UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
[ _ ] 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 0-15057
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P.A.M. TRANSPORTATION SERVICES, INC.
------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 71-0633135
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 412 West, Tontitown, Arkansas 72770
------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (479) 361-9111
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 in Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ _ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at November 8, 2002
----- -------------------------------
Common Stock, $.01 Par Value 11,267,207
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
2002 2001
---- ----
(unaudited) (note)
ASSETS
Current assets:
Cash and cash equivalents $ 24,869 $ 896
Receivables:
Trade, net of allowance 36,529 24,327
Other 1,021 744
Operating supplies and inventories 413 255
Deferred income taxes 824 472
Prepaid expenses and deposits 5,297 3,980
Income taxes refundable - 393
--------- ---------
Total current assets 68,953 31,067
Property and equipment, at cost 229,381 211,902
Less: accumulated depreciation (81,606) (70,190)
--------- ---------
Net property and equipment 147,775 141,712
Other assets:
Excess of cost over net assets acquired 8,102 8,102
Other 2,650 1,635
--------- ---------
Total other assets 10,752 9,737
--------- ---------
Total assets $ 227,480 $ 182,516
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,080 $ 17,692
Trade accounts payable 18,407 7,800
Income taxes payable 416 -
Other current liabilities 11,537 8,722
--------- ---------
Total current liabilities 31,440 34,214
Long-term debt, less current portion 20,435 47,023
Deferred income taxes 35,813 28,682
Shareholders' equity:
Preferred Stock, $.01 par value:
10,000,000 shares authorized; none issued
Common stock, $.01 par value:
40,000,000 shares authorized; issued and
outstanding- 11,264,207 at September 30,
2002, 8,611,957 at December 31, 2001 113 86
Additional paid-in capital 75,498 20,461
Accumulated other comprehensive income (loss) (973) (508)
Retained earnings 65,154 52,558
--------- ---------
Total shareholders' equity 139,792 72,597
--------- ---------
Total liabilities and shareholders' equity $ 227,480 $ 182,516
========= =========
Note: The balance sheet at December 31, 2001 has been derived from the audited
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 condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
---- ---- ---- ----
Operating revenues $ 65,034 $ 53,662 $ 199,188 $ 169,530
Operating expenses:
Salaries, wages and benefits 27,679 24,097 87,666 74,960
Operating supplies 13,438 10,990 38,517 33,317
Rent/purchased transportation 1,911 2,015 7,584 8,434
Depreciation and amortization 6,701 5,139 17,676 14,989
Operating taxes and licenses 3,356 2,940 10,200 8,878
Insurance and claims 2,559 2,407 9,505 7,489
Communications and utilities 444 567 1,704 1,662
Other 1,926 892 3,527 3,634
Loss on sale of equipment 48 145 96 191
--------- --------- --------- ---------
58,062 49,192 176,475 153,554
--------- --------- --------- ---------
Operating income 6,972 4,470 22,713 15,976
Other income (expense)
Interest expense (377) (1,148) (1,718) (3,455)
--------- --------- --------- ---------
(377) (1,148) (1,718) (3,455)
--------- --------- --------- ---------
Income before income taxes 6,595 3,322 20,995 12,521
Income taxes --current 536 35 1,310 895
--deferred 2,102 1,285 7,088 4,100
--------- --------- --------- ---------
2,638 1,320 8,398 4,995
--------- --------- --------- ---------
Net income $ 3,957 $ 2,002 $ 12,597 $ 7,526
========= ========= ========= =========
Net income per common share:
Basic $ 0.35 $ 0.23 $ 1.20 $ 0.88
========= ========= ========= =========
Diluted $ 0.35 $ 0.23 $ 1.20 $ 0.88
========= ========= ========= =========
Average common shares outstanding-Basic 11,263,392 8,525,334 10,466,381 8,524,546
========== ========= ========== =========
Average common shares outstanding-Diluted 11,306,778 8,537,286 10,514,705 8,559,263
========== ========= ========== =========
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Nine Months Ended
September 30,
2002 2001
---- ----
OPERATING ACTIVITIES
Net income $ 12,597 $ 7,526
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,676 14,989
Non compete agreement amortization - 99
Provision for deferred income taxes 7,088 4,100
Loss /(gain) on retirement of property and equipment 93 191
Changes in operating assets and liabilities:
