USA TRUCK INC - 10-Q Quarterly Report

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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, 2003

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 (IRS Employer Identification No.)
incorporation or organization)

3200 INDUSTRIAL PARK ROAD 72956
VAN BUREN, ARKANSAS (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (479) 471-2500

Former name, former address and former fiscal year , if changed since
last report: Not applicable.

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 an accelerated filer
(as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended).
Yes [ ] No [X]

The number of shares outstanding of the Registrant's Common Stock, par
value $ .01, as of June 30, 2003 is 9,331,232.

INDEX

USA TRUCK, INC.

PART I. FINANCIAL INFORMATION

Page 2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

USA TRUCK, INC.

CONSOLIDATED BALANCE SHEETS

(1) The balance sheet at December 31, 2002 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.

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USA TRUCK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See notes to consolidated financial statements.

Page 4

USA TRUCK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See notes to consolidated financial statements.

Page 5

USA TRUCK, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)

Page 6

USA TRUCK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2003

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 and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. 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 six-month
period ended June 30, 2003, are not necessarily indicative of the results that
may be expected for the year ended December 31, 2003. For further information,
refer to the financial statements and footnotes thereto included in the Annual
Report on Form 10-K of USA Truck, Inc. (the "Company") for the year ended
December 31, 2002.

NOTE B - COMMITMENTS

As of June 30, 2003, the Company had remaining commitments for purchases of
revenue equipment in the aggregate amount of approximately $54.9 million in 2003
and $16.1 million in 2004. As part of these commitments, the Company has
remaining contracts for the purchase of 614 tractors and 406 trailers during
2003 and 209 tractors in 2004. Either the Company or the vendor may cancel these
contracts within a certain time period before delivery of the equipment if
certain conditions are met.

The Company extended the useful lives and reduced the salvage value on
those groups of tractors that would have traded in 2002 under normal used
tractor market conditions. These extended lives (60 months) and reduced salvage
values (14 percent of original cost of equipment) yielded an increased
depreciation charge to pre-tax earnings in 2002 of approximately $0.4 million.
Extending the lives on tractors resulted in an increased charge to net income in
2002 for maintenance costs. The Company has instituted an aggressive trade
schedule in 2003 and plans to institute an aggressive trade schedule in 2004 to
reduce the average age of its tractor fleet and to resume trading most tractors
within 42 months from the date of purchase as it did prior to 2002. As the
average age of the tractor fleet decreases, the additional maintenance costs
should decrease as well.

NOTE C - CAPITAL STOCK TRANSACTIONS

During the six-month period ended June 30, 2003, the Company did not
repurchase any outstanding common stock on the open market pursuant to the
repurchase program authorized by the Board of Directors in October 2001.
However, the Company sold 3,819 treasury shares, pursuant to the Company's
Employee Stock Purchase Plan, to participants in such plan during the six-month
period ended June 30, 2003.

NOTE D - NEW ACCOUNTING PRONOUNCEMENTS

In June 2002, the Financial Accounting Standards Board issued SFAS No. 146
("SFAS 146"), Accounting for Costs Associated with Exit or Disposal Activities.
SFAS 146 supersedes Emerging Issues Task Force ("EITF") Issue No. 94-3. The
principal difference between SFAS 146 and EITF Issue No. 94-3 relates to when an
entity can recognize a liability related to exit or disposal activities. SFAS
146 requires that a liability be recognized for a cost associated with an exit
or disposal activity when the liability is incurred. EITF Issue No. 94-3 allowed
a liability related to an exit or disposal activity to be recognized at the date
an entity commits to an exit plan. The provisions of SFAS 146 are effective for
all exit or disposal activities initiated after January 1, 2003. This statement
did not have an impact on the Company.

On December 31, 2002, the Financial Accounting Standards Board issued SFAS
No. 148 ("SFAS 148"), Accounting for Stock-Based Compensation - Transition and
Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-Based Compensation,
to provide alternative methods of transition to the fair value method of
accounting for stock-based employee compensation. The disclosure requirements of
SFAS 148 for interim financial statements containing consolidated financial
statements are effective for interim periods beginning in 2003 (See "Note G -
Stock Based Compensation"). The Company did not and does not intend to adopt the
fair value method of

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accounting for stock-based compensation of SFAS 123 and accordingly SFAS 148 is
not expected to have a material impact on the Company's reported results of
operations or financial position in 2003.

