fuel surcharge
recovery lags behind changes in fuel prices, our fuel surcharge recovery may not capture the increased costs we pay
for fuel, especially when prices are rising. This could lead to fluctuations in our levels of reimbursement, which
have occurred in the past. There can be no assurance that such fuel surcharges can be maintained indefinitely or will
be sufficiently effective.
From time to time, we have used hedging contracts and volume purchase arrangements to attempt to limit the
effect of price fluctuations. Hedging arrangements effectively allow us to pay a fixed rate for fuel on gallons hedged
that is determined based on the market rate at the time we enter into the hedge. In times of falling diesel fuel prices,
our costs will not be reduced to the same extent they would have reduced if we had not entered into the hedging
contracts and we may incur significant expense in connection with our obligation to make cash payments under such
contracts. Accordingly, in times of falling diesel fuel prices, our results of operations and cash flows could also be
materially adversely affected.
Volatility in the used equipment market could have a materially adverse effect on our business, financial
condition, results of operations.
A decreased demand for used revenue equipment could adversely affect our operating results. As we
continually replace our equipment, we rely on the used equipment market to extract remaining value out of our used
equipment. The market for used equipment is impacted by several factors, including the demand for freight, the
supply of used equipment, the availability of financing, the presence of buyers for export to foreign countries, and,
to a lesser extent, commodity prices for scrap metal. A depressed market for used equipment could require us to
dispose of our revenue equipment at depressed values or to record losses on disposal or impairments of the carrying
values of our revenue equipment that is not protected by residual value arrangements. If there is a deterioration of
resale prices, it could have a materially adverse effect on our business, financial condition, and results of operations.
A deterioration of demand for used equipment could make it more difficult to dispose of and replace older
equipment and may reduce our ability to refresh our fleet, both of which could negatively impact our results of
operations.
Increased prices for new revenue equipment, design changes of new engines, decreased availability of new
revenue equipment, and the failure of manufacturers to meet their sale or trade-back obligations to us could have
a materially adverse effect on our business, financial condition, results of operations.
We are subject to risk with respect to higher prices for new tractors. We have experienced an increase in prices
for new tractors over the past few years, and the resale value of the tractors has not increased to the same
extent. Prices have increased and may continue to increase, due, in part, to government regulations applicable to
newly manufactured tractors and diesel engines, higher commodity prices, and the pricing discretion of equipment
manufacturers. In addition, we have recently equipped our tractors with safety, aerodynamic, and other options that
increase the price of new equipment. More restrictive EPA emissions standards have required vendors to introduce
new engines. These regulations have increased the cost of our new tractors and could impair equipment
productivity, result in lower fuel mileage, and increase our operating expenses. Our business could be harmed if we
are unable to continue to obtain an adequate supply of new tractors and trailers for these or other reasons. As a
result, we expect to continue to pay increased prices for equipment and incur additional expenses and related
financing costs for the foreseeable future. Furthermore, reduced equipment efficiency and lower fuel mileage may
result from new engines designed to reduce emissions, thereby increasing our operating expenses.
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Tractor and trailer vendors may reduce their manufacturing output in response to lower demand for their
products in economic downturns or shortages of component parts. A decrease in vendor output may have a
materially adverse effect on our ability to purchase a quantity of new revenue equipment that is sufficient to sustain
our desired growth rate and to maintain a late-model fleet. Moreover, an inability to obtain an adequate supply of
new tractors or trailers could have a materially adverse effect on our business, financial condition, and results of
operations.
We have a recent history of net losses and may be unsuccessful in maintaining or increasing profitability.
We have reported a net loss in three of the last five years. Achieving profitability depends upon numerous
factors, including the ability to increase average base revenue per tractor, increase utilization, improve driver
retention, and control operating expenses. We may not be able to achieve profitability in the future, which could
negatively impact our liquidity and financial position.
We may not be successful in implementing our realigned management team’s operating procedures, and cost
savings initiatives as part of our turnaround plan.
As part of our turnaround plan, we have implemented changes to our management team and structure, as well as
operating procedures. These changes may not be successful or may not achieve the desired results. Additional
training or different personnel may be required, which may result in additional expense, delays in obtaining results,
or disruptions to operations. Some of these implemented changes include customer service and driver management
changes and cost savings initiatives. These changes and initiatives may not improve our results of operations,
including asset productivity, tractor utilization, driver retention and base revenue per mile. In addition, we may not
be successful in achieving the expected savings in our cost structure, including the areas of equipment maintenance,
equipment operating costs, insurance and claims and fuel economy. In such event, our revenue, financial results,
and ability to operate profitably could be negatively impacted. Further, our operating results could be negatively
affected by a failure to further penetrate our existing customer base, cross-sell our services, pursue new customer
opportunities, and manage the operations and expenses of our USAT Logistics business. There is no assurance we
will be successful in achieving our turnaround plan. If we are unsuccessful in implementing our turnaround plan,
our financial condition, results of operations, and cash flows could be adversely affected.
Management and key employee turnover or failure to attract and retain qualified management and other key
personnel, could have a materially adverse effect on our business, financial condition, and results of operations.
We depend on the leadership and expertise of our executive management team and other key personnel to
design and execute our strategic and operating plans, including our current efforts to improve the profitability of our
Trucking segment and grow our USAT Logistics segment. Our management team has experienced significant
changes in recent years and may continue to experience change. Turnover, planned or otherwise, in key leadership
positions could adversely impact our ability to manage our business efficiently and effectively, and such turnover
can be disruptive and distracting to management, may lead to additional departures of existing personnel, and could
have a materially adverse effect on our results of operations. We must recruit, develop and retain a core group of
managers to realize our goal of expanding our operations, improving our earnings consistency, and positioning
ourselves for long-term operating revenue growth.
Increases in driver compensation or difficulties attracting and retaining qualified drivers could have a materially
adverse effect on our profitability and the ability to maintain or grow our fleet.
Like many truckload carriers, we experience substantial difficulty in attracting and retaining sufficient numbers
of qualified drivers, which includes the engagement of independent contractors, as reflected recently in our unseated
tractor count. The truckload industry periodically experiences a shortage of qualified drivers, particularly during
periods of economic expansion, in which alternative employment opportunities are more plentiful and freight
demand increases, or during periods of economic downturns, in which unemployment benefits might be extended
and financing is limited for independent contractors who seek to purchase equipment or for students who seek
financial aid for driving school. Regulatory requirements, including those related to safety ratings, ELDs and hours
of service (“HOS”) changes, and an improved economy could further reduce the number of eligible drivers or force
us to increase driver compensation to attract and retain drivers. We have seen evidence that stricter HOS regulations
adopted by the DOT have tightened, and may continue to tighten, the market for eligible drivers, and the required
implementation of ELDs in December 2017 may further tighten the market. We believe the shortage of qualified
drivers and intense competition for drivers from other trucking companies will create difficulties in maintaining or
increasing the number of our drivers and may restrain our ability to engage a sufficient number of drivers and
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independent contractors, and our inability to do so could negatively impact our operations. Further, the
compensation we offer our drivers and independent contractor expenses are subject to market conditions, and we
may find it necessary to increase driver compensation and/or become subject to increased independent contractor
expenses in future periods.
In addition, we and many other truckload carriers suffer from a high turnover rate of drivers and independent
contractors. This high turnover rate requires us to continually recruit a substantial number of drivers and
independent contractors and to focus on alternative recruitment methods in order to operate existing revenue
equipment. If we are unable to continue to attract and retain a sufficient number of drivers and independent
contractors, we could be forced to, among other things, adjust our compensation packages, operate with fewer
tractors, or increase the number of tractors without drivers and face difficulty meeting shipper demands, any of
which could have a materially adverse effect on our results of operations.
Our engagement of independent contractors to provide a portion of our capacity exposes us to different risks
than we face with our tractors driven by company drivers.
Pursuant to our fuel surcharge program with independent contractors, we pay independent contractors a fuel
surcharge that increases with the increase in fuel prices. A significant increase or rapid fluctuation in fuel prices
could cause our costs under this program to be higher than the revenue we receive under our customer fuel surcharge
programs.
Our independent contractor agreements are governed by the federal leasing regulations, which impose specific
requirements on us and the independent contractors. If more stringent federal leasing regulations are adopted,
independent contractors could be deterred from becoming independent contractor drivers, which could materially
adversely affect our goal of growing our number of independent contractors.
Independent contractors are third-party service providers, as compared with company drivers, who are our
employees. As independent business owners, they may make business or personal decisions that may conflict with
our best interests. For example, if a load is unprofitable, route distance is too far from home, personal scheduling
conflicts arise, or for other reasons, independent contractors may deny loads of freight from time to time. In these
circumstances, we must be able to deliver the freight timely in order to maintain relationships with customers, and if
we fail to meet certain customer needs or incur increased expenses to do so, this could materially adversely affect
our results of operations.
If the independent contractors we contract with are deemed by regulators or judicial process to be employees,
there could be a materially adverse effect on our results of operations.
Tax and regulatory authorities, as well as independent contractors themselves, have increasingly asserted that
independent contractor drivers in the trucking industry are employees, rather than independent contractors, for a
variety of purposes, including income tax withholding, workers’ compensation, wage and hour compensation,
unemployment, and other issues. Federal legislation has been introduced in the past that would make it easier for
tax and other authorities to reclassify independent contractors as employees, including legislation to increase the
recordkeeping requirements for those that engage independent contractor drivers and to increase the penalties for
companies who misclassify their employees and are found to have violated employees’ overtime and/or wage
requirements. Additionally, federal legislators have sought to (i) abolish the current safe harbor allowing taxpayers
meeting certain criteria to treat individuals as independent contractors if they are following a long-standing,
recognized practice, (ii) extend the Fair Labor Standards Act to independent contractors, and (iii) impose notice
requirements based on employment or independent contractor status and fines for failure to comply. Some states
have put initiatives in place to increase their revenue from items such as unemployment, workers’ compensation,
and income taxes, and a reclassification of independent contractors as employees would help states with these
initiatives. Further, class actions and other lawsuits have been filed against certain members of our industry seeking
to reclassify independent contractors as employees for a variety of purposes, including workers' compensation and
healthcare coverage. Taxing and other regulatory authorities and courts apply a variety of standards in their
determination of independent contractor status. If independent contractors we contract with or have contracted with
are determined to be employees, we would incur additional exposure under federal and state tax, workers’
compensation, unemployment benefits, labor, employment, and tort laws, including for prior periods, as well as
potential liability for employee benefits and tax withholdings.
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Developments in labor and employment law and any unionizing efforts by employees could have a materially
adverse effect on our results of operations.
We face the risk that Congress, federal agencies, or one or more states could approve legislation or regulations
significantly affecting our businesses and our relationship with our employees. None of our domestic employees are
currently covered by a collective bargaining agreement, but any attempt by our employees to organize a labor union
could result in increased legal and other associated costs. Additionally, given the National Labor Relations Board’s
new “speedy election” rule, our ability to timely and effectively address any unionizing efforts would be difficult. If
we entered into a collective bargaining agreement with our domestic employees, the terms could materially
adversely affect our costs, efficiency, and ability to generate acceptable returns on the affected operations.
Additionally, the Department of Labor recently issued a final rule raising the minimum salary basis for
executive, administrative and professional exemptions for overtime payment. The rule increases the minimum
salary from the current amount of $23,660 to $47,476 and non-discretionary bonus, commission and other incentive
payments can be counted towards the minimum salary requirement. The rule was scheduled to go into effect on
December 1, 2016, but was enjoined by a federal district court in November 2016. If this injunction is lifted, these
changes could impact the way we classify certain positions and increase our payment of overtime wages, which may
have a materially adverse impact on our results of operations.
The growth of our asset-light service offering poses unique risks.
We recently began implementing a plan designed to increase the proportion of our revenue obtained from our
“asset-light operations,” which primarily represents our USAT Logistics segment and the independent contractors
we engage. Our goal is that our asset-light operations will result in higher margins, lower capital commitments, and
less risk during times of weakened economic conditions. Execution of this plan involves the risk of customer loss or
deterioration if either our Trucking and USAT Logistics operations creates a customer issue that impacts the other
where we have customer overlap, decreased utilization of Company equipment if loads with desirable profitability
and lanes are allocated to third parties, growth impediments given our need to rely on third party providers and an
independent contractor market that is contracting and subject to litigation and regulatory risks, and competitive
pressures from other asset-light companies with greater financial, personnel, and technological resources. If we are
unsuccessful in achieving this, it may have a materially adverse effect on our future results of operations.
Our USAT Logistics segment and our engagement of independent contractors are dependent upon the services
of third-party capacity providers, including other truckload carriers. For these operations, we do not own or control
the transportation assets that deliver our customers’ freight, and do not employ the people directly involved in
delivering the freight. These third-party providers may seek other freight opportunities or may require increased
compensation in times of improved freight demand or tight trucking capacity. Our inability to secure the services of
these third parties could significantly limit our ability to serve our customers on competitive terms. Additionally, if
we are unable to secure sufficient equipment or other transportation services to meet our commitments to our
customers or provide services on competitive terms, our operating results could be materially and adversely affected.
Our ability to secure sufficient equipment or other transportation services is affected by many risks beyond our
control, including equipment shortages in the transportation industry, particularly among contracted truckload
carriers, interruptions in service due to labor disputes, changes in regulations impacting transportation, and changes
in transportation rates. Further, we believe that the upcoming ELD mandate that is effective in December 2017 may
cause a decrease in third party transportation capacity and make securing such capacity more difficult and/or
expensive.
We derive a significant portion of our revenues from our major customers, the loss of one or more of which could
have a materially adverse effect on our business.
We generate a significant portion of our operating revenue from our major customers. Generally, we do not
have long-term contracts with our major customers. Accordingly, in response to economic conditions, supply and
demand in the industry, our performance, our customers’ internal initiatives, or other factors, our customers may
reduce or eliminate their use of our services, or threaten to do so to gain pricing or other concessions from us.
Economic conditions and capital markets may adversely affect our customers’ ability to remain solvent. Our
customers' financial difficulties can negatively impact our results of operations and financial condition, especially if
these customers were to delay or default on payments owed to us. A reduction in or termination of our services by
one or more of our major customers could have a materially adverse effect on our results of operations.
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We operate in a highly regulated industry, and changes in existing regulations or violations of existing or future
regulations could have a materially adverse effect on our results of operations.
We operate in the United States pursuant to operating authority granted by the DOT, in various Canadian
provinces pursuant to operating authority granted by the Ministries of Transportation and Communications, and our
Mexican business activities are subject to operating authority granted by Secretaria de Comunicaciones y
Transportes. Company drivers and independent contractors also must comply with the safety and fitness regulations
of the DOT, including those relating to drug and alcohol testing, driver safety performance, and HOS. Matters such
as weight, electronic on-board reporting, equipment dimensions, exhaust emissions, and fuel efficiency are also
subject to government regulations. We also may become subject to new or more restrictive regulations relating to
fuel efficiency, exhaust emissions, HOS, ergonomics, electronic on-board reporting of operations, collective
bargaining, security at ports, speed limiters, and other matters affecting safety or operating methods. Future laws
and regulations may be more stringent, require changes in our operating practices, influence the demand for
transportation services, or require us to incur significant additional costs. Higher costs we incur, or higher costs
incurred by suppliers who pass the costs on to us, could have a materially adverse effect our results of operations. In
addition, the Trump administration has indicated a desire to reduce regulatory burdens that constrain growth and
productivity, and also to introduce legislation such as infrastructure spending, that could improve growth and
productivity. Changes in regulations, such as those related to trailer size limits, hours-of-service, and mandating
ELDs, could increase capacity in the industry or improve the position of certain competitors, either of which could
negatively impact pricing and volumes, or require additional investments by us. The short and long term impacts of
changes in legislation or regulations are difficult to predict and could materially adversely affect our
operations. The Regulation section in Item 1 of Part I of this Annual Report on Form 10-K discusses several
proposed, pending, suspended, and final regulations that could materially impact our business and operations and is
incorporated by reference herein.
The CSA program adopted by the FMCSA could adversely affect our results of operations, our ability to maintain
or grow our fleet, and our customer relationships.
Under the CSA, fleets are evaluated and ranked against their peers based on certain safety-related standards. As
a result, our fleet could be ranked poorly as compared to peer carriers. We recruit and retain first-time drivers to be
part of our driver team, and these drivers may have a higher likelihood of creating adverse safety events under
CSA. The occurrence of future deficiencies could affect driver recruitment by causing high-quality drivers to seek
employment with other carriers or limit the pool of drivers we are comfortable hiring or could cause our customers
to direct their business away from us and to carriers with higher fleet safety rankings, either of which would
adversely affect our results of operations. Additionally, competition for drivers with favorable safety backgrounds
may increase, which could necessitate increases in driver-related compensation costs. Further, we may incur greater
than expected expenses in our attempts to improve unfavorable scores.
We have exceeded the established intervention thresholds in a number of the seven CSA safety-related
categories. Based on these unfavorable ratings, we may be prioritized for an intervention action or roadside
inspection, either of which could have a material adverse effect our results of operations. In addition, customers
may be less likely to assign loads to us. We have put procedures in place in an attempt to address areas where we
have exceeded the thresholds. However, we cannot assure you these measures will be effective.
Receipt of an unfavorable DOT safety rating could have a materially adverse effect on our results of operations.
We currently have a satisfactory DOT rating, which is the highest available rating under the current safety
rating scale. If we were to receive a conditional or unsatisfactory DOT safety rating, it could materially adversely
affect our business, financial condition, and results of operations as our customers may require a satisfactory DOT
safety rating, and a conditional or unsatisfactory rating could materially adversely affect or restrict our operations.
The Regulation section in Item 1 of Part I of this Annual Report on Form 10-K discusses several proposed, pending,
suspended, and final regulations that could materially impact our business and operations and is incorporated by
reference herein.
Compliance with various environmental laws and regulations upon which our operations are subject may
increase our costs of operations and non-compliance with such laws and regulations could result in substantial
fines or penalties.
