**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**Form 10-Q**

(Mark One)

| [  X  ] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-----------------------------|-----------------------------------------------------------------------------------------|

For the quarterly period ended June 30, 2008

**OR**

| [      ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|----------------------------------------|------------------------------------------------------------------------------------------|

For the transition period from __________ to __________

Commission File Number           0-19858

 

 

|   | USA TRUCK, INC.                                        |   |
|--------|--------------------------------------------------------|--------|
|   | (Exact Name of Registrant as Specified in Its Charter) |   |

 

| **Delaware**                                                   |   | **71-0556971**                       |
|----------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (I.R.S. employer identification no.) |
|                                                           |   |                                 |

 

| **3200 Industrial Park Road**            |   |       |
|------------------------------------------|--------|------------|
| **Van Buren, Arkansas**                  |   | **72956**  |
| (Address of principal executive offices) |   | (Zip code) |

 

|   | **(479) 471-2500**                                         |   |
|--------|------------------------------------------------------------|--------|
|   | (Registrant’s telephone number, including area code) |   |

 

|   | **Not applicable**                                                                 |   |
|--------|------------------------------------------------------------------------------------|--------|
|   | (Former name, former address and former fiscal year, if changed since last report) |   |

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.               Yes    X     No         

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition 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 number of shares outstanding of the registrant’s Common Stock, par value $ .01, as of July 29, 2008 is 10,422,539.

 

 

**USA TRUCK, INC.            TABLE OF CONTENTS**

| **Item No.** |   | **Caption**                                                                                                             |   | **Page** |
|--------------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|----------|
|         |   | **PART I – FINANCIAL INFORMATION**                                                                                |   |     |
| 1.           |   | Financial Statements                                                                                                    |   |     |
|         |   | Consolidated Balance Sheets as of June 30, 2008 (unaudited) and December 31, 2007                                       |   | 3        |
|         |   | Consolidated Statements of Income (unaudited) – Three Months and Six Months Ended June 30, 2008 and June 30, 2007 |   | 4        |
|         |   | Consolidated Statement of Stockholders’ Equity (unaudited) – Six Months Ended June 30, 2008                 |   | 5        |
|         |   | Consolidated Statements of Cash Flows (unaudited) – Six Months Ended June 30, 2008 and June 30, 2007              |   | 6        |
|         |   | Notes to Consolidated Financial Statements (unaudited)                                                                  |   | 7        |
| 2.           |   | Management’s Discussion and Analysis of Financial Condition and Results of Operations                             |   | 13       |
| 3.           |   | Quantitative and Qualitative Disclosures about Market Risk                                                              |   | 23       |
| 4.           |   | Controls and Procedures                                                                                                 |   | 24       |
|         |   | **PART II – OTHER INFORMATION**                                                                                   |   |     |
| 1.           |   | Legal Proceedings                                                                                                       |   | 25       |
| 1A.          |   | Risk Factors                                                                                                            |   | 25       |
| 2.           |   | Unregistered Sales of Equity Securities and Use of Proceeds                                                             |   | 25       |
| 3.           |   | Defaults Upon Senior Securities                                                                                         |   | 26       |
| 4.           |   | Submission of Matters to a Vote of Security Holders                                                                     |   | 26       |
| 5.           |   | Other Information                                                                                                       |   | 26       |
| 6.           |   | Exhibits                                                                                                                |   | 26       |
|         |   | Signatures                                                                                                              |   | 27       |

 

 

2

 

**PART I - FINANCIAL INFORMATION**

| **ITEM 1.** | **FINANCIAL STATEMENTS** |
|-------------|--------------------------|

 

| **USA TRUCK, INC.**

                                                                                                 |
|----------------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED BALANCE SHEETS**

                                                                                     |
|                                                                                                                       |
| (in thousands, except share and per share amounts)                                                                         |
|                                                                                                                       | **June 30,** |   | December 31, |
|                                                                                                                       | **2008** |   | 2007 (1) |
| **Assets**                                                                                                                 | **(unaudited)** |   | (audited) |
| Current assets:                                                                                                            |   |   |   |   |   |
| Cash and cash equivalents                                                                                                  | **$** | **4,294** |   | $ | 8,014 |
| Accounts receivable:                                                                                                       |   |   |   |   |   |
| Trade, less allowances of $181 in 2008 and $81 in 2007                                                                     |   | **53,583** |   |   | 44,563 |
| Other                                                                                                                      |   | **1,657** |   |   | 2,187 |
| Inventories                                                                                                                |   | **1,368** |   |   | 1,172 |
| Deferred income taxes                                                                                                      |   | **4,693** |   |   | 5,420 |
| Prepaid expenses                                                                                                           |   | **5,378** |   |   | 4,451 |
| Total current assets                                                                                                       |   | **70,973** |   |   | 65,807 |
|                                                                                                                       |   |   |   |   |   |
| Property and equipment:                                                                                                    |   |   |   |   |   |
| Land and structures                                                                                                        |   | **36,387** |   |   | 35,382 |
| Revenue equipment                                                                                                          |   | **358,000** |   |   | 338,036 |
| Service, office and other equipment                                                                                        |   | **22,254** |   |   | 18,448 |
|                                                                                                                       |   | **416,641** |   |   | 391,866 |
| Accumulated depreciation and amortization                                                                                  |   | **(126,007)** |   |   | (125,090) |
|                                                                                                                       |   | **290,634** |   |   | 266,776 |
| Other assets                                                                                                               |   | **353** |   |   | 355 |
| Total assets                                                                                                               | **$** | **361,960** |   | $ | 332,938 |
|                                                                                                                       |   |   |   |   |   |
| **Liabilities and stockholders’ equity**                                                                             |   |   |   |   |   |
| Current liabilities:                                                                                                       |   |   |   |   |   |
| Bank drafts payable                                                                                                        | **$** | **10,283** |   | $ | 11,785 |
| Trade accounts payable                                                                                                     |   | **11,434** |   |   | 7,429 |
| Current portion of insurance and claims accruals                                                                           |   | **9,990** |   |   | 11,965 |
| Accrued expenses                                                                                                           |   | **11,943** |   |   | 9,572 |
| Current maturities of long-term debt and capital leases                                                                    |   | **19,759** |   |   | 24,412 |
| Note payable                                                                                                               |   | **519** |   |   | 1,538 |
| Total current liabilities                                                                                                  |   | **63,928** |   |   | 66,701 |
|                                                                                                                       |   |   |   |   |   |
| Long-term debt and capital leases, less current maturities                                                                 |   | **100,784** |   |   | 70,212 |
| Deferred income taxes                                                                                                      |   | **48,573** |   |   | 48,024 |
| Insurance and claims accruals, less current portion                                                                        |   | **4,920** |   |   | 4,810 |
|                                                                                                                       |   |   |   |   |   |
| Stockholders’ equity:                                                                                                |   |   |   |   |   |
| Preferred Stock, $.01 par value; 1,000,000 shares authorized; none issued                                                  |   | **--** |   |   | -- |
| Common Stock, $.01 par value; authorized 30,000,000 shares; issued 11,575,039 shares in 2008 and 11,560,160 shares in 2007 |   | **116** |   |   | 116 |
| Additional paid-in capital                                                                                                 |   | **63,862** |   |   | 63,487 |
| Retained earnings                                                                                                          |   | **101,749** |   |   | 101,560 |
| Less treasury stock, at cost (1,352,500 shares in 2008 and 2007)                                                           |   | **(21,972)** |   |   | (21,972) |
| Total stockholders’ equity                                                                                           |   | **143,755** |   |   | 143,191 |
| Total liabilities and stockholders’ equity                                                                           | **$** | **361,960** |   | $ | 332,938 |

 

(1)The balance sheet at December 31, 2007 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

*See notes to consolidated financial statements*.

 

 

3

 

 

| **USA TRUCK, INC.**                               |               |
|---------------------------------------------------|--------------------|
| **CONSOLIDATED STATEMENTS OF INCOME**

      |               |
| **(UNAUDITED)**

                            |               |
|                                              |               |
| (in thousands, except per share data)             |               |
|                                              | Three Months Ended |   | Six Months Ended |   |   |
|                                              | June 30,           |   | June 30, |   |   |
|                                              | **2008**           |   | 2007 |   | **2008** |   | 2007 |   |   |
|                                              |               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Revenue:**                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Trucking revenue                                  | **$**              | **99,373** |   | $ | 99,000 |   | **$** |   | **193,015** |   | $ | 191,438 |   |
| Strategic Capacity Solutions revenue              |               | **4,465** |   |   | 2,687 |   |   |   | **7,973** |   |   | 4,722 |   |
| Base revenue                                      |               | **103,838** |   |   | 101,687 |   |   |   | **200,988** |   |   | 196,160 |   |
| Fuel surcharge revenue                            |               | **42,289** |   |   | 22,702 |   |   |   | **72,377** |   |   | 40,680 |   |
| Total revenue                                     |               | **146,127** |   |   | 124,389 |   |   |   | **273,365** |   |   | 236,840 |   |
|                                              |               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Operating expenses and costs:**                 |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Salaries, wages and employee benefits             |               | **40,846** |   |   | 41,570 |   |   |   | **81,326** |   |   | 82,321 |   |
| Fuel and fuel taxes                               |               | **56,863** |   |   | 37,997 |   |   |   | **103,542** |   |   | 71,247 |   |
| Depreciation and amortization                     |               | **12,513** |   |   | 12,218 |   |   |   | **24,762** |   |   | 24,108 |   |
| Purchased transportation                          |               | **9,825** |   |   | 4,856 |   |   |   | **17,665** |   |   | 8,625 |   |
| Insurance and claims                              |               | **7,561** |   |   | 8,880 |   |   |   | **15,073** |   |   | 16,207 |   |
| Operations and maintenance                        |               | **6,543** |   |   | 6,676 |   |   |   | **13,642** |   |   | 12,548 |   |
| Operating taxes and licenses                      |               | **1,630** |   |   | 1,626 |   |   |   | **3,233** |   |   | 3,246 |   |
| Communications and utilities                      |               | **1,018** |   |   | 939 |   |   |   | **2,073** |   |   | 1,891 |   |
| (Gain) loss on disposal of revenue equipment, net |               | **(30)** |   |   | 57 |   |   |   | **(30)** |   |   | (314) |   |
| Other                                             |               | **4,248** |   |   | 4,736 |   |   |   | **8,379** |   |   | 10,039 |   |
| Total operating expenses and costs                |               | **141,017** |   |   | 119,555 |   |   |   | **269,665** |   |   | 229,918 |   |
| **Operating income**                              |               | **5,110** |   |   | 4,834 |   |   |   | **3,700** |   |   | 6,922 |   |
| **Other expenses (income):**                      |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                  |               | **1,148** |   |   | 1,450 |   |   |   | **2,343** |   |   | 2,601 |   |
| Other, net                                        |               | **(90)** |   |   | (22) |   |   |   | **(117)** |   |   | 57 |   |
| Total other expenses, net                         |               | **1,058** |   |   | 1,428 |   |   |   | **2,226** |   |   | 2,658 |   |
| **Income before income taxes**                    |               | **4,052** |   |   | 3,406 |   |   |   | **1,474** |   |   | 4,264 |   |
| **Income tax expense**                            |               | **1,917** |   |   | 1,786 |   |   |   | **1,285** |   |   | 2,564 |   |
|                                              |               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net income**                                    | **$**              | **2,135** |   | $ | 1,620 |   | **$** |   | **189** |   | $ | 1,700 |   |
|                                              |               |   |   |   |   |   |   |   |   |   |   |   |   |
| **Per share information:**                        |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Average shares outstanding (Basic)                |               | **10,220** |   |   | 10,671 |   |   |   | **10,215** |   |   | 10,821 |   |
| Basic earnings per share                          | **$**              | **0.21** |   | $ | 0.15 |   | **$** |   | **0.02** |   | $ | 0.16 |   |
|                                              |               |   |   |   |   |   |   |   |   |   |   |   |   |
| Average shares outstanding (Diluted)              |               | **10,227** |   |   | 10,734 |   |   |   | **10,225** |   |   | 10,887 |   |
| Diluted earnings per share                        | **$**              | **0.21** |   | $ | 0.15 |   | **$** |   | **0.02** |   | $ | 0.16 |   |
|                                                   |                    |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

|   | *See notes to consolidated financial statements.* |
|--------|---------------------------------------------------|