NOTE E - CONTINGENCIES

The Company is a party to routine litigation incidental to its business,
primarily involving claims for personal injury and property damage incurred in
the transportation of freight. It maintains insurance covering liabilities in
excess of certain self-insured retention levels for bodily injury and property
damage claims. Though management believes these claims to be routine and
immaterial to the long-term financial position of the Company, adverse results
of one or more of these claims could have a material adverse effect on the
quarterly financial position or results of operations of the Company.

NOTE F - DERIVATIVE FINANCIAL INSTRUMENTS

The Company records derivative financial instruments in the balance sheet
as either an asset or liability at fair value, with classification as current or
long-term depending on the duration of the instrument.

Changes in the derivative instrument's fair value must be recognized
currently in earnings unless specific hedge accounting criteria are met. For
hedges which meet the criteria, the derivative instrument's gains and losses, to
the extent effective, may be recognized in accumulated other comprehensive
income rather than in current earnings.

Effective March 27, 2003, the Company entered into an interest rate swap
agreement on a notional amount of $10 million. Under this swap agreement, the
Company pays a fixed rate of 1.99%, while receiving a floating rate equal to the
"3-month" LIBOR as of the second London Business Day prior to each floating rate
reset date. The floating rate is fixed for the three-month period following each
reset date. The floating rate for the period from March 27, 2003 through June
26, 2003 is 1.29%. This interest rate swap agreement terminates on March 27,
2005.

The Company designated this $10 million interest rate swap as a cash flow
hedge of its exposure to variability in future cash flow resulting from the
interest payments indexed to the "3-month" LIBOR. Changes in future cash flow
from the interest rate swap will offset changes in interest rate payments on the
first $10 million of the Company's current Senior Credit Facility (as defined
under "Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources") or future "3-month"
LIBOR based borrowings that reset on the second London Business Day prior to the
start of the next interest period. The fair value of the swap agreement was a
liability of June 30, 2003 was $0.1 million.

The Company reported no gain or loss during the three or six months ended
June 30, 2003 as a result of hedge ineffectiveness, other derivative
instruments' gain or loss or the discontinuance of a cash flow hedge. Future
changes in the swap arrangement including termination of the swap agreement,
swap notional amount, hedged portion or forecasted Credit Agreement borrowings
below $10 million may result in a reclassification of any gain or loss reported
in other comprehensive income into earnings.

This interest rate swap agreement meets the specific hedge accounting
criteria of SFAS 133. The effective portion of the cumulative gain or loss will
be reported as a component of accumulated other comprehensive income or loss in
shareholders' equity and will be reclassified into current earnings by March 27,
2005, the termination date for this swap agreement.

The measurement of hedge effectiveness is based upon a comparison of the
floating-rate component of the swap and the hedged floating-rate cash flows on
the underlying liability. This method is based upon the premise that only the
floating-rate component of the swap provides the cash flow hedge, and any
changes in the swap's fair value attributable to the fixed-rate component is not
relevant to the variability of the hedged interest payments on the floating-rate
liability. The calculation of ineffectiveness involves a comparison of the
present value of the cumulative change in the expected future cash flows on the
variable component of the swap and the present value of the cumulative change in
the expected future interest cash flows on the floating-rate liability.

Page 8

NOTE G - STOCK BASED COMPENSATION

Stock based compensation to employees is accounted for based on the
intrinsic value method under Accounting Principles Board Opinion No. 25 ("APB
25"), Accounting for Stock Issued to Employees. Under APB 25, if the exercise
price of employee stock options equals the market price of the underlying stock
on the grant date, no compensation expense is recorded. The Company has adopted
the disclosure-only provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation.