Accounts receivable (12,554) (4,804)
Prepaid expenses and other current assets (1,926) (847)
Accounts payable 9,817 830
Accrued expenses 2,815 1,356
--------- ---------
Net cash provided by operating activities 35,606 23,440
INVESTING ACTIVITIES
Purchases of property and equipment (31,185) (39,940)
Proceeds from sales of assets 7,892 9,230
Lease payments received on direct financing leases 74 133
--------- ---------
Net cash used in investing activities (23,219) (30,577)
FINANCING ACTIVITIES
Borrowings under lines of credit 270,733 211,506
Repayments under lines of credit (279,809) (194,417)
Borrowings of long-term debt 1,459 7,112
Repayments of long-term debt (35,886) (16,979)
Proceeds from issuance of common stock 54,784 -
Proceeds from exercise of stock options 305 784
--------- ---------
Net cash provided by financing activities 11,586 8,006
--------- ---------
Net increase in cash and cash equivalents 23,973 869
Cash and cash equivalents at beginning of period $ 896 $ 485
--------- ---------
Cash and cash equivalents at end of period $ 24,869 $ 1,354
========= =========
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
NOTE A: BASIS OF PRESENTATION
- ---------------------------------
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles 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 management's opinion, all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 2002 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and the footnotes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 2001.
NOTE B: DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
- -----------------------------------------------------------------
On January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," issued by the Financial Accounting Standards Board in 1998.
Statement No. 133, as amended, establishes accounting and reporting standards
requiring the recording of each derivative instrument in the balance sheet as
either an asset or liability measured at fair value. 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 (loss) rather than current
earnings.
The Company had no transition adjustment as a result of adopting SFAS 133 on
January 1, 2001 as the Company's only derivative instruments were entered into
after January 1, 2001. Effective February 28, 2001 the Company entered into an
interest rate swap agreement on a notional amount of $15,000,000. The pay fixed
rate under the swap is 5.08%, while the receive floating rate is "1-month"
LIBOR. This interest rate swap agreement terminates on March 2, 2006. Effective
May 31, 2001 the Company entered into an interest rate swap agreement on a
notional amount of $5,000,000. The pay fixed rate under the swap is 4.83%, while
the receive floating rate is "1-month" LIBOR. This interest rate swap agreement
terminates on June 2, 2006.
The Company designates both of these interest rate swaps as cash flow hedges
of its exposure to variability in future cash flows resulting from interest
payments indexed to "1-month" LIBOR. Changes in future cash flows from the
interest rate swaps will offset changes in interest rate payments on the first
$20,000,000 of the Company's current revolving credit facility or future
"1-month" LIBOR based borrowings that reset on the second London Business Day
prior to the start of the next interest period. The hedge locks the interest
rate at 5.08% or 4.83% plus the pricing spread (currently 1.15%) for the
notional amounts of $15,000,000 and $5,000,000, respectively.
These interest rate swap agreements meet the specific hedge accounting criteria.
The effective portion of the cumulative gain or loss has been reported as a
component of accumulated other comprehensive loss in shareholders' equity and
will be reclassified into current earnings by June 2, 2006, the latest
termination date for all current swap agreements. The Company records all
derivatives at fair value as assets or liabilities in the condensed consolidated
balance sheet, with classification as current or long-term depending on the
duration of the instrument. At June 30, 2002, the net deferred hedging loss in
accumulated other comprehensive loss was approximately $973,194.
The measurement of hedge effectiveness is based upon a comparison of the
floating-rate leg 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 leg 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 leg of the swap and the present value of the cumulative change in the
expected future interest cash flows on the floating-rate liability.