 

 

4

 

| **USA TRUCK, INC.**                                              |
|------------------------------------------------------------------|
| **CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY**

  |
| **(UNAUDITED)**

                                           |
| (in thousands)                                                   |
|                                                             |
|                                                             | Common |   |   |   |   |   |   |   |   |
|                                                             | Stock |   | Additional

Paid-in

Capital |   |   |   |   |   |   |
|                                                             |   |   | Par |   |   | Retained |   | Treasury |   |   |
|                                                             | Shares |   | Value |   |   | Earnings |   | Stock |   |   | Total |
| Balance at December 31, 2007                                     | 11,560 |   | $ | 116 |   | $ | 63,487 |   | $ | 101,560 |   | $ | (21,972) |   |   | $ | 143,191 |
| Exercise of stock options                                        | 15 |   |   | -- |   |   | 158 |   |   | -- |   |   | -- |   | 158 |
| Excess tax benefit on exercise of stock options                  | -- |   |   | -- |   |   | 19 |   |   | -- |   |   | -- |   | 19 |
| Stock-based compensation                                         | -- |   |   | -- |   |   | 198 |   |   | -- |   |   | -- |   | 198 |
| Net income for 2008                                              | -- |   |   | -- |   |   | -- |   |   | 189 |   |   | -- |   | 189 |
| Balance at June 30, 2008                                         | **11,575** |   | **$** | **116** |   | **$** | **63,862** |   | **$** | **101,749** |   | **$** | **(21,972)** |   |   | **$** | **143,755** |
|                                                                  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*See notes to consolidated financial statements.*

 

5

 

| **USA TRUCK, INC.**

                                                       |
|----------------------------------------------------------------------------------|
| **CONSOLIDATED STATEMENTS OF CASH FLOWS**

                                 |
| **(UNAUDITED)**

                                                           |
|                                                                             |
| (in thousands)                                                                   |
|                                                                             | Six Months Ended |
|                                                                             | June 30, |
|                                                                             | **2008** |   | 2007 |
| **Operating activities**                                                         |   |   |   |   |   |
| Net income                                                                       | **$** | **189** |   | $ | 1,700 |
| Adjustments to reconcile net income to net cash provided byoperating activities: |   |   |   |   |   |
| Depreciation and amortization                                                    |   | **24,762** |   |   | 24,108 |
| Provision for doubtful accounts                                                  |   | **107** |   |   | (9) |
| Deferred income taxes                                                            |   | **1,276** |   |   | 550 |
| Excess tax benefit from exercise of stock options                                |   | **(19)** |   |   | (39) |
| Write off of tax asset on exercise of stock options                              |   | **--** |   |   | 51 |
| Stock-based compensation                                                         |   | **198** |   |   | 263 |
| Gain on disposal of revenue equipment, net                                       |   | **(30)** |   |   | (314) |
| Changes in operating assets and liabilities:                                     |   |   |   |   |   |
| Accounts receivable                                                              |   | **(8,597)** |   |   | (6,270) |
| Inventories and prepaid expenses                                                 |   | **(1,123)** |   |   | 1,749 |
| Trade accounts payable and accrued expenses                                      |   | **6,395** |   |   | (1,928) |
| Insurance and claims accruals                                                    |   | **(1,865)** |   |   | 2,371 |
| Net cash provided by operating activities                                        |   | **21,293** |   |   | 22,232 |
|                                                                             |   |   |   |   |   |
| **Investing activities**                                                         |   |   |   |   |   |
| Purchases of property and equipment                                              |   | **(40,585)** |   |   | (16,943) |
| Proceeds from sale of property and equipment                                     |   | **13,257** |   |   | 12,801 |
| Change in other assets                                                           |   | **2** |   |   | (170) |
| Net cash used in investing activities                                            |   | **(27,326)** |   |   | (4,312) |
|                                                                             |   |   |   |   |   |
| **Financing activities**                                                         |   |   |   |   |   |
| Borrowings under long-term debt                                                  |   | **69,562** |   |   | 97,979 |
| Principal payments on long-term debt                                             |   | **(48,012)** |   |   | (87,972) |
| Principal payments on capitalized lease obligations                              |   | **(16,893)** |   |   | (16,502) |
| Principal payments on note payable                                               |   | **(1,019)** |   |   | (1,185) |
| Net (decrease) increase in bank drafts payable                                   |   | **(1,502)** |   |   | 821 |
| Payments to repurchase Common Stock                                              |   | **--** |   |   | (13,129) |
| Proceeds from exercise of stock options                                          |   | **158** |   |   | 794 |
| Excess tax benefit from exercise of stock options                                |   | **19** |   |   | 39 |
| Net cash provided by (used in) financing activities                              |   | **2,313** |   |   | (19,155) |
|                                                                             |   |   |   |   |   |
| Decrease in cash and cash equivalents                                            |   | **(3,720)** |   |   | (1,235) |
| Cash and cash equivalents:                                                       |   |   |   |   |   |
| Beginning of period                                                              |   | **8,014** |   |   | 7,132 |
| End of period                                                                    | **$** | **4,294** |   | $ | 5,897 |
|                                                                             |   |   |   |   |   |
| **Supplemental disclosure of cash flow information:**                            |   |   |   |   |   |
| Cash paid during the period for:                                                 |   |   |   |   |   |
| Interest                                                                         | **$** | **2,374** |   | $ | 2,505 |
| Income taxes                                                                     |   | **93** |   |   | 65 |
| **Supplemental disclosure of non-cash investing activities:**                    |   |   |   |   |   |
| Liability incurred for leases on revenue equipment                               |   | **21,262** |   |   | 18,149 |

 

*See notes to consolidated financial statements.*

 

6

 

**USA TRUCK, INC.**     

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**June 30, 2008**

**NOTE A – BASIS OF PRESENTATION**

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management,            all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three month and six month periods ended June 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. For further information, refer to the financial statements, and footnotes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2007, which            should be read in conjunction with these financial statements.

By agreement with our customers, and consistent with industry practice, we add a graduated fuel surcharge to the rates we charge our customers as diesel fuel prices increase above an agreed-upon baseline price per gallon. Base revenue in the consolidated statements of income represents revenue excluding this fuel surcharge revenue.

**NOTE B – REVENUE RECOGNITION**

Revenue generated by our Trucking segment is recognized in full upon completion of delivery of freight to the receiver’s location. For freight in transit at the end of a reporting period, we recognize revenue pro rata based on relative transit time completed as a portion of the estimated total transit time in accordance with EITF 91-9, Method 5 issued by the Emerging Issues            Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”). Expenses are recognized as incurred.

Revenue generated by our Strategic Capacity Solutions operating segment is recognized upon completion of the services provided. Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as we act as a principal with substantial risks as primary obligor.

Management believes these policies most accurately reflect revenue as earned and direct expenses, including third party purchased transportation costs, as incurred.

**NOTE C – STOCK-BASED COMPENSATION**

The current equity compensation plans that have been approved by our stockholders are our 2004 Equity Incentive Plan and our 2003 Restricted Stock Award Plan. There are also two plans under which options remain outstanding, but no new options may be granted, which are our Employee Stock Option Plan and our 1997 Nonqualified Stock Option Plan for Nonemployee Directors. We do not            have any equity compensation plans under which equity awards are outstanding or may be granted that have not been approved by our stockholders.

The USA Truck, Inc. 2004 Equity Incentive Plan provides for the granting of incentive or nonqualified options or other equity-based awards covering up to 1,000,000 shares of Common Stock to directors, officers and other key employees. On the day of each annual meeting of stockholders of the Company for a period of nine years, which commenced with the Annual Meeting of Stockholders            in 2005 and will end with the Annual Meeting of Stockholders in 2013, the maximum number of shares of Common Stock that is available for issuance under the Plan is automatically increased by that number of shares equal to the lesser of 25,000 shares or such lesser number of shares (which may be zero or any number less than 25,000) as determined by the Board. No options were granted under this Plan for less than the fair market value of the Common Stock as defined in the Plan at the            date of the grant. Although the exercise period is determined when options are granted, no option may be exercised later than 10 years after it is granted. Options granted under the Plan generally vest ratably over five years. The option price under this Plan is the fair market value of our Common Stock at the date the options were granted, except that the exercise prices of options granted to our Chairman of the Board are equal to 110% of the fair market value of our Common Stock            at the date those options were granted. The exercise prices of outstanding options granted under the 2004 Equity Incentive Plan range from $11.47 to $30.22 as of June 30, 2008. At June 30, 2008, 663,775 shares were available for granting future options or other equity awards under this Plan.

We account for stock-based compensation costs in accordance with FASB Statement of Financial Accounting Standards No. 123 (Revised 2004),*Share-Based Payment*(“SFAS 123(R)”). Compensation cost recognized in the first six months of 2008 includes: (a) compensation cost for all share-based payments granted prior to, but            not yet vested as of January 1, 2006 and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006. The compensation cost is based on the grant-date fair value calculated using a Black-Scholes-Merton option-pricing formula and is amortized over the vesting period in accordance with provisions of SFAS 123(R). For the three and six month periods ended June 30, 2008, we recognized approximately $0.06 million and approximately four thousand dollars,            respectively, in compensation expense related to incentive and nonqualified stock options granted under our plans. For the three and six month periods

 

7

 

ended 30, 2007, we recognized approximately $0.06 million and $0.1 million, respectively, in compensation expense related to incentive and nonqualified stock options granted under our plans.

The following assumptions were used to value the stock options granted during the years indicated:

 

|                    |   | **2008** |   | 2007          |
|-------------------------|--------|----------|--------|---------------|
| Dividend yield          |   | **--**   |   | 0%            |
| Expected volatility     |   | **--**   |   | 38.7% - 49.9% |
| Risk-free interest rate |   | **--**   |   | 4.2% - 5.0%   |
| Expected life           |   | **--**   |   | 3 to 9 years  |

 

Expected volatility is a measure of the expected fluctuation in our share price. We use the historical method to calculate volatility with the historical period being equal to the expected life of each option. This calculation is then used to determine the potential for our share price to increase over the expected life of the option. Expected life represents the length of time we            anticipate the options to be outstanding before being exercised. Based on historical experience, that time period is best represented by the option’s contractual life. 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, we also include a factor for anticipated forfeitures, which represents the number of shares under options            expected to be forfeited over the expected life of the options.