Since the Company has adopted the disclosure-only provisions of SFAS 123,
no compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's two stock option plans been determined based
on the fair value at the grant date for awards in 2003 and 2002 consistent with
the provisions of SFAS 123, the Company's pro forma net income would have been
as follows:

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

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

(1) Net of fuel surcharge

Page 9

By agreement with its customers, and consistent with industry practice, the
Company adds a surcharge to its rates as diesel fuel prices increase above an
industry-standard baseline price per gallon. The amount of this fuel surcharge
increases as fuel costs increase above certain threshold prices. The surcharge
is designed to approximately offset increases in fuel costs above the baseline.
Because fuel prices are volatile, management believes that comparing operating
costs and expenses to total revenue, including the fuel surcharge, could provide
a distorted picture of the Company's operating performance, particularly when
comparing results for current and prior periods. Therefore, the fuel surcharge
is excluded from revenue and, instead, taken as a credit against the fuel and
fuel taxes line item in the above table. Management believes that this
presentation is a more meaningful measure of the Company's operating performance
than a presentation comparing operating costs and expenses to total revenue,
including fuel surcharge.

Management does not believe that a reconciliation of the information
presented in the table above 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 Operations (unaudited) included in this Form 10-Q.

RESULTS OF OPERATIONS

Quarter Ended June 30, 2003 Compared to Quarter Ended June 30, 2002

Operating revenue, before fuel surcharge, increased 4.8% to $72.3 million
in the second quarter of 2003 from $68.9 million for the same quarter of 2002.
The Company believes this increase is due to a 3% increase in the average miles
per tractor per week to 2,439 in the second quarter of 2003 from 2,367 in the
same quarter of 2002, a 19.1% increase in third party logistics ("3PL") and
brokerage revenues to $5.1 million in the second quarter of 2003 from $4.3
million for the same quarter of 2002 and an increase in revenue per mile. These
effects were partially offset by a decrease in the number of workdays in the
quarter.

Average revenue per mile, before fuel surcharge, increased to $1.240 in the
second quarter of 2003 from $1.208 in the same quarter of 2002 due to the
above-mentioned increase in 3PL and brokerage revenues and an increase in the
average rate per mile charged to customers. The number of shipments increased
9.2% to 70,644 in the second quarter of 2003 from 64,177 in the same quarter of
2002.

The increase in the average miles per tractor per week, as described above,
was a result of increased freight demand and a decrease in the percentage of
unmanned tractors to 3.9% of the fleet in the second quarter of 2003 from 6.4%
of the fleet in the same quarter of 2002. The decrease in the percentage of
unmanned tractors was primarily the result of the number of drivers hired
exceeding drivers lost through turnover. The empty mile factor increased to
9.24% of paid miles in the second quarter of 2003 from 9.17% of paid miles in
the same quarter of 2002 primarily due to re-positioning of revenue equipment to
match the inconsistent freight demand among the various geographic regions in
the Company's operating area.

Operating expenses and costs, as a percentage of revenue, before fuel
surcharge, decreased to 94.5% in the second quarter of 2003 from 96.1% in the
same quarter of 2002.

The decrease in salaries, wages and employee benefits costs, as a
percentage of revenue, before fuel surcharge, was primarily the result of a
reduction in the driver's pay rate per mile in December 2002, increases in 3PL
and brokerage revenues, the above-mentioned increases in the average revenue per
mile, before fuel surcharge, and a decrease in employee medical benefit
expenses. These effects were partially offset by a decrease in the average
number of owner-operators in the Company's fleet to 35 in the second quarter of
2003 from 95 in the second quarter of 2002, which increased the percentage of
employee drivers comprising the fleet.

The decrease in fuel and fuel taxes costs, as a percentage of revenue,
before fuel surcharge, was due to a 7.2% decrease in the price paid for diesel
fuel per gallon, net of fuel surcharge recovery, in the second quarter of 2003
compared to the same period a year ago, and to a lesser extent, the
above-mentioned increases in 3PL and brokerage revenues. These effects were
partially offset by the above-mentioned decrease in the Company's owner-operator
fleet.

Direct expenses associated with 3PL and brokerage revenues and
owner-operator fees comprise purchased transportation expense. 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

Page 10

that is higher than that paid to Company drivers, who are not directly
responsible for these expenses. The decrease in purchased transportation costs,
as a percentage of revenue, before fuel surcharge, was primarily due to the
decrease in the Company's owner-operator fleet described above. This effect was
partially offset by an increase in carrier expense. Carrier expense represents
the fees paid to direct providers of transportation services engaged in the
Company's 3PL and brokerage services.

