cvtiform11k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 11-K


(Mark One)

[X]
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 29, 2007

OR

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

For the transition period from ___________ to ______________

Commission file number 0-24960

A.
Full title of the plan and the address of the plan, if different from that of the issuer named below:

COVENANT TRANSPORT, INC. 401(K) AND PROFIT SHARING PLAN

B.
Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

Covenant Transportation Group, Inc.
400 Birmingham Highway
Chattanooga, Tennessee 37419



 
 
 

COVENANT TRANSPORT, INC. 401(K)
AND PROFIT SHARING PLAN

Table of Contents


The Covenant Transport, Inc. 401(k) and Profit Sharing Plan (the "Plan") is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA").  Accordingly, in lieu of the requirements of Items 1 – 3 of Form 11-K, the Plan is filing financial statements and supplemental schedule prepared in accordance with the financial reporting requirements of ERISA.  The following financial statements and supplemental schedule are filed as part of this annual report:


 
Page
Report of Independent Registered Public Accounting Firm
1
   
Statements of Net Assets Available for Benefits as of December 29, 2007 and 2006
2
   
Statements of Changes in Net Assets Available for Benefits for the years ended December 29, 2007 and 2006
3
   
Notes to Financial Statements
4
   
Schedule H, Line 4i – Schedule of Assets (Held at End of Year) – December 29, 2007
7
   
EXHIBITS
  
   
Exhibit 23                      Consent of Independent Registered Public Accounting Firm
  




 
 
 

Report of Independent Registered Public Accounting Firm



To Participants and the Administrator of the
Covenant Transport, Inc. 401(k) and Profit Sharing Plan:


We have audited the accompanying statements of net assets available for benefits of the Covenant Transport, Inc. 401(k) and Profit Sharing Plan (the “Plan”) as of December 29, 2007 and 2006, and the related statements of changes in net assets available for benefits for the years then ended.  These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 29, 2007 and 2006, and the changes in its net assets available for benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at the end of year) as of December 29, 2007 is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.
 

 
/s/ Lattimore Black Morgan & Cain, PC

Knoxville, Tennessee
June 20, 2008



 
1
 



COVENANT TRANSPORT, INC. 401(K)
  
AND PROFIT SHARING PLAN
  
Statements of Net Assets Available for Benefits
  
December 29, 2007 and 2006
  
   
2007
    
2006
  
Assets:
        
 
  
Cash
   $ 6,391     $ 81  
Investments
     18,225,556       18,536,831  
Participant loans
     1,087,083       961,450  
                 
Total assets
     19,319,030       19,498,362  
Liabilities:
                
Excess contributions payable
     2,023       23,767  
 Net assets available for benefits at fair value
     19,317,007       19,474,595  
                 
Adjustment from fair value to contract value for fully benefit-responsive investment contracts
     16,328       73,635  
 Net assets available for benefits
   $ 19,333,335     $ 19,548,230  
                 
See accompanying notes to financial statements.
                












 
2
 




COVENANT TRANSPORT, INC. 401(K)
  
AND PROFIT SHARING PLAN
  
Statements of Changes in Net Assets Available for Benefits
  
Years ended December 29, 2007 and 2006
  
   
2007
    
2006
  
Additions:
            
Investment income:
            
Interest and dividends
   $ 347,617     $ 264,955  
Net appreciation/(depreciation) in fair value of investments:
                
Mutual funds
     594,348       1,040,014  
  Covenant Transportation Group, Inc. common stock
     (680,795 )     (357,249 )
Net investment income
     261,170       947,720  
                 
Contributions from employer
     892,661       964,542  
Contributions from participants
     2,832,750       3,355,667  
Total additions
     3,986,581       5,267,929  
Deductions:
                
Participants’ benefits
     4,190,976       3,372,070  
Administrative fees
     10,500       23,712  
Total deductions
     4,201,476       3,395,782  
                 
Net increase (decrease) in net assets available for benefits
     (214,895 )     1,872,147  
                 
Net assets available for benefits at beginning of year
     19,548,230       17,676,083  
                 
Net assets available for benefits at end of year
   $ 19,333,335     $ 19,548,230  
                 
See accompanying notes to financial statements.
                