In addition to direct regulation under the DOT and related agencies, we are subject to various environmental
laws and regulations dealing with the hauling and handling of hazardous materials, fuel storage tanks, air emissions
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from our vehicles and facilities, and discharge and retention of storm water. Our truck terminals often are located in
industrial areas where groundwater or other forms of environmental contamination may have occurred or could
occur. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste
disposal, among others. We also maintain above-ground bulk fuel storage tanks and fueling islands at several of our
facilities and one leased facility has below-ground bulk fuel storage tanks. A small percentage of our freight
consists of low-grade hazardous substances, which subjects us to a wide array of regulations. Although we have
instituted programs to monitor and control environmental risks and promote compliance with applicable
environmental laws and regulations, if we are involved in a spill or other accident involving hazardous substances, if
there are releases of hazardous substances we transport, if soil or groundwater contamination is found at our
facilities or results from our operations, or if we are found to be in violation of applicable laws or regulations, we
could be subject to cleanup costs and liabilities, including substantial fines or penalties or civil and criminal liability,
any of which could have a materially adverse effect on our business and operating results. The Regulation section in
Item 1 of Part I of this Annual Report on Form 10-K discusses several proposed, pending, suspended, and final
regulations that could materially impact our business and operations and is incorporated by reference herein.
If we cannot effectively manage the challenges associated with doing business internationally, our operating
revenue and results of operations may suffer.
A component of our operations is the business we conduct in Mexico, and to a lesser extent Canada, and we are
subject to risks of doing business internationally, including fluctuations in foreign currencies, changes in the
economic strength of Mexico and Canada, difficulties in enforcing contractual obligations and intellectual property
rights, burdens of complying with a wide variety of international and United States export and import laws, and
social, political, and economic instability. Restrictive trade policies and imposition of duties, taxes, or government
royalties by foreign governments are additional risks associated with our foreign operations. Although these
additional risks have been largely mitigated by the terms of NAFTA, President Trump has indicated that his
administration may renegotiate the terms of NAFTA. Although it is unknown what changes might be made to
NAFTA or other border policies which may be adopted, it is possible there could be more restrictive trade policies
and potential increased costs, as well as increased regulatory complexities. Changes to NAFTA may adversely
affect our results of operations.
Litigation may adversely affect our business, financial condition, and results of operations.
Our business is subject to the risk of litigation by employees, independent contractors, customers, vendors,
government agencies, stockholders, and other parties through private actions, class actions, administrative
proceedings, regulatory actions, and other processes. Recently, trucking companies have been subject to lawsuits,
including class action lawsuits, alleging violations of various federal and state wage and hour laws regarding, among
other things, employee meal breaks, rest periods, overtime eligibility, worker misclassification, and failure to pay for
all hours worked. A number of these lawsuits have resulted in the payment of substantial settlements or damages by
the defendants.
The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or
quantify, and the magnitude of the potential loss relating to such lawsuits may remain unknown for substantial
periods of time. The cost to defend litigation may also be significant. Not all claims are covered by our insurance,
and there can be no assurance that our coverage limits will be adequate to cover all amounts in dispute. To the
extent we experience claims that are uninsured, exceed our coverage limits, involve significant aggregate use of our
self-insured retention amounts, or cause increases in future premiums, the resulting expenses could have a materially
adverse effect on our business, results of operations, financial condition, or cash flows.
We depend on the proper functioning, availability, and security of our information and communication systems,
and a systems failure or unavailability or a security breach could cause a significant disruption to and adversely
affect our business.
We depend heavily on the proper functioning, availability, and security of our information and communication
systems, including financial reporting and operating systems, in operating our business. These systems are protected
through physical and software safeguards, but are still vulnerable to fire, storm, flood, power loss,
telecommunications failures, physical or software break-ins, terrorist attacks, internet failures, computer viruses, and
similar events beyond our control. If the information or communication systems fail, otherwise become unavailable,
or experience a security breach, manually performing functions could temporarily impact our ability to manage our
fleet efficiently, to respond to customers’ requests effectively, to maintain billing and other records reliably, to bill
for services accurately or in a timely manner, to communicate internally and with drivers, customers, and vendors,
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and to prepare financial statements accurately or in a timely manner. Business interruption insurance may be
inadequate to protect us in the event of a catastrophe. Any system failure, upgrade complication, security breach, or
other system disruption could interrupt or delay operations, damage our reputation, impact our ability to manage our
operations and report financial performance, and cause the loss of customers, any of which could have a materially
adverse effect on existing and future business.
We are in the midst of a multi-year process to migrate our legacy mainframe platform and internally developed
software applications to server-based platforms. We still have a few remaining systems to convert. Changes to our
information technology system could result in delays, complications, or additional costs, any of which could have a
materially adverse effect on our business and results of operations.
During 2014, we began to host all of our production systems at a remote data center designed to store and
preserve our data. This data center replicates all production data back to the data center at our headquarters, which
protects our information in the event of a fire or other significant disaster. This redundant data center allows the
data related to our systems to be recovered following an incident. However, recovery of such data may not
immediately restore our ability to utilize our information and communications systems. In the event such systems
were significantly damaged, it could take several days before our systems regain functionality. Additionally,
although we attempt to reduce the risk of disruption to our business operations should a disaster occur through
redundant computer systems and networks, such as the one described above, and other backup systems, there can be
no assurance that such measures will be effective in restoring lost data or restoring the functionality of our
information and communication systems.
We receive and transmit confidential data with and among our customers, drivers, vendors, employees, and
service providers in the normal course of business. Despite our implementation of secure transmission techniques,
internal data security measures, and monitoring tools, our information and communication systems are vulnerable to
security threats and breach attempts from both external and internal sources. Any such breach could result in
disruption of communications with our customers, drivers, vendors, employees, and service providers and improper
access to, misappropriation of, altering, or deleting information in our systems, including customer, driver, vendor,
employee, and service provider information and our proprietary business information. A security breach could
damage our business operations and reputation and could cause us to incur costs associated with repairing our
systems, increased security, customer notifications, lost operating revenue, litigation, regulatory action, fines and
penalties and reputational damage.
Seasonality and the impact of weather and other catastrophic events affect our operations and profitability.
Our tractor productivity decreases during the winter season because inclement weather impedes operations, and
some shippers reduce their shipments after the winter holiday season. Revenue can also be affected by bad weather
and holidays, since revenue is directly related to available working days of shippers. At the same time, operating
expenses increase and fuel efficiency declines because of engine idling and harsh weather creating higher accident
frequency, increased claims, and more equipment repairs. We may also suffer from weather-related or other
unforeseen events such as tornadoes, hurricanes, blizzards, ice storms, floods, fires, earthquakes, and explosions.
These events may disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, affect regional
economies, destroy our assets, or adversely affect the business or financial condition of our customers, any of which
could have a materially adverse effect on our results of operations or make our results of operations more volatile.
We cannot guarantee that our share repurchase program will not negatively impact our stock price or financial
condition.
Our board of directors has approved a share repurchase program under which we may purchase up to
two million shares of our common stock. The specific timing, manner, price, amount and other terms of the
repurchases will be at management's discretion and will depend on market conditions, corporate and regulatory
requirements, and other factors. There can be no assurance that repurchases will be made at the best possible price.
We are not required to repurchase shares under the repurchase program, and we may modify, suspend, or terminate
the repurchase program at any time for any reason. We did not purchase any shares between September 2016 and
the date of this Form 10-K. We cannot predict the impact that future repurchases, if any, of our common stock
under this program will have on our stock price or earnings or loss per share. When we are operating at net loss,
share repurchases increase the amount of loss per share. Important factors that could cause us to discontinue or
decrease our share repurchases include, among others, unfavorable market conditions, the market price of our
common stock, the nature of other investment or strategic opportunities presented to us from time to time, the rate of
21
dilution of our equity compensation programs, the availability of funds necessary to continue purchasing stock, and
provisions in our credit facility that restrict repurchases based upon availability. In addition, we have incurred
indebtedness in connection with repurchases, which has reduced availability on our Credit Facility, reduced our net
worth, and increased our debt-to-capitalization ratio and increased our debt to adjusted EBITDA ratio. Accordingly,
our share repurchase program could adversely affect our earnings, cash flows, liquidity, and ability to refinance our
Credit Facility, any of which could negatively impact our stock price or financial condition.
Uncertainty relating to piece rate legislation could result in litigation or have a material adverse effect on our
operating results.
The trucking industry has been confronted with a continuous patchwork of laws at the state and local levels,
related to employee rest and meal breaks. Further, driver piece rate compensation, which is an industry standard,
has been attacked as not being compliant with state minimum wage laws. Both of these issues are adversely
impacting the Company and motor carrier industry as a whole, with respect to the practical application of the laws;
thereby resulting in additional cost. In May 2015, the Supreme Court of the United States refused to grant certiorari
to Appellees in the United States Court of Appeals for the Ninth Circuit case, Dilts, et al. v. Penske Logistics, LLC,
et al. Consequently, the Appeals Court decision stands, holding that California state wage and hour laws are not
preempted by federal law. Existing state and local laws, as well as new laws adopted in the future, which are not
preempted by federal law, may result in increased labor costs, driver turnover, reduced operational efficiencies and
amplified legal exposure.
The transportation industry is subject to security requirements that could increase our costs of operation.
Because transportation assets continue to be a target of terrorist activities, federal, state and municipal
governments are adopting or are considering adopting stricter security requirements that will increase operating
costs and potentially slow service for businesses, including those in the transportation industry. For example, in the
aftermath of the September 11, 2001, terrorist attacks, federal, state and municipal authorities implemented and
continue to implement various security measures, including checkpoints and travel restrictions on large trucks. In
addition, the TSA has adopted regulations that require determination by the TSA that each driver who applies for or
renews his license for carrying hazardous materials is not a security threat. These regulations could reduce the pool
of qualified drivers, which could require us to increase driver compensation, limit fleet growth, or allow trucks to sit
idle. These regulations also could complicate the successful pairing of available equipment with hazardous material
shipments, thereby increasing the Company’s response time and deadhead miles on customer shipments. These
requirements are not static, but change periodically as the result of regulatory and legislative requirements, imposing
additional security costs and creating a level of uncertainty for our operations. Thus, it is possible that these rules or
other future security requirements could impose material costs on us or slow our service to our customers.
Moreover, a terrorist attack directed at the Company or other aspects of the transportation infrastructure could
disrupt our operations and adversely impact demand for our services.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
USA Truck’s 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 space, training and driver facilities,
and approximately 30,000 square feet of maintenance space. The headquarters 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 which are currently leased to a third party. All of our owned properties are subject to mortgages to
secure our financing arrangements.
The Company’s network consists of 14 facilities, including USAT Logistics offices and one terminal facility in
Laredo, Texas, which is one of the largest inland freight gateway cities between the United States and Mexico,
operated by a wholly owned subsidiary, International Freight Services, Inc. As of December 31, 2016, the
Company’s active facilities were located in or near the following cities:
22
Trucking facilities:
Van Buren, Arkansas
West Memphis, Arkansas
Vandalia, Ohio
Spartanburg, South Carolina
Laredo, Texas
USAT Logistics facilities:
Springdale, Arkansas
Van Buren, Arkansas
Roseville, California
Los Angeles, California
Jacksonville, Florida
Atlanta, Georgia
Oak Brook, Illinois
Plano, Texas
Seattle, Washington
Administrative facilities:
Lebanon, Indiana
Shop
Yes
Yes
Yes
Yes
Yes
No
Yes
No
No
No
No
No
No
No
No
Driver
Facilities
Yes
Yes
Yes
Yes
Yes
No
Yes
No
No
No
No
No
No
No
No
Fuel
No
No
No (1)
No
No
No
No
No
No
No
No
No
No
No
No
Dispatch
Office
Yes
Yes
No
No
Yes
Own or
Lease
Own
Own/Lease (2)
Own
Own (3)
Own/Lease (4)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Lease
Own
Lease
Lease
Lease
Lease
Lease
Lease
Lease
Lease
(1) Infrastructure is in place, but not currently utilized.
(2) USA Truck owns the terminal facility and holds an easement relating to less than one acre.
(3) USA Truck has been actively marketing the facility and expects it to be sold during 2017.
(4) USA Truck owns the terminal facility and leases an adjacent six acres for tractor and trailer parking.
Item 3.
LEGAL PROCEEDINGS
USA Truck 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. Though the Company believes these claims to
be routine and immaterial to its long-term financial position, adverse results of one or more of these claims could
have a material adverse effect on its financial position, results of operations or cash flow in a quarter or annual
reporting period.
Item 4. MINE SAFETY DISCLOSURES
None.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
USA Truck’s 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 the Company’s common stock as
reported by the NASDAQ Global Select Market.
2016
2015
Quarter Ended:
High
Low
High
March 31 ...................................... $
June 30 .........................................
September 30 ...............................
December 31 ................................
19.19
21.46
20.16
10.63
$
$
11.58
15.03
9.96
7.65
32.14
29.08
24.29
21.32
Low
$ 25.01
21.19
16.33
15.99
As of February 17, 2017, there were 152 holders of record (including brokerage firms and other nominees) of
USA Truck common stock. On February 17, 2017, the closing price per share of USA Truck common stock on the
NASDAQ Global Select Market was $9.485.
23
Dividend Policy
The Company has not paid any dividends on its common stock to date, and does not anticipate paying any
dividends at the present time. The Company currently intends to retain all of its earnings, if any, for use in the
expansion and development of its business and reduction of debt. The Company’s Credit Facility places restrictions
on its ability to pay dividends. Future payments of dividends will depend upon the Company’s financial condition,
results of operations, capital commitments, restrictions under then-existing agreements, legal requirements, and
other factors the Company deems relevant.
Equity Compensation Plan Information
For information on USA Truck’s equity compensation plans, please refer to Item 12 of Part III of this Form
10-K.
Repurchase of Equity Securities
On February 2, 2016 the Company announced the board of directors had authorized the repurchase of up to two
million shares of the Company’s common stock, which will expire in February 2019 unless earlier terminated or
extended by the board of directors. During 2016, the Company, through a Rule 10b5-1 plan, repurchased 1,583,249
shares at an average price of $18.05 per share for an aggregate cost of approximately $28.4 million. Of the total
shares repurchased during 2016, 46,262 shares were repurchased during January 2016 under a previously announced
repurchase authorization. On August 9, 2016, the Company announced the board of directors halted the Rule
10b5-1 plan, with 463,013 shares remaining available for repurchase as of December 31, 2016.
Item 6.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with “Management's Discussion and
Analysis of Financial Condition and Results of Operations,” under Part II, Item 7 of this Form 10-K and the
consolidated financial statements and accompanying footnotes under Part II, Item 8 of this Form 10-K (dollar
amounts in thousands, except per share data).
Consolidated statement of operations data:
2016
Operating revenue ..................................................... $ 429,099
Operating (loss) income ............................................
(7,516)
Net (loss) income .......................................................
(7,699)
Diluted (loss) earnings per share ...............................
(0.90)
Consolidated balance sheet data:
Cash and cash equivalents ......................................... $
122
Total assets ................................................................ 294,968
Long-term debt, capital leases and note payable,
including current portion .......................................
Stockholders’ equity ..................................................
152,418
58,463
2015
$ 507,934
23,071
11,069
1.06
2013
Year Ended December 31,
2014
$ 602,477
17,653
6,285
0.60
$ 555,005
(10,101)
(9,993)
(0.97)
2012
$ 512,428
(23,446)
(17,778)
(1.72)
$
87
286,456
$
205
303,944
$
14
301,552
$
1,742
322,321
101,435
93,777
117,512
99,068
128,891
92,397
138,285
102,172
Total debt, less cash, to total capitalization ratio .......
72.2 %
51.9 %
54.2 %
58.2 %
56.8 %
Other financial data:
Operating ratio ...........................................................
Adjusted operating ratio (1) (unaudited) ...................
101.8 %
100.4 %
95.5 %
94.3 %
97.1 %
96.4 %
101.8 %
100.9 %
104.6 %
105.7 %
(1) See “Consolidated Reconciliations” below.
The Company reports adjusted operating ratio, which is a financial measure that is not prescribed or authorized
by U.S. generally accepted accounting principles (“GAAP”).
Adjusted operating ratio, as defined here, is a non-GAAP financial measure, as defined by the SEC.
Management uses adjusted operating ratio as a supplement to the Company’s GAAP results in evaluating certain
aspects of its business, as described below. Adjusted operating ratio is not a substitute for operating margin or any
other measure derived solely from GAAP measures. There are limitations to using non-GAAP measures such as
adjusted operating ratio. Although management believes that adjusted operating ratio can make an evaluation of the
Company’s operating performance more consistent because it removes items that, in management’s opinion, do not
24
reflect its core operating performance, other companies in the transportation industry may define adjusted operating
ratio differently. As a result, it may be difficult to use adjusted operating ratio or similarly named non-GAAP
measures that other companies may use to compare the performance of those companies to USA Truck’s
performance.
Adjusted operating ratio is calculated as operating expenses less restructuring, impairment and other costs, and
severance costs included in salaries, wages and employee benefits, net of fuel surcharge, as a percentage of
operating revenue excluding fuel surcharge revenue.
USA Truck’s board of directors and chief operating decision-makers also focus on adjusted operating ratio as an
indicator of the Company’s performance from period to period. Management believes fuel surcharge can be volatile
and eliminating the impact of this source of revenue (by netting fuel surcharge revenue against fuel expense) affords
a more consistent basis for comparing results of operations.
Management believes its presentation of adjusted operating ratio is useful because it provides investors and
securities analysts the same information that the Company uses internally for purposes of assessing its core
operating performance.
Consolidated Reconciliations
Pursuant to the requirements of Regulation G, reconciliations of non-GAAP financial measures to GAAP
financial measures have been provided in the table below for operating ratio (in thousands):
Adjusted Operating Ratio
Operating revenue .............................................................$
Less:
Fuel surcharge revenue ....................................................
Base revenue .................................................................
Operating expense .............................................................
Adjusted for:
Restructuring, impairment and other costs (1) ................
Severance included in salaries, wages and other (2) .......
Long-term claims liability reserve adjustment (3) ...........
Fuel surcharge revenue ....................................................