Information related to option activity for the six months ended June 30, 2008 is as follows:

|                                                           |   | Number of Options |   | Weighted Average Exercise Price |   | Weighted Average Remaining Contractual Life (in years) |   | Aggregate Intrinsic Value (1) |
|----------------------------------------------------------------|--------|-------------------|--------|---------------------------------|--------|--------------------------------------------------------|--------|-------------------------------|
| Outstanding - beginning of year       |   | 298,450           |   | $                               | 15.61  |                                                   |   |                          |   |
| Granted                               |   | --                |   | --                              |   |                                                   |   |                          |
| Exercised                             |   | (16,375)          |   | 10.82                           |   |                                                   |   | $                             | 32,099 |
| Cancelled/forfeited/expired           |   | (46,175)          |   | 14.33                           |   |                                                   |   |                          |
| Outstanding at June 30, 2008          |   | 235,900           |   | $                               | 16.19  |                                                   | 2.6    |                          | $ | 47,880 |
| Exercisable at June 30, 2008 (2)      |   | 106,200           |   | $                               | 14.27  |                                                   | 1.1    |                          | $ | 33,544 |

 

|   | (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 our Common Stock, as determined by the closing price on June 30, 2008 (the last trading day of the quarter) was $12.03. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | The fair value of options exercisable at June 30, 2008 was approximately $0.5 million. |
|--------|-----|----------------------------------------------------------------------------------------|

Information related to the weighted average fair value of stock option activity for the six months ended June 30, 2008 is as follows:

|                                        |   | Number of Shares Under Options |   | Weighted Average Fair Value |
|---------------------------------------------|--------|--------------------------------|--------|-----------------------------|
| Nonvested options – December 31, 2007 |   | 188,000                        |   | $                           | 6.90 |
| Granted                                     |   | --                             |   |                        | -- |
| Forfeited                                   |   | (2,700)                        |   |                        | 5.78 |
| Vested                                      |   | (55,600)                       |   |                        | 4.94 |
| Nonvested options – June 30, 2008     |   | 129,700                        |   | $                           | 7.76 |

 

 

8

 

The exercise price, number, weighted average remaining contractual life of options outstanding and the number of options exercisable as of June 30, 2008 is as follows:

                       

| Exercise

Price |   | Number of Options Outstanding |   | Weighted Average Remaining Contractual Life (in years) |   | Number of Options Exercisable |
|-----------------|--------|-------------------------------|--------|--------------------------------------------------------|--------|-------------------------------|
| $               | 11.47  |                          | 85,500 |                                                   | 1.7    |                          | 59,900 |
| 12.10           |   | 9,600                         |   | 0.6                                                    |   | 9,600                         |
| 12.62           |   | 5,000                         |   | 0.8                                                    |   | 5,000                         |
| 12.66           |   | 12,800                        |   | 1.6                                                    |   | 6,400                         |
| 14.50           |   | 2,400                         |   | 6.2                                                    |   | --                            |
| 15.83           |   | 5,000                         |   | 6.1                                                    |   | --                            |
| 16.08           |   | 4,500                         |   | 1.1                                                    |   | 2,250                         |
| 17.06           |   | 41,000                        |   | 4.1                                                    |   | --                            |
| 22.54           |   | 61,850                        |   | 3.2                                                    |   | 20,050                        |
| 22.93           |   | 4,500                         |   | 1.8                                                    |   | 1,500                         |
| 30.22           |   | 3,750                         |   | 2.6                                                    |   | 1,500                         |
|            |   | 235,900                       |   | 2.6                                                    |   | 106,200                       |
|            |   |                          |   |                                                   |   |                          |
|                 |        |                               |        |                                                        |        |                               |  |

 

The 2003 Restricted Stock Award Plan allows us to issue up to 150,000 shares of Common Stock as awards of restricted stock to our officers, 100,000 shares of which have been awarded. Awards under the Plan vest over a period of no less than five years and vesting of awards is also subject to the achievement of such performance goals as may be set by the Board of Directors based on            criteria set forth in the Plan. The fair value of the 100,000 shares of Common Stock subject to the awards previously granted will be amortized over the vesting period as compensation expense based on management’s assessment as to whether achievement of the performance goals is probable. To the extent the performance goals are not achieved and there is not full vesting in the shares awarded, the compensation expense recognized to the extent of the non-vested and forfeited            shares will be reversed. The performance goal for 2007 was not met. As a result, no compensation expense was recognized for the 19,000 shares that were to have vested on March 1, 2008, based on 2007 performance. The shares remained outstanding until their scheduled vesting date of March 1, 2008, at which time their forfeiture became effective. For financial statement purposes, the forfeited shares were deemed to have been forfeited on December 31, 2007, the date on which it was            determined that the achievement of the performance goal was not met. As a result, such shares have been recorded as treasury stock and are not reflected as nonvested shares in the table below as of December 31, 2007. In addition, no compensation expense was recognized for the 5,000 shares that were forfeited in November 2007 due to the termination of the employment of an officer of the Company which were to have vested on March 1, 2008. Those shares were also recorded as treasury            stock upon forfeiture.

In accordance with SFAS 123(R), the compensation expense recognized is based on the market value of our Common Stock on the date the restricted stock award is granted and is not adjusted in subsequent periods. For the three months ended June 30, 2008 and 2007, the compensation expense related to our restricted stock awards was approximately $0.03 million and $0.05 million,            respectively. For the six months ended June 30, 2008 and 2007, the compensation expense related to our restricted stock awards was approximately $0.06 million and $0.1 million, respectively.

Information related to the 2003 Restricted Stock Award Plan for the six months ended June 30, 2008 is as follows:

|                                                                     |   | Number of Shares     |   | Weighted Average Fair Value |
|--------------------------------------------------------------------------|--------|----------------------|--------|-----------------------------|
| Nonvested shares – December 31, 2007      |   | 22,000               |   | $                           | 20.37 |
| Granted                                         |   | --    |   |                        | -- |
| Forfeited                                       |   | --    |   |                        | -- |
| Vested                                          |   | --    |   |                        | -- |
| Nonvested shares – June 30, 2008          |   | 22,000               |   | $                           | 20.37 |

As of June 30, 2008, we had approximately $0.4 million and $0.4 million in unrecognized compensation expense related to stock options and restricted stock, respectively, which is expected to be recognized over a weighted average period of approximately 2.6 years for stock options and 1.2 years for restricted stock.

 

9

 

On July 16, 2008, the Executive Compensation Committee of the Board of Directors of the Company, pursuant to the 2004 Equity Incentive Plan, granted thereunder awards totaling 200,000 restricted shares of the Company’s Common Stock to certain officers of the Company. The grants were made effective as of July 18, 2008 and were valued at $12.13 per share, which was the closing            price of the Company’s Common Stock on that date. Each officer’s restricted shares of Common Stock will vest in varying amounts over the ten year period beginning April 1, 2011, subject to the Company’s attainment of retained earnings growth. Management must attain an average five-year trailing retained earnings annual growth rate of 10.0% (before dividends) in order for the shares to qualify for full vesting (pro rata vesting will apply down to 50.0% at a 5.0%            annual growth rate). Any shares that fail to vest as a result of the Company’s failure to attain a performance goal will revert to the 2004 Equity Incentive Plan where they will remain available for grants under the terms of that plan until that plan expires in 2014.

**NOTE D – REPURCHASE OF EQUITY SECURITIES**

On January 24, 2007, we publicly announced that our Board of Directors authorized the repurchase of up to 2,000,000 shares of our outstanding Common Stock over a three-year period ending January 24, 2010. We may make Common Stock purchases under this program on the open market or in privately negotiated transactions at prices determined by our Chairman of the Board or President.            During the three and six month periods ended June 30, 2008, we did not repurchase any shares of our Common Stock. Our current repurchase authorization has 1,165,901 shares remaining.

**NOTE E – SEGMENT REPORTING**

The service offerings we provide relate to the transportation of truckload quantities of freight for customers in a variety of industries. The services generate revenue, and to a great extent incur expenses, primarily on a per mile basis. We classify our service offerings, which we previously referred to as “divisions,” into two operating segments, Trucking and            Strategic Capacity Solutions. These two operating segments are aggregated into one segment for financial reporting purposes in accordance with FASB Statement of Financial Accounting Standards No. 131,*Disclosures about Segments of an Enterprise and Related Information*(“SFAS 131”). Trucking consists primarily of our General Freight and Dedicated Freight service offerings, which provide truckload freight services. The            results of our regional freight operations, which we previously reported as a separate division, are now included as part of the results of our General Freight service offering. We previously referred to our freight brokerage operations as our “Strategic Capacity Solutions” division and the operating segment of which that division is a part as “USA Logistics”. We now use “Strategic Capacity Solutions” to refer to that operating segment, which now            consists primarily of our Freight Brokerage service offering. This service offering within the Strategic Capacity Solutions operating segment is intended to provide services complementary to our Trucking services, primarily to existing customers of our Trucking operating segment. A majority of the customers of Strategic Capacity Solutions have also engaged us to provide services through one or more of our Trucking service offerings. Our Strategic Capacity Solutions operating segment            represents a relatively minor part of our business, generating approximately 4.2% and 3.9% of our total base revenue for the three and six month periods ended June 30, 2008, respectively, and less than 4.0% of total base revenue in each of the last two fiscal years. In addition, during December 2007, we began offering rail intermodal services. The operating segment into which our rail intermodal service offerings are classified depends on whether or not Company equipment is used in            providing the service. If Company equipment is used, those results are included in our Trucking operating segment. If Company equipment is not used, those results are included in our Strategic Capacity Solutions operating segment. For the three and six month periods ended June 30, 2008, rail intermodal service offerings generated approximately 0.6% and 0.5% of total base revenue, respectively.

Our decision to aggregate our two operating segments into one reporting segment was based on factors such as the similar economic and operating characteristics of our service offerings and our centralized internal management structure. Except with respect to the relatively minor components of our operations that do not involve the use of our trucks, key operating statistics            include, for example, revenue per mile and miles per tractor per week. While the operations of our Strategic Capacity Solutions service offerings do not involve the use of our equipment and drivers, we nevertheless provide truckload freight services to our customers through arrangements with third party carriers who are subject to the same general regulatory environment and cost sensitivities imposed upon our Trucking operations.

**NOTE F**-**NEW ACCOUNTING PRONOUNCEMENTS**

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,*The Fair Value Option for Financial Assets and Financial Liabilities*(“SFAS 159”), which provides companies with an option to report selected financial assets and liabilities at fair value. The objective of SFAS 159 is to reduce both            complexity in accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. SFAS 159 establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities and to more easily understand the effect on earnings of a company’s choice to use fair value. SFAS 159 also requires entities to            display the fair value of the selected assets and liabilities on the face of the balance sheet. SFAS 159 does not eliminate disclosure requirements of other accounting standards, including fair value measurement disclosures in Statement of Financial Accounting Standards No. 157,

 

10

 

*Fair Value Measurements*(“SFAS 157”), discussed below. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. This statement became effective for the Company on January 1, 2008 and did not have a material impact on the Company’s financial position, results of operations and cash flows.

In September 2006, the FASB issued SFAS 157. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (“GAAP”) and expands disclosures about fair value measurements. This statement was published due to the different definitions of fair value that are among the many accounting pronouncements that require            fair value measurements and the limited guidance for applying those definitions in GAAP. SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This statement became effective for the Company on January 1, 2008 and did not have a material impact on the Company’s financial position, results of operations and cash flows.

**NOTE G - ACCRUED EXPENSES**

Accrued expenses consisted of the following:

 

|                                  | (in thousands) |
|---------------------------------------|----------------|
|                                  | **June 30,**   | December 31, |   |
|                                       | **2008**       |   | 2007 |   |
| Salaries, wages and employee benefits | **$**          | **5,165** |   | $ | 3,869 |   |
| Other (1)                             |           | **6,778** |   |   | 5,703 |   |
| Total accrued expenses                | **$**          | **11,943** |   | $ | 9,572 |   |

 

|   | (1) | As of June 30, 2008 and December 31, 2007, no single item included within other accrued expenses exceeded 5.0% of our total current liabilities. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE H - NOTE PAYABLE**

At June 30, 2008 and December 31, 2007, we had an unsecured note payable of $0.5 million and $1.5 million, respectively, that matures on September 1, 2008, and bears interest at an annual rate of 5.3%. This note payable is used to finance a portion of our annual insurance premiums.

