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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

For the fiscal year ended December 31, 2004

OR

For the transition period from                      to                     

0-19858

(Commission File Number)

USA Truck, Inc.

(Exact name of Registrant as specified in its charter)

(479) 471-2500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $.01 per share

(Title of class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended). Yes ¨ No x

The aggregate market value of the voting stock held by nonaffiliates of the Registrant computed by reference to the price at which the common equity was last sold as of the last business day of the Registrant’s most recently completed second quarter was $59,813,208 (the characterization of officers and directors of the Registrant as affiliates for purposes of this computation should not be construed as an admission for any other purpose that any such person is in fact an affiliate of the Registrant).

The number of shares outstanding of the Registrant’s Common Stock, par value $ .01, as of February 23, 2005 is 9,345,946.

DOCUMENTS INCORPORATED BY REFERENCE

PART I

        USA Truck is a medium haul, dry van truckload carrier transporting general commodities throughout the continental United States and between locations in the United States and Canada. We transport general commodities into Mexico by allowing through-trailer service on our trailers through our facility in the gateway city of Laredo, Texas. Overall, our operations within the United States produce more than 94% of our revenues. We generate the majority of our revenues through our General Freight division, transporting freight over irregular routes, with a medium length of haul, which is generally defined as between 800 and 1,200 miles per trip. We also offer four basic services through our USA Logistics division, including two using our own revenue equipment: regional freight, with a length of haul of less than 500 miles, and dedicated freight, pursuant to which we provide services under contracts that require us to dedicate equipment to a specific customer for shipments over particular routes at specified times and dates. Our USA Logistics division also provides services that do not involve transporting freight using our equipment, including third party logistics services and freight brokerage, primarily as supplemental services to customers who are also customers of our General Freight division.

        We transport many types of freight and had over 550 active customers in 2004. We focus on customers and markets that demand premium service where we can achieve premium rates and develop long-term, service-oriented relationships. In 2004, more than 95% of our operating revenues were derived from shippers that were our customers prior to 2004. We are a major carrier of freight for such industries as industrial machinery and equipment, rubber and plastics, retail stores, paper products, durable consumer goods, metals, electronics and chemicals.

        We were incorporated in Delaware in September 1986 as a wholly owned subsidiary of ABF Freight System, Inc. and were purchased by management in December 1988. We completed the initial public offering of our common stock in March 1992.

        Our principal offices are located at 3200 Industrial Park Road, Van Buren, Arkansas 72956, and our telephone number is (479) 471-2500.

        Our Internet address is http://www.usa-truck.com. You can review the filings we have made with the U.S. Securities and Exchange Commission (“SEC”), free of charge by linking directly from the investor relations section of our web site to EDGAR, a database maintained by the SEC. EDGAR is the Electronic Data Gathering, Analysis and Retrieval system where you can find our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.

Growth Strategy

        We are committed to controlled, profitable growth. Since our initial public offering, we have grown our revenues, before fuel surcharge, from $63.0 million in 1992 to $335.9 million in 2004, an average compounded rate of 15%. With the exception of one acquisition in 1999, our growth has been internal.

        We are continuing an aggressive fleet modernization and expansion program. This program is reducing the average age of our tractors and trailers and expanding our capacity. We believe that a larger, more modern fleet will support our growth initiatives and will have a positive impact on our operations, including less frequent repairs and lower maintenance costs, improved customer service and higher driver retention. In 2004, we purchased 957 new tractors and 1,940 new trailers, and in 2005, we plan to acquire 1,001 new tractors and 1,111 new trailers. Our acquisitions and disposals resulted in net increases in 2004 of 150 tractors and 1,221 trailers. Our projected 2005 acquisitions and disposals will result in net increases of 416 tractors and 316 trailers.

        We expect future growth to come from the following areas:

Operating Strategy

        We intend to improve our profitability by doing the following:

Marketing and Sales

        We focus our marketing efforts on customers with premium service requirements and heavy shipping needs within our primary operating areas. This permits us to concentrate available equipment strategically so that we can be more responsive to customer needs.

        Our marketing department solicits and responds to customer orders and maintains close customer contact regarding service requirements and rates. We typically establish rates through individual negotiations with customers. For our dedicated freight services, rates are fixed under contracts tailored to the specific needs of shippers. To a lesser extent, we also obtain business through third party providers of logistics services. In 2004, more than 95% of our operating revenues was derived from shippers that were our customers prior to 2004. No single customer represents more than 10% of our total revenue.

        We require customers to have credit approval before dispatch. We bill customers at or shortly after delivery and, for the last three years, receivables collection has averaged approximately 31 days from the billing date.

        Within our marketing department, load coordinators are responsible for efficiently matching available equipment with customer shipments, and they serve as the contact with customers’ receiving and shipping personnel. Load coordinators also have primary responsibility for minimizing empty miles and they work closely with other marketing department personnel to increase equipment utilization.

Operations

        We conduct most of our freight transport operations east of the Rocky Mountains. We are not required to have intrastate authority in most states because, with the exception of our regional operations, most of our routes take us across state lines. Our freight transport business consists primarily of medium-haul shipments, more than 800 but less than 1,200 miles. Our average length of haul was 859 miles in 2002, 851 miles in 2003 and 839 miles in 2004. Our average length of haul is declining as an increasing percentage of our total revenue was generated through regional and dedicated services, which had an average length of haul of 726 miles in 2003 and 608 miles in 2004. The regional and dedicated freight operations are intended to improve our ability to hire and retain drivers and to enable us to obtain additional business in our existing markets. Our average length of haul in our General Freight operations increased from 873 miles in 2003 to 898 miles in 2004.

        The average distance traveled between loads as a percentage of total paid miles traveled, commonly referred to as the empty mile factor, is a standard measurement in the truckload industry. The empty mile factor generally decreases as average length of haul and density of trucks in an area increase. Therefore, our efforts to decrease our empty mile factor are offset somewhat by the growth of our regional and dedicated freight operations. In addition, our commitment to on-time pickup often requires a tractor to travel farther to complete a pickup than it would have to travel if we delayed the pickup until a tractor became available in the area. Despite these limitations, our empty mile factor improved from 8.97% for 2003 to 8.39% for 2004.

        Our operations department consists primarily of our fleet managers. Fleet managers supervise approximately 60 drivers each and they are our primary contact with those drivers. They monitor the location of equipment and direct its movement in the most efficient and safe manner practicable. The operations department focuses on achieving continual improvement in the areas of safety, customer service, equipment utilization and driver retention.