Adjusted operating expense ...........................................$
Operating ratio ...........................................................
Adjusted operating ratio ............................................
Segment Reconciliations:
Trucking Segment
2016
429,099
40,929
388,170
436,615
(5,264)
(839)
--
(40,929)
389,583
Year Ended December 31,
2014
2015
$ 507,934
$ 602,477
2013
$ 555,005
58,981
448,953
484,863
108,133
494,344
584,824
111,150
443,855
565,106
(2,742)
--
--
(58,981)
$ 423,140
--
--
--
(108,133)
$ 476,691
--
--
(5,970)
(111,150)
$ 447,986
2012
512,428
$
103,709
408,719
535,874
--
--
--
(103,709)
432,165
$
101.8 %
100.4 %
95.5 %
94.3 %
97.1 %
96.4 %
101.8 %
100.9 %
104.6 %
105.7 %
Revenue ..................................................................................$
Less: intersegment eliminations............................................
Operating revenue ...................................................................
Less: fuel surcharge revenue ................................................
Base revenue ..........................................................................$
Operating expense ..................................................................$
Adjusted for:
2016
295,807
1,281
294,526
32,090
262,436
309,315
$
Year Ended December 31,
2015
356,528
2,048
354,480
46,799
307,681
343,392
2014
$ 424,082
587
423,495
87,198
$ 336,297
$ 426,617
$
$
Restructuring, impairment and other costs (1) ....................
Severance included in salaries, wages and other (2) ...........
Fuel surcharge revenue........................................................
Adjusted operating expense ................................................$
(4,848)
(839)
(32,090)
271,538
(2,742)
--
(46,799)
293,851
$
--
--
(87,198)
$ 339,419
Operating ratio ........................................................................
Adjusted operating ratio ..........................................................
105.0 %
103.5 %
96.9 %
95.5 %
100.7 %
100.9 %
25
USAT Logistics Segment
Revenue ................................................................................. $
Less: intersegment eliminations ...........................................
Operating revenue ..................................................................
Less: fuel surcharge revenue ................................................
Base revenue ......................................................................... $
Operating expense .................................................................. $
Adjusted for:
Restructuring, impairment and other costs (1) ...................
Fuel surcharge revenue .......................................................
Adjusted operating expense................................................$
Operating ratio .......................................................................
Adjusted operating ratio .........................................................
$
2014
Year Ended December 31,
2015
158,295
4,841
153,454
12,182
141,272
141,471
$ 192,924
13,942
178,982
20,935
$ 158,047
$ 158,207
$
$
2016
140,847
6,274
134,573
8,839
125,734
127,300
(416)
(8,839)
118,045
$
94.6 %
93.9 %
--
(12,182)
129,289
--
(20,935)
$ 137,272
92.2 %
91.5 %
88.4 %
86.9 %
(1) During 2016 and 2015, the Company recognized $5.3 million and $2.7 million, respectively, in restructuring,
impairment and other costs relating to the termination of employment of certain executives and the closure of
maintenance facilities. See “Item 8. Financial Statements and Supplementary Data – Note 15: Restructuring,
impairment and other costs” in this Form 10-K for further discussion.
(2) During 2016, the Company recognized $0.7 million in severance costs included in the “Salaries, wages and
employee benefits” line item relating to the resignation of certain executives and $0.1 million associated with
severances for a reduction in force implemented during the fourth quarter of 2016. See “Item 8. Financial
Statements and Supplementary Data – Note 15: Restructuring, impairment and other costs” in this Form 10-K
for further discussion.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be
read together with the Business section in Part 1, Item 1, as well as the consolidated financial statements and
accompanying footnotes in Part II, Item 8, of this Form 10-K. This discussion contains forward-looking statements
as a result of many factors, including those set forth under Part I, Item 1A “Risk Factors,” Part I “Cautionary Note
Regarding Forward-Looking Statements,” and elsewhere in this report. These statements are based on current
expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from
those discussed herein. MD&A summarizes the financial statements from management’s perspective with respect to
the Company’s financial condition, results of operations, liquidity and other factors that may affect actual results.
The MD&A is organized in the following sections:
Business Overview
Executive Overview
Results of Operations
Liquidity and Capital Resources
Contractual Obligations and Commitments
Off-Balance Sheet Arrangements
Critical Accounting Estimates
Business Overview
USA Truck offers a broad range of truckload and logistics services to a diversified customer base that spans a
variety of industries. The Company has two reportable segments: (i) Trucking, consisting of one-way truckload
services, in which volumes typically are not contractually committed, and dedicated contract services, in which a
combination of equipment and drivers is contractually committed to a particular customer, typically for a duration of
at least one year, and (ii) USAT Logistics, formerly referred to as “SCS,” consisting of freight brokerage and rail
intermodal service offerings, in which the Company retains control of the customer relationship and contracts for the
use of a third party’s transportation assets. The Trucking segment provides truckload transportation, including
26
dedicated services, of various products, goods, and materials. The Company’s USAT Logistics service offering
matches customer shipments with available equipment of authorized carriers and provides services that complement
the Company’s Trucking operations. USAT Logistics provides these services primarily to existing Trucking
customers, many of whom prefer to rely on a single carrier, or a small group of carriers, to provide all their
transportation solutions.
Revenue for the Company’s Trucking segment is substantially generated by transporting freight for customers,
and is predominantly affected by the rates per mile received from customers, the number of tractors in operation,
and the number of revenue generating miles per tractor. USA Truck enhances its Trucking operating revenue by
charging for fuel surcharge, and ancillary services such as stop-off pay, loading and unloading activities, tractor and
trailer detention and other similar services.
Operating expenses that have a major impact on the profitability of the Trucking segment are primarily the
variable costs or mostly variable costs of transporting freight for customers. These costs include driver salaries and
benefits, fuel and fuel taxes, payments to independent contractors, operating and maintenance expense and insurance
and claims. In addition, the fixed or mostly fixed costs associated with non-driving personnel, terminal
infrastructure, and depreciation, interest, rent, and gain or loss on disposition of revenue equipment, can
significantly affect the Company’s margins to the extent revenue from this segment is spread over more or less fixed
cost burden.
To mitigate the Company’s exposure to fuel price increases, it recovers from its customers additional fuel
surcharges that generally recoup a majority of the increased fuel costs; however, the Company cannot assure its
recovery levels experienced in the past will continue in future periods. Although its fuel surcharge program
mitigates some exposure to rising fuel costs, the Company continues to have exposure to increasing fuel costs
related to deadhead miles, fuel inefficiency due to engine idle time, and other factors, including the extent to which
the surcharge paid by the customer is insufficient to compensate for fuel expense, particularly in times of rapidly
increasing fuel prices. The main factors that affect fuel surcharge revenue are the price of diesel fuel and the
number of loaded miles. The fuel surcharge is billed on a lagging basis, meaning the Company typically bills
customers in the current week based on the previous week’s applicable United States Department of Energy, or
DOE, index. Therefore, in times of increasing fuel prices, the Company does not recover as much as it is currently
paying for fuel. In periods of declining prices, the opposite is true.
The key statistics used to evaluate Trucking revenue, net of fuel surcharge, are (i) base revenue per seated
tractor per week, (ii) average miles per seated tractor per week, (iii) average base revenue per loaded mile, (iv)
deadhead percentage, (v) average loaded miles per trip and (vi) average number of seated tractors. In general, the
Company’s average miles per tractor per week, rate per mile, and deadhead percentage are affected by industry-wide
freight volumes, industry-wide trucking capacity and the competitive environment, which factors are beyond the
Company’s control, as well as by its service levels and efficiency of its operations, over which the Company has
significant control.
The USAT Logistics segment is non asset based and is dependent upon qualified employees, information
systems and qualified third-party capacity providers. The largest expense related to the USAT Logistics segment is
purchased transportation expense. Other operating expenses consist primarily of salaries, wages and benefits. The
Company evaluates the USAT Logistics segment’s financial performance by reviewing the gross margin percentage
(revenue less purchased transportation expenses (net revenue) expressed as a percentage of revenue) and net
revenue. The gross margin and net revenue can be impacted by fluctuations in freight volumes and industry-wide
trucking capacity. USAT Logistics often achieves better gross margins during periods of imbalance between supply
and demand than times of balanced supply and demand, although periods of transition to tight capacity also can
compress margins.
The Company expects to continue refining the freight network toward a more optimal mix of lanes and markets
in its Trucking business, work toward seating a higher percentage of the Company’s fleet and growing the
independent contractor fleet, and focus on improving rates, all with the goal of better utilizing Company tractors and
improving key operating metrics. By focusing on these areas, management believes it will make progress on its
goals of improving the Company’s improving operating performance and increasing stockholder value.
27
Executive Overview
Our results for 2016 compared to 2015 are summarized below and were negatively impacted by a soft freight
environment for both our Trucking and USAT Logistics segments. Our Trucking segment suffered from lower base
revenue per loaded mile, a smaller fleet, and a high percentage of unseated tractors. The difficult operating
environment also impacted our USAT Logistics segment, which experienced lower net revenue and operating
income, with a similar gross margin to 2015. The Company’s performance in 2016 was unacceptable, which was
one of the primary reasons the management team was realigned. Our re-aligned management team has confidence
in our strategy, and significant efforts are underway with the goal of returning the Company to profitability in the
first half of 2017. In our Trucking segment, we are focused on seating a higher percentage of our tractor fleet,
capitalizing on more aggressive sales activities and market conditions to improve base revenue yield, and growing
our independent contractor fleet. At USAT Logistics, we are pursuing growth opportunities in Mexico, with our
Plus Power fleet, and with our agent network. In all aspects of our business we have a relentless focus on cost
controls, having taken actions in the second half of 2016 and early 2017 to reduce costs. Further, capital
expenditures have been reduced substantially in an effort to reduce our balance sheet leverage ratios to acceptable
levels targeted to be between 2.5x – 3.0x our total debt and capital lease obligations, net of cash, to adjusted
EBITDA. Potential headwinds for 2017 are expected to include a driver pay spike with tighter regulations
associated with the ELD regulatory mandate, a depressed used equipment market, fuel price increases, a tightening
of the insurance markets that could increase our premiums or self-insured risks upon renewal, and margin
compression and growth restrictions at USAT Logistics with reduced industry capacity associated with the ELD
regulatory mandate.
The following tables summarize the consolidated statements of operations (in thousands) and percentage of
consolidated operating revenue and the percentage increase or decrease in the dollar amounts of those items
compared to the prior year.
$
Base revenue ...................................... $ 388,170
Fuel surcharge revenue ......................
40,929
Operating revenue ........................... $ 429,099
2016
%
Operating
Revenue
90.5 %
9.5
100.0 %
Adjusted
Operating
Ratio (1)
$
$ 448,953
58,981
$ 507,934
Adjusted
Operating
Ratio (1)
2015
%
Operating
Revenue
88.4 %
11.6
100.0 %
% Change
in Dollar
Amounts
(13.5) %
(30.6)
(15.5)
Operating expenses ............................
Operating (loss) income ...................
436,615
(7,516)
101.8
(1.8)
100.4 %
(0.4)
484,863
23,071
95.5
4.5
94.3 %
5.7
(10.0)
(132.6)
Other expenses:
Interest expense .................................
Loss on extinguishment of debt (2) ....
Other, net ...........................................
Total other expenses, net....................
(Loss) income before income taxes .
Income tax (benefit) expense ...........
3,178
--
524
3,702
(11,218)
(3,519)
0.7
--
0.1
0.9
(2.6)
(0.8)
2,237
750
743
3,730
19,341
8,272
0.4
0.2
0.1
0.7
3.8
1.6
42.1
(100.0)
(29.5)
(0.8)
(158.0)
(142.5)
Net (loss) income .............................. $
(7,699)
(1.8) %
$
11,069
2.2 %
(169.6) %
28
$
Base revenue ...................................... $ 448,953
Fuel surcharge revenue ......................
58,981
Operating revenue ........................... $ 507,934
2015
%
Operating
Revenue
88.4 %
11.6
100.0 %
Adjusted
Operating
Ratio (1)
$
$
$
494,344
108,133
602,477
2014
%
Operating
Revenue
82.1 %
17.9
100.0 %
Adjusted
Operating
Ratio (1)
% Change
in Dollar
Amounts
(9.2) %
(45.5)
(15.7)
Operating expenses ............................
Operating income ............................
484,863
23,071
95.5
4.5
94.3 %
5.7
584,824
17,653
97.1
2.9
96.4 %
3.6
(17.1)
30.7
Other expenses:
Interest expense .................................
Defense costs (3) ..............................
Loss on extinguishment of debt (2) ...
Other, net ...........................................
Total other expenses, net ...................
Income before income taxes ............
Income tax expense ..........................
2,237
--
750
743
3,730
19,341
8,272
0.4
--
0.2
0.1
0.7
3.8
1.6
3,008
2,764
--
245
6,017
11,636
5,351
0.5
0.5
--
--
1.0
1.9
0.9
(25.6)
(100.0)
100.0
203.3
(38.0)
66.2
54.6
Net income ........................................ $ 11,069
2.2 %
$
6,285
1.0 %
76.1 %
(1) The adjusted operating ratio calculation for operating expenses is calculated as operating expenses, net of
fuel surcharge and other items, as a percent of operating revenue excluding fuel surcharge revenue. Other
items in this presentation are the restructuring, impairment and other costs and severance costs included in
salaries, wages and employee benefits. See Note 15 to the Company’s consolidated financial statements
included in Part II, Item 8, in this Form 10-K. Adjusted operating ratio is a non-GAAP financial measure.
See Selected Financial Statement Data in Part I, Item 6 for the uses and limitations associated with adjusted
operating ratio.
(2) Loss on extinguishment of debt represents the write-off of the deferred financing fees associated with the
Company’s previous revolving credit facility.
(3) Defense costs are the legal and related costs incurred in connection with the unsolicited proposal from
another trucking company to acquire USA Truck and related litigation and activist costs, pretax.
Key Operating Statistics by Segment
Trucking:
Operating revenue (in thousands) .................................... $
Operating (loss) income (in thousands) (1) ..................... $
Operating ratio (2) ...........................................................
Adjusted operating ratio (3) .............................................
Total miles (in thousands) (4) ..........................................
Deadhead percentage (5) .................................................
Base revenue per loaded mile .......................................... $
Average number of in-service tractors (6) .......................
Average number of seated tractors (7) .............................
Average miles per seated tractor per week ......................
Base revenue per seated tractor per week ........................ $
Average loaded miles per trip ..........................................
Year Ended December 31,
$
$
2016
294,526
(14,789)
105.0 %
103.5 %
172,591
12.9 %
1.746
1,774
1,674
1,972
2,998
583
$
$
2015
354,480
11,088
96.9 %
95.5 %
186,686
2014
$ 423,495
(3,122)
$
100.7 %
100.9 %
215,479
12.6 %
1.885
1,970
1,824
1,963
3,235
582
$
$
12.7 %
1.788
2,202
2,047
2,019
3,151
612
USAT Logistics:
Operating revenue (in thousands) .................................... $
Operating income (in thousands) (1) ............................... $
Net revenue (in thousands) (8) ........................................ $
Gross margin (9) ..............................................................
134,573
7,273
25,645
$
$
$
153,454
11,983
28,529
$ 178,982
20,775
$
34,070
$
18.2 %
18.0 %
17.7 %
(1) Operating income or loss is calculated by deducting operating expenses from operating revenue.
29
(2) Operating ratio is calculated as operating expenses, net of fuel surcharge revenue, as a percentage of operating
revenue excluding fuel surcharge revenue.
(3) Adjusted operating ratio is calculated as operating expenses less unusual items, net of fuel surcharge revenue,
as a percentage of operating revenue excluding fuel surcharge revenue. See Selected Financial Data in Part I,
Item 6 for the uses and limitations associated with adjusted operating ratio.
(4) Total miles include both loaded and deadhead (empty) miles.
(5) Deadhead percentage is calculated by dividing deadhead miles into total miles.
(6) Tractors include Company-owned tractors in service, plus tractors operated by independent contractors.
(7) Seated tractors are those occupied by drivers.
(8) Net revenue is calculated by taking revenue less purchased transportation.
(9) Gross margin percentage is calculated by taking revenue less purchased transportation expense and dividing
that amount by revenue. This calculation includes intercompany revenues and expenses.
Trucking operating revenue
During 2016, the decrease in operating revenue was primarily attributable to an 8.1% decrease in Trucking
shipments and a 7.6% decrease in total miles driven, and included a 31.4% decrease in fuel surcharge revenue. The
remaining decreases in operating revenue and base revenue were attributable to 8.2% fewer average seated tractors
as the Company continued to downsize its fleet to match its tractors with demand and experienced difficulties with
driver retention, and a 7.4% decrease in Trucking base revenue per loaded mile. The loss of business from several
customers in the second quarter accounted for the majority of the decrease in base revenue per loaded mile and in
loaded miles during the year.
During 2015, the Company downsized its tractor fleet by approximately 400 tractors to help focus on its
network and customer profitability and to reduce unseated tractors in its Trucking segment. Compared to 2014, the
smaller fleet contributed to an 8.5% decrease in base revenue, due to 10.9% fewer average seated tractors, which
generated 13.2% lower loaded miles, partially offset by a 2.7% increase in average base revenue per tractor per
week. Fuel surcharge revenue was lower compared to 2014, primarily due to fewer loaded miles, as well as the
30.4% lower DOE average price of diesel fuel throughout 2015.
Trucking operating (loss) income
During 2016, the Trucking operating loss was primarily the result of an 8.1% decrease in Trucking shipments
and a 7.3% reduction in base revenue per seated tractor per week associated with the loss of several customers
during the second quarter and a softer freight environment. These decreases were partially offset by cost savings
efforts in maintenance expense. However, the Company was not able to reduce fixed costs sufficiently during the
period, despite efforts to match the Company’s non-driving workforce to its smaller fleet. In 2017, the Company
expects to continue refining the Company’s freight network toward a more optimal mix of lanes and markets, work
toward seating a higher percentage of the Company’s fleet and growing the independent contractor fleet, and focus
on improving rates, all with the goal of better utilizing Company tractors and improving key operating metrics.