In August 2000 and July 2001, the Company entered into agreements to obtain
price protection and reduce a portion of the Company's exposure to fuel price
fluctuations. Under these agreements, the Company was obligated to purchase
minimum amounts of diesel fuel per month, with a price protection component, for
the six month periods ended March 31, 2001 and February 28, 2002. The agreements
also provide that if during the 48 months commencing April 2001, the price of
heating oil on the New York Mercantile Exchange ("NY MX HO") falls below $.58
per gallon, the Company is obligated to pay, for a maximum of twelve different
months selected by the contract holder during such 48-month period, the
difference between $.58 per gallon and NY MX HO average price, multiplied by
900,000 gallons. Accordingly, in any month in which the holder exercises such
right, the Company would be obligated to pay the holder $9,000 for each cent by
which $.58 exceeds the average NY MX HO price for that month. For example, the
NY MX HO average price during February 2002 was approximately $.54, and if the
holder were to exercise its payment right, the Company would be obligated to pay
the holder approximately $36,000. In addition, if during any month in the
twelve-month period commencing January 2005, the average NY MX HO is below $.58
per gallon, the Company will be obligated to pay the contract holder the
difference between $.58 and the average NY MX HO price for such month,
multiplied by 1,000,000 gallons. The agreements are stated at their fair value
of $750,000 which is included in accrued liabilities in the accompanying
Condensed Consolidated Financial Statements.
NOTE C: COMMON STOCK OFFERING
- -------------------------------
During March 2002, the Company received net proceeds of approximately $43.9
million from a public offering of 2,100,000 shares of its common stock. The
Company has repaid certain long-term debt obligations and intends to use the
remaining proceeds to fund its capital expenditures and to finance general
working capital needs.
During April 2002, the Company received net proceeds of approximately $10.9
million from the sale of an additional 521,250 shares of its common stock in
order to cover broker over-allotments. The Company intends to use the proceeds
to fund its capital expenditures and to finance general working capital needs.
NOTE D: NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets," and announced the approval for issuance of SFAS No. 143, "Accounting
for Asset Retirement Obligations."
SFAS No. 141 requires all business combinations completed after June 30, 2001,
to be accounted for under the purchase method. This standard also establishes
for all business combinations made after June 30, 2001, specific criteria for
the recognition of intangible assets separately from goodwill. SFAS No. 141 also
requires that the excess of the fair value of acquired assets over cost
(negative goodwill) be recognized immediately as an extraordinary gain, rather
than deferred and amortized. The Company will account for all future business
combinations under SFAS No. 141.
SFAS No. 142 addresses the accounting for goodwill and other intangible assets
after an acquisition. Goodwill and other intangibles that have indefinite lives
will no longer be amortized, but will be subject to annual impairment tests. All
other intangible assets will continue to be amortized over their estimated
useful lives. An intangible asset with an indefinite useful life should be
tested for impairment in accordance with guidance in SFAS No. 142 which applies
a fair-value-based test. SFAS No. 142 is required to be applied in fiscal years
beginning after December 15, 2001. The Company ceased amortization of all
indefinite life intangibles upon adoption of SFAS No. 142 effective January 1,
2002. Approximately $8.1 million in net book value remains recorded for goodwill
at September 30, 2002. The adoption of SFAS No. 142 on January 1, 2002 did not
have a material impact on the Company's financial position or results of
operations. A reconciliation of previously reported net income and earnings per
share to the amounts adjusted for the exclusion of goodwill amortization net of
related income tax effect follows:
GOODWILL AND ADOPTION OF STATEMENT NO. 142
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------ ------ ------ ------
Reported net income $ 3,957 $ 2,002 $12,597 $ 7,526
Goodwill amortization, net of tax - 61 - 183
------ ------ ------ ------
Adjusted net income $ 3,957 $ 2,063 $12,597 $ 7,709
====== ====== ====== ======
Adjusted net income per common share:
Basic $ 0.35 $ 0.24 $ 1.20 $ 0.90
====== ====== ====== ======
Diluted $ 0.35 $ 0.24 $ 1.20 $ 0.90
====== ====== ====== ======
SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets, including: (i) the timing of
liability recognition; (ii) initial measurement of the liability; (iii)
allocation of asset retirement cost to expense; (iv) subsequent measurement of
the liability; and (v) financial statement disclosures. SFAS No. 143 requires
that an asset retirement cost should be capitalized as part of the cost of the
related long-lived asset and subsequently allocated to expense using a
systematic and rational method. This standard becomes effective for fiscal years
beginning after June 15, 2002. The Company will adopt the Statement effective
January 1, 2003. At this time, the Company has not yet determined what impact,
if any, the adoption of this Statement will have on either its financial
position or results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and
reporting for impairment or disposal of long-lived assets. This Statement
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets to be Disposed Of", and the accounting and reporting provisions of APB
Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", for the disposal of a segment of a business.