Drivers and Other Personnel

        Driver recruitment and retention are vital to success in our industry. Recruiting drivers is challenging because our standards are high and enrollment in driving schools has been declining. Retention is difficult because of wage and job fulfillment considerations. Driver turnover, especially in the early months of employment, is a significant problem, and the competition for qualified drivers is intense. Although we have had significant driver turnover during certain periods in the past, we have been able to attract and retain a sufficient number of qualified drivers to support our operations. To attract and retain drivers we must continue to provide safe, attractive and comfortable equipment, direct access to management and competitive wages and benefits designed to encourage longer-term employment.

        Drivers’ pay is calculated primarily on the basis of miles driven and increases with tenure. In 2004, our drivers averaged 2,395 paid miles per week. Our current pay scale is competitive with industry peers.

        One of the steps we have taken to control compensation expense is the implementation of a per diem driver pay program. Per diem pay, which is not taxable to the driver, is designed to approximately reimburse drivers for meals and other incidental expenses incurred while away from home overnight on business, and is typically paid in lieu of a taxable portion of salary. Per diem payments are slightly lower than the foregone portion of salary and this difference, in addition to certain tax benefits, results in savings to us. Although our ability to deduct per diem payments is limited, there are certain tax benefits to drivers that allow us to decrease overall wages per mile for those drivers who elect to receive the per diem payments. As of December 31, 2004, approximately 65% of our drivers had elected to receive per diem payments.

        On December 31, 2004, we had 2,925 employees, including 2,218 drivers. None of our employees are represented by a collective bargaining unit.

Safety

        We have designed our safety program to minimize accidents and to enforce governmental safety regulations. We control the maximum speed of our tractors with electronic governing equipment, and all of our tractors are equipped with anti-lock braking systems.

        The evaluation of safety records is one of several criteria that we use to hire driver employees. Safe equipment handling techniques are an important part of driver training. We also conduct pre-employment, random and post-accident drug testing in accordance with Department of Transportation regulations.

        In addition to our overall commitment to safety and compliance, we have implemented many programs designed to manage fleet safety including, but not limited to:

Revenue Equipment and Maintenance

        Our current policy is to replace most tractors within 36 to 42 months from the date of purchase, which permits us to maintain substantial warranty coverage throughout the period of ownership. However, during 2002 we delayed replacing tractors beyond 42 months due to a depressed used equipment market. See “Business-Revenue Equipment Acquisition Program.” We replace tractors and trailers based on various factors, including the used equipment market, prevailing interest rates, technological improvements, fuel efficiency and durability.

        The following table shows the number of units and average age of revenue equipment that we owned or operated under capital leases, as of the indicated dates:

        To simplify driver and mechanic training, control the cost of spare parts and tire inventory and provide for a more efficient vehicle maintenance program, we buy tractors and trailers manufactured to our specifications. In deciding which equipment to buy, we consider a number of factors, including safety, fuel economy, expected resale value and driver comfort. We have a strict preventive maintenance program designed to minimize equipment downtime and to enhance sale or trade values.

        Our trailer to tractor ratio, including owner-operator tractors and leased tractors and trailers, increased from 2.20-to-1 at December 31, 2003, to 2.57-to-1 at December 31, 2004, due to our decision to take advantage of favorable trailer pricing. Planned tractor purchases will reduce this ratio in 2005. We believe that the resulting ratio will be sufficient for our anticipated 2005 operations, to promote efficiency and provide the flexibility to meet customer needs.

        During 2003 and 2004, we financed revenue equipment purchases through our senior credit facility, capital lease-purchase arrangements, the proceeds from sales or trades of used equipment and cash flows from operations. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Substantially all of our tractors are pledged to secure our obligations under financing arrangements.

        In addition to company-owned tractors, we contract with owner-operators for the use of their tractors and drivers in our operations. At December 31, 2004, 45 owner-operator tractors were under contract with us. The size of our owner-operator fleet varies from time to time as market conditions require. It is unlikely that the size of our owner-operator fleet in proportion to our company-owned fleet will increase significantly during 2005.

Revenue Equipment Acquisition Program

        We pursue equipment trade intervals that economically balance our maintenance costs and expected sale or trade values. We have continued an aggressive trade schedule in 2004 to reduce the average age of our tractor fleet and to resume trading most tractors within 42 months from the date of purchase. As the average age of the tractor fleet decreases, maintenance costs should decrease as well.

        During 2004, we acquired 957 new tractors and 1,940 new trailers. These acquisitions, and the disposals during the year, resulted in net increases of 150 tractors and 1,221 trailers. During 2005, we plan to acquire 1,001 new tractors and 1,111 new trailers. These acquisitions and the disposals planned during that year should result in net increases of 416 tractors and 316 trailers.

        Beginning January 1, 2007 and 2010, the Environmental Protection Agency’s additional reduced emission standards go into effect for diesel engines manufactured on or after these dates. In anticipation of these emission standards we intend to accelerate our revenue equipment acquisition program and trade intervals before January 1, 2007, to delay the business risk of buying new engines until adequate testing is complete. The timing of our future tractor purchases will depend on our evaluation of these new compliant engines in addition to industry wide evaluations of the longevity and reliability of the engines.

Technology

        We maintain a sophisticated data center through the efforts of more than 25 computer professionals. We currently use several different computing platforms ranging from personal computers to an IBM mainframe system. We have developed the majority of our software applications internally, including payroll, billing, dispatching, accounting and maintenance programs. We believe that the familiarity and proficiency with the systems that have resulted from these development efforts give us the ability to meet the ever-changing needs of our customers quickly and efficiently. Our computer systems are monitored 24 hours a day by experienced computer operators. This monitoring system has allowed us to provide 99.9% system availability to our users.

        The technology that we use in our business enhances the efficiency of all aspects of our operations and enables us to deliver consistently superior service to our customers. This technology includes a Qualcomm satellite-based equipment tracking and driver communication system, which allows us to closely monitor the location of all of our equipment and to communicate with our drivers in real time. This enables us to efficiently dispatch drivers in response to customers’ requests, to provide real-time information to our customers about the status of their shipments and to provide documentation supporting our assessorial charges (which are charges to customers for things such as loading, unloading or delays). We have also implemented sophisticated software programs, such as load optimization software, which is designed to match available equipment with shipments in a way that best satisfies a number of criteria, including empty miles, the driver’s available hours of service and home-time needs. We also use licensed software that assists us in planning for transfers of loaded trailers between our tractors, allowing us to further enhance efficient allocation of our equipment, improve customer service and take full advantage of our drivers’ available hours of service. This software also improves our ability to get drivers home on a more regular basis. Our other licensed software programs include a sophisticated route-planning software program. We also employ a variety of computing hardware and an assortment of other software programs, many of which were developed internally, that provide the tools necessary for management to make fact-based business decisions and salespersons to make successful presentations to customers.