During 2015, the improvement in Trucking operating income compared to 2014 was driven primarily by a $6.4
million increase in gain on sale of equipment associated with downsizing the tractor fleet in 2015. Additionally,
improvements in pricing and fuel expense were partially offset by a 3.9% increase in driver wages during 2015.
USAT Logistics operating revenue
During 2016, the decrease in USAT Logistics operating revenue primarily resulted from a 27.4% reduction in
fuel surcharge revenue, partially offset by a 3.2% increase in load volumes and a 20 basis point improvement in
gross margin. USAT Logistics’ base revenue decreased 11.0% compared to 2015. USAT Logistics experienced a
15.1% decrease in revenue per order as a result of the soft freight environment. In the USAT Logistics segment,
which requires much lower capital investment, the Company remains focused on gaining market share and
improving net revenue. The Company is expanding the Plus Power fleet and adding contracted agents who are
being trained on USAT Logistics systems and service capabilities. To further expand the Logistics business and to
better support our assets operating in Mexico, the Company established USAT Logistics de Mexico.
Decreases in operating revenue during 2015 resulted primarily from 1.0% lower load volumes and lower
pricing, both of which were directly related to a softened spot market in 2015 as compared to 2014. Operating
revenue per employee decreased 25.1% during 2015 as a result of a 14.4% increase in headcount during 2015 to
support the growth of this segment, as well as higher transportation costs charged by carriers.
30
USAT Logistics operating income
In 2016, the decrease in USAT Logistics’ operating income was largely due to the decreases in base revenue
and fuel surcharge revenue, which less effectively covered the increased compensation expense tied to efforts to
grow this segment.
Decreases in USAT Logistics operating income during 2015 resulted from headcount growth exceeding the
revenue base, as revenue growth was dampened as a result of the softer freight market. Accordingly, gross profit
per employee decreased 26.8% in 2015, compared to the same period in 2014.
Consolidated Operating Expenses
The following table summarizes the consolidated operating expenses (in thousands) and percentage of
consolidated operating revenue, consolidated base revenue and the percentage increase or decrease in the dollar
amounts of those items compared to the prior year.
Operating Expenses:
Salaries, wages and employee benefits ..........$
Fuel and fuel taxes ........................................
Depreciation and amortization ......................
Insurance and claims .....................................
Equipment rent ..............................................
Operations and maintenance .........................
Purchased transportation ...............................
Operating taxes and licenses .........................
Communications and utilities ........................
Gain on sale of assets ....................................
Restructuring, impairment and other costs ....
Impairment on assets held for sale ................
Other .............................................................
Total operating expenses ...............................$
$
122,408
43,179
29,954
21,154
7,443
34,252
148,972
4,695
3,239
(1,116)
5,264
2,839
14,332
436,615
Operating Expenses:
Salaries, wages and employee benefits ...........$
Fuel and fuel taxes ..........................................
Depreciation and amortization ........................
Insurance and claims .......................................
Equipment rent ................................................
Operations and maintenance ...........................
Purchased transportation .................................
Operating taxes and licenses ...........................
Communications and utilities..........................
Gain on sale of assets ......................................
Restructuring, impairment and other costs ......
Other ...............................................................
Total operating expenses .................................$
$
140,649
58,511
37,480
21,183
4,424
39,644
161,370
5,720
3,599
(7,547)
2,742
17,088
484,863
2016
%
Operating
Revenue
28.5 %
10.1
7.0
4.9
1.7
8.0
34.7
1.1
0.8
(0.3)
1.2
0.7
3.4
101.8 %
2015
%
Operating
Revenue
27.7 %
11.5
7.4
4.2
0.9
7.8
31.8
1.1
0.7
(1.5)
0.5
3.4
95.5 %
% Base
Revenue (1)
$
31.3 % (1) $ 140,649
0.6 (2)
7.7
5.5
1.9
8.8
38.4
1.2
0.9
(0.3)
N/A
0.7
3.7
100.4
58,511
37,480
21,183
4,424
39,644
161,370
5,720
3,599
(7,547)
2,742
--
17,088
% $ 484,863
% Base
Revenue (1)
31.3 %
(0.1) (2)
8.3
4.7
1.0
8.8
35.9
1.3
0.8
(1.7)
N/A
3.8
94.3 %
$
$ 153,410
116,092
44,071
24,910
3,089
45,634
172,117
5,589
4,062
(1,107)
--
16,957
$ 584,824
2015
%
Operating
Revenue
27.7 %
11.5
7.4
4.2
0.9
7.8
31.8
1.1
0.7
(1.5)
0.5
--
3.4
95.5 %
2014
%
Operating
Revenue
25.5 %
19.3
7.3
4.1
0.5
7.6
28.6
0.9
0.7
(0.2)
--
2.8
97.1 %
%
Change
% Base
Revenue (1)
31.3 %
(0.1) (2)
8.3
4.7
1.0
8.8
35.9
1.3
0.8
(1.7)
N/A
--
3.8
94.3 % (10.0) %
2016 to
2015
(13.0) %
(26.2)
(20.1)
(0.1)
68.2
(13.6)
(7.7)
(17.9)
(10.0)
(85.2)
92.0
N/A
(16.1)
%
Change
2015 to
2014
(8.3) %
(49.6)
(15.0)
(15.0)
43.2
(13.1)
(6.2)
2.3
(11.4)
581.8
100.0
0.8
(17.1) %
% Base
Revenue (1)
31.0 %
1.6 (2)
8.9
5.0
0.6
9.2
34.8
1.1
0.8
(0.2)
--
3.4
96.4 %
(1) The percent of base revenue calculation for operating expenses is calculated as operating expenses, net of fuel
surcharges and other items, as a percent of operating revenue excluding fuel surcharge revenue. Other items in
this presentation are the restructuring, impairment and other costs and severance costs included in salaries,
wages and employee benefits. See Note 15 to the Company’s consolidated financial statements included in Part
II, Item 8, in this Form 10-K and Selected Financial Data in Part I, Item 6 of this Form 10-K.
31
(2) The percent of base revenue calculation for fuel and fuel surcharge expense is calculated as fuel and fuel taxes,
net of fuel surcharge.
Salaries, wages and employee benefits
Salaries, wages and employee benefits consist primarily of compensation for all employees. Salaries, wages
and employee benefits are primarily affected by the total number of miles driven by Company drivers, the rate per
mile the Company pays its Company drivers, employee benefits (including, but not limited to, healthcare and
workers’ compensation), and to a lesser extent by the number of, and compensation and benefits paid to, non-driver
employees.
The absolute decrease in salaries, wages and employee benefits expenses during 2016 was primarily due to an
approximate 10.0% reduction in the Company-owned tractor fleet and an 8.3% increase in the independent
contractor fleet, as the Company continued to migrate to an asset-light strategy in its Trucking segment. We believe
non-driver wages should continue to decrease as the Company continues to align the number of seated tractors with
non-driving support staff in the Trucking segment. USAT Logistics salaries, wages and employee benefits are
expected to increase as we continue to increase customer facing positions in an effort to grow market share.
Salaries, wages and employee benefits expense for 2015 decreased when compared to 2014, due to a 15.6%
decrease in the number of company drivers and a 10.9% reduction in the average seated truck count, offset by 3.9%
higher driver pay rates. Also, during the third quarter of 2015, the Company enhanced its paid time off (“PTO”)
policy, converting from an anniversary date vesting period to a calendar year vesting period. As a result, the
Company reversed approximately $1.4 million of its vacation reserve, as PTO is no longer accrued for carry over
balances.
The rate of compensation paid to Company drivers per mile has increased in recent periods and is anticipated to
further increase in future periods due to expected driver pay increases, especially if the economy strengthens and
other employment alternatives become more available. Furthermore, management believes that the market for
drivers continues to tighten; therefore, the Company expects hiring expenses, including recruiting and advertising, to
increase in order to attract sufficient numbers of qualified professional drivers to operate the Company-owned fleet.
Changes will also be affected by the percentage of Trucking miles operated by independent contractors instead of
Company employed drivers.
Fuel and fuel taxes
Fuel and fuel taxes consist primarily of diesel fuel expense for Company-owned tractors and fuel taxes. The
primary factors affecting the Company’s fuel expense are the cost of diesel fuel, the fuel economy of Company
equipment, and the number of miles driven by company drivers.
Fuel expense decreased, as a percentage of operating revenue, to 10.1% in 2016, from 11.5% in 2015, despite
the U.S. National Average Diesel Fuel price increased by 13.5% in 2016. Fuel expense, net of Trucking fuel
surcharge, expressed as a percentage of Trucking base revenue, increased 10.5% year over year. Fuel efficiency
initiatives undertaken during the year, such as trailer blades, idle-control, more fuel-efficient engines, and driver
training programs, contributed to the increased controlling of our fuel expense on a cost per company tractor
operated mile basis. However, these initiatives were muted by steadily rising fuel prices that began during the first
quarter of 2016 and continued throughout the remainder of 2016, as compared to the same periods in 2015, where
they consistently fell each quarter.
During 2015, fuel and fuel taxes decreased compared to 2014 primarily the result of better fuel procurement and
more effective management of the fuel surcharge program, as well as decreased volumes resulting from the fleet
reductions undertaken during the year. Of the $57.6 million reduction in fuel expense, $31.3 million resulted from
decreased price per gallon, $25.3 million resulted from decreased volumes, and approximately $1.0 million resulted
from increased equipment efficiencies. The decrease in the average age of the fleet contributed to a 1.0% increase in
the Company miles per gallon during 2015.
The Company expects to continue managing its idle time and truck speeds and partnering with customers to
adjust fuel surcharge programs to recover a fair portion of rising fuel costs. Going forward, the Company’s net fuel
expense is expected to fluctuate as a percentage of revenue based on factors such as diesel fuel prices, percentage
recovered from fuel surcharge programs, deadhead percentage, the percentage of revenue generated from
independent contractors and the success of fuel efficiency initiatives. Fuel prices are expected to continue to rise
throughout 2017.
32
Equipment rent and depreciation and amortization
Equipment rent expenses are those related to revenue equipment under operating leases. Depreciation and
amortization of property and equipment consists primarily of depreciation for Company-owned tractors and trailers
and amortization of those financed with capital leases. The primary factors affecting this expense include the
number and age of Company tractors and trailers, the acquisition cost of new equipment, and the salvage values and
useful lives assigned to the equipment. These largely fixed costs fluctuate as a percentage of base revenue primarily
with increases and decreases in average base revenue per tractor and the percentage of base revenue contributed by
Trucking versus USAT Logistics.
The increase in equipment rent expense during 2016 was the result of increased use of operating leases for the
acquisition of revenue equipment due to favorable terms the Company entered into throughout 2015. Decreases in
depreciation and amortization for 2016 were primarily reflective of the approximate 10.0% reduction in the size of
the Company-owned tractor fleet resulting from fleet downsizing and the Company's continued focus on increasing
its independent contractor fleet, partially offset by higher depreciation expense attributable to increased acquisition
cost of new equipment. The reduction in depreciation from the smaller fleet size more than offset increased
equipment rent, which positively impacted our operating results.
Further, the acquisition costs of new revenue equipment are expected to increase, largely due to the continued
implementation of emissions requirements. During 2016, the Company invested in tractors with improved safety
features, which have an approximately 11% higher purchase price than tractors purchased in 2015. The Company
believes the return on investment will be in fewer incidents of claims and less severe claims over the long run. As a
result, management expects to see an increase in depreciation and amortization expense from new tractors and
trailers.
For 2015, decreases in equipment rent expense and depreciation and amortization compared to 2014 resulted
primarily from a 15.6% reduction in the average number of Company tractors as part of the Company’s downsizing
of its tractor fleet in 2015, partially offset by a higher number of operating leases for revenue equipment due to more
favorable lease terms.
Insurance and claims
Insurance and claims expense consists of insurance premiums and the accruals the Company makes for
estimated payments and expenses for claims for bodily injury, property damage, cargo damage, and other casualty
events. The primary factors affecting the Company’s insurance and claims expense are the number of miles driven
by its Company drivers and independent contractors, the frequency and severity of accidents, trends in the
development factors used in the Company’s actuarial accruals, developments in prior-year claims, and insurance
premiums and self-insured amounts.
During 2016, insurance and claims expense decreased due to a lower frequency of collisions, which resulted in
a $0.2 million favorable collision expense variance that was partially offset by higher than expected claims
experience associated with adverse development of prior year occurrences. As a result of the foregoing, our
insurance and claims expense increased slightly as a percentage of operating revenue. The Company expects
insurance and claims expense to improve over the long-term.
The decrease in insurance and claims expense for 2015 was the result of lower frequency and severity
experienced through the current year layer resulted in reduced claim expense. During 2015, the Company was able
to reduce its cargo loss incurred by $1.0 million.
Operations and maintenance
Operations and maintenance expense consists primarily of vehicle repairs and maintenance, general and
administrative expenses, and other costs. Operating and maintenance expenses are primarily affected by the age of
the Company-owned fleet of tractors and trailers, the number of miles driven in a period and, to a lesser extent, by
efficiency measures in the Company’s maintenance facility.
Operations and maintenance expense decreased in absolute terms, but increased as a percentage of operating
revenue and was flat as a percentage of base revenue as the Company incurred higher than expected outside
maintenance costs for roadside assistance and non-routine repairs. As of December 31, 2016, the Company-owned
tractor fleet was approximately 10.0% lower when compared to fleet size at December 31, 2015, as management
accelerated the removal of older tractors that would have required higher maintenance.
33
During 2015 and the first quarter of 2016, the Company closed four maintenance facilities as it continues to
migrate to a more variable cost strategy in maintenance. The Company is continuing to focus on increasing its
preventative in-house maintenance through a smaller footprint of strategic shops, and reducing its outside
maintenance costs for roadside assistance and non-routine repairs. In 2016, the Company outsourced a significant
portion of its direct repair and maintenance spend, including its entire mounted tire program. In addition, the
Company restructured its road assistance program to reduce costs and increase reliability, which the Company
expects will contribute to cost savings going forward.
In 2015, operations and maintenance expense decreases were primarily the result of the implementation of
maintenance strategies focused on increased routine maintenance. During the third quarter of 2015, the Company
closed two of its facilities that did not fit into the network effectively.
Purchased transportation
Purchased transportation consists of the payments the Company makes to independent contractors, railroads,
and third-party carriers that haul loads brokered to them, including fuel surcharge reimbursement paid to such
parties.
During 2016, the decrease in purchased transportation expense was primarily due to the lower freight volumes
in USAT Logistics, partially offset by the 8.3% growth in the size of the independent contractor fleet. The
Company is continuing to pursue its objective of growing its independent contractor fleet as a percentage of its total
fleet and growing USAT Logistics, which would increase purchased transportation expense. Increasing independent
contractor capacity and growing USAT Logistics has shifted (and assuming all other factors remain equal, is
expected to continue to shift) expenses to the purchased transportation line item with offsetting reductions in
employee driver wages and related expenses, net of fuel (as independent contractors generate fuel surcharge
revenue, while the related cost of their fuel is included with their compensation in purchased transportation),
maintenance, and capital costs.
The decrease in purchased transportation expense during 2015 was primarily associated with a 10.6% decrease
in USAT Logistics operating revenue, net of fuel surcharge, offset by a 28.2% increase in the size of the Company’s
independent contractor fleet.
Gain on disposal of assets, net
The decrease in gain on disposal of assets, net, during 2016 reflect greater fleet reductions in 2015 compared to
2016, as well as a softer used tractor market. During 2015, the Company reduced its fleet through the accelerated
disposal of older, less efficient tractors and trailers. Going forward, the Company expects gains on the sale of
revenue equipment to be less significant than in 2016 and 2015.
The large increase in gain on disposal of assets, net during 2015 as compared to 2014 reflects a decrease in the
size of the Company fleet through the accelerated disposal of older tractors to reduce the number of unseated
tractors. Additionally, the Company disposed of approximately 1,300 high cost trailers in 2015.
Restructuring, impairment and other costs
See Note 15 to the Company’s consolidated financial statements included in Part II, Item 8, in this Form 10-K
of the restructuring, impairment and other costs incurred during 2016, which is incorporated herein by reference.
Impairment on assets held for sale
As a result of significantly lower prices received for disposals of our owned used revenue equipment during the
fourth quarter of 2016, the Company recorded a $2.8 million asset impairment charge to write-down the carrying
values of tractors held for sale at December 31, 2016.
Other expenses
The decrease in other expenses for 2016 primarily reflects a decrease in the Company’s professional and
consulting fees, offset by increased bad debt expense and recruiting and relocation expenses.
For 2015, other expenses increased slightly, compared to 2014, primarily as a result of increased consulting
services, legal and professional fees, and licensing fees relating to technology upgrades.
34
Consolidated Non-Operating Expenses
Interest expense, net
Interest expense, net increased primarily due to the increased outstanding balance on the Company’s revolving
line of credit (the “Credit Facility”) to fund the Company’s stock repurchase program and purchase of revenue
equipment. As of December 31, 2016, the Company increased its debt outstanding on the Credit Facility by
$26.2 million, as compared to December 31, 2015.
During 2015, the decrease in interest expense, net, resulted from the strategic shift to debt instruments that carry
lower interest rates. The strengthening of the Company’s balance sheet in 2015 afforded the Company the
opportunity to take advantage of historically low interest rates and replace its previous revolving credit facility with
a new revolving credit facility. See “Item 8. Financial Statements and Supplementary Data – Note 7: Long-Term
Debt” in this Form 10-K for further discussion of the Company’s Credit Facility, which was entered into in February
2015.
Loss on extinguishment of debt
In February 2015, the Company entered into the Credit Facility, which resulted in a loss on debt extinguishment
of $0.8 million in the first quarter of 2015, representing the write-off of the deferred financing fees associated with
the previous revolving credit facility.