This Statement also amends ARB No. 51, "Consolidated Financial Statements", to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. SFAS No. 144 is effective for fiscal years beginning
after December 15, 2001. The Company adopted SFAS No. 144 on January 1, 2002 and
there was not a material impact on the Company's financial position or results
of operations.
In May 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44 and
64, Amendment of SFAS No. 13, and Technical Corrections" as of April 2002. SFAS
No. 145, rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt", and SFAS No. 64, "Extinguishments of Debt made to Satisfy Sinking-Fund
Requirements". Under the provisions of SFAS No. 145, gains and losses from
extinguishment of debt can only be classified as extraordinary items if they
meet the criteria in APB Opinion No. 30. The provisions of this Statement
related to the rescission of SFAS No. 4 shall be applied in fiscal years
beginning after May 15, 2002. Earlier application is permitted. This statement
also amends SFAS No. 13, "Accounting for Leases", to eliminate an inconsistency
between the accounting for sale-leaseback transactions and certain lease
modifications that have economic effects that are similar and is effective for
transactions occurring after May 15, 2002. This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions and
are effective for financial statements issued on or after May 15, 2002. At this
time, the Company has not yet determined what impact, if any, the adoption of
this Statement will have on either its financial position or results of
operations.
In July of 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 replaces EITF No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)". SFAS
No. 146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan as was required by EITF No. 94-3. Examples of costs
covered by SFAS No. 146 include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS No. 146 is to
be applied to exit or disposal activities initiated after December 31, 2002. At
this time, the Company has not yet determined what impact, if any, the adoption
of this Statement will have on either its financial position or results of
operations.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
- ----------------------------
Certain information included in this Quarterly Report on Form 10-Q constitutes
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements, which are
indicated by the use of words such as "expect", "intend", "estimate", "project",
"is likely", "plan", "forecast" or similar expressions, may relate to future
financial results or plans for future business activities, and are thus
prospective. Such forward-looking statements are subject to risks, uncertainties
and other factors which could cause actual results to differ materially from
future results expressed or implied by such forward-looking statements.
Potential risks and uncertainties include, but are not limited to, excess
capacity in the trucking industry, recessionary economic cycles, downturns in
customers' business cycles, increases or rapid fluctuations in fuel prices,
interest rates, operating taxes and licenses, registration fees, increases in
the price of new revenue equipment, the resale value of used revenue equipment,
increases in compensation for and the availability of qualified drivers,
increases in insurance premiums and deductible amounts relating to accident,
cargo, workers' compensation, health, and other claims, seasonal factors such as
adverse weather conditions that increase operating costs, competition from
trucking, rail, and intermodal competitors, regulatory requirements that
increase costs or decrease efficiency, the ability to identify acceptable
acquisition candidates, consummate acquisitions, and integrate acquired
operations, as well as other uncertainties detailed in this report and detailed
from time to time in other filings by the Company with the Securities and
Exchange Commission. The Company undertakes no obligation to update, amend, or
clarify forward-looking statements, whether as a result of new information,
future events (whether anticipated or not anticipated), or otherwise.