The increase in depreciation and amortization expense, as a percentage of
revenue, before fuel surcharge, was due to slightly higher depreciation expense
on extended lived tractors (See "Note B--Commitments"), an increase in the
Company's ratio of trailers to tractors and the above-mentioned decrease in
average number of owner-operators. These effects were partially offset by the
above-mentioned increase in 3PL and brokerage revenues, increased tractor
utilization and increased revenue per mile.

The increase in insurance and claims was primarily due to an increase in
adverse claims accruals, and, to a lesser extent, the increase in liability,
cargo and workers' compensation insurance premiums in the second quarter of 2003
compared to the same quarter of 2002 and the above-mentioned decrease in the
Company's owner-operator fleet. These effects were partially offset by the
above-mentioned increase in 3PL and brokerage revenues and a reduction in costs
associated with collisions.

The increase in other costs was due primarily to an increase in driver
recruiting expense required to reduce the number of unmanned tractors as
described above.

As a result of the foregoing factors, operating income increased 47.6% to
$4.0 million, or 5.5% of revenue, before fuel surcharge, in 2003 from $2.7
million or 3.9% of revenue, before fuel surcharge, in 2002.

As a result of the above, income before income taxes increased 84.0% to
$3.7 million, or 5.1% of revenue, before fuel surcharge, in 2003 from $2.0
million or 2.9% of revenue, before fuel surcharge, in 2002.

The Company's effective tax rate decreased to 50.1% in the second quarter
of 2003 compared to 63.8% in the same quarter of 2002. 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
implemented by the Company during the second quarter of 2002. Due to the
nondeductible effect of per diem, the Company's tax rate will fluctuate in
future periods as earnings fluctuate.

As a result of the foregoing factors, net income increased 153.8% to $1.9
million in the second quarter of 2003 from $0.7 million in the same quarter of
2002. Diluted net income per share increased 150.0% to $0.20 for the second
quarter of 2003 from $0.08 per share in the same quarter of 2002.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002

Operating revenue, before fuel surcharge, increased 5.7% to $138.0 million
in 2003 from $130.6 million in 2002. The Company believes this increase is due
primarily to an increase of 3.1% in the average number of tractors operated to
1,897 (including 36 owner-operators) in 2003 from 1,839 (including 77
owner-operators) in 2002 and to a 38.0% increase in 3PL and brokerage revenues
to $9.0 million in 2003 from $6.5 million for 2002.

Average revenue per mile, before fuel surcharge, increased to $1.228 in
2003 from $1.186 in 2002 due to the above-mentioned increase in 3PL and
brokerage revenues and an increase in average rate per mile charged to
customers. The number of shipments increased 10.9% to 135,926 in 2003 from
122,548 in 2002. The empty mile factor decreased to 9.20% of paid miles in 2003
from 9.66% of paid miles in 2002. The decreased empty mile factor was primarily
the result of improved freight demand in the Company's operating areas and, to a
lesser extent, reduced quantities of inbound loads into areas where there are
few available outbound loads.

Operating expenses and costs, as a percentage of revenue, before fuel
surcharge, increased to 97.5% in 2003 from 97.2% in 2002.

The decrease in salaries, wages and employee benefits costs, as a
percentage of revenue, net of fuel surcharge, was primarily the result of the
Company implementing a reduction in the driver's pay rate per mile in December
2002, increases in 3PL and brokerage revenues, the above-mentioned increases in
the average revenue per mile,

Page 11

before fuel surcharge, and a decrease in employee medical benefit expenses.
These effects were partially offset by a decrease in the average number of
owner-operators in the Company's fleet to 36 in 2003 from 77 in 2002.

The increase in depreciation and amortization expense, as a percentage of
revenue, before fuel surcharge, was due to slightly higher depreciation expense
on extended lived tractors (See "Note B--Commitments"), an increase in the
Company's ratio of trailers to tractors and the above-mentioned decrease in
average number of owner-operators. These effects were partially offset by the
above-mentioned increase in 3PL and brokerage revenues and increased revenue per
mile.

The increase in insurance and claims was primarily due to an increase in
adverse claims accruals, and, to a lesser extent, the increase in liability,
cargo and workers' compensation insurance premiums in the six months ended June
30, 2003 compared to the same period of 2002 and the above-mentioned decrease in
the Company's owner-operator fleet. These effects were partially offset by the
above-mentioned increase in 3PL and brokerage revenues and a reduction in
costs associated with collisions.

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

As a result of the foregoing factors, operating income decreased 6.3% to
$3.4 million, or 2.5% of revenue, before fuel surcharge, in 2003 from $3.7
million, or 2.8% of revenue, before fuel surcharge, in 2002.

As a result of the above, income before income taxes increased 15.3% to
$2.5 million, or 1.8% of revenue, before fuel surcharge, in 2003 from $2.1
million, or 1.6% of revenue, before fuel surcharge, in 2002.

The Company's effective tax rate increased to 71.5% in 2003 compared to
62.5% in 2002. 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 implemented by the Company during the second
quarter of 2002. Due to the nondeductible effect of per diem, the Company's tax
rate will fluctuate in future periods as earnings fluctuate.

As a result of the foregoing factors, net income decreased 12.3% to $0.7
million in 2003 from $0.8 million in 2002. Diluted net income per share
decreased 11.1% to $0.08 per share for 2003 from $0.09 per share in 2002.

SEASONALITY

In the motor carrier industry generally, revenues are lower in the first
and fourth quarters as customers decrease shipments during the winter holiday
season and as inclement weather impedes operations. These factors historically
have tended to decrease net income in the first and fourth quarters. Future
revenues could be impacted if customers reduce shipments due to temporary plant
closings, which historically have occurred during July and December.

FUEL AVAILABILITY AND COST

The motor carrier industry depends upon the availability of fuel, and fuel
shortages or increases in fuel taxes or fuel costs have adversely affected, and
may in the future adversely affect, the profitability of the Company. Fuel
prices have fluctuated greatly and fuel taxes have generally increased in recent
years. The Company has not experienced difficulty in maintaining necessary fuel
supplies, and in the past the Company generally has been able to partially
offset significant increases in fuel costs and fuel taxes through increased
freight rates and through a fuel surcharge which increases incrementally as the
price of fuel increases. Typically, the Company is not able to fully recover
increases in fuel prices through fuel surcharges. Fuel prices decreased during
the second quarter of 2003. There can be no assurance that the Company will be
able to recover any future increases in fuel costs and fuel taxes through
increased rates.

LIQUIDITY & CAPITAL RESOURCES

On April 28, 2000, the Company signed a senior credit facility (the "Senior
Credit Facility"), and amended the Senior Credit Facility on March 30, 2001 and
June 17, 2003. The Senior Credit Facility, as amended, provides a working
capital line of credit of $60.0 million, including letters of credit not
exceeding $5.0 million. Bank of America, N.A. is the agent bank and SunTrust
Bank and U.S. Bank (formerly Firstar Bank, N.A.) are participants in the Senior
Credit Facility. As of June 30, 2003, approximately $28.3 million was available
under the Senior Credit

Page 12

Facility. The Senior Credit Facility matures on April 28, 2005. At any time
prior to April 28, 2005, subject to certain conditions, the balance outstanding
on the Senior Credit Facility may be converted, at the Company's option, to a
four-year term loan requiring 48 equal monthly principal payments plus interest.
The Senior Credit Facility bears variable interest based on the lender's prime
rate, or federal funds rate plus a certain incremental percentage or LIBOR plus
a certain incremental percentage, which is determined based on the Company's
attainment of certain financial ratios. The effective interest rate on the
Company's borrowings under the Senior Credit Facility for the quarter ended June
30, 2003 was 2.8%. A quarterly commitment fee is payable on the unused credit
line at a rate determined based on the Company's attainment of certain financial
ratios. As of June 30, 2003, the rate was 0.20%. This credit facility is
collateralized by accounts receivable and all otherwise unencumbered equipment.

The continued growth of the Company's business has required significant
investments in new equipment. The Company has financed revenue equipment
purchases with cash flows from operations and through borrowings under the
Senior Credit Facility and capital lease-purchase arrangements. The Company has
historically met its working capital needs with cash flows from operations and
occasionally with borrowings under the Senior Credit Facility. The Company uses
the Senior Credit Facility to minimize fluctuations in cash flow needs and to
provide flexibility in financing revenue equipment purchases. Cash flows from
operations were $14.0 million for the six-month period ended June 30, 2003 and
$15.5 million for the six-month period ended June 30, 2002.

As of June 30, 2003, the Company had capital lease obligations in the
aggregate principal amount of approximately $36.3 million, with an average
interest rate of 4.2% per annum. For 2003, the Company has capital lease
commitments providing up to $37.0 million of available borrowings, at variable
interest rates based on the three-year Treasury Note rate, LIBOR or lessor's
cost of funds plus a pricing spread, which rates are fixed upon lease execution.
During the second quarter of 2003, the Company borrowed $5.0 million under these
lease commitments at an effective interest rate of 2.6%.

As of June 30, 2003, the Company had debt obligations of approximately
$65.9 million, including amounts borrowed under the Senior Credit Facility and
lease commitments, of which approximately $12.8 million were current
obligations. During the six-month period ended June 30, 2003, the Company made
borrowings under the Senior Credit Facility and lease commitments of $42.1
million, while retiring $49.8 million in debt under these facilities. The
borrowings had an average interest rate of approximately 3.1% while the retired
debt had an average interest rate of approximately 3.8%.

During the six-month period ended June 30, 2003, the Company made $14.5
million in capital expenditures including equipment purchases under capital
lease arrangements as described above. $13.9 million of this amount was used for
revenue equipment and the balance of $0.6 million was used for maintenance and
office equipment, facility improvements and the purchase of a maintenance
facility in Laredo, Texas by International Freight Services, Inc., a wholly
owned subsidiary of USA Truck. During the remainder of 2003 and in 2004, the
Company plans to make approximately $164.6 million in capital expenditures. At
June 30, 2003, the Company was committed to spend $54.9 million and budgeted to
spend an additional $0.4 million of this amount for revenue equipment in 2003,
and the Company was committed to spend $16.1 million and budgeted to spend an
additional $93.0 million of this amount for revenue equipment in 2004. The
commitments to purchase revenue equipment are cancelable by the Company if
certain conditions are met. The balance of the expected capital expenditures of
$0.2 million will be used for maintenance and office equipment and facility
improvements.

The Senior Credit Facility, capital leases and cash flows from operations
should be adequate to fund the Company's operations and expansion plans through
the end of 2003. There can be no assurance, however, that such sources will be
sufficient to fund Company operations and all expansion plans through such date,
or that any necessary additional financing will be available, if at all, in
amounts required or on terms satisfactory to the Company. The Company expects to
continue to fund its operations with cash flows from operations, the Senior
Credit Facility and capital leases for the foreseeable future.

Through the Senior Credit Facility the Company can elect to borrow at LIBOR
rates, plus a pricing spread. Therefore, the Company's forecasted future cash
flow is exposed to interest rate risk related to variability in LIBOR rates. For
this reason, the Company has hedged its exposure to the volatility in variable
interest rates. In March 2003 the Company entered into an interest rate swap
effective March 27, 2003, on a notional amount of $10 million (See "Note F -
Derivative Financial Instruments"). The transaction entered into is intended to
provide interest rate protection by creating an interest rate neutral position
by specifically matching notional amounts, maturity dates and interest rate
indices, and does not provide any additional borrowing capacity to the Company.

Page 13

On October 17, 2001, the Company's Board of Directors authorized the
Company to purchase up to 500,000 shares of its outstanding common stock over a
three-year period ending October 16, 2004 dependent upon market conditions.
Common stock purchases under the authorization may be made from time to time on
the open market or in privately negotiated transactions at prices determined by
the Chairman of the Board or President of the Company. The Company may purchase
shares in the future if, in the view of management, the common stock is
undervalued relative to the Company's performance and prospects for continued
growth. Any such purchases would be funded with cash flows from operations or
the Senior Credit Facility. As of June 30, 2003, the Company had purchased no
shares pursuant to this authorization.

The following table represents the Company's outstanding contractual
obligations at June 30, 2003, excluding letters of credit.

(1) Long-Term Debt Obligations consist of the Company's Senior Credit Facility
that matures on April 28, 2005 as described above.

(2) Capital Lease Obligations in this table include interest payments not
included in the balance sheet.

(3) Purchase Obligations are cancelable if certain criteria are met.

NEW ACCOUNTING PRONOUNCEMENTS

See Note D to the financial statements included in this Form 10-Q for a
description of the most recent accounting pronouncements and their effect, if
any, on the Company.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements and information that are
based on management's current beliefs and expectations and assumptions made by
it based upon information currently available. Forward-looking statements
include statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequacy of resources, 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 the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will be realized. Should one or more of the risks or uncertainties
underlying such expectations materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those expected. Among the key
factors that are not within the Company's control and that have a direct bearing
on operating results are increases in diesel prices, adverse weather conditions
and the impact of increased rate competition. The Company's results have also
been, and will continue to be, significantly affected by fluctuations in general
economic conditions, as the Company's utilization rates are directly related to
business levels of shippers in a variety of industries. In addition, shortages
of qualified drivers and intense or increased competition for drivers have
adversely impacted the Company's operating results and its ability to grow, and
will continue to do so. Results for any specific period may also be affected by
various unforeseen events, such as unusual levels of equipment failure or
vehicle accident claims.

Page 14

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As reported in the notes to the financial statements and in the Liquidity
and Capital Resources section of this Form 10-Q, the Company entered into the
Senior Credit Facility with a multi-bank group on April 28, 2000 and amended the
Senior Credit Facility on March 30, 2001 and June 17, 2003. The Senior Credit
Facility agreement, as amended, provides for borrowings that bear interest at
variable rates based on either a prime rate or the LIBOR. At June 30, 2003, the
Company had $29.6 million outstanding pursuant to the Senior Credit Facility. In
an effort to manage the risks associated with changing interest rates the
Company entered into an interest rate swap effective March 27, 2003, on a
notional amount of $10 million (See "Note F - Derivative Financial
Instruments"). The Company believes that the effect, if any, of reasonably
possible near-term changes in interest rates on the Company's financial
position, results of operations, and cash flows should not be material.

All customers are required to pay for the Company's services in U.S.
dollars. Although the Canadian Government makes certain payments, such as tax
refunds, to the Company in Canadian dollars, any foreign currency exchange risk
associated with such payments is not material.

Item 4. Controls and Procedures

As of the end of each fiscal quarter, an evaluation is performed under the
supervision and with the participation of the Company's management, including
the Chief Executive Officer (the "CEO") and the Chief Financial Officer (the
"CFO"), of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Company's
management, including the CEO and CFO, concluded that the Company's disclosure
controls and procedures were effective as of the end of the period covered in
this report. There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal controls
subsequent to June 30, 2003.

Page 15

FORM 10-Q

USA TRUCK, INC.

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

The annual meeting of stockholders of the Company was held on May 7, 2003.
At the meeting, the stockholders elected the people set forth in the table below
to serve as directors for a term expiring at the 2006 Annual Meeting of
Stockholders:

Item 6. Exhibits and Reports on FORM 8-K.

(A) Exhibits

10.1 Second Amendment to Senior Credit Facility dated as of June
17, 2003 amending the Senior Credit Facility dated as of
April 28, 2000

11.1 Statement Re: Computation of Earnings Per Share

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

(B) Reports on Form 8-K

The Company filed a report on Form 8-K on April 17, 2003
attaching as an exhibit the Company's press release dated that
date announcing revenues and earnings for the first quarter of
2003, and reporting related information under Item 12, Results of
Operations and Financial Condition.

Page 16

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: July 18, 2003 /s/ ROBERT M. POWELL
------------------- ----------------------------------
ROBERT M. POWELL
Chairman and Chief
Executive Officer

Date: July 18, 2003 /s/ JERRY D. ORLER
------------------- ----------------------------------
JERRY D. ORLER
President

Date: July 18, 2003 /s/ CLIFTON R. BECKHAM
------------------- ----------------------------------
CLIFTON R. BECKHAM
Vice President - Finance, Chief
Financial Officer and Secretary

Page 17

FORM 10-Q
INDEX TO EXHIBITS

USA TRUCK, INC.

Page 18