Income tax expense (benefit)
The Company’s effective tax rate for the years ended December 31, 2016, 2015 and 2014, were 31.4%, 42.8%,
and 46.0%, respectively. The Company’s effective tax rate, when compared to the federal statutory rate of 35%, is
primarily affected by state income taxes, net of federal income tax effect, and permanent differences, the most
significant of which is the effect of the partially non-deductible per diem pay structure for our drivers. The recurring
impact of this permanent non-deductible difference incurred in operating our business causes our tax rate to increase
as our pretax earnings or loss approaches zero. Generally, as pretax income or loss increases, the impact of the
driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in
relation to pretax income or loss, while in periods where earnings are at or near breakeven the impact of the per
diem program on our effective tax rate is significant.
Liquidity and Capital Resources
USA Truck’s business has required, and will continue to require, significant investments. In the Company’s
Trucking segment, where investments are substantial, the primary investments are in new revenue equipment and to
a lesser extent, in technology and working capital. In the Company’s USAT Logistics segment, where investment is
modest, the primary investments are in technology and working capital. USA Truck’s primary sources of liquidity
have been funds provided by operations, borrowings under the Company’s Credit Facility, sales of used revenue
equipment and, capital and operating leases. Based on expected financial conditions, net capital expenditures,
results of operations and related net cash flows and other sources of financing, management believes the Company’s
sources of liquidity to be adequate to meet current and projected needs. As of January 31, 2017, the Company’s
availability on the Credit Facility has decreased to $36.7 million, primarily due to the reduction in appraised value of
the Company-owned revenue equipment constituting part of the Company’s borrowing base under the Credit
Facility.
The Company anticipates falling below $34.0 million in availability, or 20% of the lenders’ commitments under
the Credit Facility, during the first quarter of 2017, which may restrict the Company’s ability to pay dividends, make
certain investments, prepay certain indebtedness, execute share repurchase programs, and enter into certain
acquisitions and hedging arrangements. The Credit Facility contains a single financial covenant that springs in the
event excess availability under the Credit Facility falls below 10% of the lenders’ total commitments. Management
believes the Company’s excess availability will not fall below 10%, or $17.0 million, and expects the Company to
remain in compliance with all debt covenants during the next twelve months.
35
Cash flows
Operating Activities – The $37.9 million decrease in net cash provided by operating activities was primarily
driven by a $30.6 million reduction in operating income, as well as an increase in days to collection for receivables
resulting from many of our customers extending payment terms during the 2016 bid cycle.
During 2015, USA Truck generated increased cash flow from operations primarily as a result of reduction in
accounts receivable as the Company reduced its days to collection for receivables to approximately 38 days during
2015 and generating $5.4 million more operating income during 2015.
Investing Activities – The Company incurred net capital expenditures of approximately $33.9 million in 2016,
reflecting investments of approximately $59.7 million, primarily in new revenue equipment, less $25.8 million in
proceeds of equipment sales. The proceeds of equipment sales were less in 2016 compared to prior years because of
a softer used truck market, and new investments were impacted by leasing a portion of the new equipment. In 2017,
net capital expenditures are expected to be lower as we expect to increase use of operating leases to finance
equipment acquisitions as we focus on de-levering the balance sheet. The Company used available cash after net
capital expenditures primarily to repurchase approximately 1.6 million of the Company’s outstanding shares of
common stock for $28.4 million.
The Company used $14.5 million more cash for investing activities during 2016, compared to 2015, primarily
reflecting a $12.9 million decrease in proceeds from sale of property and equipment. Additionally, the Company
received $8.0 million in proceeds in 2015 from operating sale leaseback. These factors were partially offset by a
decrease of $6.4 million in capital expenditures.
During 2015, the Company used $20.2 million less cash for investing activities, compared to 2014. The
decrease in cash used was associated with the net reduction of approximately 400 tractors throughout 2015, coupled
with the sale of approximately 1,300 trailers, which generated significant proceeds for the Company.
Financing Activities – For 2016, cash provided by financing activities was $11.8 million, compared to
$40.8 million used in financing activities for 2015. Proceeds from capital sale leasebacks increased $13.6 million
compared to 2015. During 2016, the Company had net borrowings of long-term debt of $30.1 million, principal
payments on capital leases of $10.0 million and repurchased approximately 1.6 million shares of its common stock
for $28.4 million.
Cash used in financing activities increased during 2015 compared to 2014, primarily due to the share repurchase
program announced in August 2015 and the balloon payments on capital leases during 2015.
Debt and capitalized lease obligations
See “Item 8. Financial Statements and Supplementary Data – Note 7: Long-term Debt” and “Item 8. Financial
Statements and Supplementary Data – Note 8: Leases and Commitments” in this Form 10-K for a discussion of the
Company’s revolving Credit Facility and capital lease obligations, which is incorporated by reference herein.
Contractual obligations and commitments
The following table represents USA Truck’s contractual obligations and commercial commitments as of
December 31, 2016.
Payments Due By Period
Debt (1) ................................................................ $
Insurance Premium Financing (2) ........................
Capital lease obligations (3) .................................
Purchase obligations (4) .......................................
Operating leases – buildings & equipment (5) .....
Total ..................................................................... $
Total
103,771
3,943
56,720
5,459
24,003
193,896
Less than 1
year
$
$
2,265
3,943
18,365
5,459
8,081
38,113
1-3 years
$
3-5 years
4,529 $ 96,977
--
15,902
--
--
22,453
--
12,625
3,071
$ 39,607 $ 115,950
$
More than 5
years
$
--
--
--
--
226
226
(1) Represents revolving line of credit of $96.6 million outstanding plus interest of approximately $7.2 million
using a combined interest rate of 2.34% through the termination date of February 5, 2020. See “Item 8.
Financial Statements and Supplementary Data – Note 7: Long-term Debt” in this Form 10-K for further
discussion.
36
(2) Represents future obligations under an unsecured note payable with a third party financing company for a
portion of the Company’s annual insurance premiums. See “Item 8. Financial Statements and Supplementary
Data – Note 6: Insurance Premium Financing” in this Form 10-K for further discussion.
(3) Represents remaining payments on capital lease obligations as of December 31, 2016, which includes
$4.8 million in interest. The borrowings consist of capital leases with financing companies, with fixed
borrowing amounts and fixed interest rates, as set forth on each applicable lease schedule. Accordingly,
interest on each lease varies between lease schedules.
(4) Represents purchase obligations for tractor orders, of which a significant portion is expected be financed with
operating leases. The Company generally has the option to cancel tractor orders with 60 to 90 day notice. As
of December 31, 2016, 100% of this amount had become non-cancelable.
(5) Represents future monthly rental obligations under operating leases for tractors, facilities and computer
equipment. Substantially all lease agreements for revenue equipment have fixed payment terms based on the
passage of time.
Off-Balance Sheet Arrangements
Operating leases have been an important source of financing for equipment used by operations, office
equipment, and certain facilities. As of December 31, 2016, the Company leased certain revenue equipment and
facilities under operating leases. Revenue equipment held under operating leases are not carried on the consolidated
balance sheets, and lease payments, with regard to such revenue equipment, are reflected in the consolidated
statements of operations and comprehensive (loss) income in the “Equipment rent” expense line item.
Equipment rent expense related to the Company’s revenue equipment and facility operating leases is set forth in
the table below for the periods indicated (in thousands):
Equipment rent .......................................... $
Building and office rent (1) .......................
Total rent expense ................................ $
7,443
2,001
9,444
$
$
4,424
2,297
6,721
$
$
3,089
2,225
5,314
2016
Year Ended December 31,
2015
2014
(1) The expense for building and office rents is recorded in the operations and maintenance line item in the
accompanying consolidated statement of operations and comprehensive (loss) income.
The total amount of remaining payments under operating leases as of December 31, 2016, was approximately
$24.0 million. Other than such operating leases, no other off-balance sheet arrangements have or are reasonably
likely to have a material effect on the Company’s consolidated financial statements.
Inflation
Most of the Company’s operating expenses are inflation sensitive, and as such, are not always able to be offset
through increases in revenue per mile and cost control efforts. The effect of inflation-driven cost increases on
overall operating costs is not expected to be greater for USA Truck than for its competitors, and has been minor over
the past three years.
Fuel Availability and Cost
The trucking industry is dependent upon the availability of fuel. In the past, fuel shortages or increases in fuel
taxes or fuel costs have adversely affected profitability and may continue to do so. USA Truck has not experienced
difficulty in maintaining necessary fuel supplies, and in the past has 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 an agreed upon baseline price per gallon. Typically, the Company is 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 deadhead and out-of-route miles and idling time, for which the Company
generally does not receive compensation from customers. Additionally, most fuel surcharges are based on the
average fuel price as published by the DOE for the week prior to the shipment, meaning the Company typically bills
customers in the current week based on the previous week’s applicable index. Accordingly, in times of increasing
fuel prices, the Company does not recover as much as it is currently paying for fuel. In periods of declining prices,
for a short period of time the inverse is true. Overall, the U.S. National Average Diesel Fuel price increased by
13.5% compared to 2015.
37
As of December 31, 2016, the Company did not have any long-term fuel purchase contracts, and has not entered
into any fuel hedging arrangements.
Equity
As of December 31, 2016, USA Truck had stockholders’ equity of $58.5 million and total debt including
current maturities of $152.4 million, resulting in a total debt, less cash, to total capitalization ratio of 72.2%
compared to 51.9% as of December 31, 2015.
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. USA Truck bases its assumptions, estimates and judgments on
historical experience, current trends and other factors that management believes to be relevant at the time its
consolidated financial statements are prepared. Actual results could differ from those estimates, and such
differences could be material.
A summary of the significant accounting policies followed in preparation of the Company’s financial statements
is contained in “Item 8. Financial Statements and Supplementary Data – Note 1: Description of the Business and
Summary of Significant Accounting Policies” of this Form 10-K. The most critical accounting policies and
estimates that affect the Company’s financial statements include the following:
Estimated useful lives and salvage values for purposes of depreciating tractors and trailers. USA Truck
operates a significant number of tractors and trailers in connection with its business. The Company may purchase
this equipment or acquire it under leases. Purchased equipment is depreciated on the straight-line method over the
estimated useful life down to an estimated salvage or trade-in value. Equipment acquired under capital leases is
recorded at the net present value of the minimum lease payments and is amortized on the straight-line method over
the lease term. Depreciable lives of tractors and trailers range from five years to ten years. Salvage value is
estimated at the expected date of trade-in or sale based on the expected market values of equipment at the time of
disposal. If the Company decreased the useful life by 20% and increased its salvage value by 16.7% of its existing
tractor fleet as of December 31, 2016, our depreciation and amortization expense would have potentially increased
by $4.2 million.
Estimates of accrued liabilities for claims involving bodily injury, physical damage losses, employee health
benefits and workers’ compensation. The primary claims arising against the Company consist of cargo, liability,
personal injury, property damage, workers' compensation, and employee medical expenses. The Company’s
insurance programs typically involve self-insurance with high risk-retention levels. Due to its significant
self-insured retention amounts, the Company has exposure to fluctuations in the number and severity of claims and
to variations between its estimated and actual ultimate payouts. The Company accrues the estimated cost of the
uninsured portion of pending claims and an estimate for allocated loss adjustment expenses including legal and other
direct costs associated with a claim. Estimates require judgments concerning the nature and severity of the claim,
historical trends, advice from third-party administrators and insurers, the size of any potential damage award based
on factors such as the specific facts of individual cases, the jurisdictions involved, the prospect of punitive damages,
future medical costs, and inflation estimates of future claims development, and the legal and other costs to settle or
defend the claims. USA Truck records 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 anticipated claims amounts expected
to be paid in the next twelve months. The Company does not discount its claims liabilities. If claims development
factors that we based upon historical expense had increased by 10%, our claims accrual as of December 31, 2016
would have increased by $5.1 million.
Estimate of impairment of long lived assets. We review property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We
evaluate recoverability of assets to be held and used by comparing the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the
assets. We believe that the accounting estimate related to asset impairment is a critical accounting estimate because:
(1) it requires our management to make assumptions about future revenues over the life of the asset, and (2) the
impact that recognizing an impairment would have on our financial position, as well as our results of operations,
could be material. Management’s assumptions about future revenues require significant judgment because actual
38
revenues have fluctuated in the past and may continue to do so. In estimating future revenues, we use our internal
business forecasts. We develop our forecasts based on recent revenue data for existing services and other industry
and economic factors. We determined a review of impairment of long-lived assets was necessary as of December
31, 2016 due to lower prices received by the Company for disposals of its used tractor equipment. The Company
performed the impairment analysis of the carrying value of its fleet, which is the lowest level of identifiable cash
flows. Our analysis of undiscounted cash flows indicated no impairment existed for long-lived assets at December
31, 2016 or 2015.
New Accounting Pronouncements
See “Item 8. Financial Statements and Supplementary Data – Note 1: Description of the Business and Summary
of Significant Accounting Policies”.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
USA Truck experiences various market risks, including changes in interest rates and commodity prices. The
Company does not enter into derivatives or other financial instruments for hedging or speculative purposes.
Because USA Truck’s operations are largely confined to the U.S., the Company is not subject to a material amount
of foreign currency risk.
Interest Rate Risk. The Company is exposed to interest rate risk primarily from its Credit Facility. The
Company’s Credit Facility bears variable interest based on the type of borrowing and on the Agent’s prime rate or
the London Interbank Offered Rate (“LIBOR”) plus a certain percentage determined based on a pricing grid
dependent upon certain financial ratios. As of December 31, 2016, the Company had $96.6 million outstanding
pursuant to its Credit Facility, excluding letters of credit of $4.7 million. Assuming the outstanding balance as of
December 31, 2016 remained constant, a hypothetical one-percentage point increase in interest rates applicable to its
Credit Facility would increase the Company’s interest expense over a one-year period by approximately
$1.0 million.
Commodity Price Risk. The Company is subject to commodity price risk with respect to purchases of fuel. In
recent years, fuel prices have fluctuated greatly and have generally increased, although recently the Company
experienced a significant decrease in 2015. In some periods, the Company’s operating performance was adversely
affected because it was not able to fully offset the impact of higher diesel fuel prices through increased freight rates
and fuel surcharge revenue recoveries. Management cannot predict how fuel price levels will continue to fluctuate
in the future or the extent to which fuel surcharge revenue recoveries could be collected to offset any increases. As
of December 31, 2016, the Company did not have any derivative financial instruments to reduce its exposure to fuel
price fluctuations, but may use such instruments in the future. Accordingly, volatile fuel prices may continue to
impact the Company significantly. A significant increase in fuel costs, or a shortage of diesel fuel, could materially
and adversely affect the Company’s results of operations. Further, higher fuel costs could contribute to driver
shortages in the trucking industry generally by forcing independent contractors to cease operations. Based on the
Company’s fuel consumption for 2016, a 10% increase in the average price per gallon would result in a $4.3 million
increase in fuel expense before taking into account application of the Company’s fuel surcharge program.
39
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company as of December 31, 2016 and 2015, and for the years
ended December 31, 2016, 2015, and 2014, together with related notes and the report of Grant Thornton LLP,
independent registered public accountants, are set forth on the following pages.
Index to Consolidated Financial Statements
Audited Financial Statements of USA Truck, Inc.
Report of independent registered public accounting firm ....................................................................................
Consolidated balance sheets as of December 31, 2016 and 2015 ........................................................................
Consolidated statements of operations and comprehensive (loss) income for the years ended December 31,
2016, 2015 and 2014 .........................................................................................................................................
Consolidated statements of stockholders’ equity for the years ended December 31, 2016, 2015 and 2014 ........
Consolidated statements of cash flows for the years ended December 31, 2016, 2015 and 2014 ........................
Notes to Consolidated Financial Statements ........................................................................................................
Page
41
42
43
44
45
46
40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
USA Truck, Inc.
We have audited the accompanying consolidated balance sheets of USA Truck, Inc. (a Delaware corporation) and
subsidiary (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of
operations and comprehensive (loss) income, changes in shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2016. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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, 2016 and 2015, and the results of their
operations and their cash flows for each of the three years in the period ended December 31, 2016 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 Company’s internal control over financial reporting as of December 31, 2016, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated March 3, 2017 expressed an unqualified
opinion.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
March 3, 2017
41
USA Truck, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
Assets
Current assets:
Cash ................................................................................................................................... $
Accounts receivable, net of allowance for doubtful accounts of $608 and $608,
respectively .................................................................................................................
Other receivables ..............................................................................................................
Inventories ........................................................................................................................
Assets held for sale ...........................................................................................................
Prepaid expenses and other current assets ........................................................................
Total current assets ........................................................................................................
Property and equipment:
Land and structures ...........................................................................................................
Revenue equipment ...........................................................................................................
Service, office and other equipment..................................................................................
Property and equipment, at cost ....................................................................................
Accumulated depreciation and amortization .....................................................................
Property and equipment, net ..........................................................................................
Other assets ............................................................................................................................
Total assets .................................................................................................................... $
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable .............................................................................................................. $
Current portion of insurance and claims accruals .............................................................
Accrued expenses .............................................................................................................
Current maturities of capital leases ...................................................................................
Insurance premium financing ............................................................................................
Total current liabilities ..................................................................................................
Deferred gain ..........................................................................................................................
Long-term debt, less current maturities ..................................................................................
Capital leases, less current maturities .....................................................................................
Deferred income taxes ............................................................................................................
Insurance and claims accruals, less current portion ................................................................
Total liabilities ...............................................................................................................
Commitments and contingencies ............................................................................................
Stockholders’ equity:
Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued ......................
Common Stock, $.01 par value; 30,000,000 shares authorized; issued 12,156,376
shares, and 11,946,253 shares, respectively ..................................................................
Additional paid-in capital .................................................................................................
Retained earnings ..............................................................................................................
Less treasury stock, at cost (3,849,815 shares, and 2,286,608 shares, respectively) .....
Total stockholders’ equity .............................................................................................