THREE MONTHS ENDED SEPTEMBER 30, 2002 VS. THREE MONTHS ENDED SEPTEMBER 30, 2001
- --------------------------------------------------------------------------------
For the quarter ended September 30, 2002, revenues increased 21.2% to $65.0
million as compared to $53.7 million for the quarter ended September 30, 2001.
The increase was due to improved utilization of existing revenue equipment and
an increase in the average number of tractors from 1,554 in the third quarter of
2001 to 1,755 in the third quarter of 2002. Improved utilization of existing
revenue equipment resulted in a 6.5% increase in average revenue generated per
tractor each work day from $580 in the third quarter of 2001 to $618 in the
third quarter of 2002.
Salaries, wages and benefits decreased from 44.9% of revenues in the third
quarter of 2001 to 42.6% of revenues in the third quarter of 2002. The decrease
relates to a decrease in the amount reserved for employee health claims incurred
but not reported.
Rent and purchased transportation decreased from 3.8% of revenues in the third
quarter of 2001 to 2.9% of revenues in the third quarter of 2002. The decrease
relates primarily to a decrease in amounts paid to other transportation
companies in the form of brokerage fees.
Depreciation and amortization increased from 9.6% of revenues in the third
quarter of 2001 to 10.3% of revenues in the third quarter of 2002. The increase
was primarily due to the combined effect of a higher purchase price for new
equipment and lower guaranteed residual values offered by the manufacturer.
Insurance and claims decreased from 4.5% of revenues in the third quarter of
2001 to 3.9% of revenues in the third quarter of 2002. The decrease relates to a
reduction in amounts held as reserves for additional auto liability insurance
premiums payable based upon the final audit by the insurance company.
Other expenses increased from 1.7% of revenues in the third quarter of 2001 to
3.0% of revenues in the third quarter of 2002. The increase was primarily
related to the write-off of a $660,055 accounts receivable payment which is
currently the subject of legal action claiming preferential payment immediately
preceding a customers bankruptcy filing.
The Company's operating ratio decreased to 89.3% for the third quarter of 2002
from 91.7% for the third quarter of 2001, as a result of the factors described
above.
The increase in income before income taxes to $6.6 million from $3.3 million,
respectively, for the three month period ended September 30, 2002 and 2001
combined with an increase in the Company's effective tax rate from 39.7% in the
third quarter of 2001 to 40.0% in the third quarter of 2002, resulted in an
increase in the provision for income taxes from $1.3 million for the third
quarter of 2001 to $2.6 million for the third quarter of 2002.
Net income increased to $4.0 million, or 6.1% of revenues, in the third quarter
of 2002 from $2.0 million, or 3.7% of revenues in the third quarter of 2001,
representing an increase in diluted net income per share to $.35 in the third
quarter of 2002 from $.23 in the third quarter of 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002 VS. NINE MONTHS ENDED SEPTEMBER 30, 2001
- --------------------------------------------------------------------------------
For the nine months ended September 30, 2002, revenues increased 17.5% to $199.2
million as compared to $169.5 million for the nine months ended September 30,
2001. The increase was due to improved utilization of existing revenue equipment
and an increase in the average number of tractors from 1,540 for the first nine
months of 2001 to 1,734 in the first nine months of 2002. Improved utilization
of existing revenue equipment resulted in a 4.1% increase in average revenue
generated per tractor each work day from $593 in the first nine months of 2001
to $617 in the first nine months 2002.
Operating supplies and expenses decreased from 19.7% of revenues in the first
nine months of 2001 to 19.3% of revenues in the first nine months of 2002. The
decrease relates primarily to a decrease in amounts paid to third party driver
training schools.
Rent and purchased transportation decreased from 5.0% of revenues in the first
nine months of 2001 to 3.8% of revenues in the first nine months of 2002. The
decrease relates primarily to a decrease in amounts paid to other transportation
companies in the form of brokerage fees.
Insurance and claims increased from 4.4% of revenues in the first nine months of
2001 to 4.8% of revenues in the first nine months of 2002. The increase relates
to increased premiums associated with the annual renewal of insurance policies.