**NOTE I – LONG-TERM DEBT**

Long-term debt consisted of the following:

 

|                                                       | (in thousands) |         |
|------------------------------------------------------------|----------------|--------------|
|                                                       | **June 30,**   | December 31, |   |
|                                                       | **2008**       |         | 2007 |
| Revolving credit agreement (1)                             | **$**          | **64,643**   |   | $ | 43,093 |
| Capitalized lease obligations (2)                          |           | **55,900**   |   |   | 51,531 |
|                                                       |           | **120,543**  |   |   | 94,624 |
| Less current maturities                                    |           | **19,759**   |   |   | 24,412 |
| Long-term debt and capital leases, less current maturities | **$**          | **100,784**  |   | $ | 70,212 |
|                                                       |           |         |   |   |   |
|                                                            |                |              |  |  |  |  |  |  |

 

|   | (1) | Our Amended and Restated Senior Credit Facility provides for available borrowings of $100.0 million, including letters of credit not exceeding $25.0 million. Availability may be reduced by a borrowing base limit as defined in the Facility. At June 30, 2008, we had approximately $64.6 million in borrowing and $6.2 million in letters of credit                            outstanding, and $29.2 million available under the Facility. The Facility matures on September 1, 2010. The Facility can also be increased to $175.0 million at our option, with the additional availability provided by the current lenders, at their election, or by other lenders. The Facility bears variable interest based on the agent bank’s prime rate, or federal funds rate plus a certain percentage or London Interbank Offered Rate (“LIBOR”) plus a                            certain percentage, which is determined based on our attainment of certain financial ratios. The interest rate on our borrowings under the Facility at June 30, 2008 was 4.6%. A quarterly commitment fee is payable on the unused portion of the credit line and bears a rate which is determined based on our attainment of certain financial ratios. At June 30, 2008, the rate was 0.2% per annum. The Facility is collateralized by revenue equipment having a net book value of                            $199.5 million at June 30, 2008, and all trade and other accounts receivable. The Facility requires us to meet certain financial covenants and to maintain a minimum tangible net worth of approximately $132.4 million at June 30, 2008. We were in compliance with these covenants at June 30, 2008. The covenants would prohibit the payment of dividends by us if such payment would cause us to be in violation of any of the covenants. The carrying amount reported in the                            balance sheet for borrowings under the Facility approximates its fair value as the applicable interest rates fluctuate with changes in current market conditions. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

11

 

 

|   | (2) | Our capitalized lease obligations have various termination dates extending through January 2012 and contain renewal or fixed price purchase options. The effective interest rates on the leases range from 3.3% to 5.0% at June 30, 2008. The lease agreements require us to pay property taxes, maintenance and operating expenses. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE J–LEASES AND COMMITMENTS**

We routinely monitor our equipment acquisition needs and adjust our purchase schedule from time to time based on our analysis of factors such as new equipment prices, the condition of the used equipment market, demand for our freight services, prevailing interest rates, technological improvements, fuel efficiency, durability of the equipment, equipment specifications and the            availability of qualified drivers.

As of June 30, 2008, we had commitments for purchases of revenue equipment in the aggregate amount of approximately $39.4 million for the remainder of 2008 of which approximately $20.0 million is cancelable by us upon 75 days advance written notice. In addition, we had purchase obligations of approximately $0.8 million related to software purchases contracted for the remainder of            2008.

**NOTE K–INCOME TAXES**

During the quarters ended June 30, 2008 and 2007, our effective tax rates were 47.3% and 52.4%, respectively. During the six months ended June 30, 2008 and 2007, our effective tax rates were 87.2% and 60.1%, respectively. Income tax expense varies from the amount computed by applying the statutory federal tax rate to income before income taxes primarily due to state income taxes,            net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem pay structure for drivers. Drivers may elect to receive non-taxable per diem pay in lieu of a portion of their taxable wages. This per diem program increases our drivers’ net pay per mile, after taxes, while decreasing gross pay, before taxes. As a result, salaries, wages and employee benefits are slightly lower, and our effective income tax rate is            higher than the statutory rate. Generally, as pre-tax income 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 pre-tax income. Due to the partially nondeductible effect of per diem pay, our tax rate will fluctuate in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure.

We adopted the provisions of FASB Interpretation No. 48,*Accounting for Uncertainty in Income Taxes,**an**interpretation of FASB Statement No. 109, Accounting for Income Taxes*(“FIN 48”) on January 1, 2007 and have analyzed filing positions in our federal tax            returns as well as in all open tax years. The only periods subject to examination for our federal returns are the 2005, 2006 and 2007 tax years. Our policy is to recognize interest accrued related to unrecognized tax benefits as interest expense and penalties as operating expenses. We believe that our income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change to our consolidated financial            position, results of operations and cash flows. Therefore, no reserves for uncertain income tax positions have been recorded pursuant to FIN 48. At January 1, 2008, we had no unrecognized tax benefits and we have not recorded any through June 30, 2008. In addition, we did not record a cumulative effect adjustment related to the adoption of FIN 48.

**NOTE L–EARNINGS PER SHARE**

Basic earnings per share is computed based on the weighted average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed by adjusting the weighted average number of shares of Common Stock outstanding by Common Stock equivalents attributable to dilutive stock options and restricted stock. The computation of diluted earnings per share            does not assume conversion, exercise, or contingent issuance of securities that would have an antidilutive effect on earnings per share.

 

12

 

The following table sets forth the computation of basic and diluted earnings per share:

|                                                                                                                                      | (in thousands, except per share amounts) |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
|                                                                                                                                      | Three Months Ended                       |   | Six Months Ended |
|                                                                                                                                      | June 30,                                 |   | June 30, |
|                                                                                                                                      | **2008**                                 |   |   | 2007 |   | **200****8** |   |   | 2007 |
| Numerator:                                                                                                                                |                                     |   |   |   |   |   |   |   |   |   |
| Net Income                                                                                                       | **$**                                    | **2,135** |   | $ | 1,620 |   | **$** | **189** |   | $ | 1,700 |
| Denominator:                                                                                                                              |                                     |   |   |   |   |   |   |   |   |   |   |
| Denominator for basic earnings per share – weighted average shares                                         |                                     | **10,220** |   |   | 10,671 |   |   | **10,215** |   |   | 10,821 |
| Effect of dilutive securities:                                                                                                            |                                     |   |   |   |   |   |   |   |   |   |   |
| Employee stock options                                                                                           |                                     | **7** |   |   | 63 |   |   | **10** |   |   | 66 |
| Denominator for diluted earnings per share – adjusted weighted average shares and assumed conversions      |                                     | **10,227** |   |   | 10,734 |   |   | **10,225** |   |   | 10,887 |
| Basic earnings per share                                                                                         | **$**                                    | **0.21** |   | $ | 0.15 |   | **$** | **0.02** |   | $ | 0.16 |
| Diluted earnings per share                                                                                       | **$**                                    | **0.21** |   | $ | 0.15 |   | **$** | **0.02** |   | $ | 0.16 |
| Anti-dilutive employee stock options                                                                             |                                     | **141** |   |   | 88 |   |   | **129** |   |   | 88 |

**NOTE M**-**LITIGATION**

We are party to routine litigation incidental to our business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. We maintain insurance to cover liabilities in excess of certain self-insured retention levels. Though management believes these claims to be routine and immaterial to our long-term financial position, adverse            results of one or more of these claims could have a material adverse effect on our financial position or results of operations in any given reporting period.

OnMay 22, 2006, a former independent sales agent filed a lawsuit against us entitled*All-Ways Logistics, Inc. v. USA Truck, Inc.*, in the U.S. District Court for the Eastern District of Arkansas, Jonesboro Division, alleging, among other things, breach of contract, breach of implied duty of good faith and            fair dealing, and tortious interference with business relations. The plaintiff alleged that the Company breached and wrongfully terminated the commission sales agent agreement with it and improperly interfered with its business relationship with certain of its customers. In early August 2007, the jury returned an unfavorable verdict in this contract dispute. The jury held that the Company breached the contract and awarded the plaintiff damages of approximately $3.0 million, which            was accrued during the quarter ended September 30, 2007. In its December 4, 2007 order, the court denied substantially all of USA Truck’s motions for post-trial relief and granted the plaintiff’s motions for pre-judgment interest, attorney’s fees and costs in an amount totaling approximately $1.7 million, which was accrued during the fourth quarter of 2007. The court’s order also awarded the plaintiff post-judgment interest, of which we accrued approximately            $0.05 and $0.1 million for the three and six month periods ended June 30, 2008, respectively. On January 2, 2008, the Company filed an appeal of the verdict and the court’s order and the appeal is currently pending before the 8th Circuit United States Court of Appeals.

| **ITEM 2.** | **MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-------------|-------------------------------------------------------------------------------------------|

**Forward-Looking Statements**

*This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. These statements generally may be identified by their use of terms or phrases such as “expects,” “estimates,” “anticipates,” “projects,”            “believes,” “plans,” “intends,” “may,” “will,” “should,” “could,” “potential,” “continue,” “future,” and terms or phrases of similar substance.*  *Forward-looking statements are based upon the current beliefs and expectations of our management and 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.*  *Accordingly, actual results may differ from those set forth in the forward-looking statements.*  *Readers should review and consider the factors that may affect            future results and other disclosures*

 

13

 

*by the Company in its press releases, Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. Additional risks associated with our operations are discussed in our Annual Report on Form 10-K for the year ended December 31, 2007 under the heading “Risk Factors” in Item 1A of that report and updates, if any, to that information are included in Item            1A of Part II of this report. We disclaim any obligation to update or revise any forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking information. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.*

*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.*

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto and other financial information that appears elsewhere in this report.

**Overview**

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand USA Truck, Inc., our operations and our present business environment. MD&A is provided as a supplement to and should be read in conjunction with our consolidated financial statements and notes thereto and            other financial information that appears elsewhere in this report. This overview summarizes the MD&A, which includes the following sections:

*Our Business*– a general description of our business, the organization of our operations and the divisions that comprise our operations.

*Critical Accounting Estimates*– a discussion of accounting policies that require critical judgment and estimates.

*Results of Operations*– an analysis of our consolidated results of operations for the periods presented in our consolidated financial statements and a discussion of seasonality, the potential impact of inflation and fuel availability and cost.

*Off-Balance Sheet Arrangements –*a discussion of significant financial arrangements, if any, that are not reflected on our balance sheet.

*Liquidity and Capital Resources*– an analysis of cash flows, sources and uses of cash, debt, equity and contractual obligations.

**Our Business**

We operate in the for-hire truckload segment of the trucking industry. Customers in a variety of industries engage us to haul truckload quantities of freight, with the trailer we use to haul that freight being assigned exclusively to that customer’s freight until delivery. We have various service offerings, which we combine into two operating segments, through which we            provide transportation services. We aggregate the financial data for these operating segments into one reportable segment for purposes of our public reporting.

The service offerings, which we previously designated as operating divisions, are classified into the Trucking operating segment and Strategic Capacity Solutions operating segment. Our Trucking operating segment includes those transportation services in which we use Company-owned tractors and owner-operator tractors. Our Strategic Capacity Solutions operating segment, which we            previously referred to as USA Logistics, consists of services such as freight brokerage, transportation scheduling, routing and mode selection, which typically do not involve the use of Company-owned and owner-operator equipment. Both Trucking and Strategic Capacity Solutions have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this report.

Substantially all of our base revenue from both operating segments is generated by transporting, or arranging for the transportation of, freight for customers and is predominantly affected by the rates per mile received from our customers. For the six months ended June 30, 2008 and 2007, Trucking base revenue represented 96.0% and 97.6% of base revenue, respectively, with the            remaining base revenue being generated through Strategic Capacity Solutions.

We generally charge customers for our services on a per-mile basis. Currently, our most challenging costs include fuel and capital equipment costs, insurance and claims and recruiting, retaining and compensating qualified drivers.

*Trucking*. Trucking includes the following two primary service offerings provided to our customers:

|   | **•** | *General Freight*. Our General Freight service offering provides truckload freight services as a short- to medium-haul common carrier. We have provided General Freight services since our inception and we derive the largest portion of our revenues from these services. Beginning with the first quarter of 2008, we began                            including our regional freight operations as part of our General Freight service offering for |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

14

 

reporting purposes. Regional freight refers to truckload freight services that involve a length of haul of approximately 500 miles or less.

|   | **•** | *Dedicated Freight*. Our Dedicated Freight service offering is a variation of our General Freight service, whereby we agree to make our equipment and drivers available to a specific customer for shipments over particular routes at specified times. In addition to serving specific customer needs, our Dedicated Freight service                            offering also aids in driver recruitment and retention. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

*Strategic Capacity Solutions*. Strategic Capacity Solutions includes the following primary service offering provided to our customers:

|   | **•** | *Freight Brokerage.*Our Freight Brokerage service offering matches customer shipments with available equipment of other carriers when it is not feasible to use our own equipment. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Our Strategic Capacity Solutions service offerings provide complementary services to Trucking. We provide these services primarily to our existing Trucking customers, many of whom prefer to rely on a single carrier, or a small group of carriers, to provide all of their transportation needs. To date, a majority of the customers of Strategic Capacity Solutions have also engaged us            to provide services through one or more of our Trucking service offerings.