Total liabilities and stockholders’ equity ....................................................................... $
As of December 31,
2016
2015
122
$
87
55,127
6,986
413
4,661
6,187
73,496
31,500
269,953
25,295
326,748
(106,465)
220,283
1,189
294,968
18,779
10,665
7,533
16,742
3,943
57,662
652
96,600
35,133
37,900
8,558
236,505
$
$
53,324
11,253
748
7,979
4,876
78,267
32,910
289,045
22,156
344,111
(137,327)
206,784
1,405
286,456
24,473
10,706
8,836
12,190
--
56,205
701
70,400
18,845
37,943
8,585
192,679
--
--
122
68,041
58,172
(67,872)
58,463
294,968
$
119
67,370
65,871
(39,583)
93,777
286,456
See accompanying notes to consolidated financial statements.
42
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(in thousands, except per share amounts)
USA Truck, Inc.
2016
For the Years Ended December 31,
2015
507,934
429,099
$
$
2014
602,477
Operating revenue ...................................................................... $
Operating expenses:
Salaries, wages and employee benefits ..................................
Fuel and fuel taxes ..................................................................
Depreciation and amortization ...............................................
Insurance and claims ..............................................................
Equipment rent .......................................................................
Operations and maintenance ..................................................
Purchased transportation ........................................................
Operating taxes and licenses ..................................................
Communications and utilities .................................................
Gain on disposal of assets, net ................................................
Restructuring, impairment and other costs .............................
Impairment on assets held for sale .........................................
Other .......................................................................................
Total operating expenses ....................................................
Operating (loss) income.............................................................
122,408
43,179
29,954
21,154
7,443
34,252
148,972
4,695
3,239
(1,116)
5,264
2,839
14,332
436,615
(7,516)
140,649
58,511
37,480
21,183
4,424
39,644
161,370
5,720
3,599
(7,547)
2,742
--
17,088
484,863
23,071
Other expenses:
Interest expense, net ...............................................................
Defense costs ..........................................................................
Loss on extinguishment of debt ..............................................
Other, net ................................................................................
Total other expenses, net ....................................................
(Loss) income before income taxes .............................................
Income tax (benefit) expense.................................................
Net (loss) income and comprehensive (loss) income ................. $
3,178
--
--
524
3,702
(11,218)
(3,519)
(7,699) $
2,237
--
750
743
3,730
19,341
8,272
11,069
$
Net (loss) earnings per share:
Average shares outstanding (basic) ..........................................
Basic (loss) earnings per share ................................................. $
Average shares outstanding (diluted) .......................................
Diluted (loss) earnings per share .............................................. $
8,550
(0.90) $
8,550
(0.90) $
10,337
1.07 $
10,401
1.06 $
See accompanying notes to consolidated financial statements.
153,410
116,092
44,071
24,910
3,089
45,634
172,117
5,589
4,062
(1,107)
--
--
16,957
584,824
17,653
3,008
2,764
--
245
6,017
11,636
5,351
6,285
10,356
0.61
10,485
0.60
43
USA Truck, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Common Stock
Par
Shares
Value
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
Total
Balance at December 31, 2013 .................................................
Exercise of stock options ........................................................
11,881 $
16
119
--
$
65,527
158
$
$
48,517
--
(21,765)
--
$
92,398
158
Transfer of stock into (out of) treasury stock .........................
Stock-based compensation .....................................................
--
--
Restricted stock award grant ..................................................
Forfeited restricted stock ........................................................
21
(35)
Net share settlement related to restricted stock vesting .........
(10)
Net income ................................................................................
--
--
--
--
--
--
--
(62)
366
--
--
(139)
--
--
--
--
--
--
6,285
62
--
--
--
--
--
--
366
--
--
(139)
6,285
Balance at December 31, 2014 .................................................
11,873 $
119
$
65,850
$
54,802
$
(21,703)
$
99,068
Exercise of stock options ........................................................
32
Excess tax benefit on exercise of stock options .....................
Transfer of stock into (out of) treasury stock .........................
Stock-based compensation .....................................................
Restricted stock award grant ..................................................
Forfeited restricted stock ........................................................
Net share settlement related to restricted stock vesting .........
--
--
--
141
(84)
(16)
Net income ...............................................................................
--
--
--
--
--
1
(1)
--
--
168
721
(52)
1,093
(1)
1
(410)
--
Balance at December 31, 2015 .................................................
11,946
119
67,370
Exercise of stock options ........................................................
2
Excess tax benefit on exercise of stock options .....................
Transfer of stock into (out of) treasury stock .........................
Issuance of treasury stock to fill equity grants .......................
Stock-based compensation .....................................................
Restricted stock award grant ..................................................
Forfeited restricted stock ........................................................
Net share settlement related to restricted stock vesting .........
Net loss ......................................................................................
--
--
--
--
319
(102)
(9)
--
--
--
--
--
--
4
(1)
--
--
3
(135)
(40)
(26)
976
(4)
1
(104)
--
--
--
--
--
--
--
--
11,069
65,871
--
--
--
--
--
--
--
--
(7,699)
--
--
(17,880)
--
--
--
--
--
(39,583)
--
--
168
721
(17,932)
1,093
--
--
(410)
11,069
93,777
3
(135)
(28,372)
(28,412)
83
--
--
--
--
--
57
976
--
--
(104)
(7,699)
Balance at December 31, 2016 .................................................
12,156 $
122
$
68,041
$
58,172
$
(67,872)
$
58,463
See accompanying notes to consolidated financial statements.
44
USA Truck, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2016
2015
2014
(7,699) $
11,069
$
6,285
Operating activities
Net (loss) income ....................................................................................................... $
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Depreciation and amortization ..............................................................................
Provision for doubtful accounts ............................................................................
Deferred income tax (benefit) provision ...............................................................
Share-based compensation ....................................................................................
Loss on extinguishment of debt ............................................................................
Change in vacation policy .....................................................................................
Gain on disposal of assets, net ..............................................................................
Asset impairments .................................................................................................
Other .....................................................................................................................
Changes in operating assets and liabilities:
Accounts receivable ...........................................................................................
Inventories, prepaid expenses and other current assets .......................................
Trade accounts payable and accrued expenses ...................................................
Insurance and claims accruals ............................................................................
Other long-term assets and liabilities .................................................................
Net cash provided by operating activities .......................................................
Investing activities
Purchases of property and equipment ...................................................................
Proceeds from sale of property and equipment ....................................................
Proceeds from operating sale leaseback ...............................................................
Change in other assets, net ...................................................................................
Net cash used in investing activities ...............................................................
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 change in bank drafts payable ........................................................................
Excess tax benefit from exercise of stock options ................................................
Proceeds from capital sale leaseback ....................................................................
Purchase of common stock ...................................................................................
Issuance of treasury stock .....................................................................................
Net (payments) or proceeds from stock based awards ..........................................
Net cash provided by (used in) financing activities ..............................................
Increase (decrease) in cash and cash equivalents ...........................................
Cash and cash equivalents:
29,954
515
(55)
976
--
--
(1,116)
3,909
(47)
1,949
(979)
(5,945)
509
216
22,187
(59,751)
25,849
--
--
(33,902)
73,009
(42,866)
(9,969)
--
240
(135)
19,927
(28,412)
57
(101)
11,750
35
37,480
127
2,876
1,093
750
(1,383)
(7,547)
--
232
11,540
409
2,539
1,689
(749)
60,125
(66,186)
38,774
7,975
--
(19,437)
140,738
(141,456)
(27,121)
(896)
(926)
721
6,308
(17,932)
--
(242)
(40,806)
(118)
Beginning of year .................................................................................................
End of year ........................................................................................................... $
87
122 $
205
87
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest .................................................................................................................. $
Income taxes .........................................................................................................
3,382 $
716
Supplemental schedule of non-cash investing and financing activities
Liability incurred for notes payable ......................................................................
Purchases of revenue equipment included in accounts payable ............................
Capitalized lease obligations ................................................................................
3,943
--
29,642
2,084
9,808
--
1,279
12,614
$
$
See accompanying notes to consolidated financial statements.
44,071
782
5,279
366
--
--
(1,107)
--
(38)
(7,531)
892
1,417
1,462
--
51,878
(56,536)
16,923
--
20
(39,593)
74,168
(67,353)
(18,073)
(1,494)
639
--
--
--
--
19
(12,094)
191
14
205
3,359
3,003
1,367
34
--
45
USA Truck, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of business
USA Truck, Inc., a Delaware corporation and subsidiary (together, the “Company”), through its Trucking and
USAT Logistics segments, transports commodities throughout the contiguous United States and into and out of
portions of Canada. USA Truck also transports general commodities into and out of Mexico by allowing
through-trailer service from its terminal in Laredo, Texas. In addition to truckload and dedicated service offerings
through its Trucking segment, the Company also provides freight brokerage and rail intermodal service offerings
through its brokerage segment, which was rebranded during the first quarter of 2016 as USAT Logistics (formerly
reported as Strategic Capacity Solutions, or “SCS”).
Basis of presentation
The accompanying consolidated financial statements include USA Truck, Inc., and its wholly owned subsidiary.
All significant intercompany balances and transactions have been eliminated in preparing the consolidated financial
statements. Certain amounts reported in prior periods have been reclassified to conform to the current year
presentation.
The accompanying financial statements have been prepared in accordance with United States generally
accepted accounting principles (“GAAP”), and include all adjustments necessary for the fair presentation of the
periods presented.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and accompanying notes. Management
evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors which
management believes to be reasonable under the circumstances. As future events and their effects cannot be
determined with precision, actual results could differ significantly from these estimates.
Cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to
be cash equivalents. The carrying amount reported in the balance sheets for cash and cash equivalents approximates
its fair value.
Allowance for doubtful accounts
The allowance for doubtful accounts is management’s estimate of the amount of probable credit losses in the
Company’s existing accounts receivable. Management reviews the financial condition of customers for granting
credit and determines the allowance based on analysis of individual customers’ financial condition, historical
write-off experience and national economic conditions. The Company evaluates the adequacy of its allowance for
doubtful accounts quarterly. Past due balances over 90 days and exceeding a specified amount are reviewed
individually for collectability. The Company does not have any off-balance-sheet credit exposure related to its
customers.
The following table provides a summary of the activity in the allowance for doubtful accounts for 2016, 2015
and 2014 (in thousands):
Balance at beginning of year ......................................................... $
Provision for doubtful accounts .....................................................
Uncollectible accounts written off, net of recovery .......................
Balance at end of year ................................................................... $
608
515
(515)
608
$
$
1,020
127
(539)
608
$
$
610
782
(372)
1,020
Year Ended December 31,
2015
2014
2016
46
Assets held for sale
When we plan to dispose of property by sale, the asset is carried in the financial statements at the lower of the
carrying amount or estimated fair value, less cost to sell, and is reclassified to assets held for sale. Additionally,
after such reclassification, there is no further depreciation taken on the asset. In order for an asset to be classified as
held for sale, management must approve and commit to a formal plan, the sale should be anticipated during the
ensuing year, the asset must be actively marketed, the asset must be available for immediate sale, and meet certain
other specified criteria. At December 31, 2016 and 2015, the net book value of assets held for sale was
approximately $4.7 million and $8.0 million, respectively. The Company expects to sell these assets within the next
twelve months. These amounts are included in “Assets held for sale” in the accompanying consolidated balance
sheets. We recorded a charge of $2.8 million for the year ended December 31, 2016, to reduce assets held for sale to
estimated fair value, less cost to sell. This charge is included in “Impairment on assets held for sale”, in the
accompanying statements of operations. There was no such amount recorded in the years ended December 31, 2015
or 2014.
Valuation of long-lived assets
We review property and equipment for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. We evaluate recoverability of assets to be held and used by
comparing the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. The Company performed the impairment analysis
of the carrying value of its fleet, which is the lowest level of identifiable cash flows. Our analysis of undiscounted
cash flows indicated no impairment existed for long-lived assets at December 31, 2016 or 2015.
Treasury stock
The Company uses the cost method to record treasury stock purchases whereby the entire cost of the acquired
shares of our common stock is recorded as treasury stock (at cost). When the Company subsequently reissues these
shares, proceeds in excess of cost upon the issuance of treasury shares are credited to additional paid in capital,
while any deficiency is charged to equity. The Company recorded a charge to equity of $0.1 million for the year
ended December 31, 2016 and recorded no charge to equity for the year ended December 31, 2015.
Earnings per share data
The Company calculates basic earnings per share based on the weighted average number of its common shares
outstanding for the applicable period. The Company calculates diluted earnings per share based on the weighted
average number of its common shares outstanding for the period plus all potentially dilutive securities using the
treasury stock method, whereby the Company assumes that all such shares are converted into common shares at the
beginning of the period, if deemed to be dilutive. If the Company incurs a loss from continuing operations, the
effect of potentially dilutive common stock equivalents (stock options and unvested restricted stock awards) are
excluded from the calculation of diluted earnings per share because the effect would be anti-dilutive. Performance
shares are excluded from contingent shares for purposes of calculating diluted weighted average shares until the
performance measure criteria is probable and shares are likely to be issued.
Inventories
Inventories consist of tires and supplies, and are stated at the lower of cost (first-in, first-out basis) or market.
The cost of original tires mounted on purchased revenue equipment is capitalized as part of the equipment cost and
is depreciated over the useful life of the related equipment. The cost of subsequent replacement tires is expensed at
the time those tires are placed in service.
Property and equipment
Property and equipment is capitalized at cost. The cost of such property is depreciated by the straight-line
method using the following estimated useful lives: structures – 5 to 39.5 years; revenue equipment – 4 to 10 years;
and service, office and other equipment – 3 to 20 years. Revenue equipment acquired under capital lease is
amortized over the lease term.
Depreciable lives and salvage value of assets
We review the appropriateness of depreciable lives and salvage values for each category of property and
equipment. These studies utilize models, which take into account actual usage, physical wear and tear, and
replacement history to calculate remaining life of our asset base. We also make assumptions regarding future
conditions in determining potential salvage values. These assumptions impact the amount of depreciation expense
recognized in the period and any gain or loss once the asset is disposed. In the fourth quarter of 2016, the Company
revised the salvage values of 2013 model year tractors. This change affects approximately 25 Company-owned
47
tractors and did not have a material impact on the current financial statements, nor estimated future impact on
financial statements. Actual disposition values may be greater or less than expected due to the length of time before
disposition.
Income taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the
financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the
differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect
for the year in which the differences are expected to reverse. The Company has analyzed filing positions in its
federal and applicable state tax returns in all open 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 analyzes its tax
positions on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax
positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that
meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than
50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company believes that
its income tax filing positions and deductions will be sustained on audit and does 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 or associated interest or penalties on uncertain tax
positions have been recorded.
Claims accruals
The primary claims arising against the Company consist of cargo loss and damage, liability, personal injury,
property damage, workers' compensation, and employee medical expenses. The Company’s insurance program
involves self-insurance with high risk retention levels. Due to its significant self-insured retention amounts, the
Company has exposure to fluctuations in the frequency and severity of claims and to variations between its
estimated and actual ultimate payouts. Estimates require judgments concerning the nature and severity of the claim,
as well as other factors. Actual settlement of the self-insured claim liabilities could differ from management’s initial
assessment due to uncertainties and fact development.
Restricted stock
Restricted stock cannot be sold by the recipient until its restrictions have lapsed. The Company recognizes
compensation expense related to these awards over the vesting periods based on the closing prices of the Company’s
common stock on the grant dates. If these awards contain performance criteria the grant date fair value is set
assuming performance at target, and management periodically reviews actual performance against the criteria and
adjusts compensation expense accordingly. These shares are legally considered issued and outstanding under the
terms on the restricted stock agreement.
Revenue recognition
Revenue generated by the Company’s Trucking operating segment is recognized in full upon 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. Revenue generated by
the Company’s USAT Logistics segment is recognized upon completion of the services provided. Revenue is
recorded on a gross basis, without deducting third party purchased transportation costs, because the Company acts as
a principal with substantial risks as primary obligor.
New accounting pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all
existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenue
when promised goods or services are transferred to customers in an amount that reflects the consideration to which
an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to implement
this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition
process than are required under existing GAAP. The standard provides for using either of the following transition
methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period
with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of
initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
In August 2015, the FASB issued ASU 2015-14, Revenue From Contracts with Customers – Deferral of the
Effective Date, which delayed the effectiveness of ASU 2014-09 to annual periods beginning after December 15,
2017, and interim periods therein. The adoption of this guidance is not expected to have a material impact on the
48
Company’s consolidated financial statements. The Company is in the process of reviewing customer contracts, but
we believe our transportation revenue recognized under the new standard will generally approximate revenue under
current standards, in that we recognize transportation revenue proportionately as we perform the transportation
service for our customer. The Company plans to complete its evaluation in 2017, including an assessment of the
new expanded disclosure requirements and a final determination of the transition method we will use to adopt the
new standard.
In February 2016, the FASB issued ASU No. 2016-02, Leases, which requires lessees to recognize a
right-to-use asset and a lease obligation for all leases. Lessees are permitted to make an accounting policy election
to not recognize an asset and liability for leases with a term of twelve months or less. Lessor accounting under the
new standard is substantially unchanged. Additional qualitative and quantitative disclosures, including significant
judgments made by management, will be required. The new standard, which will become effective for the Company
beginning with the first quarter 2019, requires a modified retrospective transition approach and includes a number of
practical expedients. Early adoption of the standard is permitted. The Company has evaluated the impacts the
adoption of this accounting guidance will have on the consolidated financial statements and has determined that this
ASU will not have a material impact.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting,
which simplifies several aspects of the accounting for employee share-based payment transactions including the
accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification of
related amounts within the statement of cash flows. The new standard will become effective for the Company
beginning with the first quarter of 2017, with early adoption permitted. The Company is currently evaluating the
impacts the adoption of this accounting guidance will have on the consolidated financial statements, and believes
that this ASU will not have a material impact.
NOTE 2. SEGMENT REPORTING
The Company’s two reportable segments are Trucking and USAT Logistics. During the first quarter of 2016,
the Company rebranded its asset-light business, formerly known as Strategic Capacity Solutions (“SCS”) as USAT
Logistics (“USAT Logistics”).
Trucking. Trucking is comprised of truckload and dedicated freight services. Truckload provides services as a
medium-to long-haul common carrier. USA Truck has provided truckload services since its inception, and derives
the largest portion of its revenue from these services. Dedicated freight provides truckload services to specific
customers for shipments over particular routes at specified times.