The Company's operating ratio decreased to 88.6% for the first nine months of
2001 from 90.6% for the first nine months of 2001, as a result of the factors
described above.
The increase in income before income taxes to $21.0 million from $12.5 million,
respectively, for the nine month period ended September 30, 2002 and 2001
combined with an increase in the Company's effective tax rate from 39.9% in the
first nine months of 2001 to 40.0% in the first nine months of 2002, resulted in
an increase in the provision for income taxes from $5.0 million for the first
nine months of 2001 to $8.4 million for the first nine months of 2002.
Net income increased to $12.6 million, or 6.3% of revenues, in the first nine
months of 2002 from $7.5 million, or 4.4% of revenues in the first nine months
of 2001, representing an increase in diluted net income per share to $1.20 in
the first nine months of 2002 from $.88 in the first nine months of 2001.
LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------
During the first nine months of 2002, the Company generated $35.6 million in
cash from operating activities. Investing activities used $23.2 million in cash
in the first nine months of 2002. Financing activities generated $11.6 million
in the first nine months of 2002, primarily from the issuance of common stock.
Accounts receivable at September 30, 2002 increased approximately $12.2 million
from December 31, 2001. The increase relates primarily to new trade terms
between the Company and its largest customer which have the effect of extending
the collection of the receivable to the next accounting period.
During March and April 2002, the Company received net proceeds of approximately
$54.8 million from a public offering of 2,621,250 shares of its common stock.
The Company has repaid certain long-term debt obligations and intends to use the
remaining proceeds to fund its capital expenditures and to finance general
working capital needs. For additional information see Note C to the condensed
consolidated financial statements.
The Company's principal subsidiary, P.A.M. Transport, Inc., maintains two $20.0
million lines of credit (Line A and Line B) with separate financial
institutions. Amounts outstanding under Line A bear interest at LIBOR (on the
first day of the month) plus 1.40%, are secured by accounts receivable and
mature on May 31, 2003. At September 30, 2002, the entire outstanding balance of
$3.2 million on Line A was comprised of letters of credit, with availability to
borrow $16.8 million. Amounts outstanding under Line B bear interest at LIBOR
(on the last day of the previous month) plus 1.15%, are secured by revenue
equipment and mature on November 30, 2003. At September 30, 2002, Line B was
fully utilized with $20.0 million outstanding.
In addition to cash flows from operations, the Company uses its existing lines
of credit on an interim basis to finance capital expenditures and repay
long-term debt. Longer-term transactions, such as installment notes (generally
three to five year terms at fixed rates), are typically entered into for the
purchase of revenue equipment; however, the Company purchased additional revenue
equipment during the first nine months of 2002 at a cost of approximately $4.6
million using its existing lines of credit. During the remainder of 2002, the
Company plans to replace 130 tractors and 80 trailers, and plans to add 100
additional trailers, which would result in net capital expenditures of
approximately $9.1 million. Management expects that the Company's existing
working capital and its available lines of credit will be sufficient to meet the
Company's present capital commitments, to repay indebtedness coming due in the
current year, and to fund its operating needs during the remainder of fiscal
2002.
During February 2001 and May 2001 the Company entered into separate interest
rate swap agreements on notional amounts of $15,000,000 and $5,000,000,
respectively. The pay fixed rate under the swaps are 5.08% and 4.83%,
respectively, while the receive floating rate is "1-month" LIBOR. The
$15,000,000 swap agreement terminates on March 2, 2006 while the $5,000,000 swap
agreement terminates on June 2, 2006. For additional information with respect to
the interest rate swap agreements, see Note B to the condensed consolidated
financial statements.
ACQUISITION OF TRANSCEND LOGISTICS, INC.
- ----------------------------------------
On August 28, 2002, P.A.M. Transportation Services, Inc. acquired 100 percent of
the outstanding common stock of Transcend Logistics, Inc. The results of
Transcend Logistics, Inc. have been included in the consolidated financial
statements since that date. In accordance with SFAS No. 141, "Business
Combinations", the acquisition was accounted for under the purchase method of
accounting.