During December 2007, we also began offering rail intermodal services. Intermodal shipping is a method of transporting freight using multiple modes of transportation between origin and destination, with the freight remaining in a trailer or special container throughout the trip. Our rail intermodal service offerings involve transporting, or arranging the transportation of, freight            on trucks to a third party who uses a different mode of transportation, specifically rail, to complete the other portion of the shipment. The operating segment into which our rail intermodal service offerings are classified depends on whether or not Company equipment is used in providing the service. If Company equipment is used, those results are included in our Trucking operating segment. If Company equipment is not used, those results are included in our Strategic Capacity            Solutions operating segment. For the three and six month periods ended June 30, 2008, rail intermodal service offerings generated approximately 0.6% and 0.5%, respectively, of total base revenue.

**Critical Accounting Estimates**

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management            believes to be relevant at the time our consolidated financial statements are prepared. Actual results could differ from those estimates, and such differences could be material.

The most significant accounting policies and estimates that affect our financial statements include the following:

|   | **•** | *Revenue recognition and related direct expenses based on relative transit time in each period*. Revenue generated by Trucking is recognized in full upon completion of delivery of freight to the receiver’s location. For freight in transit at the end of a reporting period, we recognize revenue pro rata based on                            relative transit time completed as a portion of the estimated total transit time in accordance with EITF 91-9, Method 5 issued by the Emerging Issues Task Force of the Financial Accounting Standards Board. Expenses are recognized as incurred. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Revenue generated by Strategic Capacity Solutions is recognized upon completion of the services provided. Revenue is recorded on a gross basis, without deducting third party purchased transportation costs, as we act as a principal with substantial risks as primary obligor.

Management believes these policies most accurately reflect revenue as earned and direct expenses, including third party purchased transportation costs, as incurred.

|   | **•** | *Selections of estimated useful lives and salvage values for purposes of depreciating tractors and trailers*. We operate a significant number of tractors and trailers in connection with our business. We may purchase this equipment or acquire it under leases. We depreciate purchased equipment on the straight-line method over                            the estimated useful life down to an estimated salvage or trade-in value. We initially record equipment acquired under capital leases at the net present value of the minimum lease payments and amortize it on the straight-line method over the lease term. Depreciable lives of tractors and trailers range from three years to ten years. We estimate the salvage value at the expected date of trade-in or sale based on the expected market values of equipment at the time of                            disposal. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

We make equipment purchasing and replacement decisions on the basis of various factors, including, but not limited to, new equipment prices, the condition of the used equipment market, demand for our freight services, prevailing interest rates, technological improvements, fuel efficiency, durability of the equipment, equipment specifications and the availability of drivers.            Therefore, depending on the circumstances, we may accelerate or delay the acquisition and disposition of our tractors and trailers

 

15

 

from time to time, based on an operating principle whereby we pursue trade intervals that economically balance our maintenance costs and expected trade-in values in response to the circumstances existing at that time. Such adjustments in trade intervals may cause us to adjust the useful lives or salvage values of our tractors or trailers. By changing the relative amounts of older            equipment and newer equipment in our fleet, adjustments in trade intervals also increase and decrease the average age of our tractors and trailers, whether or not we change the useful lives or salvage values of any tractors or trailers. We also adjust depreciable lives and salvage values based on factors such as changes in prevailing market prices for used equipment. We periodically monitor these factors in order to keep salvage values in line with expected market values at the time            of disposal. Adjustments in useful lives and salvage values are made as conditions warrant and when we believe that the changes in conditions are other than temporary. These adjustments result in changes in the depreciation expense we record in the period in which the adjustments occur and in future periods. These adjustments also impact any resulting gain or loss on the ultimate disposition of the revenue equipment. Management believes our estimates of useful lives and salvage            values have been materially accurate as demonstrated by the insignificant amounts of gains and losses on revenue equipment dispositions in recent periods.

To the extent depreciable lives and salvage values are changed, such changes are recorded in accordance with the applicable provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 154,*Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No.            3*.

|   | **•** | *Estimates of accrued liabilities for claims involving bodily injury, physical damage losses, employee health benefits and workers’ compensation*. We record both current and long-term claims accruals at the estimated ultimate payment amounts based on information such as individual case estimates, historical claims                            experience and an estimate of claims incurred but not reported. The current portion of the accrual reflects the amounts of claims expected to be paid in the next twelve months. In making the estimates we rely on past experience with similar claims, negative or positive developments in the case and similar factors. We do not discount our claims liabilities. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | *Stock option valuation.*The assumptions used to value stock options are dividend yield, expected volatility, risk-free interest rate, expected life and anticipated forfeitures. As we do not pay any dividends on our Common Stock, the dividend yield is zero. Expected volatility represents the measure used to project the                            expected fluctuation in our share price. We use the historical method to calculate volatility with the historical period being equal to the expected life of each option. This calculation is then used to determine the potential for our share price to increase over the expected life of the option. The risk-free interest rate is based on an implied yield on United States zero-coupon treasury bonds with a remaining term equal to the expected life of the outstanding                            options. Expected life represents the length of time we anticipate the options to be outstanding before being exercised. Based on historical experience, that time period is best represented by the option’s contractual life. Anticipated forfeitures represent the number of shares under options we expect to be forfeited over the expected life of the options. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | *Accounting for income taxes.*Our deferred tax assets and liabilities represent items that will result in taxable income or a tax deduction in future years for which we have already recorded the related tax expense or benefit in our consolidated statements of income. Deferred tax accounts arise as a result of timing                            differences between when items are recognized in our consolidated financial statements compared to when they are recognized in our tax returns. Significant management judgment is required in determining our provision for income taxes and in determining whether deferred tax assets will be realized in full or in part. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary                            differences are expected to be recovered or settled. We periodically assess the likelihood that all or some portion of deferred tax assets will be recovered from future taxable income. To the extent we believe recovery is not probable, a valuation allowance is established for the amount determined not to be realizable. We have not recorded a valuation allowance at June 30, 2008, as all deferred tax assets are more likely than not to be realized. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

We believe that we have adequately provided for our future tax consequences based upon current facts and circumstances and current tax law. During the quarter ended June 30, 2008, we made no material changes in our assumptions regarding the determination of income tax liabilities. However, should our tax positions be challenged, different outcomes could result and have a            significant impact on the amounts reported through our consolidated statements of income.

We periodically reevaluate these policies as circumstances dictate. Together these factors may significantly impact our consolidated results of operations, financial position and cash flow from period to period.

 

16

**Results of Operations**

***Executive Overview***

The following executive overview is presented comparing the financial results for the three months ended June 30, 2008, to the three months ended June 30, 2007, except as otherwise stated.

Historically we, like many in the industry, focused almost exclusively on asset-based operations and expanded the fleet throughout all economic cycles. As the Company grew, this philosophy became more difficult to execute and this resulted in more volatile earnings, less pricing power and inconsistent operational execution.

We are currently in the early stages of transitioning from a primarily growth-oriented strategy to a strategy focused on acceptable rates of return on capital invested. To properly reward stockholders for their investment in USA Truck, we must be more conscious of the expectation of our stockholders. More specifically, we will endeavor to produce a return on capital that exceeds            the cost of capital invested. As part of this effort, we intend to expand our operations to include modes of transportation that produce additional revenue, but do not require significant capital investments.

We will restrict growth in our Company-owned tractor fleet until our return on capital exceeds our cost of capital invested. Until we are ready to expand our fleet, we intend to expand our services to customers with less asset-intensive modes of transportation such as our Strategic Capacity Solutions business, our owner-operator fleet and rail intermodal business as each of these            typically require less capital investment to operate.

Within our asset-based operations, we expect to re-align our assets over time to shorter lengths of haul to address shipping trends of our customers and to improve revenue per truck while controlling miles and associated variable costs. A shorter length of haul, in general, produces higher revenue per mile.

While all of this change is taking place, one thing that will not change is our constant focus on cost control. We will also increase our management intensity and focus on achieving our three long-term strategic objectives: (1) to generate at least a 10% return on capital; (2) to improve the consistency of our earnings relative to the S&P 500; and (3) to position ourselves for            long-term earnings growth once objectives one and two have been attained. We are proud of the improvements that we have made so far, but this quarter’s results only mark the first, albeit critical step toward realization of our ultimate goals.

| ***Note Regarding Presentation*** |
|-----------------------------------|

By agreement with our customers, and consistent with industry practice, we add a graduated surcharge to the rates we charge our customers as diesel fuel prices increase above an agreed-upon baseline price per gallon. The surcharge is designed to approximately offset increases in fuel costs above the baseline. Fuel prices are volatile, and the fuel surcharge increases our revenue            at different rates for each period. We believe that comparing operating costs and expenses to total revenue, including the fuel surcharge, could provide a distorted comparison of our operating performance, particularly when comparing results for current and prior periods. Therefore, we have used base revenue, which excludes the fuel surcharge revenue, and instead taken the fuel surcharge as a credit against the fuel and fuel taxes and purchased transportation line items in the table            setting forth the percentage relationship of certain items to base revenue below.

We do not believe that a reconciliation of the information presented on this basis and corresponding information comparing operating costs and expenses to total revenue would be meaningful. Data regarding both total revenue, which includes the fuel surcharge, and base revenue, which excludes the fuel surcharge, is included in the Consolidated Statements of Income included in this            report.

Base revenues from our Strategic Capacity Solutions operating segment, consisting primarily of base revenues from our Freight Brokerage service offering, have fluctuated in recent periods. This service does not involve the use of our tractors and trailers. Therefore, an increase in these revenues tends to cause expenses related to our operations that do involve our            equipment—including fuel expense, depreciation and amortization expense, operations and maintenance expense, salaries, wages and employee benefits and insurance and claims expense—to decrease as a percentage of base revenue, and a decrease in these revenues tends to cause those expenses to increase as a percentage of base revenue with a related increase in Purchased Transportation expense. Since changes in Freight Brokerage revenues generally affect all such expenses, as            a percentage of base revenue, we do not specifically mention it as a factor in our discussion of increases or decreases in those expenses in the period-to-period comparisons below. Base revenues from our Strategic Capacity Solutions operating segment increased approximately 66.2% and 68.8% for the three and six month periods ended June 30, 2008, respectively, compared to the same periods of the prior year.

 

17

 

***Relationship of Certain Items to Base Revenue***

The following table sets forth the percentage relationship of certain items to base revenue, for the periods indicated. The period-to-period comparisons below should be read in conjunction with this table and our Consolidated Statements of Income and accompanying notes.