                 




 
3
 
COVENANT TRANSPORT, INC. 401(K)
AND PROFIT SHARING PLAN
 
Notes to Financial Statements
 

 

(1)
Summary of Significant Accounting Policies
 
The following is a summary of significant accounting policies followed by the Plan in preparing its financial statements.
 
 
(a)
Basis of Presentation
 
The accompanying financial statements of the Plan have been prepared on the accrual basis of accounting and present the net assets available for benefits and changes in those net assets.
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
 
 
(b)
Investments
 
Investments in money market funds, mutual funds, and common stock are stated at fair value based on quoted market prices or as determined by Diversified Investment Advisors (the “Trustee”).  Investments in the Stable Pooled Fund (a common collective trust) are based upon the current value and net investment gain or loss relating to the units as determined by the Trustee.  The common collective trust primarily invests in the Wells Fargo Stable Return Fund.  Participant loans are valued at the unpaid principal balance, which approximates fair value.  Securities transactions are accounted for on a trade date basis.
 
Realized and unrealized investment gains and losses are included in net appreciation (depreciation) in fair value of investments in the statements of changes in net assets available for Plan benefits.  Purchases and sales of securities are recorded on a trade date basis.  Dividends are recorded on the ex-dividend date.
 
The Plan’s investments include funds which invest in various types of investment securities and in various companies in various markets. Investment securities are exposed to several risks, such as interest rate, market, and credit risks. Due to the level of risk associated with the funds, it is reasonably possible that changes in the values of the funds will occur in the near term and such changes could materially affect the amounts reported in the financial statements and supplemental schedule.
 
 
(c)
Fair Value of Financial Instruments
 
 
Investments in securities are stated at fair value. In addition, management of the Plan believes that the carrying amount of participant loans and payables is a reasonable approximation of the fair value due to the short-term nature of these investments.
 
 
(d)
Fully Benefit-Responsive Investment Contracts
 
As described in Financial Accounting Standards Board Staff Position (“FSP”) AAG INV-1 and Statement of Position (“SOP”) 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans, investment contracts held by a defined contribution plan are required to be reported at fair value.  However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.  The Plan invests in investment contracts through a collective trust.  The Statement of Net Assets Available for Benefits presents the fair value of the investment in the collective trust as well as the adjustment of the investment in the collective trust from fair value to contract value relating to investment contracts.  The Statement of Changes in Net Assets Available for Benefits is prepared on a contract value basis.
 
 
(e)
Recently Issued Accounting Standards
 
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”) effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  This statement increases consistency and comparability in fair value measurements and expands disclosures about fair value measurements.  In February 2008, FASB Staff Position No. 157-2 deferred the effective date of FAS 157 for nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.  The Plan is currently evaluating the provisions of FAS 157.
 
4
 

COVENANT TRANSPORT, INC. 401(K)
AND PROFIT SHARING PLAN
 
Notes to Financial Statements
 

 
(2)
Description of the Plan
 
The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.
 
 
(a)
General
 
The Plan is a defined contribution Plan and covers substantially all employees of Covenant Transportation Group, Inc. and certain subsidiaries (the “Company”). The Plan provides for retirement savings to qualified active participants through both participant and employer contributions and is subject to certain provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”). Employees are eligible to participate in the Plan at the beginning of a calendar month after the completion of six months of service.
 
 
(b)
Contributions
 
Contributions to the Plan are made by both participants and the Company. Participants may contribute up to a maximum of 85% of their annual compensation subject to the limitations of the Internal Revenue Code (IRC) Section 415(c)(3). The Company may make discretionary matching contributions to the Plan not to exceed 6% of an employee’s compensation and may make other types of discretionary contributions. Annual additions to a participant’s account during any Plan year, when combined with the total annual additions to the accounts of the participant under any other qualified defined contribution Plan maintained by the Company, cannot exceed certain levels established under IRC Section 402(g).
 