The aggregate purchase price of $219,920 will be paid in the form of 10,000
shares of common stock to be issued by P.A.M. Transportation Services, Inc. The
value of the 10,000 shares was determined based on an average market price of
P.A.M. Transportation Services, Inc.'s common shares over the two day period
before and after the terms of the acquisition were settled.
The following table summarizes the estimated fair values of the assets and
liabilities assumed at the date of acquisition. P.A.M. Transportation services,
Inc. is in the process of obtaining valuations of certain assets; thus, the
allocation of the purchase price is subject to refinement.
At August 28, 2002
------------------
Property and Equipment $ 523,093
Notes Payable (303,173)
----------
Net assets acquired $ 219,920
==========
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
See Note D to the condensed consolidated financial statements for a description
of the most recent accounting pronouncements and their impact, if any, on the
Company.
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
- ----------------------------------------------------------------------------
The Company's primary market risk exposures include commodity price risk (the
price paid to obtain diesel fuel for our tractors) and interest rate risk. The
potential adverse impact of these risks and the general strategies the Company
employs to manage such risks are discussed below.
The following sensitivity analyses do not consider the effects that an adverse
change may have on the overall economy nor do they consider additional actions
the Company may take to mitigate our exposure to such changes. Actual results of
changes in prices or rates may differ materially from the hypothetical results
described below.
Commodity Price Risk
Prices and availability of all petroleum products are subject to political,
economic and market factors that are generally outside of the Company's control.
Accordingly, the price and availability of diesel fuel, as well as other
petroleum products, can be unpredictable. Because the Company's operations are
dependent upon diesel fuel, significant increases in diesel fuel costs could
materially and adversely affect the Company's results of operations and
financial condition. Based upon the Company's 2001 fuel consumption, a 10%
increase in the average annual price per gallon of diesel fuel would increase
the Company's annual fuel expenses by $3.2 million.
In August 2000 and July 2001, the Company entered into agreements to obtain
price protection and reduce a portion of the Company's exposure to fuel price
fluctuations. Under these agreements, the Company was obligated to purchase
minimum amounts of diesel fuel per month, with a price protection component, for
the six month periods ended March 31, 2001 and February 28, 2002. The agreements
also provide that if during the 48 months commencing April 2001, the price of
heating oil on the New York Mercantile Exchange ("NY MX HO") falls below $.58
per gallon, the Company is obligated to pay, for a maximum of twelve different
months selected by the contract holder during such 48-month period, the
difference between $.58 per gallon and NY MX HO average price, multiplied by
900,000 gallons. Accordingly, in any month in which the holder exercises such
right, the Company would be obligated to pay the holder $9,000 for each cent by
which $.58 exceeds the average NY MX HO price for that month. For example, the
NY MX HO average price during February 2002 was approximately $.54, and if the
holder were to exercise its payment right, the Company would be obligated to pay
the holder approximately $36,000. In addition, if during any month in the
twelve-month period commencing January 2005, the average NY MX HO is below $.58
per gallon, the Company will be obligated to pay the contract holder the
difference between $.58 and the average NY MX HO price for such month,
multiplied by 1,000,000 gallons. Management's current valuation of the fuel
purchases indicates there was no material impact upon adoption of SFAS No. 133
on our results of operations and financial position, and we have valued these
items at fair value in the accompanying September 30, 2002, Condensed
Consolidated Financial Statements.
Interest Rate Risk
The Company's two $20.0 million lines of credit each bear interest at a floating
rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR,
which are effected by changes in interest rates generally, will affect the
interest rate on, and therefore the Company's costs under, the lines of credit.
In an effort to manage the risks associated with changing interest rates, the
Company entered into interest rate swap agreements effective February 28, 2001
and May 31, 2001, on notional amounts of $15,000,000 and $5,000,000,
respectively. The "pay fixed rates" under the $15,000,000 and $5,000,000 swap
agreements are 5.08% and 4.83%, respectively. The "receive floating rate" for
both swap agreements is "1-month" LIBOR. These interest rate swap agreements
terminate on March 2, 2006 and June 2, 2006, respectively.