 

|                                              | Three Months Ended |   | Six Months Ended |
|---------------------------------------------------|--------------------|--------|------------------|
|                                              | June 30,           |   | June 30,         |
|                                              | **2008**           |   | 2007             |   | **2008** |   | 2007 |
| **Base revenue**                                  | **100.0**          | **%**  |             | 100.0 | % |   | **100.0** | **%** |   | 100.0 | % |
| **Operating expenses and costs:**                 |               |   |             |   |   |   |   |   |   |   |   |
| Salaries, wages and employee benefits             | **39.3**           |   |             | 40.9 |   |   | **40.5** |   |   | 42.0 |   |
| Fuel and fuel taxes (1)                           | **15.0**           |   |             | 15.6 |   |   | **16.4** |   |   | 16.0 |   |
| Depreciation and amortization                     | **12.0**           |   |             | 12.0 |   |   | **12.3** |   |   | 12.3 |   |
| Purchased transportation (2)                      | **8.5**            |   |             | 4.2 |   |   | **7.9** |   |   | 4.0 |   |
| Insurance and claims                              | **7.3**            |   |             | 8.7 |   |   | **7.5** |   |   | 8.3 |   |
| Operations and maintenance                        | **6.3**            |   |             | 6.5 |   |   | **6.8** |   |   | 6.4 |   |
| Operating taxes and licenses                      | **1.6**            |   |             | 1.6 |   |   | **1.6** |   |   | 1.6 |   |
| Communications and utilities                      | **1.0**            |   |             | 0.9 |   |   | **1.0** |   |   | 1.0 |   |
| Loss (gain) on disposal of revenue equipment, net | **--**             |   |             | 0.1 |   |   | **--** |   |   | (0.2) |   |
| Other                                             | **4.1**            |   |             | 4.7 |   |   | **4.2** |   |   | 5.1 |   |
| Total operating expenses and costs                | **95.1**           |   |             | 95.2 |   |   | **98.2** |   |   | 96.5 |   |
| **Operating income**                              | **4.9**            |   |             | 4.8 |   |   | **1.8** |   |   | 3.5 |   |
| **Other expenses (income):**                      |               |   |             |   |   |   |   |   |   |   |   |
| Interest expense                                  | **1.1**            |   |             | 1.4 |   |   | **1.2** |   |   | 1.3 |   |
| Other, net                                        | **(0.1)**          |   |             | -- |   |   | **(0.1)** |   |   | -- |   |
| Total other expenses, net                         | **1.0**            |   |             | 1.4 |   |   | **1.1** |   |   | 1.3 |   |
| **Income before income taxes**                    | **3.9**            |   |             | 3.4 |   |   | **0.7** |   |   | 2.2 |   |
| **Income tax expense**                            | **1.8**            |   |             | 1.8 |   |   | **0.6** |   |   | 1.3 |   |
| **Net income**                                    | **2.1**            | **%**  |             | 1.6 | % |   | **0.1** | **%** |   | 0.9 | % |

 

|   | (1) | Net of fuel surcharges from Trucking operations. |
|--------|-----|--------------------------------------------------|

|   | (2) | Net of fuel surcharges from Strategic Capacity Solutions operations. |
|--------|-----|----------------------------------------------------------------------|

**Three Months Ended June 30, 2008 Compared to Three Months Ended June 30, 2007**

***Results of Operations – Combined Services***

Our base revenue increased 2.1% from $101.7 million to $103.8 million, for the reasons addressed in the Trucking and the Strategic Capacity Solutions sections, below.

Net income for all divisions was $2.1 million, or 2.1% of base revenue, as compared to $1.6 million, or 1.6% of base revenue in 2007.

Overall, our operating ratio decreased by 0.1 percentage points of base revenue to 95.1% as a result of the following factors:

|   | **•** | Salaries, wages and employee benefits decreased by 1.6 percentage points of base revenue due to a 150.0% increase in weighted average owner-operator tractors (from 36 to 90) and a 2.4% increase in our base revenue per loaded mile. If we are able to continue to grow our owner-operator fleet as a percentage of our total fleet, we would expect salaries,                            wages and employee benefits would continue to decrease as a percentage of base revenue absent offsetting increases in those expenses. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Fuel and fuel taxes decreased by 0.6 percentage points of base revenue. Our intense focus on controlling out-of-route miles (134 basis point improvement) offset the entire negative impact of higher prices (increased 57.8%) we paid for diesel during the quarter (approximately $0.03 per diluted share). The additional savings were generated by capital                            investments made to increase our tractor fuel economy, a disciplined idle time management program, the above-mentioned increase in owner-operator tractors, the diversification of our business model into less asset-intensive operations and our customers’ willingness to pay reasonable fuel surcharges. Fuel costs may continue to be affected in the future by price fluctuations, the terms and collectability of fuel surcharges, the percentage of total miles driven by                            owner-operators, and fuel efficiency. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

18

 

|   | **•** | Purchased transportation increased by 4.3 percentage points of base revenue due primarily to the increase in carrier expense associated with our Strategic Capacity Solutions operating segment and the above-mentioned increase in owner-operator tractors. We expect this expense would continue to increase when                            compared to prior periods if we can achieve our goals to grow our owner-operator fleet and increase the revenue of our Strategic Capacity Solutions segment. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Insurance and claims decreased by 1.4 percentage points of base revenue due to a decrease in adverse claims experience and an improvement in the frequency of accidents. Department of Transportation reportable accidents fell approximately 30% to their lowest levels since the second quarter of 2006. If we are able to continue to execute                            our “War on Accidents” safety initiative we would expect insurance and claims expense to continue to gradually decrease in the near term, though remaining volatile. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Other operating expenses decreased by 0.6 percentage points of base revenue primarily due to a decrease in driver recruiting costs of 13.8% resulting from one of our lowest quarterly driver turnover rates this decade (88%). This decrease was a combination of an accommodating market for hiring drivers and our 20.4% reduction in driver                            turnover. |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Our effective tax rate decreased from 52.4% in 2007 to 47.3% in 2008. Income tax expense varies from the amount computed by applying the federal tax rate to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem                            pay structure for drivers. Due to the partially nondeductible effect of per diem payments, our tax rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure. |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

***Results of Operations – Trucking***

*Key Operating Statistics:*

|                                                                                                                                                                  | Three Months Ended June 30,                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------|
|                                                                                                                                                                  | **         2008** |   |   |     2007 |
| Total miles*(in thousands)*(1)                                                                                                                                        | **76,298**                                                |   | 77,000 |   |
| Empty mile factor                                                                                                                                                     | **9.9**                                                   | **%** |   | 10.4 | % |
| Weighted average number of tractors (2)                                                                                                                               | **2,540**                                                 |   | 2,584 |   |
| Average miles per tractor per period                                                                                                                                  | **30,039**                                                |   | 29,799 |   |
| Average miles per tractor per week                                                                                                                                    | **2,311**                                                 |   | 2,292 |   |
| Average miles per trip (3)                                                                                                                                            | **715**                                                   |   | 787 |   |
| Base Trucking revenue per tractor per week                                                                                                                            | **$**                                                     | **3,009** |   | $ | 2,947 |   |
| Number of tractors at end of period (2)                      |                                                      | **2,538** |   |   | 2,591 |   |
|                                                                                                                                                                       |                                                           |  |  |  |  |  |  |  |

 

|   |  (1) | Total miles include both loaded and empty miles. |
|--------|-----------|--------------------------------------------------|

|   | (2) | Tractors include Company-operated tractors plus owner-operated tractors. |
|--------|-----|--------------------------------------------------------------------------|

|   | (3) | Average miles per trip is based upon loaded miles divided by the number of Trucking shipments. |
|--------|-----|------------------------------------------------------------------------------------------------|

 

*Base Revenue*

Base revenue from Trucking grew by 0.4% to $99.4 million. The increase was primarily the result of several factors:

|   | **•** | The empty mile factor decreased from 10.4% in 2007 to 9.9% in 2008. |
|--------|------------|---------------------------------------------------------------------|

|   | **•** | Base revenue per mile increased 1.2%. |
|--------|------------|---------------------------------------|

|   | **•** | Average miles per tractor per week increased 0.8%. |
|--------|------------|----------------------------------------------------|

|   | **•** | The addition of Trailer-on-Flat-Car Intermodal service offerings (from zero to $0.5 million). |
|--------|------------|-----------------------------------------------------------------------------------------------|

Overall, the weighted average size of our Trucking segment’s tractor fleet decreased 1.7%. We reduced the weighted average size of the Company-owned tractor fleet by 3.8% to 2,450 tractors and grew our weighted average owner-operator fleet by 150.0% to 90 tractors.

Our "Velocity" initiative has injected a measure of discipline into our operations resulting in improved tractor utilization, fewer out-of-route miles and a decreased empty mile factor, despite a shorter average length of haul. We believe that our reduced length of haul and a reduction in industry-wide truckload capacity, rather than a meaningful improvement in freight volumes,            has been the main factor in improved revenue per mile.

 

19

 

***Results of Operations – Strategic Capacity Solutions***

We have strategically targeted Freight Brokerage and rail intermodal for growth. We have established goals to double the size of our Freight Brokerage base revenue to approximately $20 million and to establish a presence in the rail intermodal market with $2 million of related base revenue in 2008. We made progress toward both goals this quarter. Base revenue from Strategic            Capacity Solutions increased 66.2% to $4.5 million primarily due to a 72.2% increase in our Freight Brokerage base revenue. Base revenue from the portion of our rail intermodal service offerings that is classified into our Strategic Capacity Solutions operating segment grew from zero to $0.1 million.

**Six Months Ended June 30, 2008 Compared to Six Months Ended June 30, 2007**

***Results of Operations – Combined Services***

Our base revenue increased 2.5% from $196.2 million to $201.0 million, for the reasons addressed in the Trucking and the Strategic Capacity Solutions sections, below.

Net income for all divisions was $0.2 million, or 0.1% of base revenue, as compared to $1.7 million, or 0.9% of base revenue for 2007.

While our operating results improved in the second quarter of 2008, the negative impact of our results in the first quarter of 2008 overshadowed the improvements made in the second quarter of 2008. Overall, our operating ratio increased by 1.7 percentage points of base revenue to 98.2% as a result of the following factors:

|   | **•** | Salaries, wages and employee benefits decreased by 1.5 percentage points of base revenue due to a 186.2% increase in weighted average owner-operator tractors (from 29 to 83) and a 1.8% increase in our base revenue per loaded mile. If we are able to continue to grow our owner-operator fleet as a percentage of our total fleet, we would expect salaries,                            wages and employee benefits would continue to decrease as a percentage of base revenue absent offsetting increases in those expenses. |
|--------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Fuel and fuel taxes increased by 0.4 percentage points of base revenue primarily due to the 50.6% increase in the price we paid for diesel and to a lesser extent the 0.3% decrease in fuel efficiency. These factors were partially offset by the above-mentioned increase in owner-operator tractors and the diversification of our business model into less                            asset-intensive operations. Fuel costs may continue to be affected in the future by price fluctuations, the terms and collectibility of fuel surcharges, the percentage of total miles driven by owner-operators and our initiatives to improve fuel efficiency, control out-of-route miles and reduce idle time. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Purchased transportation increased by 3.9 percentage points of base revenue due primarily to the above-mentioned increase in owner-operator tractors and an increase in carrier expense associated with our Strategic Capacity Solutions operating segment. We expect this expense would continue to increase when compared to prior periods if                            we can achieve our goals to grow our owner-operator fleet and increase the revenue of our Strategic Capacity Solutions segment. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Operations and maintenance increased by 0.4 percentage points of base revenue primarily due to a 9.7% increase in fleet maintenance costs. The increase in fleet maintenance costs was partially due to the increase in the average age of our tractors from 20.8 months in 2007 to 23.6 months in 2008. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Insurance and claims decreased by 0.8 percentage points of base revenue due to an improvement in the frequency of accidents and a decrease in adverse claims experience. If we are able to continue to execute our “War on Accidents” safety initiative, we would expect insurance and claims expense to                            continue to decrease in the near term. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Other operating expenses decreased by 0.9 percentage points of base revenue primarily due to a decrease in driver recruiting costs of 26.7% resulting from the lowest six-month average driver turnover (95.2%) since 2002. This decrease was a combination of an accommodating market for hiring drivers and our 15.5% reduction in driver turnover. |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Our effective tax rate increased from 60.1% in 2007 to 87.2% in 2008. Income tax expense varies from the amount computed by applying the federal tax rate to income before income taxes primarily due to state income taxes, net of federal income tax effect, adjusted for permanent differences, the most significant of which is the effect of the per diem                            pay structure for drivers. Due to the partially nondeductible effect of per diem payments, our tax rate will vary in future periods based on fluctuations in earnings and in the number of drivers who elect to receive this pay structure. |
|--------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

20

 