Insurance and Claims

        The primary risks for which we obtain insurance are cargo loss and damage, personal injury, property damage and workers’ compensation claims. We self-insure for a portion of claims exposure in each of these areas. We are not currently insured for terrorist acts because we believe the potential risk and coverage limitations do not justify the cost of the available coverage. We reevaluate all our coverage decisions on an annual basis.

        Beginning October 1, 2004, our self-insurance retention levels were $750,000 for workers’ compensation claims per occurrence, $50,000 for cargo loss and damage claims per occurrence and $1.0 million for bodily injury and property damage claims per occurrence. We are completely self-insured for physical damage to our tractors and trailers, except that we carry catastrophic physical damage coverage to protect against natural disasters. For medical benefits, we self-insure up to $250,000 per claim per year with an aggregate claim exposure limit, which was $8.2 million at December 31, 2004, determined by our year-to-date claims experience and our number of covered lives. We maintain insurance above the amounts for which we self-insure, to certain limits, with licensed insurance carriers. We have excess general, auto and employer’s liability coverage in amounts substantially exceeding minimum legal requirements, and we believe this coverage is sufficient to protect us against catastrophic loss. Depending on the volatility of the insurance market, our insurance and claims expense could increase, or we could raise our self-insured retention when our policies are renewed. We believe that our policy of self-insuring up to set limits, together with our safety and loss prevention programs, are effective means of managing insurance costs.

Industry and Competition

        The trucking industry includes both private fleets and “for hire” carriers. Private fleets consist of trucks owned and operated by shippers that move their own goods. For hire carriers include both truckload and less-than-truckload operations. Truckload carriers dedicate an entire trailer to one customer from origin to destination. Less-than-truckload carriers pick up multiple shipments from multiple shippers on a single truck and then route the goods through terminals or service centers, where freight may be transferred to other trucks with similar destinations for delivery. Truckload carriers typically transport shipments weighing more than 10,000 pounds while less-than-truckload carriers typically transport shipments weighing less than 10,000 pounds.

        We operate primarily in the highly fragmented for hire truckload segment of the market, which according to Transport Topics, accounted for revenues estimated at $114 billion in 2003. The for hire segment is highly competitive and includes thousands of carriers, none of which dominates the market. This segment is characterized by many small carriers having revenues of less than $1 million per year and relatively few carriers with revenues exceeding $100 million per year. Measured by annual revenue, the 20 largest dry van truckload carriers accounted for approximately $16 billion, or approximately 14%, of the for hire market in 2003. The industry continues to undergo consolidation. In addition, the recent challenging economic times have caused the failure of many trucking companies and made entry into the industry more difficult.

        We compete primarily with other truckload carriers, shipper-owned fleets and, to a lesser extent, with railroads and less-than-truckload carriers. A number of truckload carriers have greater financial resources, own more revenue equipment and carry a larger volume of freight than we do. We also compete with truckload and less-than-truckload carriers for qualified drivers.

        The principal means of competition in the truckload segment of the industry are service and price, with rate discounting being particularly intense during economic downturns. Although we compete primarily on the basis of service rather than rates, rate discounting continues to be a factor in obtaining and retaining business. Furthermore, a depressed economy tends to increase both price and service competition from alternative modes such as less-than-truckload carriers and railroads. We believe that successful truckload carriers are likely to grow primarily by acquiring greater market share and, to a lesser extent, through an increase in the size of the market.

Regulation

        USA Truck is a motor carrier regulated by the U.S. Department of Transportation and other federal and state agencies. Our business activities in the United States are subject to broad federal, state and local laws and regulations beyond those applicable to most business activities. These regulated business activities include, among other things, service area, routes traveled, equipment specifications, commodities transported, rates and charges, accounting systems, financial reporting and insurance coverages. Our Canadian business activities are subject to similar requirements imposed by the laws and regulations of the Dominion of Canada and provincial laws and regulations.

        Motor carrier operations are subject to safety requirements prescribed by the U.S. Department of Transportation, governing interstate operation and by Canadian provincial authorities. Matters such as weight and equipment dimensions are also subject to federal, state and provincial regulations.

        The Federal Motor Carrier Safety Administration of the U.S. Department of Transportation issued a final rule on April 24, 2003 that made significant changes to the regulations governing the hours of service for drivers of commercial motor vehicles that carry freight. Truckload carriers were required to comply with the new rules beginning on January 4, 2004. In general, the new rules are intended to increase safety by giving drivers more opportunity to rest and obtain restorative sleep during each work cycle by, for example, increasing the minimum off duty time during each work cycle. Moreover, under the new rules, the maximum on duty period after which a driver may no longer drive has been shortened and may no longer be extended by time spent off duty (such as meal stops and other rest breaks) once the on duty period has begun. Therefore, delays during a driver’s on duty time (such as those caused by loading/unloading problems) may limit drivers’ available hours behind the wheel, particularly if such delays occur late in an on duty period. This, and other operational issues that the new rules may create, could increase our operating costs. On January 24, 2005, the Administration published a notice of proposed rule-making beginning a 45-day comment period on the hours-of-services rules implemented in January 2004, in response to a decision by the U.S. Court of Appeals for the District of Columbia Circuit in July 2004 that directed the Administration to consider more specifically the regulations’ impact on the health of drivers. Although the court vacated the regulations, Congress has extended their effectiveness until new rules can be adopted, but not later than September 30, 2005, pursuant to the Surface Transportation Extension Act of 2004.

        The Environmental Protection Agency adopted new emissions control regulations, which require progressive reductions in exhaust emissions from diesel engines manufactured on or after October 1, 2002. The initial reduction became effective October 1, 2002, with more stringent reductions scheduled to become effective on January 1, 2007 and 2010. Among other things, the regulations require diesel engines to use exhaust gas recirculation technology. Compliance with the regulations has increased the cost of our new tractors and operating expenses while reducing fuel economy, and it is anticipated that the 2007 and 2010 changes will further adversely impact those areas.

        We are subject to federal, state, provincial and local environmental laws and regulations. We believe that we are in substantial compliance with such laws and regulations and that costs of such compliance will not have a material adverse effect on our competitive position, operations or financial condition or require a material increase in currently anticipated capital expenditures.

Seasonality

        See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Seasonality."