USAT Logistics. USAT Logistics consists of freight brokerage and rail intermodal services. Both of these
service offerings match customer shipments with available equipment of authorized third-party carriers and provide
services that complement the Company’s Trucking operations. USA Truck provides these services primarily to
existing Trucking customers, many of whom prefer to rely on a single carrier, or a small group of carriers, to provide
all their transportation solutions.
In determining its reportable segments, the Company’s management focuses on financial information, such as
operating revenue, operating expense categories, operating ratios, and operating income, as well as on key operating
statistics, to make operating decisions.
Revenue equipment assets are not allocated to USAT Logistics, because USAT Logistics brokers freight
services to customers through arrangements with third party carriers who utilize their own equipment. To the extent
rail intermodal operations require the use of Company-owned assets, they are obtained from the Company’s
Trucking segment on an as-needed basis. Depreciation and amortization expense is allocated to USAT Logistics
based on the Company-owned assets specifically utilized to generate USAT Logistics revenue. All intercompany
transactions between segments reflect rates similar to those that would be negotiated with independent third parties.
All other expenses for USAT Logistics are specifically identifiable direct costs or are allocated to USAT Logistics
based on relevant drivers, as determined by management.
49
A summary of operating revenue by segment is as follows (in thousands):
Operating revenue:
Trucking revenue (1) ................................................ $
Trucking intersegment eliminations .........................
Trucking operating revenue .................................
USAT Logistics revenue ..........................................
USAT Logistics intersegment eliminations ..............
USAT Logistics operating revenue .....................
Total operating revenue ................................... $
2016
Year Ended December 31,
2015
2014
295,807 $
(1,281)
294,526
140,847
(6,274)
134,573
429,099 $
356,528
$
(2,048)
354,480
158,295
(4,841)
153,454
507,934
$
424,082
(587)
423,495
192,924
(13,942)
178,982
602,477
(1) Includes foreign revenue of $36.9 million, $42.0 million, and $57.3 million for the years ended
December 31, 2016, 2015 and 2014, respectively. All foreign revenue is collected in United States
dollars.
A summary of operating (loss) income by segment is as follows (in thousands):
Operating (loss) income:
2016
Year Ended December 31,
2015
2014
Trucking ............................................................... $
USAT Logistics ....................................................
Total operating (loss) income ............................ $
(14,789)
7,273
(7,516)
$
$
11,088
11,983
23,071
$
$
(3,122)
20,775
17,653
A summary of depreciation and amortization by segment is as follows (in thousands):
Depreciation and amortization:
2016
Year Ended December 31,
2015
2014
Trucking ................................................................ $
USAT Logistics ....................................................
Total depreciation and amortization .................. $
29,467
487
29,954
$
$
37,140
340
37,480
$
$
43,889
182
44,071
NOTE 3. PREPAID AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in thousands):
Year Ended December 31,
2015
2016
Prepaid licenses, permits and tolls ......................................................................
Prepaid insurance ................................................................................................
Other ...................................................................................................................
Total prepaid expenses and other current assets ............................................ $
1,333
3,375
1,479
6,187
$
1,542
2,080
1,254
4,876
NOTE 4. NOTE RECEIVABLE
During 2010, the Company sold its terminal facility in Shreveport, Louisiana. In connection with this sale, the
Company received cash in the amount of $0.2 million and a note receivable in the amount of $2.1 million, due
November 2015, which was recorded in the line item “Other Receivables” in the accompanying consolidated
balance sheets. The purchaser-debtor was to make monthly payments to the Company, with interest, until the
balance of the note receivable was paid via a final, lump sum payment of the remaining balance (approximately
$1.9 million) in November 2015. The purchaser-debtor defaulted on the note receivable by not making the final
principal payment in November 2015, and the Company is taking legal action to collect the remaining balance. The
note receivable is collateralized by a first priority mortgage on the property. The Company believes, based on a
recent appraisal, that the market value of the property exceeds the amount of the note receivable plus collection
50
costs. Accordingly, no valuation allowance has been recorded. The Company had previously deferred $0.7 million
of gain on the sale of the property, with the gain recognized into earnings only as payments on the note receivable
were received.
In the fourth quarter of 2016, the Company and the purchaser-debtor modified the original asset sale agreement
(hereinafter referred to as the “Original Agreement”) for the property as a result of the default by the
purchaser-debtor in November 2015. The modifications to the Original Agreement are as follows:
(1) As of January 1, 2016, the purchaser-debtor ceased making monthly payments to the Company, as
required under the terms of the Original Agreement.
(2) The purchaser-debtor agreed that, in addition to the balloon payment of $1.9 million, plus interest as
agreed upon in the Original Agreement, and $56,953 in tax liens paid by the Company, the Company
will also be entitled to receive 25% of the net sale proceeds from any future sale (including a
foreclosure sale) of the property in excess of the balloon payment amount, closing costs, and realtor
commissions, as applicable.
(3) At any time, the Company retains the right to enforce its rights as creditor, mortgagee, and holder of
vendor’s privilege and declare the unpaid portion of the purchase price, interest, costs, and attorneys’
fees immediately due and payable. The Company’s rights include initiating foreclosure proceedings
and/or other legal action.
During the fourth quarter of 2016, the Company filed a Petition for Executory Process in foreclosure against the
purchaser-debtor in the 1st Judicial Court, Caddo Parish, State of Louisiana. The Caddo Parish Sheriff’s Department
has scheduled the foreclosure sale for April 26, 2017.
NOTE 5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
Salaries, wages and employee benefits ................................................. $
Federal and state tax accruals ...............................................................
Restructuring, impairment and other costs (1) ......................................
Accrued third party maintenance ..........................................................
Other .....................................................................................................
Total accrued expenses .................................................................... $
Year Ended December 31,
2015
2016
2,480
1,579
1,404
--
2,070
7,533
$
$
4,359
1,712
773
525
1,467
8,836
(1) Refer to Note 15 below for additional information regarding the restructuring, impairment and other costs.
NOTE 6. INSURANCE PREMIUM FINANCING
On October 27, 2016, the Company entered into an unsecured note payable of $4.3 million. The note, which is
payable in quarterly installments of principal and interest of approximately $1.3 million and bears interest at 2.6%,
is scheduled to mature in October 2017. The balance of the note payable as of December 31, 2016 was $3.9 million.
The note is payable to a third party financing company for a portion of the Company’s annual insurance premiums.
NOTE 7. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
Revolving credit agreement .................................................................. $
Year Ended December 31,
2015
2016
96,600
$
70,400
Credit facility
In February 2015, the Company entered into a new senior secured revolving credit facility (the “Credit
Facility”) with a group of lenders and Bank of America, N.A., as agent (“Agent”). Contemporaneously with the
funding of the Credit Facility, the Company paid off the obligations under its prior credit facility and terminated
such facility.
51
The Credit Facility is structured as a $170.0 million revolving credit facility, with an accordion feature that, so
long as no event of default exists, allows the Company to request an increase in the revolving credit facility of up to
$80.0 million, exercisable in increments of $20.0 million. The Credit Facility is a five-year facility scheduled to
terminate on February 5, 2020. Borrowings under the Credit Facility are classified as either “base rate loans” or
“LIBOR loans”. Base rate loans accrue interest at a base rate equal to the Agent’s prime rate plus an applicable
margin that was set at 0.50% through May 31, 2016, and then adjusted quarterly thereafter between 0.25% and
1.00% based on the Company’s consolidated fixed charge coverage ratio. LIBOR loans accrue interest at LIBOR
plus an applicable margin that was set at 1.50% through May 31, 2016 and then adjusted two days prior to each
30-day interest period for a term equivalent to such period between 1.25% and 2.00% based on the Company’s
consolidated fixed charge coverage ratio. The Credit Facility includes, within its $170.0 million revolving credit
facility, a letter of credit sub-facility in an aggregate amount of $15.0 million and a swing line sub-facility in an
aggregate amount of $20.0 million. An unused line fee of 0.25% is applied to the average daily amount by which
the lenders’ aggregate revolving commitments exceed the outstanding principal amount of revolver loans and the
aggregate undrawn amount of all outstanding letters of credit issued under the Credit Facility. The Credit Facility is
secured by a pledge of substantially all of the Company’s assets, with the notable exclusion of any real estate or
revenue equipment financed outside the Credit Facility. Additionally, the Company recognized a charge in the first
quarter of 2015 of $0.8 million resulting from the replacement of its previous credit facility representing the
write-off of unamortized deferred financing fees.
Borrowings under the Credit Facility are subject to a borrowing base limited to the lesser of (A) $170.0 million;
or (B) the sum of (i) 90% of eligible investment grade accounts receivable (reduced to 85% in certain situations),
plus (ii) 85% of eligible non-investment grade accounts receivable, plus (iii) the lesser of (a) 85% of eligible
unbilled accounts receivable and (b) $10.0 million, plus (iv) the product of 85% multiplied by the net orderly
liquidation value percentage applied to the net book value of eligible revenue equipment, plus (v) 85% multiplied
the net book value of otherwise eligible newly acquired revenue equipment that has not yet been subject to an
appraisal. The borrowing base is reduced by an availability reserve, including reserves based on dilution and certain
other customary reserves. The Credit Facility contains a single springing financial covenant, which requires a
consolidated fixed charge coverage ratio of at least 1.0 to 1.0. The financial covenant springs only in the event
excess availability under the Credit Facility drops below 10% of the lenders’ total commitments under the Credit
Facility.
The Credit Facility includes usual and customary events of default for a facility of this nature and provides that,
upon the occurrence and continuation of an event of default, payment of all amounts payable under the Credit
Facility may be accelerated, and the lenders’ commitments may be terminated. The Credit Facility contains certain
restrictions and covenants relating to, among other things, dividends, liens, acquisitions and dispositions, affiliate
transactions, and other indebtedness.
The Company had $1.2 million of overnight borrowings under the Credit Facility as of December 31, 2016.
The average interest rate including all borrowings made under the Credit Facility as of December 31, 2016, was
2.34%. As debt is repriced on a monthly basis, the borrowings under the Credit Facility approximate fair value. As
of January 31, 2017, the Company had outstanding $4.7 million in letters of credit and had approximately
$36.7 million available under the Credit Facility.
The Company anticipates falling below $34.0 million in availability, or 20% of the lenders’ commitments under
the Credit Facility, during the first quarter of 2017, which may restrict the Company’s ability to pay dividends, make
certain investments, prepay certain indebtedness, execute share repurchase programs, and enter into certain
acquisitions and hedging arrangements. The Credit Facility contains a single financial covenant that springs in the
event excess availability under the Credit Facility falls below 10% of the lenders’ total commitments. Management
believes the Company’s excess availability will not fall below 10%, or $17.0 million, and expects the Company to
remain in compliance with all debt covenants during the next twelve months.
NOTE 8. LEASES AND COMMITMENTS
Capital leases
The Company leases certain equipment under capital leases with terms ranging from 15 to 60 months. Balances
related to these capitalized leases are included in property and equipment in the accompanying consolidated balance
sheets and are set forth in the table below for the periods indicated (in thousands).
52
December 31, 2016 ............... $
December 31, 2015 ................
69,748
45,170
Capitalized Costs
Accumulated Amortization
17,428
$
12,896
$
Net Book Value
52,320
32,274
The Company has capitalized lease obligations relating to revenue equipment of $51.9 million, of which
$16.7 million represents the current portion. These leases have various termination dates extending through October
2020 and contain renewal or fixed price purchase options. The effective interest rates on the leases range from 0%
to 3.11% as of December 31, 2016. The lease agreements require payment of property taxes, maintenance and
operating expenses. Amortization of assets under capital leases was $6.2 million, $8.3 million and $12.7 million for
the years ended December 31, 2016, 2015, and 2014, respectively.
The Company completed sale-leaseback transactions under which certain Company-owned tractors were sold to
an unrelated party for net proceeds of $19.9 and $6.3 million, for the years ended December 31, 2016 and 2015,
respectively, under 48 month terms each with the buyer. During the years ended December 31, 2016 and 2015, the
Company recorded liabilities of approximately $0.1 million and $0.4 million, respectively, representing the total
gain on the sales and will amortize such amounts to earnings ratably over the lease terms. The deferred gains are
included in the deferred gain line item on the accompanying consolidated balance sheet.
Operating leases
The Company has entered into leases with lessors who did not participate in the Credit Facility. Operating lease
payments are set forth in the table below for the periods indicated (in thousands).
Equipment rent .......................................... $
Building and office rent (1) .......................
Total rent expense ................................ $
7,443
2,001
9,444
$
$
4,424
2,297
6,721
$
$
3,089
2,225
5,314
2016
Year Ended December 31,
2015
2014
(1) The expense for building and office rents is recorded in the operations and maintenance line item in the
accompanying consolidated statement of operations and comprehensive (loss) income.
During 2015, the Company completed two sale-leaseback transactions under which it sold certain owned
tractors to an unrelated party for net proceeds of $8.0 million and entered into two operating leases with terms of 58
and 59 months, respectively, with the buyer. During 2015, the Company recorded a liability of approximately
$0.3 million representing the gain on the sale and will amortize such amount to earnings ratably over the lease term.
The deferred gain is included on the deferred gain line item in the accompanying consolidated balance sheet.
As of December 31, 2016, the future minimum payments including interest under capitalized leases with initial
terms of one year or more and future rentals under operating leases for certain facilities, office equipment and
revenue equipment with initial terms of one year or more were as follows for the years indicated (in thousands).
2018
Future minimum payments .................... $ 18,365 $ 10,378
7,788
Future rentals under operating leases .....
2017
8,081
2019
$ 12,075
4,837
2020
2021
$ 15,902 $
2,960
--
111
Thereafter
$
--
226
Other commitments
As of December 31, 2016, the Company had $5.5 million in commitments for purchases of revenue and
non-revenue equipment. The Company typically has the option to cancel revenue equipment orders within a 60 to
90 day period prior to scheduled production, although the notice period has lapsed for all commitments outstanding
as December 31, 2016.
53
NOTE 9. FEDERAL AND STATE INCOME TAXES
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
Deferred tax assets:
Year Ended December 31,
2016
2015
Accrued expenses not deductible until paid ................................. $
Federal credits ..............................................................................
Impairment loss on assets held for sale ........................................
Net operating loss carry forwards ................................................
Equity incentive plan ...................................................................
Allowance for doubtful accounts .................................................
Revenue recognition ....................................................................
Other ............................................................................................
Total deferred tax assets ....................................................................
7,231
2,023
1,090
731
265
182
113
292
11,927
$
7,438
--
--
157
316
232
235
335
8,713
Deferred tax liabilities:
Tax over book depreciation .........................................................
Prepaid expenses deductible when paid .......................................
Capital leases ...............................................................................
Total deferred tax liabilities ..............................................................
Net deferred tax liabilities ................................................................. $
(47,217)
(2,375)
(235)
(49,827)
(37,900)
$
(44,805)
(1,872)
21
(46,656)
(37,943)
The Company has federal and certain state net operating loss carryovers that expire in varying years through
2036. The Company expects to fully utilize its tax attributes in future years before they expire.
Significant components of the provision (benefit) for income taxes are as follows (in thousands):
Current:
Federal ............................................................................ $
State ................................................................................
Total current .................................................................
Deferred:
Federal ............................................................................
State ................................................................................
Total deferred ...............................................................
Total income tax (benefit) expense ................................. $
Year Ended December 31,
2015
2016
2014
(3,420)
(44)
(3,464)
439
(494)
(55)
(3,519)
$
$
4,526 $
870
5,396
2,985
(109)
2,876
8,272 $
(129)
201
72
5,383
(104)
5,279
5,351
A reconciliation between the effective income tax rate and the statutory federal income tax rate of 35% is as
follows (in thousands):
Income tax (benefit) expense at statutory federal rate .... $
Federal income tax effects of:
State income tax expense (benefit) .............................
Per diem and other nondeductible meals and
entertainment ..............................................................
Other ...........................................................................
Federal income tax (benefit) expense ..............................
State income tax (benefit) expense ..................................
Total income tax (benefit) expense ..................................$
Year Ended December 31,
2015
2014
$
6,790
$
4,073
2016
(3,926)
188
(289)
(34)
614
143
(2,981)
(538)
(3,519)
$
702
306
7,509
763
8,272
$
872
343
5,254
97
5,351
Effective tax rate ..............................................................
31.4 %
42.8 %
46.0 %
54
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 change based on fluctuations in earnings (losses) and in the number of
drivers who elect to receive this pay structure. Generally, as pretax income or loss increases, the impact of the
driver per diem program on our effective tax rate decreases, because aggregate per diem pay becomes smaller in
relation to pretax income or loss, while in periods where earnings are at or near breakeven the impact of the per
diem program on our effective tax rate is significant.
NOTE 10. EQUITY COMPENSATION AND EMPLOYEE BENEFIT PLANS
The Company adopted the 2014 Omnibus Incentive Plan (the “Incentive Plan”) in May 2014. The Incentive
Plan replaced the 2004 Equity Incentive Plan and provides for the granting of equity-based awards covering up to
500,000 shares of common stock to directors, officers and other key employees and consultants, in addition to the
shares outstanding at execution of agreement. As of December 31, 2016, 146,754 shares remained available for the
issuance of future equity-based compensation awards.
The components of compensation expense recognized, net of forfeiture recoveries, related to equity-based
compensation is reflected in the table below for the years indicated (in thousands):
Year Ended December 31,
2015
2016
2014
Stock options ........................................$
Restricted stock awards ........................
Equity compensation expense ............$
-- $
976
976 $
147 $
946
1,093 $
31
335
366
Compensation expense related to all equity-based compensation awards granted under the Incentive Plan is
included in salaries, wages and employee benefits in the accompanying consolidated statements of operations and
comprehensive (loss) income.