***Results of Operations – Trucking***

*Key Operating Statistics:*

|                                                                                               | Three Months EndedJune 30, |
|----------------------------------------------------------------------------------------------------|----------------------------|
|                                                                                               | **   2008**      |   |   | 2007 |
| Total miles*(in thousands)*(1)                                            | **76,298**                 |   | 77,000 |   |
| Empty mile factor                                | **9.9**                    | **%** |   | 10.4 | % |
| Weighted average number of tractors(2)           | **2,540**                  |   | 2,584 |   |
| Average miles per tractor per period                                      | **30,039**                 |   | 29,799 |   |
| Average miles per tractor per week                                        | **2,311**                  |   | 2,292 |   |
| Average miles per trip (3)                                                | **715**                    |   | 787 |   |
| Base Trucking revenue per tractorper week                                 | **$**                      | **3,009** |   | $ | 2,947 |   |
| Number of tractors at end of period(2)                                              |                       | **2,538** |   |   | 2,591 |   |

 

|   |  (1) | Total miles include both loaded and empty miles. |
|--------|-----------|--------------------------------------------------|

|   | (2) | Tractors include Company-operated tractors plus owner-operated tractors. |
|--------|-----|--------------------------------------------------------------------------|

|   | (3) | Average miles per trip is based upon loaded miles divided by the number of Trucking shipments. |
|--------|-----|------------------------------------------------------------------------------------------------|

 

*Base Revenue*

Base revenue from Trucking grew by 0.8% to $193.0 million. The increase was primarily the result of several factors:

|   | **•** | The empty mile factor decreased from 11.2% in 2007 to 10.5% in 2008. |
|--------|------------|----------------------------------------------------------------------|

|   | **•** | Base revenue per mile increased 0.9%. |
|--------|------------|---------------------------------------|

|   | **•** | Average miles per tractor per week increased 0.2%. |
|--------|------------|----------------------------------------------------|

|   | **•** | The addition of Trailer-on-Flat Car Intermodal service offerings (from zero to $0.7 million). |
|--------|------------|-----------------------------------------------------------------------------------------------|

Overall, the weighted average size of our Trucking segment’s tractor fleet decreased 0.9%. We reduced the weighted average size of the Company-owned tractor fleet by 3.0% to 2,466 tractors and grew our weighted average owner-operator fleet by 186.2% to 83 tractors.

Our "Velocity" initiative has injected a measure of discipline into our operations resulting in improved tractor utilization, fewer out-of-route miles and a decreased empty mile factor, despite a shorter average length of haul. We believe a continued reduction in industry-wide truckload capacity, rather than a meaningful improvement in freight volumes, has been the main factor in            improved revenue per mile.

***Results of Operations – Strategic Capacity Solutions***

We have strategically targeted Freight Brokerage and rail intermodal for growth. We have established goals to double the size of our Freight Brokerage base revenue to approximately $20 million and to break into the rail intermodal market with $2 million of related base revenue in 2008. We made progress toward both goals this quarter. Base revenue from Strategic Capacity Solutions            increased 68.8% to $8.0 million primarily due to a 77.9% increase in our Freight Brokerage base revenue. Base revenue from the portion of our rail intermodal service offerings that is classified into our Strategic Capacity Solutions operating segment grew from zero to $0.2 million.

***Seasonality***

In the trucking industry, revenues generally decrease as customers reduce shipments during the winter holiday season and as inclement weather impedes operations. At the same time, operating expenses increase due primarily to decreased fuel efficiency and increased maintenance costs. Future revenues could be impacted if customers, particularly those with manufacturing operations,            reduce shipments due to temporary plant closings. Historically, many of our customers have closed their plants for maintenance or other reasons during January and July.

***Inflation***

Most of our operating expenses are inflation sensitive, and we have not always been able to offset inflation-driven cost increases through increases in our revenue per mile and our cost control efforts. The effect of inflation-driven cost increases on our overall operating costs is not expected to be greater for us than for our competitors.

***Fuel Availability and Cost***

The motor carrier industry is dependent upon the availability of fuel. Fuel shortages or increases in fuel taxes or fuel costs have adversely affected our profitability and will continue to do so. Fuel prices have fluctuated widely, and fuel prices and fuel taxes have generarlly increased in recent years.  We have not experienced difficulty in maintaining necessary fuel            supplies, and in the past we generally have been able to

21

 

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, we are not able to fully recover increases in fuel prices through rate increases and fuel surcharges, primarily because those items do not provide any benefit with            respect to empty and out-of-route miles, for which we typically do not receive compensation from customers. We do not have any long-term fuel purchase contracts and we have not entered into any other hedging arrangements that protect us against fuel price increases.

**Off-Balance Sheet Arrangements**

We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our consolidated financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. From time to time, we enter into operating leases relating to facilities and office equipment that are            not reflected in our balance sheet.

**Liquidity and Capital Resources**

The continued operation of our business requires significant investments in new revenue equipment. We have financed new tractor and trailer purchases predominantly with cash flows from operations, the proceeds from sales or trades of used equipment, borrowings under our Amended and Restated Senior Credit Facility and capital lease purchase arrangements. We have historically met            our working capital needs with cash flows from operations and with borrowings under our Facility. We use the Facility to minimize fluctuations in cash flow needs and to provide flexibility in financing revenue equipment purchases. At June 30, 2008, we had approximately $29.2 million available under our Facility and $49.1 million of availability for new capital leases under existing lease facilities. Management is not aware of any known trends or uncertainties that would cause a            significant change in our sources of liquidity. We expect our principal sources of capital to be sufficient to finance our operations, annual debt maturities, lease commitments, letter of credit commitments, capital expenditures as well as any dividends or stock repurchases we may transact for the next several years. There can be no assurance, however, that such sources will be sufficient to fund our operations and all expansion plans for the next several years, or that any            necessary additional financing will be available, if at all, in amounts required or on terms satisfactory to us.

 

| ***Cash Flows***                                    |                      |         |   |   |     |
|-----------------------------------------------------|---------------------------|--------------|--------|--------|----------|
|                                                | (in thousands)            |
|                                                | Six Months Ended June 30, |
|                                                | **2008**                  |         | 2007   |
| Net cash provided by operating activities           | **$**                     | **21,293**   |   | $      | 22,232   |
| Net cash used in investing activities               |                      | **(27,326)** |   |   | (4,312)  |
| Net cash provided by (used in) financing activities |                      | **2,313**    |   |   | (19,155) |

 

Cash provided by operations decreased approximately $1.0 million for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007. The change was primarily due to a $1.5 million decrease in net income and an increase in depreciation of $0.7 million during the first six months of 2008 as compared to the first six months of 2007.

Cash used in investing activities increased approximately $23.0 million for the six months ended June 30, 2008 as compared to the six months ended June 30, 2007 due to an increase in our net expenditures for revenue equipment. In 2006, we executed an aggressive revenue equipment acquisition program in anticipation of the EPA’s emission control regulations that went into            effect in January 2007, which resulted in increased purchases in 2006 and a reduction in purchases in the first six months of 2007. In addition, as we began 2007, our fleet capacity exceeded freight availability, which prompted us to slow our fleet growth during the first six months of 2007.

Cash used in financing activities was $19.2 million for the six months ended June 30, 2007 as compared to cash provided by financing activities of $2.3 million for the six months ended June 30, 2008. This $21.5 million difference was primarily a result of our use of $13.1 million for repurchases of Common Stock for the six months ended June 30, 2007, a $0.3 million increase in            payments on capitalized lease obligations, a $11.5 million increase in net borrowings on our Facility and a $2.3 million decrease in bank drafts payable.

***Debt***

Our Amended and Restated Senior Credit Facility provides for a maximum borrowing amount of $100.0 million, subject to a borrowing base calculation. The Facility includes a sublimit of up to $25.0 million for letters of credit and matures September 1, 2010.

The Facility is collateralized by revenue equipment having a net book value of approximately $199.5 million at June 30, 2008, and all trade and other accounts receivable. The Facility provides an accordion feature allowing us to increase the maximum borrowing amount by up to an additional $75.0 million in the aggregate in one or more increases no less than six months prior to the            maturity date, subject to certain conditions. The maximum

 

22

borrowing including the accordion feature may not exceed $175.0 million without the consent of the lenders.At June 30, 2008, $64.6 million was outstanding under the Facility.

 

The Facility bears variable interest based on the agent bank’s prime rate, the federal funds rate plus a certain percentage or the London Interbank Offered Rate plus a certain percentage, which is determined based on our attainment of certain financial ratios. For the six months ended June 30, 2008, the effective interest rate was 4.6%. A quarterly commitment fee is payable            on the unused credit line at a rate which is determined based on our attainment of certain financial ratios. At June 30, 2008, the rate was 0.2% per annum.

The Facility contains various covenants, which require us to meet certain quarterly financial ratios and to maintain a minimum tangible net worth of approximately $132.4 million at June 30, 2008. In the event we fail to cure an event of default, the loan can become immediately due and payable. As of June 30, 2008, we were in compliance with the covenants.

Certain leases contain cross-default provisions with other financing agreements, including the Facility, of the Company.

***Equity***

At June 30, 2008, we had stockholders’ equity of $143.8 million and total debt including current maturities of $121.1 million, resulting in a total debt, less cash, to total capitalization ratio of 44.1% compared to 36.8% at December 31, 2007.

***Purchases and Commitments***

As of June 30, 2008, our capital expenditures forecast, net of proceeds from the sale or trade of equipment, was $28.4 million for the remainder of 2008, approximately $18.8 million of which relates to revenue equipment acquisitions. To the extent further capital expenditures are feasible based on our debt covenants and operating cash requirements, we would use the balance of $9.6            million primarily for property acquisitions, facility construction and improvements and maintenance and office equipment. We routinely evaluate our equipment acquisition needs and adjust our purchase and disposition schedules from time to time based on our analysis of factors such as freight demand, the availability of drivers and the condition of the used equipment market. During the six months ended June 30, 2008, we made $48.6 million of net capital expenditures, including $46.1            million for revenue equipment purchases and $2.5 million for facility expansions and other expenditures. The following table represents our outstanding contractual obligations at June 30, 2008, excluding letters of credit:

 

|                                  | (in thousands)         |
|---------------------------------------|------------------------|
|                                  | Payments Due By Period |
|                                  |  

Total          |   | Less than 1 year |   |  

1-3 years |   |  

3-5 years |   | More than 5 years |
| Contractual Obligations:              |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|   Long-term debt obligations (1) | $                      | 64,643 |   | $ | -- |   | $ | 64,643 |   | $ | -- |   | $ | -- |
|   Capital lease obligations (2)  |                   | 59,952 |   |   | 21,592 |   |   | 27,440 |   |   | 10,920 |   |   | -- |
|   Purchase obligations (3)       |                   | 40,164 |   |   | 40,164 |   |   | -- |   |   | -- |   |   | -- |
|   Rental obligations             |                   | 1,505 |   |   | 687 |   |   | 453 |   |   | 30 |   |   | 335 |
|   Total                          | $                      | 166,264 |   | $ | 62,443 |   | $ | 92,536 |   | $ | 10,950 |   | $ | 335 |
|                                  |                   |   |   |   |   |   |   |   |   |   |   |   |   |   |

 

|   | (1) | Long-term debt obligations, excluding letters of credit in the amount of $6.2 million, consist of our Senior Credit Facility, which matures on September 1, 2010. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Includes interest payments not included in the balance sheet. |
|--------|-----|---------------------------------------------------------------|

|   | (3) | Purchase obligations include commitments to purchase approximately $39.4 million of revenue equipment of which approximately $20.0 million are cancelable by us upon advance written notice provided 75 days prior to the scheduled delivery date of the equipment. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**New Accounting Pronouncements**

See “Note F – New Accounting Pronouncements” to the consolidated financial statements included in this Form 10-Q for a description of the most recent accounting pronouncements and their effect, if any.

| **ITEM 3.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|-------------|----------------------------------------------------------------|

We experience various market risks, including changes in interest rates, foreign currency exchange rates and commodity prices.