Forward-Looking Statements

        This report contains forward-looking statements and information that are based on our current beliefs and expectations and assumptions we have made based upon information currently available. Forward-looking statements include statements relating to our plans, strategies, objectives, expectations, intentions and adequacy of resources, and may be identified by words such as “will,” “could,” “should,” “may,” “believe,” “expect,” “intend,” “plan,” “schedule,” “estimate,” “project” and similar expressions. These statements are based on current expectations and are subject to uncertainty and change. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot assure you that such expectations will be realized. If one or more of the risks or uncertainties underlying such expectations materialize, or if underlying assumptions prove incorrect, actual results may vary materially from those expected. Among the key factors that are not within our control and that have a direct bearing on operating results are increases in fuel prices, adverse weather conditions, increased regulatory burdens and the impact of increased rate competition. Our results have also been, and will continue to be, significantly affected by fluctuations in general economic conditions, as our utilization rates are directly related to business levels of shippers in a variety of industries. In addition, shortages of qualified drivers and intense or increased competition for drivers have adversely impacted our operating results and our ability to grow and will continue to do so. Results for any specific period could also be affected by various unforeseen events, such as unusual levels of equipment failure or vehicle accident claims.

        All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement.

        We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report might not occur.

Risk Factors

        The following are some of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and in our other filings with the Securities and Exchange Commission.

Our business is subject to general economic and business factors that are largely out of our control, any of which could have a material adverse effect on our operating results.

        The factors that have negatively affected us, and may do so in the future, include volatile fuel prices, excess capacity in the trucking industry, surpluses in the market for used equipment, higher interest rates, higher license and registration fees, increases in insurance premiums, higher self-insurance levels, increases in accidents and adverse claims, unfavorable outcomes in accident-related litigation, and difficulty in attracting and retaining qualified drivers and independent contractors.

        We are also affected by recessionary economic cycles and downturns in customers’ business cycles. Economic conditions may adversely affect our customers and their ability to pay for our services. It is not possible to predict the effects of armed conflicts or terrorist attacks and subsequent events on the economy or on consumer confidence in the United States, or the impact, if any, on our future results of operations.

We operate in a highly competitive and fragmented industry, and our business may suffer if we are unable to adequately address downward pricing pressures and other factors that may adversely affect our ability to compete with other carriers.

        Numerous competitive factors could impair our ability to maintain our current profitability. These factors include:

We depend heavily on the availability of fuel, and fuel shortages or increases in fuel costs or fuel taxes could have a material adverse effect on our operating results.

        Fuel prices have fluctuated greatly and fuel taxes 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 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 and potential increases in fuel taxes 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.

Increased prices for new revenue equipment and decreases in the value of used revenue equipment may continue to adversely affect our earnings and cash flows.

        In 2002, there was a large oversupply of used tractors and trailers on the market, which depressed the market value of used equipment to levels significantly below the values we historically received. For this reason, we did not trade much used equipment during 2002, which caused a significant increase in the average age of our tractors. This extended the use of the then current fleet and contributed to a significant increase in maintenance costs, negatively affected our utilization and, coupled with a decline in salvage values, yielded an increased depreciation charge to pre-tax earnings. Although the condition of the used equipment market has improved, trade-in values for used tractors are still below pre-2002 levels. In addition, manufacturers have recently raised the prices of new equipment significantly. If we are unable to obtain favorable values for our used equipment, or if the cost of new equipment continues to increase, we will increase our depreciation expense or recognize less gain or a loss on the disposition of our tractors and trailers. This has affected and may again adversely affect our earnings and cash flows.

Ongoing insurance and claims expenses could significantly reduce our earnings.

        Beginning October 1, 2004, our self-insurance retention levels were $750,000 for workers’ compensation claims per occurrence, $50,000 for cargo loss and damage claims per occurrence and $1.0 million for bodily injury and property damage claims per occurrence. For medical benefits, we self-insure up to $250,000 per claim per year with an aggregate claim exposure limit determined by our year-to-date claims experience and our number of covered lives. We maintain insurance for liabilities above the amounts for which we self-insure, to certain limits. We completely self-insure for collision damage to our own equipment. During 2003 and 2004, we experienced significant increases in costs associated with adverse claims. If the number or severity of claims increases or does not return to historical levels, or if the costs associated with claims otherwise increase, our operating results will be adversely affected. In addition, the timing of the incurrence of these costs may significantly impact our operating results for a particular quarter, as compared to the comparable quarter in the prior year.

        Insurance carriers have continued to increase premiums for many trucking companies. This factor, coupled with an increase in coverage, a reduction in our self-insurance retention level and our claims experience, resulted in an increase of $2.7 million in our annual insurance premiums at October 1, 2004. We could experience an additional increase in our insurance premiums after our current coverage expires in October 2005. If our insurance or claims expenses increase, our earnings could be materially and adversely affected.

Difficulty in attracting and retaining drivers could affect our profitability and ability to grow.

        Periodically, the transportation industry experiences increased difficulty in attracting and retaining qualified drivers, including independent contractors, resulting in intense competition for drivers. If we are unable to continue to attract and retain drivers and contract with independent contractors, we could incur higher driver recruiting and compensation expenses or be required to let trucks sit idle, which could adversely affect our growth and profitability.

We have significant ongoing capital requirements that could affect our profitability if we are unable to generate sufficient cash from operations.

        The trucking industry is very capital intensive. If we are unable to generate sufficient cash from operations in the future, we may have to limit our growth, enter into additional financing arrangements or operate our revenue equipment for longer periods, any of which could have a material adverse affect on our profitability.

We depend on the proper functioning and availability of our information systems.

        We depend on the proper functioning and availability of our communications and data processing systems in operating our business. Our information systems are protected through physical and software safeguards. However, they are still vulnerable to fire, storm, flood, power loss, telecommunications failures, physical or software break-ins and similar events. We do not have a catastrophic disaster recovery plan or a fully redundant alternate processing capability. If any of our critical information systems fail or become otherwise unavailable, we would have to perform the functions manually, which could temporarily impact our ability to manage our fleet efficiently, to respond to customers’ requests effectively, to maintain billing and other records reliably and to bill for services accurately or in a timely manner. Our business interruption insurance may be inadequate to protect us in the event of a catastrophe. Any system failure, security breach or other damage could interrupt or delay our operations, damage our reputation and cause us to lose customers.

New regulations regarding drivers’ hours of service could materially and adversely affect our operating efficiency and increase costs.

        In April 2003, the Federal Motor Carrier Safety Administration issued the first significant revision to the hours-of-service regulations in more than 60 years. The new regulations took effect January 4, 2004.