 
(c)
Participant Accounts
 
The Plan document requires that the assets of the Plan be accounted for separately as to participant and employer contributions and valued annually, allocating to each participant their share of  income and losses. Employer voluntary contributions are allocated to all eligible employees based on the employees’ contributions for the period.  Participant accounts may be invested in one or more of the investment funds available under the Plan at the direction of the participant.
 
 
(d)  
Participant Loans
 
Other than the financial conditions listed below, there are no restrictions on participants obtaining a loan.  Subject to approval, a participant can secure a loan from the Plan against his/her account balance for a minimum of $1,000 up to the lesser of 50% of the vested account balance or $50,000.  Loans may generally be repaid over one to five years.  Loans must be repaid through automatic payroll deductions unless otherwise provided for by the Plan Administrator.  A participant may only have one loan outstanding at a time.  The interest rate is the prime rate plus 1% and is fixed over the life of the loan. Individuals with loans may choose to continue to participate in the Plan.
 
 
(e)  
Payment of Benefits
 
Upon retirement, death, disability, or termination of service, a participant (or participant’s beneficiary in the event of death) may elect to receive a lump-sum distribution equal to the value of the participant’s vested account balance.
 
Benefits are recorded when paid.
 
 
(f)
Hardship Withdrawals
 
The Plan permits distributions in the event of a hardship once a participant furnishes proof of hardship, as defined in the Plan agreement.  These distributions are taxable and subject to a tax penalty equal to 10% of the hardship distribution amount if the participant is younger than 59 ½.  Hardship withdrawals are limited to the participant’s elective account balance. Participants with a hardship withdrawal are not allowed to make contributions to the Plan for six months after the withdrawal.
 
 
(g)
Vesting
 
Participants are immediately vested in their contributions and the investment earnings (losses) thereon.  Participants vest in employer contributions 20% each year and are 100% vested after five years of credited service.
 
 
5
 
COVENANT TRANSPORT, INC. 401(K)
AND PROFIT SHARING PLAN
 
Notes to Financial Statements
 
 
 
(h)
Forfeited Accounts
 
Amounts forfeited by participants who terminate from the Plan prior to being 100% vested are applied to reduce subsequent Company contributions to the Plan. Forfeitures totaled $74,363 and $63,130 in 2007 and 2006.  Forfeitures of $6,391 were unallocated at December 29, 2007, while the remainder was used to reduce Company contributions.
 
 
(i)
Administrative Expenses
 
The administrative expenses of the Plan are paid primarily by the Company.  These costs include legal, accounting, and certain administrative fees.
 
 
(j)
Plan Termination
 
While it is the Company’s intention to continue the Plan, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA and the Plan agreement. In the event of Plan termination, participants will become 100% vested in their accounts.
 
 
(k)
Plan Amendments
 
During 2007, the Plan was amended related to certain provisions regarding participant loans.
 
(3)
Transactions with Parties-In-Interest
 
At December 29, 2007 and 2006, the Plan held investments in trust funds and money market accounts sponsored by the Trustee with current values of $17,026,866 and $16,968,606, respectively. The Plan also held investments in 305,268 and 242,464 units of Covenant Transportation Group, Inc. common stock with current values of $1,221,409 and $1,641,941 at December 29, 2007 and 2006, respectively.  The Plan also held investments in the participants’ loans with interest rates between 5.25% and 9.25% with a current value of $1,087,083 and $961,450 as of December 29, 2007 and 2006, respectively.  All administrative fees of the Plan were paid to parties-in-interest.
 