Item 4. Controls and Procedures.
- ------------------------------------
Within the 90 days prior to the date of this report, the Company carried out an
evaluation under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) required to be included in the Company's periodic SEC Filings.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II. OTHER INFORMATION
------------------------------
Item 1. Legal Proceedings
- ---------------------------
On October 10, 2002, a suit was filed against one of the Company's subsidiaries
and is entitled "The Official Committee of Unsecured Creditors of Bill's Dollar
Stores, Inc. v. Allen Freight Services Co.,." The suit, which has been filed in
the United States Bankruptcy Court for the District of Delaware, alleges
preferential transfers of $660,055.14 were made to the defendant, Allen Freight
Services Co., within the 90 day period preceding the bankruptcy petition date of
Bill's Dollar Stores, Inc. The suit is currently in pretrial proceedings and the
potential damages of $660,055.14 are reflected in the Company's consolidated
financial statements.
Item 2. Changes in Securities and Use of Proceeds
- ---------------------------------------------------
On August 28, 2002, P.A.M. Transportation Services, Inc. sold 10,000 shares of
its common stock to the sole shareholder of Transcend Logistics, Inc. in
exchange for 100 percent of the common stock of Transcend Logistics, Inc. The
aggregate purchase price of $219,920 was determined based on an average market
price of P.A.M. Transportation Services, Inc.'s common shares over the two day
period before and after the terms of the acquisition were agreed. The
transaction was not registered under the Securities Act of 1933 as amended, in
reliance on Section 4(2) of that Act.
Item 6. Exhibits and Reports on Form 8-K
- --------------------------------------------------
(a) Exhibits required by Item 601 of Regulations S-K:
3.1 - Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Company's
report on Form 10-Q for the period ending March 31, 2002)
3.2 - Bylaws of the Company, as amended.
(Incorporated by reference to Exhibit 3.2 to the Company's
report on Form 10-Q for the period ending March 31, 2002)
11.1 - Statement Re: Computation of Diluted Earnings Per Share.
99.1 - Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 - Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
We filed the following reports on Form 8-K during the quarter for which
this report is filed:
(1) A Current Report on Form 8-K was filed on August 1, 2002 regarding
a press release issued to announce the Company's second quarter
2002 results; and
(2) A Current Report on Form 8-K was filed on July 12, 2002 regarding
a change in registrants certifying accountant.
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.
P.A.M. TRANSPORTATION SERVICES, INC.
Dated: November 11, 2002 By: /s/ Robert W. Weaver
---------------------------------
Robert W. Weaver
President and Chief Executive Officer
(principal executive officer)
Dated: November 11, 2002 By: /s/ Larry J. Goddard
---------------------------------
Larry J. Goddard
Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
(principal accounting and financial officer)
CERTIFICATIONS
I, ROBER W. WEAVER, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of P.A.M. TRANSPORTATION
SERVICES, INC., a Delaware corporation (the "registrant");
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
By: /s/ Robert W. Weaver
---------------------------------
Robert W. Weaver
President and Chief Executive Officer
(principal executive officer)
I, LARRY J. GODDARD, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of P.A.M. TRANSPORTATION
SERVICES, INC., a Delaware corporation (the "registrant");
(2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002
By: /s/ Larry J. Goddard
---------------------------------
Larry J. Goddard
Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
(principal accounting and financial officer)
P.A.M. TRANSPORTATION SERVICES, INC.
INDEX TO EXHIBITS TO FORM 10-Q
Exhibit
Number Exhibit Description
- -------- ---------------------------------------------------------
3.1 Certificate of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 3.1 to the Company's
report on Form 10-Q for the period ending March 31, 2002)
3.2 Bylaws of the Company, as amended.
(Incorporated by reference to Exhibit 3.2 to the Company's
report on Form 10-Q for the period ending March 31, 2002)
11.1 Statement Re: Computation of Diluted Earnings Per Share
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002