        Presently, the Administration once again is re-examining the hours-of-service regulations, responding to a July 16, 2004, decision by the U.S. Court of Appeals for the District of Columbia Circuit that directed the Administration to consider more specifically the 2003 rules’ impact on the health of drivers. On January 24, 2005, the Administration published a notice of proposed rulemaking in the Federal Register, beginning a 45-day comment period during which the Administration is urging input from truck drivers, motor carriers, law enforcement officials, safety advocates and others on the current hours-of-service regulations. The 2003 hours-of-service rules remain in effect until no later than September 30, 2005, pursuant to the Surface Transportation Extension Act of 2004, by which time the Administration has indicated it intends to complete its re-examination.

        In general, the 2003 rules, which became effective on January 4, 2004, were intended to increase safety by giving drivers more opportunity to rest and sleep during each work cycle by, for example, increasing the minimum off-duty time during each work cycle. Moreover, under the rules, the maximum on-duty period after which a driver may no longer drive has been shortened and may no longer be extended by time spent off duty (such as meal stops and other rest breaks) once the on-duty period has begun. Therefore, delays during a driver’s on-duty time (such as those caused by loading and unloading) may limit the driver’s available hours behind the wheel. Shippers may be unable or unwilling to assist us in managing our drivers’ on-duty time or to pay higher rates to compensate for our costs of complying with these regulations. This, and other operational issues that the 2003 rules may create, could increase our operating costs. Moreover, we cannot predict what impact any new rules that may result from the current re-examination may have on our operating costs.

The engines used in our newer tractors are subject to new emissions control regulations, which may substantially increase our operating expenses.

        The Environmental Protection Agency adopted new emissions control regulations, which require progressive reductions in exhaust emissions from diesel engines manufactured on or after October 1, 2002. The initial reduction became effective October 1, 2002, with more stringent reductions scheduled to become effective on January 1, 2007 and 2010. Compliance with the regulations has increased the cost of our new tractors and operating expenses while reducing fuel economy, and it is anticipated that the 2007 and 2010 changes will further adversely impact those areas.

We depend on our major customers, the loss of one or more of which could have a material adverse effect on our business.

        A significant portion of our revenue is generated from our major customers. For 2004, our top five customers accounted for approximately 24.6% of our revenue, our top 10 customers accounted for approximately 39.1% of our revenue and our largest customer accounted for approximately 6.6% of our revenue. Generally, we do not have long-term contracts with our major customers and we cannot assure you that our customer relationships will continue as presently in effect. A reduction in or termination of our services by one or more of our major customers could have a material adverse effect on our business and operating results.

Seasonality and the impact of weather can affect our profitability.

        Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with fuel efficiency declining because of engine idling and harsh weather creating higher accident frequency, increased claims and more equipment repairs.

If we are unable to retain our key executives, our business, financial condition and results of operations could be harmed.

        We are dependent upon the services of Robert M. Powell, our chief executive officer, and Jerry D. Orler, our president. We do not maintain key-man life insurance on either of these executives. The loss of their services could have a material adverse effect on our operations and future profitability. We must continue to develop and retain a core group of managers if we are to realize our goal of expanding our operations and continuing our growth.

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business.

        The U.S. Department of Transportation and various state agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety, insurance requirements and financial reporting. We may also become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours in service and ergonomics. Our Canadian business activities are subject to similar requirements imposed by the laws and regulations of the Dominion of Canada and provincial laws and regulations. Compliance with such regulations could substantially reduce equipment productivity and increase our operating expenses. Our company drivers and independent contractors also must comply with the safety and fitness regulations promulgated by the Department of Transportation, including those relating to drug and alcohol testing and hours-of-service. The Transportation Security Administration of the U.S. Department of Homeland Security adopted regulations that require all new drivers who carry hazardous material to undergo background checks by the Federal Bureau of Investigation and in the near future drivers who renew their licenses will be required to undergo background checks by the Federal Bureau of Investigation. While we have historically required all our drivers to obtain this qualification, these new regulations could reduce the availability of qualified drivers, which could require us to adjust our driver compensation package or let trucks sit idle. These regulations could also complicate the process of matching available equipment with shipments that include hazardous material, thereby increasing the time it takes us to respond to customer orders and increasing our empty miles.

        Failure to comply with Department of Transportation safety regulations or a downgrade in our safety rating could have a material adverse impact on our operations or financial condition. The loss of our ability to self-insure for any significant period of time would materially increase our insurance costs. In addition, we may experience difficulty in obtaining adequate levels of coverage in that event.

Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.

        We are subject to various environmental laws and regulations dealing with the handling of hazardous materials and similar matters. We operate in industrial areas where truck terminals and other industrial activities are located and where groundwater or other forms of environmental contamination could occur. We also maintain bulk fuel storage and fuel islands at some of our facilities. Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our business and operating results. If we should fail to comply with applicable environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

We may be unable to successfully integrate businesses we acquire into our operations.

        From time to time, we consider the possibility of acquiring smaller companies as a way to expand our operations. Although we have not acquired any companies since 1999, it is possible that we will make strategic acquisitions in the future, including acquisitions of companies that will allow us to accelerate the expansion of our third party logistics and brokerage operations. Integrating businesses we acquire may involve unanticipated delays, costs or other operational or financial problems. Successful integration of the businesses we acquire will depend on a number of factors, including our ability to transition acquired companies to our management information systems. In integrating businesses we acquire, we may not achieve expected economies of scale or profitability or realize sufficient revenues to justify our investment. We also face the risk that an unexpected problem at one of the companies we acquire will require substantial time and attention from senior management, diverting management’s attention from other aspects of our business.

        Our executive offices and headquarters are located on 63 acres in Van Buren, Arkansas. This facility currently consists of approximately 84,000 square feet of office space, 27,000 square feet of maintenance space, a 2,500 square-foot dock and training and driver housing space within two structures. In 2004, we expanded our maintenance shop by approximately 15,000 square feet. We are scheduled to complete construction on a 33,000 square-foot addition to our executive offices in July 2005 that will provide an additional 400 workspaces.

        We own and operate several maintenance and driver facilities, including a 32-acre facility in West Memphis, Arkansas, a 20-acre facility in Shreveport, Louisiana, a 44-acre facility in Butler Township, Ohio and a 10-acre facility in Laredo, Texas. We own the land on which each of these four facilities is located, except for three of the acres in West Memphis, Arkansas, which we lease under a long-term lease. We are also holding for sale an eight-acre facility in Vandalia, Ohio that we no longer operate.