(4)
Investments
 
The following investments represent 5% or more of the Plan’s net assets at December 29, 2007 and 2006:
 
   
2007
    
2006
  
Covenant Transportation Group, Inc. 401k Unitized Stock Fund
   $
1,221,409
     $ 1,641,941  
Diversified Stable Pooled Fund
     4,687,004       5,121,337  
Diversified Value & Income Fund
     2,144,066       2,528,073  
Diversified Equity Growth Fund
     **       2,162,051  
Diversified Core Bond Fund
     1,308,133       1,253,735  
Diversified Stock Index Fund
     **       1,052,238  
American Growth Fund
     2,184,713       **  
Participant Loans
     1,087,083       **  
                 
** Investment does not represent 5% or more of the Plan’s net assets for the respective year.
 
(5)
Income Tax Status
 
The Internal Revenue Service made a favorable ruling on the application for determination of qualification submitted by the Company on September 8, 2003. The Plan Administrator is not aware of any course of action or series of events that might adversely affect the Plan’s qualification under Section 401(a) of the IRC, and under which the Plan would be subject to tax under present income tax law.  Subsequent to the issuance of the determination letter, the Plan was amended.  Once qualified, the Plan is required to operate in conformity with the IRC to maintain its qualifications.  The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the IRC and, therefore believes that the Plan, as amended, is qualified and the related trust is tax exempt.
 
(6)
Subsequent Event
 
 
The Plan was amended effective December 30, 2007 to allow automatic enrollment into the plan for all eligible employees who do not opt out at an automatic deferral rate of 2%.
 

 

 
6
 



COVENANT TRANSPORT, INC. 401(K)
  
AND PROFIT SHARING PLAN
  
EIN 88-0320154 Plan No. 001
  
Schedule H, Line 4i – Schedule of Assets (Held at the End of Year)
  
December 29, 2007
  
       
Current
  
Identity of the issue
  
Description of investments
  
Value
  
           
Mutual Funds:
          
   American Funds
  
Growth Fund
   $ 2,184,713  
    * Diversified Investors Funds Group
  
Value & Income Fund
     2,144,066  
    * Diversified Investors Funds Group
  
Core Bond Fund
     1,308,133  
   First American
  
Mid Cap Growth Fund
     940,113  
    * Diversified Investors Funds Group
  
Stock Index Fund
     904,267  
       American Funds
  
Europacific Growth Fund R3
     921,824  
    * Diversified Investors Funds Group
  
Special Equity Fund
     244,034  
    * Diversified Investors Funds Group
  
Intermediate/Long Horizon Fund
     724,466  
    * Diversified Investors Funds Group
  
Mid Cap Value Fund
     470,421  
    * Diversified Investors Funds Group
  
Long Horizon SAF
     824,193  
    * Diversified Investors Funds Group
  
Intermediate Horizon SAF
     870,543  
    * Diversified Investors Funds Group
  
Short/Intermediate Horizon SAF
     246,924  
    * Diversified Investors Funds Group
  
Short Horizon SAF
     327,519  
       American Century Capital Portfolios, Inc.
  
Real Estate Investment Fund
     140,685  
  Vanguard
  
Treasury Money Market Fund
     65,242  
             
    Common Collective Fund:
            
    * Diversified Investors Advisors Coll. Trust
  
Stable Pooled Fund
     4,687,004  
             
  * Participant Loans
  
Loans to participants, with interest rates from 5.25% to 9.25%.
     1,087,083  
             
     Common stock:
            
   * Covenant Transportation Group, Inc.
  
401(K) Unitized Stock Fund
     1,221,409  
        $ 19,312,639  
 * Represents parties-in-interest to the Plan.
        
   
See accompanying report of independent registered public accounting firm.
  

 
7
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

 
COVENANT TRANSPORT, INC. 401(K) AND PROFIT SHARING PLAN
     
 
COVENANT TRANSPORTATION GROUP, INC.
     
     
     
Dated: June 27, 2008
By:
/s/ R.H. Lovin, Jr.
   
R.H. Lovin, Jr., Executive Vice President and Secretary
 
 
8
 
 
INDEX TO EXHIBITS
 
Exhibit Number
   Description of Exhibit    
 23
    Consent of Independent Registered Public Accounting Firm