*Interest Rate Risk*. We are exposed to interest rate risk primarily from our Amended and Restated Senior Credit Facility. The Facility provides for borrowings that bear interest at variable rates based on the agent bank’s prime rate, the federal funds rate plus a certain percentage or the London Interbank Offered Rate plus a certain percentage. At            June 30, 2008, we had $70.8 million outstanding pursuant to our Facility including letters of credit

 

23

of $6.2 million. Assuming the outstanding balance at June 30, 2008 was to remain constant, a hypothetical one-percentage point increase in interest rates applicable to the Facility would increase our interest expense over a one-year period by approximately $0.6 million.

 

*Foreign Currency Exchange Rate Risk*. We require customers to pay for our services in U.S. dollars. Although the Canadian government makes certain payments, such as tax refunds, to us in Canadian dollars, any foreign currency exchange risk associated with such payments is not material.

*Commodity Price Risk*. Fuel prices have fluctuated greatly and have generally increased in recent years. In some periods, our operating performance was adversely affected because we were not able to fully offset the impact of higher diesel fuel prices through increased freight rates and fuel surcharges. We cannot predict the extent to which high fuel            price levels will continue in the future or the extent to which fuel surcharges could be collected to offset such increases. We do not have any long-term fuel purchase contracts and we have not entered into any other hedging arrangements that protect us against fuel price increases. Volatile fuel prices will continue to impact us significantly. A significant increase in fuel costs, or a shortage of diesel fuel, could materially and adversely affect our results of operations. These            costs could also exacerbate the driver shortages our industry experiences by forcing independent contractors to cease operations.

| **ITEM 4.** | **CONTROLS AND PROCEDURES** |
|-------------|-----------------------------|

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation,            our management, including the CEO and CFO, concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level. There have been no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have confidence in our internal controls and procedures. Nevertheless, our management, including our CEO and CFO, does not expect that our disclosure procedures and controls or our internal controls will prevent all errors or intentional fraud. An internal control system, no matter how well-conceived and operated, can provide only reasonable, not absolute, assurance that the            objectives of such internal controls are met. Further, the design of an internal 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 internal control systems, no evaluation of controls can provide absolute assurance that all our control issues and instances of fraud, if any, have been detected.

 

24

 

**PART II - OTHER INFORMATION**

 

| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

We are party to routine litigation incidental to our business, primarily involving claims for personal injury and property damage incurred in the transportation of freight. We maintain insurance covering liabilities in excess of certain self-insured retention levels. Though management believes these claims to be routine and immaterial to our long-term financial position, adverse            results of one or more of these claims could have a material adverse effect on our consolidated financial position or results of operations in any given reporting period.

OnMay 22, 2006, a former independent sales agent filed a lawsuit against us entitled*All-Ways Logistics, Inc. v. USA Truck, Inc.*, in the U.S. District Court for the Eastern District of Arkansas, Jonesboro Division, alleging, among other things, breach of contract, breach of implied duty of good faith and            fair dealing, and tortious interference with business relations. The plaintiff alleged that the Company breached and wrongfully terminated the commission sales agent agreement with it and improperly interfered with its business relationship with certain of its customers. In early August 2007, the jury returned an unfavorable verdict in this contract dispute. The jury held that the Company breached the contract and awarded the plaintiff damages of approximately $3.0 million, which            was accrued during the quarter ended September 30, 2007. In its December 4, 2007 order, the court denied substantially all of USA Truck’s motions for post-trial relief and granted the plaintiff’s motions for pre-judgment interest, attorney’s fees and costs in an amount totaling approximately $1.7 million, which was accrued during the fourth quarter of 2007. The court’s order also awarded the plaintiff post-judgment interest, of which we accrued approximately            $0.05 and $0.1 million for the three and six month periods ended June 30, 2008, respectively. On January 2, 2008, the Company filed an appeal of the verdict and the court’s order and the appeal is currently pending before the 8th Circuit United States Court of Appeals.

| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

Certain risks associated with our operations are discussed in our Annual Report on Form 10-K for the year ended December 31, 2007, under the heading “Risk Factors” in Item 1A of that report. We do not believe there have been any material changes in these risks during the six months ended June 30, 2008.

| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS** |
|-------------|-----------------------------------------------------------------|

**(a) Recent unregistered sales of securities.**

None.

**(b) Use of proceeds from registered sales of securities.**

None.

**(c) Purchases of equity securities by the issuer and affiliated purchasers.**

On January 24, 2007, we publicly announced that our Board of Directors authorized the repurchase of up to 2,000,000 shares of our outstanding Common Stock over a three-year period ending January 24, 2010. We may make Common Stock purchases under this program on the open market or in privately negotiated transactions at prices determined by our Chairman of the Board or President.            During the six months ended June 30, 2008, we did not repurchase any shares of our Common Stock. Our current repurchase authorization has 1,165,901 shares remaining.

The following table sets forth information regarding shares of Common Stock purchased or that may yet be purchased by us under the current authorization during the second quarter of 2008.

Issuer Purchases of Equity Securities

 

| Period                   |   | Total Number of Shares Purchased |   |  

Average Price Paid per Share |   | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |   | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
|--------------------------|--------|----------------------------------|--------|--------------------------------------|--------|----------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|
| April 1 – April 30 |   | --                               |   | $                                    | --     |                                                                             | --     |                                                                           | 1,165,901 |
| May 1 – May 31     |   | --                               |   |                                 | --     |                                                                             | --     |                                                                           | 1,165,901 |
| June 1 – June 30   |   | --                               |   |                                 | --     |                                                                             | --     |                                                                           | 1,165,901 |
| Total                    |   | --                               |   | $                                    | --     |                                                                             | --     |                                                                           | 1,165,901 |

 

 

25

 

We may reissue repurchased shares under our equity compensation plans or as otherwise directed by the Board of Directors.

We are required to include in the table above purchases made by us or by an affiliated purchaser. For this purpose, “affiliated purchaser” does not include our Employee Stock Purchase Plan, which provides that shares purchased for employees under that Plan may be shares provided by us or shares purchased on the open market. Open market purchases under that Plan are            made by the administrator of the Plan, which is an agent independent of us. Any shares purchased by the administrator are not counted against the number of shares available for purchase by us pursuant to the repurchase authorization described above.

| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES** |
|-------------|-------------------------------------|

None.

| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS** |
|-------------|---------------------------------------------------------|

The annual meeting of stockholders of the Company was held on May 7, 2008. At the meeting, the stockholders elected the people set forth in the table below to serve as directors for a term expiring at the Annual Meeting of Stockholders in 2011:

|            |   | Votes     |   | Votes    |   | Broker    |
|--------------------------------------------------------------|--------|-----------|--------|----------|--------|-----------|
| Nominee                                                      |   | For       |   | Withheld |   | Non-votes |
| William H. Hanna                                             |   | 9,160,072 |   | 231,191  |   | --        |
| Joe D. Powers                                                |   | 9,150,634 |   | 240,629  |   | --        |

| **ITEM 5.** | **OTHER INFORMATION** |
|-------------|-----------------------|

None.

| **ITEM 6.** | **EXHIBITS** |
|-------------|--------------|

| (a) | Exhibits |
|-----|----------|

 

| 3.01 | Restated and Amended Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, Registration No. 33-45682, filed with the Securities and Exchange Commission on February 13, 1992 [the “Form S-1”]).      |
|------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.02 | Amended Bylaws of the Company as currently in effect (incorporated by reference to Exhibit 3.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2001).

                                                                                                              |
| 3.03 | Certificate of Amendment to Certificate of Incorporation of the Company filed March 17, 1992 (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Form S-1 filed with the Securities and Exchange Commission on March 19, 1992).                                                        |
| 3.04 | Certificate of Amendment to Certificate of Incorporation of the Company filed April 29, 1993 (incorporated by reference to Exhibit 5 to the Company’s Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on June 2, 1997 [the “Form 8-A/A”]).

  |
| 3.05 | Certificate of Amendment to Certificate of Incorporation of the Company filed May 13, 1994 (incorporated by reference to Exhibit 6 to the Form 8-A/A).

                                                                                                                                               |
| 4.01 | Specimen certificate evidencing shares of the Common Stock, $.01 par value, of the Company (incorporated by reference to Exhibit 4.1 to the Form S-1).

                                                                                                                                               |
| 4.02 | Instruments with respect to long-term debt not exceeding 10.0% of the total assets of the Company have not been filed. The Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.                                                                     |
| 4.03 | Amended and Restated Senior Credit Facility dated September 1, 2005, between the Company and Bank of America, N.A., U.S. Bank, N.A., SunTrust Bank and Regions Bank collectively as the Lenders (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated September 8, 2005).        |
| 31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                         |
| 31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                         |
| 32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                         |
| 32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                         |

 

 

26

 

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

|   |           |   |   | **USA Truck, Inc.**                     |
|--------|----------------|--------|--------|-----------------------------------------|
|   |           |   |   | *(Registrant)*                          |
|   |           |   |   |                                    |
|   |           |   |   |                                    |
| Date:  | August 1, 2008 |   | By:    | /s/CLIFTONR.BECKHAM                     |
|   |           |   |   | **Clifton R. Beckham**                  |
|   |           |   |   | *President and Chief Executive Officer* |
|   |           |   |   |                                    |
|   |           |   |   |                                    |
| Date:  | August 1, 2008 |   | By:    | /s/DARRONR.MING                         |
|   |           |   |   | **Darron R. Ming**                      |
|   |           |   |   | *Vice President, Finance, Chief*        |
|   |           |   |   | *Financial Officer and Treasurer*       |

 

 

27

 

**INDEX TO EXHIBITS**

**USA TRUCK, INC.**

 

| **Exhibit**

**Number** |   | **                                                                                                          Exhibit** |
|-------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    | 3.01   | Restated and Amended Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1, Registration No. 33-45682, filed with the Securities and Exchange Commission on February 13, 1992 [the “Form S-1”]).                                                                                                                                                                                                                      |
|                    | 3.02   | Amended Bylaws of the Company as currently in effect (incorporated by reference to Exhibit 3.2 to the Company’s annual report on Form 10-K for the year ended December 31, 2001).

                                                                                                                                                                                                                                                                                                                              |
|                    | 3.03   | Certificate of Amendment to Certificate of Incorporation of the Company filed March 17, 1992 (incorporated by reference to Exhibit 3.3 to Amendment No. 1 to the Form S-1 filed with the Securities and Exchange Commission on March 19, 1992).                                                                                                                                                                                                                                                                        |
|                    | 3.04   | Certificate of Amendment to Certificate of Incorporation of the Company filed April 29, 1993 (incorporated by reference to Exhibit 5 to the Company’s Registration Statement on Form 8-A/A filed with the Securities and Exchange Commission on June 2, 1997 [the “Form 8-A/A”]).

                                                                                                                                                                                                                  |
|                    | 3.05   | Certificate of Amendment to Certificate of Incorporation of the Company filed May 13, 1994 (incorporated by reference to Exhibit 6 to the Form 8-A/A).

                                                                                                                                                                                                                                                                                                                                                               |
|                    | 4.01   | Specimen certificate evidencing shares of the Common Stock, $.01 par value, of the Company (incorporated by reference to Exhibit 4.1 to the Form S-1).

                                                                                                                                                                                                                                                                                                                                                               |
|                    | 4.02   | Instruments with respect to long-term debt not exceeding 10.0% of the total assets of the Company have not been filed. The Company agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.                                                                                                                                                                                                                                                                                     |
|                    | 4.03   | Amended and Restated Senior Credit Facility dated September 1, 2005, between the Company and Bank of America, N.A., U.S. Bank, N.A., SunTrust Bank and Regions Bank collectively as the Lenders (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K dated September 8, 2005).                                                                                                                                                                                                                        |
|                    | 31.1   | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                    | 31.2   | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                    | 32.1   | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                    | 32.2   | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                         |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  |

 

 

 

28