        We lease a 10-acre facility containing a shop and transfer building in Bethel, Pennsylvania under a lease expiring in November 2005 with one remaining one-year renewal option and a 10-acre facility containing a shop in Roanoke, Virginia under a lease expiring in January 2009 with an option to terminate the lease in January 2007. We also lease, on a month-to-month basis, an office facility in East Peoria, Illinois, and a parking facility in Blue Island, Illinois.

        We intend to increase the capacity of our current maintenance facilities and lease additional maintenance facilities during 2005 and 2006.

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

        We did not submit any matter to a vote of security holders during the fourth quarter of the fiscal year covered by this Annual Report.

PART II

        Our common stock is quoted on the Nasdaq National Market under the symbol “USAK.” The following table sets forth, for the periods indicated, the high and low sale prices of our common stock as reported by the Nasdaq National Market.

        As of February 23, 2005, there were 237 holders of record (including brokerage firms and other nominees) of our Common Stock. We estimate that there were approximately 1,400 beneficial owners of the Common Stock as of that date. On February 23, 2005, the last reported sale price of our common stock on the Nasdaq National Market was $19.65 per share.

Dividend Policy

        We have not paid any dividends on our common stock to date and we do not anticipate paying any dividends in the foreseeable future. We currently intend to retain all of our earnings, if any, for use in the expansion and development of our business.

Equity Compensation Plan Information

        The following table provides information about our equity compensation plans as of December 31, 2004, including both stockholder approved plans and non-stockholder approved plans. The equity compensation plans that have been approved by our stockholders are our 2004 Equity Incentive Plan and our 2003 Restricted Stock Award Plan and two plans under which options remain outstanding, but no new options may be granted: 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.

Repurchase of Equity Securities

        On October 21, 2004, we publicly announced that our Board of Directors has authorized the repurchase of up to 500,000 shares of our outstanding common stock over a three-year period ending October 19, 2007, dependent upon market conditions. We may make common stock purchases under this program from time to time on the open market or in privately negotiated transactions at prices determined by our Chairman of the Board or President. We may reissue repurchased shares under our equity compensation plans or as otherwise directed by the Board of Directors. The Board of Directors previously authorized the repurchase of up to 500,000 shares of our common stock during the three-year period from October 17, 2001 to October 16, 2004, which program was publicly announced October 17, 2001. The following table sets forth purchases of Common Stock made by us on the open market under that prior authorization and under the current authorization during the fourth quarter of 2004. We are required to include in this table purchases made by us or by any 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 newly issued 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.

        You should read the following selected consolidated financial data and other operating information along with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data.” We derived the selected consolidated Statement of Income and Balance Sheet data as of and for each of the five years ended December 31, 2004 from our audited financial statements.

SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION
(in thousands, except per share data and key operating statistics)

SELECTED CONSOLIDATED FINANCIAL AND OPERATING INFORMATION (continued)

        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

        We operate in the for hire truckload segment of the trucking industry. Shippers of freight 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 shipper’s freight until delivery. We charge shippers for these services on a per-mile basis. We have two operating divisions through which we provide these services, and we aggregate the financial data for those divisions for purposes of our public reporting. We refer to our two operating divisions internally as our General Freight division and our USA Logistics division.

        General Freight Division. Our General Freight division provides truckload freight services as a medium-haul common carrier. In the truckload industry, companies whose average length of haul is more than 800 miles but less than 1,200 miles are often referred to as medium-haul carriers. Our average length of haul has been within that range throughout our history. We have provided general freight services since our inception, and we derive the largest portion of our revenues from these services.

        USA Logistics Division. Our USA Logistics division provides four basic services to our customers: dedicated freight, regional freight, third party logistics and brokerage services. The phrases “dedicated freight” and “regional freight” refer to variations of our traditional general freight services. Third party logistics and brokerage services are supplementary services that we provide as a complement to our truckload freight services.

        Dedicated freight services are truckload freight services we provide pursuant to contracts with our customers under which we agree to make our equipment and drivers available for shipments over particular routes at specified times and dates. Regional freight refers to truckload freight services that involve a length of haul that is generally less than 500 miles. It is not always possible to operate at full capacity entirely within the General Freight division’s medium haul range. For this reason, and in order to aid in driver recruitment and retention, we have recently begun to accept shipments that originate and terminate within a smaller geographic area; specifically, the areas around two of our facilities, with lengths of haul generally less than 500 miles.

        In connection with third party logistics services, we provide a variety of freight handling services for our customers, including arranging for the transportation of freight. Our freight brokerage services involve matching a customer’s shipments with available equipment of other truckload carriers, when it is not feasible to use our own equipment. We began providing third party logistics and brokerage services to meet the demands of our freight 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 significant majority of our third party logistics and brokerage customers have also engaged us to provide truckload freight services.

Critical Accounting Policies

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

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

        We periodically re-evaluate these policies as circumstances change. Together with the effects of the matters discussed above, these factors may significantly impact our consolidated results of operations, financial position and cash flow from period to period. We believe the methodologies we employ to make the above estimates are reliable, as actual amounts incurred have approximated the estimates made.

Results of Operations

Executive Overview

        Solid freight demand throughout the year ended December 31, 2004, helped us post strong revenue growth of 17.4% on just 10.9% growth in our tractor fleet. The revenue growth beyond fleet growth was primarily due to higher revenue per mile (+4.6%) and an increase in our third party logistics and brokerage revenues (+19.3%).

        We also made progress on our cost management initiatives. In particular, we substantially completed our seven-quarter plan to reduce the average ages of our tractor and trailer fleets, which was the primary reason for the 6.7% reduction in operations and maintenance expenses. Our internal efforts to improve the efficiency of our fuel surcharge revenue program also aided in expanding our margins. That margin expansion was hindered by higher insurance and claims costs, which were up 42.6% due to the settlement and litigation of certain older claims. We are encouraged, however, by the progress that we have made in both accident prevention and claims management. Our accident frequency was down 7.3%, our volume of open liability claims was down 28.6% and our volume of liability claims in litigation was down 38.7%. Overall, the operating ratio of 94.7% improved 3.8 percentage points and represents our best operating margin since 1999.

        The results of our improved revenues and our efforts to reduce expenses is evident on the bottom line where we posted our highest net income ($7.4 million) and diluted earnings per share ($0.79) since 1999. Over the past several years, we have meticulously benchmarked our current operating statistics against those of 1998, which is the year that produced the strongest operating statistics in our public history. Our focus on improving revenue per mile and equipment utilization while controlling key expense items enabled us to improve our performance against those benchmarks.

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 industry-standard 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 excluded the fuel surcharge from revenue and, instead, taken it as a credit against the fuel and fuel taxes line item in the table below. We believe that this presentation is a more meaningful measure of our operating performance than a presentation comparing operating costs and expenses to total revenue, including the fuel surcharge.