Stock options
Stock options are the contingent right of award holders to purchase shares of the Company’s common stock at a
stated price for a limited time. The fair value of each option award is estimated on the date of grant using the
Black-Scholes-Merton option-pricing formula, and is recognized over the vesting period of the award. The vesting
period of option awards is generally 3 or 4 years and awards may be exercised over a three or ten year term. While
the Company did not grant any new stock options in 2016, 2015 or 2014, there was a modification to an existing
stock option award during 2015 that resulted in a deemed new award being granted.
The following assumptions were used to value the stock options granted or deemed to have been granted during
the years indicated:
Dividend yield ....................................................
Expected volatility ..............................................
Risk-free interest rate ..........................................
Expected life (in years) .......................................
Year Ended December 31,
2015
2014
2016
--
--
--
--
0%
62.9%
0.1%
0.5
--
--
--
--
The expected volatility is a measure of the expected fluctuation in the Company’s share price based on the
historical volatility of the Company’s stock. Expected life represents the length of time an option contract is
anticipated to be outstanding before being exercised. 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, a factor for anticipated forfeitures is also included, which represents the number of
shares under options expected to be forfeited over the expected life of the options.
55
The following table summarizes the stock option activity under the Incentive Plan:
Weighted-
Average
Exercise
Price Per
Share
Weighted-
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic Value
(in thousands)
(1)
Number of
Shares
Options outstanding at December 31, 2015 .....
Granted (2) ...................................................
Exercised ......................................................
Cancelled/forfeited .......................................
Expired .........................................................
Outstanding at December 31, 2016 ..................
Exercisable at December 31, 2016 ...................
15,610
--
(2,709)
(10,729)
(2,172)
--
--
$
$
$
5.40
--
7.51
4.83
5.61
--
--
--
--
--
--
--
--
--
$
$
$
--
--
25
--
--
--
--
(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 30, 2016, was $8.71.
(2) The weighted-average grant date fair value of options granted during 2016, 2015 and 2014 was $0, $15.17
and $0, respectively.
Restricted stock awards
Restricted stock awards are shares of the Company’s common stock that are granted subject to defined
restrictions. The estimated fair value of restricted stock awards is based upon the closing price of the Company’s
common stock on the date of grant. The vesting period of restricted stock awards is generally ratably over four
years.
Information related to the restricted stock awarded for the year ended December 31, 2016, is as follows:
Number of
Shares
Weighted-Average Grant
Date Fair Value (1)
Nonvested shares – December 31, 2015 ......................
Granted ........................................................................
Forfeited .......................................................................
Vested ..........................................................................
Nonvested shares – December 31, 2016 ...................
115,317
372,454
(150,048)
(52,527)
285,196
$
$
21.55
14.64
16.25
18.18
15.93
(1) The shares were valued at the closing price of the Company’s common stock on the dates of the
awards.
The fair value of stock options and restricted stock that vested during the year is as follows for the periods
indicated (in thousands):
Stock options ................................................. $
Restricted stock ..............................................
$
--
746
193
1,767
$
49
931
Year Ended December 31,
2015
2016
2014
As of December 31, 2016, approximately $2.6 million of unrecognized compensation cost related to unvested
restricted stock awards is expected to be recognized over a weighted-average period of 2.3 years.
56
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 team members. Employees can contribute
up to any percentage 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. Effective July 1, 2016, the Company reinstated its contribution match, after
having suspended it in April 2009. The Company’s matching contributions to the plan were approximately
$0.8 million for 2016.
NOTE 11. (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands,
except per share amounts):
Numerator:
Year Ended December 31,
2016
2015
2014
Net (loss) income ............................................................................... $
(7,699)
$
11,069
$
6,285
Denominator:
Denominator for basic earnings (loss) per share – weighted-average
shares .................................................................................................
Effect of dilutive securities:
8,550
10,337
10,356
Employee stock options and restricted stock .....................................
--
64
129
Denominator for diluted earnings (loss) per share – adjusted
weighted-average shares and assumed conversions........................... $
Basic earnings (loss) per share ................................................................. $
Diluted earnings (loss) per share .............................................................. $
Weighted-average anti-dilutive employee stock options and restricted
8,550
(0.90)
(0.90)
$
$
$
10,401
1.07
1.06
$
$
$
10,485
0.61
0.60
stock ....................................................................................................
11
62
3
NOTE 12. REPURCHASE OF EQUITY SECURITIES
In July 2015, the Company’s board of directors authorized the repurchase of up to one million shares of the
Company’s common stock. During 2015, through a Rule 10b5-1 plan, the Company repurchased a total of 953,738
shares at a weighted average price of $18.80 per share for an aggregate cost of approximately $17.9 million. As of
January 8, 2016, the Company had repurchased the full one million shares of common stock included in this
repurchase authorization.
In February 2016, the Company announced the board of directors had authorized the repurchase of up to two
million shares of the Company’s common stock, which authorization will expire in February 2019 unless earlier
terminated or extended by the board of directors. During 2016, the Company, through a Rule 10b5-1 plan,
repurchased 1,583,249 shares at an average price of $18.05 per share for an aggregate cost of approximately
$28.4 million. On August 9, 2016, the Company announced the board of directors had suspended the Rule 10b5-1
plan, with 463,013 shares remaining available for repurchase at December 31, 2016.
Purchases under these share repurchase authorizations may be made using a variety of methods, which may
include open market purchases, privately negotiated transactions or block trades, or any combination of such
methods, in accordance with applicable insider trading and other securities laws and regulations. The specific
number of shares the Company ultimately repurchases, and the actual timing and amount of share repurchases, will
depend on market conditions and other factors, as well as the applicable requirements of federal securities law. In
addition, the stock repurchase program may be suspended, extended or terminated by the Company at any time
without prior notice, and the Company is not obligated to purchase a specific number of shares.
57
NOTE 13. LITIGATION
USA Truck is party to routine litigation incidental to its business, primarily involving claims for personal injury
and property damage incurred in the transportation of freight. The Company maintains insurance to cover liabilities
in excess of certain self-insured retention levels. Though it is the opinion of management that these claims are
immaterial to the Company’s long-term financial position, adverse results of one or more of these claims could have
a material adverse effect on the Company’s consolidated financial statements in any given reporting period.
NOTE 14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present quarterly financial information for 2016 and 2015 (in thousands, except per share
amounts):
2016
Operating revenue.......................................... $
Operating expenses ........................................
Operating (loss) income .............................
Other, net .......................................................
Loss before income taxes ...........................
Income tax benefit .........................................
Net loss ...................................................... $
March 31,
110,618
112,981
(2,363)
768
(3,131)
(1,324)
(1,807)
Average shares outstanding (basic) ...............
Basic loss per share ........................................ $
Average shares outstanding (diluted) ............
Diluted loss per share .................................... $
9,381
(0.19)
9,381
(0.19)
Operating revenue.......................................... $
Operating expenses ........................................
Operating income .......................................
Other, net .......................................................
Income before income taxes.......................
Income tax expense .......................................
Net income ................................................. $
March 31,
132,887
128,361
4,526
1,582
2,944
1,309
1,635
Average shares outstanding (basic) ...............
Basic earnings per share ................................ $
Average shares outstanding (diluted) ............
Diluted earnings per share ............................. $
10,395
0.16
10,516
0.16
$
$
$
$
$
$
$
$
June 30,
109,888
110,445
(557)
864
(1,421)
(75)
(1,346)
$
September 30,
105,458
$
105,416
42
1,000
(958)
(224)
(734) $
December 31,
103,135
107,773
(4,638)
1,070
(5,708)
(1,896)
(3,812)
$
8,069
(0.09) $
8,069
(0.09) $
7,975
(0.48)
7,975
(0.48)
8,734
(0.15)
8,734
(0.15)
$
$
2015
June 30,
133,573
127,759
5,814
919
4,895
2,125
2,770
10,435
0.27
10,516
0.26
September 30,
123,490
$
118,031
5,459
571
4,888
2,161
2,727
$
$
December 31,
117,984
110,712
7,272
658
6,614
2,677
3,937
$
10,442
0.26
10,470
0.26
$
$
10,033
0.39
10,059
0.39
$
$
The amounts reported above 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 Form 10-K due
to rounding.
58
NOTE 15. RESTRUCTURING, IMPAIRMENT AND OTHER COSTS
During 2016 and 2015, the Company took steps to streamline and simplify its operations to better align its cost
structure.
2015 Restructuring, impairment and other costs
In the Company’s Trucking segment, maintenance facilities were closed in Denton, Texas and Carlisle,
Pennsylvania and its road assistance function was outsourced to a third party to improve operating productivity and
enhance capacity utilization. These initiatives resulted in a headcount reduction of 50 team members. Team
members separated from the Company as a result of these streamlining initiatives were paid severance. Expenses
recorded during the year ended December 31, 2015, included costs related to severance; facility lease termination
costs; communication and administration of these initiatives; and asset write-offs.
In July 2015, the Company entered into a separation agreement (the “Separation Agreement”) with Mr. John M.
Simone regarding the conclusion of his tenure as the Company’s President, Chief Executive Officer, and Director.
Pursuant to the Separation Agreement dated July 7, 2015, the Company recognized severance costs associated with
Mr. Simone’s departure of approximately $1.3 million, which were recorded in the line item “Restructuring,
impairment and other costs” in the Company’s consolidated statements of operations and comprehensive (loss)
income.
In total, during 2015, the Company recognized approximately $2.7 million, pretax, in restructuring, impairment
and other costs. The following table summarizes the Company’s restructuring liability and cash payments made
related to the restructuring plan as of December 31, 2015 (in thousands):
Severance pay and benefits ......................................... $
Facility closing expenses ............................................
Total ........................................................................ $
2,160 $
582
2,742 $
(869) $
(562)
(1,431) $
(538) $
--
(538) $
753
20
773
Costs
Incurred Payments
Non-cash
Expenses
Accrued
Balance
2016 Restructuring, impairment and other costs
In the Company’s Trucking segment, maintenance facilities were closed in Forest Park, Georgia and South
Holland, Illinois, and in the Company’s USAT Logistics segment, branch offices were closed in Olathe, Kansas and
Salt Lake City, Utah. Headcount was reduced by 47 team members across multiple departments, including two
contractors. Employees separated from the Company were paid severance benefits, and the agreements with the
contractors were cancelled and cancellation penalties were paid, where required. Expenses recorded during the year
ended December 31, 2016, included costs related to terminations; facility lease termination costs; costs associated
with the development, communication and administration of these initiatives; and asset write-offs.
The following table summarizes the Company’s liabilities, charges, and cash payments related to the
restructuring plan made during the year ended December 31, 2016 (in thousands):
Accrued
Balance
December 31,
2015
Compensation and benefits (1) ................... $
Facility closing expenses (1) .......................
Spartanburg impairment (2) ........................
Fuel tank write-off (2) ................................
Out of period adjustment (3) .......................
Total ...................................................... $
753
20
--
--
--
773
Costs
Incurred
768
2,779
546
524
647
5,264
$
$
Payments
$
(1,437)
(1,190)
--
--
--
(2,627)
$
$
$
Expenses/
Charges
(3) $
(286)
(546)
(524)
(647)
(2,006) $
Accrued
Balance
December 31,
2016
81
1,323
--
--
--
1,404
(1) The Company incurred total pretax expenses of approximately $3.5 million related to these streamlining
initiatives during the first quarter of 2016.
(2) During 2016, the Company recorded $1.1 million for the impairment of non-operating assets. Of the total
expense recorded, approximately $0.5 million related to the impairment of the Company’s bulk fuel assets at all
locations, as diesel fuel will no longer be stored or dispensed at any of the Company’s locations, and $0.6
million related to the fair market value impairment of the Company’s Spartanburg terminal.
59
(3) During the 2016, the Company identified an item requiring an adjustment of an accounts payable liability
during 2013. The Company has recorded an adjustment of $0.6 million for this item in the quarter ended March
31, 2016.
A summary of the Company’s restructuring, impairment and other costs by segment is as follows (in
thousands):
Trucking ........................................................................................ $
USAT Logistics ...........................................................................
Total ............................................................................................... $
4,848
416
5,264
$
$
2,742
--
2,742
Costs Incurred
Year Ended December 31,
2016
2015
On May 19, 2016, (the “Separation Date”), the Company’s board of directors unanimously approved a
separation agreement between Michael K. Borrows and the Company (the “Separation Agreement”) and accepted
Mr. Borrows’ resignation as Executive Vice President and Chief Financial Officer. The Company recognized
severance costs associated with Mr. Borrows’ departure of approximately $0.7 million, which are recorded in the
“Salaries, wages and employee benefits” line item in the accompanying consolidated statements of operations and
comprehensive (loss) income. At December 31, 2016, the Company has approximately $0.3 million accrued for
severance benefits still to be paid to Mr. Borrows.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
In accordance with the requirements of the Exchange Act and SEC rules and regulations promulgated
thereunder, the Company has established and maintains disclosure controls and procedures and internal control over
financial reporting. Management, including the Company’s principal executive officer and principal financial
officer, does not expect that the Company’s disclosure controls and procedures and internal control over financial
reporting will prevent all errors, misstatements, or fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the
Company will be detected.
Evaluation of Disclosure Controls and Procedures
USA Truck has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Exchange Act) that are designed to ensure that material information relating to the Company, including its
consolidated subsidiary, is made known to the officers who certify the Company’s financial reports and to other
members of senior management and the board of directors. The Company’s management, with the participation of
the its principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the
disclosure controls and procedures. Based on this evaluation, as of December 31, 2016, the Company’s principal
executive officer and principal financial officer have concluded that the Company’s disclosure controls and
procedures were effective at a reasonable assurance level to ensure that the information required to be disclosed by
the Company in reports that the Company files or submits under the Exchange Act is (i) recorded, processed,
summarized, and reported within the time periods specified in SEC rules and forms, and (ii) accumulated and
communicated to the Company’s management, including the Company’s principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
The management of USA Truck is responsible for establishing and maintaining adequate internal control over
financial reporting. Internal control over financial reporting is defined in the Exchange Act Rule 13a-15(f) and
60
15d-(f) as a process designed by, or under the supervision of, the principal executive officer and principal financial
officer and effected by the board of directors, management and other personnel, 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 and 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 Company assets;
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 are being made only in accordance with authorizations of the Company’s management
and directors; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use
or disposition of Company assets that could have a material effect on the Company’s financial
statements.
Under the supervision and with the participation of the Company’s management, including its principal
executive officer and principal financial officer, an evaluation of the effectiveness of its internal controls over
financial reporting was conducted based on the criteria set forth in the Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
management’s evaluation under the criteria set forth in Internal Control - Integrated Framework (2013),
management concluded that the Company’s internal control over financial reporting was effective at the reasonable
assurance level as of December 31, 2016.
The Company’s internal control over financial reporting as of December 31, 2016, has been audited by Grant
Thornton LLP, independent registered public accountants, as attested to in their attestation report included herein.
Change in Internal Control over Financial Reporting
No change occurred in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2016, that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
61
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
USA Truck, Inc.
We have audited the internal control over financial reporting of USA Truck, Inc. (a Delaware corporation) and
subsidiary (the “Company”) as of December 31, 2016, based on criteria established in the 2013 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.
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, 2016, based on criteria established in the 2013 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 financial statements of the Company as of and for the year ended December 31, 2016, and
our report dated March 3, 2017 expressed an unqualified opinion on those financial statements.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
March 3, 2017
62
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required in this Item 10 is hereby incorporated by reference to the information responsive to
this Item contained in the Company’s definitive proxy statement for its 2017 Annual Meeting of Stockholders to be
filed with the SEC.
Item 11. EXECUTIVE COMPENSATION
The information required in this Item 11 is hereby incorporated by reference to the information responsive to
this Item contained in the Company’s definitive proxy statement for its 2017 Annual Meeting of Stockholders to be
filed with the SEC.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information required in this Item 12 is hereby incorporated by reference to the information responsive to
this Item contained in the Company’s definitive proxy statement for its 2017 Annual Meeting of Stockholders to be
filed with the SEC.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required in this Item 13 is hereby incorporated by reference to the information responsive to
this Item contained in the Company’s definitive proxy statement for its 2017 Annual Meeting of Stockholders to be
filed with the SEC.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required in this Item 14 is hereby incorporated by reference to the information responsive to
this Item contained in the Company’s definitive proxy statement for its 2017 Annual Meeting of Stockholders to be
filed with the SEC.
63
Comparison of 5-Year Cumulative Total Return*
Among USA Truck, Inc., the Dow Jones U.S. Total Return Index and the Dow Jones U.S. Trucking Index.
*$100 invested on 12/31/11 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2017 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
The stock performance graph shall not be deemed to be incorporated by reference into any filing made by us under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, notwithstanding any general
statement contained in any such filings incorporating the graph by reference, except to the extent we incorporate such
graph by specific reference.
Officers and Directors
James D. Reed
President, Chief Executive Officer and Director
James A. Craig
Executive Vice President, Chief Commercial Officer
and President – USAT Logistics
Kandice G. Harshaw
Vice President, Human Resources
Joseph M. Kaiser
Vice President and Chief Accounting Officer
Zachary B. King
Vice President and Corporate Controller
David F. Marano
Vice President, Internal Audit and Corporate Secretary
Troy A. Robertson
Vice President and General Counsel
Robert A. Peiser
Chairman of the Board
Retired President and Chief Executive Officer,
Imperial Sugar Company,
refiner and marketer of sugar products
M. Susan Chambers
Director
Retired Executive Vice President and
Chief Human Resource Officer,
Wal-Mart Stores, Inc., retailer
Robert E. Creager
Director
Retired Partner, PricewaterhouseCoopers, LLP,
accounting firm
Gary R. Enzor
Director
Chairman and Chief Executive Officer,
Quality Distributions, Inc.,
chemical bulk logistics services provider
Barbara J. Faulkenberry
Director
Major General (Ret.), U.S. Air Force
Vice Commander, 18th Air Force,
Scott Air Force Base, IL
Thomas M. Glaser
Director
Retired President and Chief Executive Officer,
Arnold Transportation Services, Inc.,
dry van service provider
Alexander D. Greene
Director
Retired Private Equity Executive,
Brookfield Asset Management,
global asset management firm
We Strengthen our business from the inside out by consistently exceeding
the expectations of both our driving team members and our customers.
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