Recent Results and Fiscal Year-End Financial Condition

For the fiscal year ended June 30, 2009, total revenue decreased 13.4%, to $490.3 million from $565.9 million during fiscal 2008. Freight revenue, which excludes revenue from fuel surcharges, decreased 10.8%, to $408.2 million in fiscal 2009 from $457.5 million in 2008. We generated net income of $2.6 million, or $0.12 per diluted share, for fiscal 2009 compared with net income of $6.5 million, or $0.29 per diluted share, for 2008.

We believe that a weakened freight market and increased industry-wide trucking capacity in fiscal 2009 compared to fiscal 2008 were the major factors that contributed to our decrease in net income. Decreased freight demand due to a slower economy caused a decrease in truck utilization measured by miles per tractor. In addition, shippers used the less robust freight market to reduce freight rates. As a result, average freight revenue per loaded mile excluding fuel surcharge for 2009 decreased $0.039 per mile to $1.464, a 2.6% decrease compared with $1.503 per mile for 2008. Average freight revenue per tractor per week, our main measure of asset productivity, decreased by 13.1% to $2,360 in 2009 compared with $2,717 for 2008. This decrease was due to lower general freight demand and an increase in non-revenue miles, partially offset by an increase in fleet size to 3,168 tractors at June 30, 2009 from 2,929 tractors at June 30, 2008, which was primarily driven by the Continental acquisition. As the freight market weakened and we ran more empty miles to get to our next load and position equipment for sale, our non-revenue miles increased. Our operating ratio, excluding the effect of fuel surcharge, increased to 97.3% for 2009 compared with 95.9% for 2008.

At June 30, 2009, our total balance sheet debt was $49.0 million and our total stockholders' equity was $143.7 million, for a total debt to capitalization ratio of 25.4%. At June 30, 2009, we had $30.3 million of available borrowing capacity under our revolving credit facility and $0.9 million of cash on hand.

Revenue

We generate substantially all of our revenue by transporting freight for our customers. Generally, we are paid by the mile or by the load for our services. We also derive revenue from fuel surcharges, loading and unloading activities, equipment detention, other trucking related services, and from TruckersB2B. The main factors that affect our revenue are the revenue per mile we receive from our customers, the percentage of miles for which we are compensated, the number of tractors operating, and the number of miles we generate with our equipment. These factors relate to, among other things, the U.S. economy, inventory levels, the level of truck capacity in our markets, specific customer demand, the percentage of team-driven tractors in our fleet, driver availability, and our average length of haul.

We eliminate fuel surcharges from revenue, when calculating operating ratios and some of our operating data. We believe that eliminating the impact of this sometimes volatile source of revenue affords a more consistent basis for comparing our results of operations from period to period.

Expenses and Profitability

The main factors that impact our profitability on the expense side are the variable costs of transporting freight for our customers. These costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which we record as purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our total cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency, and other factors. Our main fixed cost is the acquisition and financing of long-term assets, primarily revenue equipment. We have other mostly fixed costs, such as our non-driver personnel and facilities expenses. In discussing our expenses as a percentage of revenue, we sometimes discuss changes as a percentage of revenue before fuel surcharges, in addition to absolute dollar changes, because we believe the high variable cost nature of our business makes a comparison of changes in expenses as a percentage of revenue more meaningful at times than absolute dollar changes.

The trucking industry has experienced significant increases in expenses over the past three years, in particular those relating to equipment costs, driver compensation, insurance, and fuel. As the United States economy has slowed down, many trucking companies have been forced to lower freight rates to keep their trucks moving. Over the long term, we expect a limited pool of qualified drivers and intense competition to recruit and retain those drivers to constrain overall industry capacity. Assuming a return to economic growth in U.S. manufacturing, retail, and other high volume shipping industries, we expect to be able to raise freight rates in line with or faster than costs. Over the near term this may prove challenging in the current freight environment.

Revenue Equipment

We operate 3,168 tractors and 10,015 trailers. Of our tractors at June 30, 2009, 1,145 were owned, 1,743 were acquired under operating leases, and 280 were provided by independent contractors, who own and drive their own tractors. Of our trailers at June 30, 2009, 2,962 were owned and 7,053 were acquired under operating and capital leases.

We use a combination of cash and operating leases to acquire our new tractors. Most of our new trailers are acquired with operating leases. These leases generally run for a period of seven years for trailers. When we finance revenue equipment acquisitions with operating leases, rather than borrowings or capital leases, the interest component of our financing activities is recorded as an "above-the-line" operating expense on our statements of operations.

Independent contractors (owner operators) provide a tractor and a driver and are responsible for all operating expenses in exchange for a fixed payment per mile. We do not have the capital outlay of purchasing the tractors. The payments to independent contractors are recorded in purchased transportation and the payments for equipment under operating leases are recorded in revenue equipment rentals. Expenses associated with owned equipment, such as interest and depreciation, are not incurred, and for independent contractor tractors, driver compensation, fuel, and other expenses are not incurred. Because obtaining equipment from independent contractors and through operating leases effectively shifts these expenses from interest to "above the line" operating expenses, we evaluate our efficiency using our operating ratio as well as income before income taxes.

Outlook

Looking forward, our profitability goal is to return our operating ratio to the mid 90s in the near term and subsequently achieve an operating ratio of less than 90%. We expect this to require improvements in rate per mile and miles per tractor and decreased non-revenue miles. Because a large percentage of our costs are variable, changes in revenue per mile affect our profitability to a greater extent than changes in miles per tractor. For fiscal 2010, the key factors that we expect to have the greatest effect on our profitability are our freight revenue per tractor per week (which will be affected by the general freight environment, including the balance of freight demand and industry-wide trucking capacity), our compensation of drivers, our cost of revenue equipment (particularly in light of the 2010 EPA engine requirements), our fuel costs, and our insurance and claims. To overcome cost increases and improve our margins, we will need to achieve increases in freight revenue per tractor. Operationally, we will seek improvements in safety, driver recruiting, and retention. Our success in these areas primarily will affect revenue, driver-related expenses, and insurance and claims expense. Given the difficult freight market confronting our industry and the difficult economy, we believe achieving our near term profitability goal will be difficult.

Results of Operations

The following tables set forth the percentage relationship of revenue and expense items to operating and freight revenue for the periods indicated.

                                                     Fiscal year ended June 30,
                                                   2009           2008        2007
      Operating revenue                              100.0 %       100.0 %     100.0 %
      Operating expenses:
        Salaries, wages, and employee benefits        31.7          28.2        28.8
        Fuel                                          25.7          28.8        23.1
        Operations and maintenance                     7.2           6.6         6.4
        Insurance and claims                           2.8           2.7         2.6
        Depreciation and amortization                  7.2           5.9         4.4
        Revenue equipment rentals                      5.9           4.5         6.3
        Purchased transportation                      11.4          14.5        14.7
        Cost of products and services sold             1.2           1.1         1.4
        Communication and utilities                    1.0           0.9         1.0
        Operating taxes and licenses                   2.0           1.6         1.7
        General and other operating                    1.7           1.9         1.6

        Total operating expenses                      97.8          96.7        92.0

      Operating income                                 2.2           3.3         8.0
      Other expense:
        Interest expense, net                          0.7           0.9         0.7

      Income before income taxes                       1.5           2.4         7.3
      Provision for income taxes                       1.0           1.2         2.9

      Net income                                       0.5 %         1.2 %       4.4 %

        Freight revenue(1)                           100.0 %     100.0 %     100.0 %
        Operating expenses:
          Salaries, wages, and employee benefits      38.1        34.9        33.5
          Fuel                                        10.7        12.0        10.8
          Operations and maintenance                   8.7         8.1         7.5
          Insurance and claims                         3.4         3.4         3.0
          Depreciation and amortization                8.6         7.3         5.1
          Revenue equipment rentals                    7.1         5.6         7.4
          Purchased transportation                    13.7        18.0        17.0
          Cost of products and services sold           1.4         1.4         1.6
          Communication and utilities                  1.2         1.1         1.1
          Operating taxes and licenses                 2.4         2.0         2.0
          General and other operating                  2.0         2.1         1.7

          Total operating expenses                    97.3        95.9        90.7

        Operating income                               2.7         4.1         9.3
        Other expense:
          Interest expense, net                        0.9         1.1         0.9

        Income before income taxes                     1.8         3.0         8.4
        Provision for income taxes                     1.2         1.6         3.3

        Net income                                     0.6 %       1.4 %       5.1 %

Fiscal year ended June 30, 2009, compared with fiscal year ended June 30, 2008

Total revenue decreased by $75.6 million, or 13.4%, to $490.3 million for fiscal 2009, from $565.9 million for fiscal 2008. Freight revenue excludes $82.2 million and $108.4 million of fuel surcharge revenue for fiscal 2009 and 2008, respectively.

Freight revenue decreased by $49.3 million, or 10.8%, to $408.2 million for fiscal 2009, from $457.5 million for fiscal 2008. This decrease was primarily attributable to a decrease in freight demand and rates, due to a weakened economy and the difficult freight market and aggressive rate environment confronting our industry. This decrease was also attributable to a decrease in billed miles to 233.7 million in fiscal 2009, compared to 253.3 million in fiscal 2008, and a 3.0% decrease in average freight revenue per total mile, excluding fuel surcharge, to $1.307 from $1.348. Average freight revenue per tractor per week, excluding fuel surcharge, which is our primary measure of asset productivity, decreased 13.1% to $2,360 in fiscal 2009, from $2,717 for fiscal 2008, as a result of lower general freight demand, a decrease in miles and rates, partially offset by an increase in fleet size. The decrease in miles per tractor and an increase in non-revenue miles were also attributable to less freight demand.

Revenue for TruckersB2B was $8.5 million in fiscal 2009, compared to $9.3 million in fiscal 2008. The decrease was related to decreases in fuel and tire rebate revenue due to small and mid size carriers being adversely affected by the lagging freight demand. To the extent small and mid size carriers continue to be affected adversely by the weakened economy, lagging freight demand, limited financing availability, and licensing, insurance, and other costs, we anticipate the revenue for TruckersB2B to be negatively impacted as well.

Salaries, wages, and employee benefits were $155.6 million, or 38.1% of freight revenue, for fiscal 2009, compared to $159.9 million, or 34.9% of freight revenue, for fiscal 2008. The dollar decrease in salaries, wages, and benefits is largely due to decreased driver payroll related to decreased miles. Additionally, decreases in administrative payroll resulting from ongoing efforts to consolidate and/or eliminate several functions into Indianapolis from various terminals, which plan reduced our non-driver administrative workforce by approximately 5%, also decreased our salaries, wages, and benefits. However, these factors were more than offset by reduced freight revenue resulting in an increase in salaries, wages, and employee benefits as a percentage of freight revenue.

Fuel expenses, net of fuel surcharge revenue of $82.2 million and $108.4 million for fiscal 2009 and fiscal 2008, respectively, decreased to $43.7 million, or 10.7% of freight revenue, for fiscal 2009, compared to $54.7 million, or 12.0% of freight revenue, for fiscal 2008. These decreases were attributable to a 21.2% decrease in average fuel prices to $2.64 per gallon for fiscal 2009, from $3.35 per gallon for fiscal 2008, and a decrease in the gallons purchased due to fewer miles driven and increased miles per gallon related to reduced idling and operating more fuel efficient tractors. We expect that our continued efforts to reduce idling and operate more fuel efficient tractors will continue to have a positive impact on our miles per gallon; however, we expect this will be partially offset by lower fuel economy on EPA-mandated new engines and use of ultra-low sulfur diesel fuel.

Operations and maintenance consist of direct operating expense, maintenance, physical damage, and tire expense. This category decreased to $35.5 million, or 8.7% of freight revenue, for fiscal 2009, from $37.2 million, or 8.1% of freight revenue, for fiscal 2008. The dollar decrease in fiscal 2009 is primarily related to a decrease in costs associated with tractor maintenance, other maintenance expenses, and physical damage expenses. However, these factors were more than offset by an increase in tire expense and miscellaneous direct operating expenses.

Insurance and claims expense was $13.8 million for fiscal 2009, compared to $15.5 million for fiscal 2008. As a percentage of freight revenue, insurance and claims remained constant at 3.4% for fiscal 2009 and 2008. Insurance consists of premiums for liability, physical damage, cargo damage, and workers' compensation insurance. The decrease in the overall dollar amount is attributable to a decrease in workers' compensation claims and cargo claims expense, due to a reduction in the number and severity of claims reported. Our insurance program involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in amounts we consider to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. We continually revise and change our insurance program to maintain a balance between premium expense and the risk retention we are willing to assume.

Depreciation and amortization, consisting primarily of depreciation of revenue equipment, increased to $35.2 million, or 8.6% of freight revenue, in fiscal 2009 from $33.3 million, or 7.3% of freight revenue, for fiscal 2008. These increases are related to an increase year-over-year in the number of owned tractors and trailers. These increases are partially offset by gains on sales of equipment in fiscal 2009 compared to losses on sales of equipment in fiscal 2008. Despite the gains in fiscal 2009, the used equipment market remains weak. To the extent the used equipment market remains weak going forward, we expect to face difficulty selling equipment in quantities and at prices that are satisfactory to us. Revenue equipment held under operating leases is not reflected on our balance sheet and the expenses related to such equipment are reflected on our statements of operations in revenue equipment rentals, rather than in depreciation and amortization and interest expense, as is the case for revenue equipment that is financed with borrowings or capital leases.

Revenue equipment rentals were $29.1 million, or 7.1% of freight revenue, in fiscal 2009, compared to $25.6 million, or 5.6% of freight revenue, for fiscal 2008. The majority of these increases are related to the net addition of approximately 720 tractors and 330 trailers under operating lease, which has increased our tractor and trailer rents.

Purchased transportation decreased to $55.8 million, or 13.7% of freight revenue, for fiscal 2009, from $82.2 million, or 18.0% of freight revenue, for fiscal 2008. The majority of these decreases are related to fewer miles by our independent contractor fleet, which averaged 206 independent contractors in fiscal 2009, compared to an average of 337 independent contractors in fiscal 2008, and a reduction of the fuel surcharge component of their pay resulting from decreased fuel costs. These factors were partially offset by more independent contractors in fiscal 2009. Independent contractors are drivers who cover all their operating expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed payment per mile.

All of our other expenses are relatively minor in amount, and there were no significant changes in these expenses. Accordingly, we have not provided a detailed discussion of such expenses.

Our pretax margin, which we believe is a useful measure of our operating performance because it is neutral with regard to the method of revenue equipment financing that a company uses, decreased 120 basis points to 1.8% of freight revenue for fiscal 2009 from 3.0% for fiscal 2008.

In addition to other factors described above, Canadian exchange rate fluctuations principally impact salaries, wages, and benefits and purchased transportation and, therefore, impact our pretax margin and results of operations. The lower Canadian dollar, which decreased to a .86 relationship with the U.S. dollar for fiscal 2009, from a .99 relationship with the U.S. dollar for fiscal 2008, positively impacted earnings per share by approximately $.07.

Income taxes decreased to $5.0 million for fiscal 2009, from $7.1 million for fiscal 2008, due to lower pre-tax income. Due to the non-deductible effects of our driver per diem pay structure, our tax rate will fluctuate from the 35% standard federal rate, in future periods as net income fluctuates. Income tax expense for fiscal 2009 included an adjustment of approximately $300,000 related to per diem calculations for prior years.

As a result of the factors described above, net income decreased to $2.6 million for fiscal 2009, from $6.5 million for fiscal 2008.

Fiscal year ended June 30, 2008, compared with fiscal year ended June 30, 2007

Total revenue increased by $63.2 million, or 12.6%, to $565.9 million for fiscal 2008, from $502.7 million for fiscal 2007. Freight revenue excludes $108.4 million and $69.7 million of fuel surcharge revenue for fiscal 2008 and 2007, respectively.

Freight revenue increased by $24.5 million, or 5.7%, to $457.5 million for fiscal 2008, from $433.0 million for fiscal 2007. This increase resulted from the continuation of our efforts to eliminate the least favorable freight from our system and the growth of customer relationships from our prior year acquisitions, which more than offset softer freight demand generally. The increase was attributable to an increase in billed miles to 253.3 million in fiscal 2008, compared to 237.8 million in fiscal 2007, partially offset by a 2.3% decrease in average freight revenue per total mile, excluding fuel surcharge, to $1.348 from $1.380. The reduction in average freight revenue per total mile resulted primarily from an increase in non-revenue miles. Average freight revenue per tractor per week, excluding fuel surcharge, which is our primary measure of asset productivity, decreased 2.6% to $2,717 in fiscal 2008, from $2,790 for fiscal 2007, as a result of lower general freight demand and an increase in non-revenue miles. The decrease in miles per tractor and an increase in non-revenue mile percentage were attributable to less freight demand.

Revenue for TruckersB2B was $9.3 million in fiscal 2008, compared to $10.0 million in fiscal 2007. The decrease was related to a decrease in tractor and trailer rebate revenue, partially due to the discontinuance of the trailer incentive program, and decreases in the fuel rebates due to small and mid size carriers being adversely affected by weak freight demand.

Salaries, wages, and employee benefits were $159.9 million, or 34.9% of freight revenue, for fiscal 2008, compared to $144.8 million, or 33.5% of freight revenue, for fiscal 2007. These increases were primarily due to increased driver payroll, resulting from a 10.2% increase in company miles.

Fuel expenses, net of fuel surcharge revenue of $108.4 million and $69.7 million for fiscal 2008 and fiscal 2007, respectively, increased to $54.7 million, or 12.0% of freight revenue, for fiscal 2008, compared to $46.6 million, or 10.8% of freight revenue, for fiscal 2007. These increases were due to an increase of 10.2% in company miles, an increase in non-revenue miles, and an increase in average fuel prices of approximately $0.82 per gallon. In addition, we began to experience lower fuel economy and higher costs of fuel from the installation of EPA-mandated new engines and use of ultra-low-sulfur diesel fuel. Higher fuel prices and lower fuel economy will increase our operating expenses to the extent we cannot offset them with surcharges.

Operations and maintenance consist of direct operating expense, maintenance, and tire expense. This category increased to $37.2 million, or 8.1% of freight revenue, for fiscal 2008, from $32.3 million, or 7.5% of freight revenue, for fiscal 2007. These increases are primarily related to an increase in costs associated with various direct expenses such as toll expense, border drayage expense, and scales expense and an increase in physical damage expense, due to increased accidents.

Insurance and claims expense was $15.5 million, or 3.4% of freight revenue, for fiscal 2008, compared to $13.1 million, or 3.0% of freight revenue, for fiscal 2007. Insurance and claims increased as a percentage of freight revenue due to increased number of claims, increased claim dollars, increased number of workers' compensation claims, and increased dollar of workers' compensation claims. Our insurance expense consists of premiums and deductible amounts for liability, physical damage, and cargo damage insurance. Our insurance program involves self-insurance at various risk retention levels. Claims in excess of these risk levels are covered by insurance in amounts we consider to be adequate. We accrue for the uninsured portion of claims based on known claims and historical experience. Insurance and claims expense will vary based primarily on the frequency and severity of claims, the level of self-retention, and the premium expense.

Depreciation and amortization, consisting primarily of depreciation of revenue equipment, increased to $33.3 million, or 7.3% of freight revenue, in fiscal 2008 from $21.9 million, or 5.1% of freight revenue, for fiscal 2007. These increases are related to the conversion of operating leases to capital leases related to approximately 3,700 trailers, in the third and fourth quarters of fiscal 2007, resulting from the Company declaring its intent to purchase certain trailers previously financed with operating leases. The conversion of the trailer leases resulted in a simultaneous decrease in our revenue equipment rentals. Revenue equipment held under operating leases is not reflected on our balance sheet and the expenses related to such equipment are reflected on our statements of operations in revenue equipment rentals, rather than in depreciation and amortization and interest expense, as is the case for revenue equipment that is financed with borrowings or capital leases. In addition, we have continued to purchase tractors with cash and borrowings, which has increased our tractor depreciation. In the near term we expect to purchase new tractors primarily with cash or finance new trailers with operating leases.

Revenue equipment rentals were $25.6 million, or 5.6% of freight revenue, in fiscal 2008, compared to $31.9 million, or 7.4% of freight revenue, for fiscal 2007. These decreases were attributable to a decrease in our tractor fleet financed under operating leases as discussed under depreciation and amortization. At June 30, 2008, 1,026 tractors, or 37.8% of our company tractors, were held under operating leases, compared to 1,433 tractors, or 54.8% of our company tractors, at June 30, 2007.

Purchased transportation increased to $82.2 million, or 18.0% of freight revenue, for fiscal 2008, from $73.7 million, or 17.0% of freight revenue, for fiscal 2007. These increases are primarily related to increases in our third-party carrier expense and warehousing expenses, related to an effort to grow these portions of our business. Our independent contractor expense was largely unchanged as a percentage of freight revenue between fiscal 2007 and fiscal 2008, as a 45.9% decrease in independent contractors to 216 at June 30, 2008, from 399 at June 30, 2007, was offset by increased fuel surcharge reimbursement. The challenging freight environment has had a negative impact on independent contractors, who are drivers who cover all their operating expenses (fuel, driver salaries, maintenance, and equipment costs) for a fixed payment per mile.

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