        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. Revenue data, on both a total basis and excluding the fuel surcharge, is included in the consolidated statements of income included in this report.

        The following period-to-period comparisons should be read in conjunction with the following table and the consolidated statements of income. Unless otherwise indicated, references to increases or decreases in expense items, as a percentage of revenue, refer to increases or decreases as a percentage of revenue, before fuel surcharge.

        Revenues from our third party logistics and brokerage services have increased in recent periods. These services do not typically involve the use of our tractors and trailers. Therefore, the increase in these revenues tends to cause expenses related to our operations that do involve our equipment—including depreciation and amortization expense, operations and maintenance expense, salaries, wages and employee benefits and insurance and claims expense—to decrease as a percentage of revenue. Since the increase in these revenues generally affects all such expenses, as a percentage of 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.

        The following table sets forth the percentage relationship of certain items to operating revenues, before fuel surcharge, for the years indicated:

(1)     Net of fuel surcharge revenue

Fiscal Year Ended December 31, 2004 compared to Fiscal Year Ended December 31, 2003

        Operating revenue, before fuel surcharge, increased 17.4% from $286.1 million in 2003 to $335.9 million in 2004. This increase was due primarily to an increase of 10.9% in the average number of tractors operated from 1,961 (including 39 owner-operators) in 2003 to 2,174 (including 43 owner-operators) in 2004, an increase of 4.6% in average rates per mile and, to a lesser extent, an increase in the number of workdays from 252 in 2003 to 253 in 2004.

        Average revenue per mile, before fuel surcharge, increased from $1.236 in 2003 to $1.293 in 2004 due to an increase in the average rate per mile charged to customers and, to a lesser extent, an increase in third party logistics and brokerage revenues and an improvement in our empty mile factor. The number of shipments increased 17.0% from 281,336 in 2003 to 329,210 in 2004. The empty mile factor decreased from 8.97% of paid miles in 2003 to 8.39% of paid miles in 2004. The decreased empty mile factor was primarily the result of improved freight demand in our operating areas and, to a lesser extent, reduced quantities of inbound loads into areas where there were few available outbound loads.

        The decrease in salaries, wages and employee benefits expense, as a percentage of revenue, was primarily the result of an increase in average revenue per mile. This was partially offset by an increase in monetary incentive compensation accrued for employees due to improved financial performance of the Company from 2003 to 2004 and an increase in the cost of employee medical benefits expense.

        We increased driver pay effective in mid-December 2004. The pay increase impacts approximately 80% of our drivers and is comprised of a one-cent per mile increase for all eligible drivers plus an additional one-cent per mile for eligible drivers with zero to nine months of experience. We estimate that affected drivers will receive an average pay increase of $0.0126 per mile. The increase is intended to address driver recruiting and retention objectives by maintaining our pay scale’s competitive position relative to our peers with whom we directly compete for drivers. Because of the timing of this increase, it had a minimal effect on 2004 operating results.

        The decrease in operations and maintenance expense, as a percentage of revenue, was primarily due to decreased direct repair costs resulting from a decrease in the average age of our revenue equipment.

        The increase in insurance and claims expense, as a percent of revenue, was primarily due to an increase in expenses associated with bodily injury and property damage claims as a result of our continued efforts to settle and litigate certain older claims and, to a lesser extent, an increase in expenses associated with accident damage to our own revenue equipment.

        Our effective tax rate decreased from 59.2% in 2003 to 47.8% in 2004. The effective rates varied from the statutory federal tax rate of 35% primarily due to state income taxes and certain non-deductible expenses including a per diem pay structure that we implemented in April 2002. Due to the partially nondeductible effect of per diem, 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. Due to increased pre-tax income in 2004, the impact of the non-deductible expenses had a lesser impact on the effective rate than in 2003.

Fiscal Year Ended December 31, 2003 compared to Fiscal Year Ended December 31, 2002

        Operating revenue, before fuel surcharge, increased 6.5% from $268.5 million in 2002 to $286.1 million in 2003. This increase was due primarily to an increase of 4.2% in the average number of tractors operated from 1,882 (including 74 owner-operators) in 2002 to 1,961 (including 42 owner-operators) in 2003, an increase in average rates per mile and a 9.1% increase in third party logistics and brokerage revenues from $16.5 million in 2002 to $18.0 million in 2003. These effects were partially offset by a decrease in the number of workdays from 253 in 2002 compared to 252 in 2003.

        Average revenue per mile, before fuel surcharge, increased from $1.209 in 2002 to $1.236 in 2003 due to an increase in the average rate per mile charged to customers and, to a lesser extent, an increase in third party logistics and brokerage revenues. The number of shipments increased 11.2% from 253,063 in 2002 to 281,336 in 2003. The empty mile factor decreased from 9.24% of paid miles in 2002 to 8.97% of paid miles in 2003. The decreased empty mile factor was primarily the result of improved freight demand in our operating areas and, to a lesser extent, reduced quantities of inbound loads into areas where there were few available outbound loads. We experienced a decrease in the percentage of unmanned tractors from 5.89% of the fleet in 2002 to 3.85% of the fleet in 2003. The decrease in the percentage of unmanned tractors was primarily the result of the number of drivers hired exceeding drivers lost through turnover.

        The decrease in salaries, wages and employee benefits expense, as a percentage of revenue, was primarily the result of our implementing a reduction in the drivers’ pay rate per mile in December 2002 and a per diem pay program for drivers in April 2002, an increase in average revenue per mile, before fuel surcharge, and a decrease in employee medical benefit expenses. Although the deductibility of per diem payments is limited, there are certain tax benefits to drivers that allow us to decrease overall wages per mile for those drivers who elect to receive the per diem payments. These effects were partially offset by a decrease in the average number of owner-operators in our fleet from 74 in 2002 to 39 in 2003.

        The increase in depreciation and amortization expense, as a percentage of revenue, was due to slightly higher depreciation expense as a result of the decreased salvage value of tractors that we chose not to trade in accordance with our pre-2002 trade cycle and an increase in new tractor pricing in 2003. The decrease in average number of owner-operators also contributed to the increase.

        The increase in operations and maintenance expense, as a percentage of revenue, was primarily due to increased maintenance expense on tractors that we chose not to trade in accordance with our pre-2002 trade cycle and, to a lesser extent, the decrease in the size of our owner-operator fleet.

        The decrease in purchased transportation expense, as a percentage of revenue, was primarily due to the decrease in the size of our owner-operator fleet. Owner-operators are independent contractors who provide their own tractors (including tractor maintenance), fuel and most insurance and drive for the Company on a contract basis for a fixed rate per mile that is higher than that paid to Company drivers, who are not directly responsible for these expenses. This effect was partially offset by an increase in carrier expense for third party transportation services incurred in connection with our third party logistics and brokerage services. All expenses associated with our third party logistics and brokerage services and owner-operator fees comprise purchased transportation expense.

        The increase in insurance and claims expense, as a percentage of revenue, was primarily due to an increase in adverse claims accruals, and, to a lesser extent, an increase in liability, cargo and workers’ compensation insurance premiums.

        The increase in other costs, as a percentage of revenue, was primarily due to an increase in recruiting expense to reduce the number of unmanned tractors as described above.

        Our effective tax rate increased from 59.1% in 2002 to 59.2% in 2003. The effective rates varied from the statutory federal tax rate of 34% primarily due to state income taxes and certain non-deductible expenses including a per diem pay structure that we implemented in April 2002. Due to the partially nondeductible effect of per diem, 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.

Seasonality

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

Inflation

        Although most of our operating expenses are inflation sensitive, with increases in inflation generally resulting in increased operating costs and expenses, the effect of inflation on revenue and operating costs has been minimal in recent years. The effects of inflation-driven cost increases on our overall operating costs are 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 taxes have generally increased in recent years. We have not experienced difficulty in maintaining necessary fuel supplies and in the past we generally have been able to partially offset increases in fuel costs and fuel taxes through increased freight rates and through a fuel surcharge that increases incrementally as the price of fuel increases above a certain baseline price. Typically, we are not able to fully recover increases in fuel prices through rate increases and fuel surcharges. 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. Overall, we experienced higher fuel prices per gallon in 2004 than in 2003 and 2002.

Off-Balance Sheet Arrangements

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

Liquidity and Capital Resources

        The continued growth of our business has required significant investments in new equipment. We have financed new tractor and trailer purchases with cash flows from operations, the proceeds from sales or trades of used equipment, borrowings under our senior credit facility and capital lease-purchase arrangements. We have historically met our working capital needs with cash flows from operations and with borrowings under our senior credit facility. We use our senior credit facility to minimize fluctuations in cash flow needs and to provide flexibility in financing revenue equipment purchases. Cash flows from operations were $38.0 million for 2004 and $36.9 million for 2003.

        Our senior credit facility, as amended, provides a working capital line of credit of $75.0 million, including letters of credit not exceeding $10.0 million. Bank of America, N.A. is the agent bank and SunTrust Bank, U.S. Bank and Regions Bank are participants in our senior credit facility. As of December 31, 2004, approximately $9.7 million was available under our senior credit facility. Our senior credit facility matures on April 30, 2007. At any time prior to April 30, 2007, subject to certain conditions, we have the option to convert the balance outstanding on our senior credit facility to a four-year term loan requiring 48 equal monthly principal payments plus interest. The facility can be increased to $90.0 million at our option, with the additional availability provided by the current lenders, at their election, or by other lenders. Our senior credit facility bears variable interest based on the agent bank’s prime rate, the federal funds rate plus a certain percentage or LIBOR plus a certain percentage, which is determined based on our attainment of certain financial ratios. The effective interest rate on our borrowings under our credit facility for the year ended December 31, 2004 was 3.13%. We have hedged a portion of our exposure to the volatility in variable interest rates by entering into an interest rate swap agreement effective March 27, 2003, on a notional amount of $10 million. See “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.” 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. As of December 31, 2004, the rate was 0.30%. Our credit facility is collateralized by accounts receivable and otherwise unencumbered tractors.

        On December 31, 2004, we had debt obligations of approximately $140.4 million, including amounts borrowed under our senior credit facility, approximately $73.8 million of capital lease commitments and approximately $3.1 million under a short-term note payable. Approximately $25.3 million of these debt obligations were current obligations. During the year ended December 31, 2004, we made borrowings under our senior credit facility, lease commitments and a note payable of $235.4 million, while retiring $180.1 million in debt under these facilities. The borrowings had an average interest rate of approximately 3.9% while the retired debt had an average interest rate of approximately 4.0%.

        During the year ended December 31, 2004, we made $113.6 million in capital expenditures including equipment purchases under capital lease arrangements, $109.8 million of which we used for revenue equipment and $3.8 million of which we used for maintenance and office equipment, maintenance facility and office expansions and facility improvements.

        At December 31, 2004, we planned to make approximately $109.3 million in capital expenditures during 2005. Of this amount, we were contractually committed to spend $103.3 million and budgeted to spend an additional $0.9 million for revenue equipment in 2005. We expect to use the balance of our planned capital expenditures for 2005, in the amount of approximately $5.1 million, for facility improvements and maintenance and office equipment. We can cancel these commitments to purchase revenue equipment upon advance notice. While the current availability under our senior credit facility and cash flows from operations may not be sufficient to fund the expenditures we plan to make in 2005, we are considering exercising the option to increase the availability under our senior credit facility in accordance with its terms. We are likely to enter into additional leasing arrangements and may consider other financing sources, possibly including public or private offerings of securities. We believe that these traditional and potential sources of capital will be sufficient to fund our operations and capital expenditures throughout 2005.

        The following table represents our outstanding contractual obligations at December 31, 2004, excluding letters of credit:

Payments Due By Period
(in thousands)

New Accounting Pronouncements

See "Item 8. Financial Statements and Supplementary Data--Note 1. to the Financial Statements: New Accounting Pronouncements."

        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 senior credit facility. Our senior credit facility, as amended, provides for borrowings that bear interest at variable rates based on either a prime rate or the LIBOR. At December 31, 2004, we had $65.3 million outstanding pursuant to our senior credit facility including letters of credit.

        In an effort to manage the risks associated with changing interest rates, we entered into an interest rate swap agreement effective March 27, 2003 on a notional amount of $10.0 million. The transaction is intended to provide interest rate protection for us by creating an interest rate neutral position on a portion of our outstanding balance under our senior credit facility by specifically matching notional amounts, maturity dates and interest rate indices, and does not provide us with any additional borrowing capacity. Details regarding the swap, as of December 31, 2004, are as follows:

        Foreign Currency Exchange Rate Risk. All customers are required 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.

REPORT OF ERNST & YOUNG LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
USA Truck, Inc.

We have audited the accompanying consolidated balance sheets of USA Truck, Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of USA Truck, Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ERNST & YOUNG LLP

Tulsa, Oklahoma

January 28, 2005

USA Truck, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

See accompanying notes.

USA Truck, Inc.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

See accompanying notes.

USA Truck, Inc.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY