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 March 31, 2005
[ _ ] 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.)
297 West Henri De Tonti, Tontitown, Arkansas 72770
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(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 May 5, 2005
----- --------------------------
Common Stock, $.01 Par Value 11,137,307
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
2005 2004
---- ----
(unaudited) (note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,886 $ 19,659
Accounts receivable-net:
Trade 53,336 47,926
Other 1,162 1,110
Inventories 907 913
Prepaid expenses and deposits 10,264 14,862
Marketable equity securities available-for-sale 8,790 8,792
Income taxes refundable 504 754
--------- ---------
Total current assets 92,849 94,016
PROPERTY AND EQUIPMENT:
Land 2,674 2,674
Structures and improvements 9,304 9,299
Revenue equipment 245,040 238,750
Office furniture and equipment 6,401 6,449
--------- ---------
Total property and equipment 263,419 257,172
Accumulated depreciation (85,446) (83,029)
--------- ---------
Net property and equipment 177,973 174,143
OTHER ASSETS:
Goodwill 15,413 15,413
Non-compete agreements 567 654
Other 1,126 1,123
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Total other assets 17,106 17,190
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TOTAL ASSETS $ 287,928 $ 285,349
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 19,530 $ 28,702
Accrued expenses and other liabilities 11,502 9,828
Current maturities of long-term debt 1,366 2,080
Deferred income taxes-current 6,996 7,162
--------- ---------
Total current liabilities 39,394 47,772
Long-term debt-less current portion 29,354 23,225
Deferred income taxes-less current portion 47,287 45,375
Other 384 434
--------- ---------
Total liabilities 116,419 116,806
--------- ---------
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- 11,310,207 at March 31, 2005,
11,303,207 at December 31, 2004 113 113
Additional paid-in capital 76,118 76,050
Accumulated other comprehensive income 1,146 1,151
Retained earnings 94,132 91,229
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Total shareholders' equity 171,509 168,543
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 287,928 $ 285,349
========= =========
Note: The balance sheet at December 31, 2004 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
March 31,
2005 2004
---- ----
OPERATING REVENUES:
Revenue, before fuel surcharge $ 80,109 $ 77,673
Fuel surcharge 6,083 2,447
--------- ---------
Total operating revenues 86,192 80,120
--------- ---------
OPERATING EXPENSES AND COSTS:
Salaries, wages, and benefits 31,005 30,398
Operating supplies and expenses 22,653 18,377
Rents and purchased transportation 9,832 9,762
Depreciation and amortization 7,467 7,469
Operating taxes and licenses 3,954 4,011
Insurance and claims 4,099 3,989
Communications and utilities 699 708
Other 1,308 1,349
Loss on sale or disposal of equipment 17 259
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Total operating expenses and costs 81,034 76,322
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NET OPERATING INCOME 5,158 3,798
NON-OPERATING INCOME 191 93
INTEREST EXPENSE (445) (443)
--------- ---------
NET INCOME BEFORE INCOME TAXES 4,904 3,448
FEDERAL AND STATE INCOME TAXES:
Current 252 317
Deferred 1,749 1,100
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Total federal and state income taxes 2,001 1,417
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NET INCOME $ 2,903 $ 2,031
========= =========
EARNINGS PER COMMON SHARE:
Basic $ 0.26 $ .18
========= =========
Diluted $ 0.26 $ .18
========= =========
AVERAGE COMMON SHARES OUTSTANDING:
Basic 11,305 11,295
========= =========
Diluted 11,327 11,321
========= =========
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
March 31,
2005 2004
---- ----
OPERATING ACTIVITIES:
Net income $ 2,903 $ 2,031
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,467 7,469
Bad debt expense (recovery) 134 (49)
Non-compete agreement amortization-net of payments 38 -
Provision for deferred income taxes 1,749 1,100
Loss on sale or disposal of equipment 17 259
Changes in operating assets and liabilities:
Accounts receivable (5,575) (8,866)
Prepaid expenses, inventories, and other assets 4,600 (3,565)
Income taxes refundable 249 603
Trade accounts payable (10,409) (4,557)
Accrued expenses 1,674 1,238
--------- ---------
Net cash provided by (used in) operating activities 2,847 (4,337)
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (13,151) (7,675)
Proceeds from sale or disposal of equipment 3,283 10,792
Purchase of marketable equity securities (216) (86)
Other (19) 21
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Net cash (used in) provided by investing activities (10,103) 3,052
--------- ---------
FINANCING ACTIVITIES:
Borrowings under line of credit 102,178 85,583
Repayments under line of credit (95,861) (85,673)
Borrowings of long-term debt - 1,142
Repayments of long-term debt (901) (1,017)
Other 67 17
--------- ---------
Net cash provided by financing activities 5,483 52
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,773) (1,233)
CASH AND CASH EQUIVALENTS-Beginning of period 19,659 3,064
--------- ---------
CASH AND CASH EQUIVALENTS-End of period $ 17,886 $ 1,831
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
Cash paid during the period for:
Interest $ 508 $ 445
========= =========
Income taxes $ 23 $ 46
========= =========
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Other
Common Stock Paid-In Comprehensive Comprehensive Retained
Shares Amount Capital Income(Loss) Income(Loss) Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2004 11,303 $113 $76,050 $1,151 $91,229 $168,543
Components of comprehensive income:
Net income $ 2,903 2,903 2,903
Other comprehensive income (loss)-
Unrealized gain on hedge,
net of tax of $86 123 123 123
Unrealized loss on marketable
securities, net of tax of $89 (128) (128) (128)
--------
Total comprehensive income $ 2,898
========
Exercise of stock options-
shares issued including tax
benefits 7 68 68
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2005 11,310 $113 $76,118 $1,146 $94,132 $171,509
=================================================================================================================================
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2005
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 three-month period ended March 31, 2005 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2005. 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, 2004.
In order to conform to industry practice, the Company began to classify fuel
surcharges charged to customers as revenue rather than as a reduction of
operating supplies expense as presented in reports prior to the period ended
June 30, 2004. This reclassification has no effect on net operating income, net
income or earnings per share. The Company has made corresponding
reclassifications to comparative periods shown.
NOTE B: DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
- ----------------------------------------------------------------
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 last 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 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. The effective portion of the cumulative gain or loss has
been reported as a component of accumulated other comprehensive income in
shareholders' equity and will be reclassified into current earnings by June 2,
2006, the latest termination date for all current swap agreements. The beginning
balance of the net after tax deferred hedging loss in accumulated other
comprehensive income ("AOCI") related to these swap agreements was approximately
$301,000 and the ending balance as of March 31, 2005 was approximately $178,000.
The change in AOCI related to these swap agreements during the current year was
approximately $123,000. There were no reclassifications into earnings during the
three month period ending March 31, 2005. Ineffectiveness related to these
hedges was not significant.
In August 2000 and July 2001, the Company entered into agreements to obtain
price protection and reduce a portion of our exposure to fuel price
fluctuations. Under these agreements, we were 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, we are 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, we
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, we 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,
we 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.
During March 2005, the average NY MX HO price was $1.54. The value of the
agreements are periodically adjusted to fair value, as determined by obtaining
an offer from the contract holder of the dollar amount required to terminate all
future liability under the contracts, and as of March 31, 2005 the estimated
fair value of $375,000 is included in accrued liabilities in the accompanying
consolidated financial statements. For the three-month period ended March 31,
2005 an adjustment of $125,000 was made to reflect the decline in fair value of
the agreements which had the effect of reducing operating supplies expense and
other current liabilities each by $125,000 in the accompanying consolidated
financial statements.
NOTE C: RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 123(R) , Share-Based Payment,
("SFAS No. 123(R)") which replaces SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS No. 123(R) requires compensation costs relating to share-based
payment transactions be recognized in financial statements. The pro forma
disclosure previously permitted under SFAS No. 123 will no longer be an
acceptable alternative to recognition of expenses in the financial statements.
SFAS No. 123(R) was originally to be effective as of the beginning of the first
interim or annual reporting period that begins after June 15, 2005, with early
adoption encouraged. Management is currently evaluating the possible future
impact on the Company's financial position and results of operations.
In April 2005, the Securities and Exchange Commission announced the adoption of
a new rule that amends the effective date of SFAS No. 123(R). The effective date
of the new standard under these new rules for our consolidated financial
statements is January 1, 2006.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 153 , Exchanges of Nonmonetary Assets-an amendment to APB Opinion No. 29
("SFAS No. 153"). This statement amends Accounting Principles Board Opinion No.
29 ("APB No. 29") to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary exchanges occurring in fiscal periods beginning after
June 15, 2005. Adoption of this statement is not expected to have a material
effect on the Company's consolidated financial statements.
NOTE D: MARKETABLE SECURITIES
- ------------------------------
The Company accounts for its marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS No. 115"). SFAS No. 115 requires companies to
classify their investments as either trading, available-for-sale or
held-to-maturity. The Company's investments in marketable securities are
classified as available-for-sale and consist of equity securities. Management
determines the appropriate classification of these securities at the time of
purchase and re-evaluates such designation as of each balance sheet date. During
the first three months of 2005 there were no sales or reclassifications of
marketable securities. These securities are carried at fair value, with the
unrealized gains and losses, net of tax, included as a component of accumulated
other comprehensive income in shareholders' equity. The cost of securities sold
is based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in non-operating
income. Realized gains and losses, and declines in value judged to be
other-than-temporary on available-for-sale securities, if any, are included in
the determination of net income as gains (losses) on the sale of securities.
As of March 31, 2005, these equity securities had a combined original cost of
approximately $6,554,000 and a combined fair market value of approximately
$8,790,000. For the three months ended March 31, 2005, the Company had net
unrealized losses in market value of approximately $128,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately
$2,408,000 and gross unrealized losses of approximately $172,000. As of March
31, 2005, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $1,324,000.
NOTE E: STOCK BASED COMPENSATION
- ---------------------------------
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No.
123). The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation:
Three Months Ended
March 31,
2005 2004
------- -------
(in thousands, except
per share data)
Net income $ 2,903 $ 2,031
Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (74) (74)
------- -------
Pro forma net income $ 2,829 $ 1,957
======= =======
Earnings per share:
Basic - as reported $ .26 $ .18
Basic - pro forma $ .25 $ .17
Diluted - as reported $ .26 $ .18
Diluted - pro forma $ .25 $ .17
NOTE F: SEGMENT INFORMATION
- ----------------------------
The Company considers the guidance provided by Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information ("SFAS No. 131"), in its identification of operating segments. The
Company has determined that it has total of eight operating segments whose
primary operations can be characterized as either Truckload Services or
Brokerage and Logistics Services, however in accordance with the aggregation
criteria provided by SFAS No. 131 the Company has determined that the operations
of the eight operating segments can be aggregated into a single reporting
segment, motor carrier operations. For the quarter ending March 31, 2005 and
2004, Truckload Services revenues, before fuel surcharges, were $70,080,375 and
$67,129,377, respectively, and Brokerage and Logistics Services revenues, before
fuel surcharges, were $10,028,100 and $10,544,059, respectively. The combined
revenues, before fuel surcharges, for the quarter ending March 31, 2005 and
2004, were $80,108,475 and $77,673,436, respectively.
NOTE G: SUBSEQUENT EVENTS
- ---------------------------
On April 11, 2005 the Company issued a press release announcing its Board of
Directors authorization for the purchase of up to 600,000 shares of the
Company's common stock over the next six months. On May 3, 2005 the Company
entered into a privately negotiated transaction to repurchase 172,900 shares of
its common stock at a cost of $2,901,262.
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 may relate to
expected future financial and operating results or events, 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; surplus inventories; recessionary economic
cycles and downturns in customers' business cycles; increases or rapid
fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and
registration fees; the resale value of the Company's used equipment and the
price of new equipment; increases in compensation for and difficulty in
attracting and retaining qualified drivers and owner-operators; increases in
insurance premiums and deductible amounts relating to accident, cargo, workers'
compensation, health, and other claims; unanticipated increases in the number or
amount of claims for which the Company is self insured; inability of the Company
to continue to secure acceptable financing arrangements; seasonal factors such
as harsh weather conditions that increase operating costs; competition from
trucking, rail, and intermodal competitors including reductions in rates
resulting from competitive bidding; the ability to identify acceptable
acquisition candidates, consummate acquisitions, and integrate acquired
operations; a significant reduction in or termination of the Company's trucking
service by a key customer; and other factors, including risk factors, referred
to from time to time in filings made by the Company with the Securities and
Exchange Commission. The Company undertakes no obligation to update or clarify
forward-looking statements, whether as a result of new information, future
events or otherwise.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The Company's management makes estimates and assumptions in preparing the
consolidated financial statements that affect reported amounts and disclosures
therein. In the opinion of management, the accounting policies that generally
have the most significant impact on the financial position and results of
operations of the Company include:
Accounts Receivable. We continuously monitor collections and payments from our
customers, third parties and vendors and maintain a provision for estimated
credit losses based upon our historical experience and any specific collection
issues that we have identified. While such credit losses have historically been
within our expectations and the provisions established, we cannot guarantee that
we will continue to experience the same credit loss rates that we have in the
past.
Property and equipment. Management must use its judgment in the selection of
estimated useful lives and salvage values for purposes of depreciating tractors
and trailers which in some cases do not have guaranteed residual values.
Estimates of salvage value at the expected date of trade-in or sale are based on
the expected market values of equipment at the time of disposal which, in many
cases include guaranteed residual values by the manufacturers.
Self Insurance. The Company is self-insured for health and workers'
compensation benefits up to certain stop-loss limits. Such costs are accrued
based on known claims and an estimate of incurred, but not reported (IBNR)
claims. IBNR claims are estimated using historical lag information and other
data either provided by outside claims administrators or developed internally.
This estimation process is subjective, and to the extent that future actual
results differ from original estimates, adjustments to recorded accruals may be
necessary.
Revenue Recognition. Revenue is recognized in full upon completion of delivery
to the receiver's location. For freight in transit at the end of a reporting
period, the Company recognizes revenue prorata based on relative transit miles
completed as a portion of the estimated total transit miles. Expenses are
recognized as incurred.
Prepaid Tires. Tires purchased with revenue equipment are capitalized as a cost
of the related equipment. Replacement tires are included in prepaid expenses and
deposits and are amortized over a 24-month period. Costs related to tire
recapping are expensed when incurred.
Income Taxes. Significant management judgment is required to determine the
provision for income taxes and to determine whether deferred income taxes
will be realized in full or in part. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be recovered or settled. When it is more likely that all or some portion
of specific deferred income tax assets will not be realized, a valuation
allowance must be established for the amount of deferred income tax assets
that are determined not to be realizable. A valuation allowance for
deferred income tax assets has not been deemed to be necessary due to the
Company's profitable operations. Accordingly, if the facts or financial
circumstances were to change, thereby impacting the likelihood of realizing
the deferred income tax assets, judgment would need to be applied to
determine the amount of valuation allowance required in any given period.
Business Segment and Concentrations of Credit Risk. The Company operates in one
reporting segment, motor carrier operations. The Company provides transportation
services to customers throughout the United States and portions of Canada and
Mexico. The Company performs ongoing credit evaluations and generally does not
require collateral from its customers. The Company maintains reserves for
potential credit losses. In view of the concentration of the Company's revenues
and accounts receivable among a limited number of customers within the
automobile industry, the financial health of this industry is a factor in the
Company's overall evaluation of accounts receivable.
Business Combinations and Goodwill. Upon acquisition of an entity, the cost of
the acquired entity must be allocated to assets and liabilities acquired.
Identification of intangible assets, if any, that meet certain recognition
criteria is necessary. This identification and subsequent valuation requires
significant judgments. The carrying value of goodwill was tested for impairment
on December 31, 2004 and the Company determined that there was no impairment.
BUSINESS OVERVIEW
- -----------------
The Company's administrative headquarters are in Tontitown, Arkansas. From this
location we manage operations conducted through wholly owned subsidiaries based
in various locations around the United States and Canada. The operations of
these subsidiaries can generally be classified into either truckload services or
brokerage and logistics services. Truckload services include those
transportation services in which we utilize company owned tractors or
owner-operator owned tractors. Brokerage and logistics services consist of
services such as transportation and other value added services related to the
transportation of freight which may or may not involve the usage of company
owned or owner-operator owned equipment. Both our truckload operations and our
brokerage/logistics operations have similar economic characteristics and are
impacted by virtually the same economic factors as discussed elsewhere in this
Report. All of the Company's operations are in the motor carrier reporting
segment.
For both operations, substantially all of our revenue is generated by
transporting freight for customers and is predominantly affected by the rates
per mile received from our customers, equipment utilization, and our percentage
of non-compensated miles. These aspects of our business are carefully managed
and efforts are continuously underway to achieve favorable results. Truckload
services revenues, excluding fuel surcharges, represented 87.5% and 86.4% of
total revenues, excluding fuel surcharges for the three months ended March 31,
2005 and 2004, respectively.
The main factors that impact our profitability on the expense side are costs
incurred in transporting freight for our customers. Currently our most
challenging costs include fuel, driver recruitment, training, wage and benefit
costs, independent broker costs (which we record as purchased transportation),
insurance, and maintenance and capital equipment costs.
In discussing our results of operations we use revenue, before fuel surcharge,
(and fuel expense, net of surcharge), because management believes that
eliminating the impact of this sometimes volatile source of revenue allows a
more consistent basis for comparing our results of operations from period to
period. During the three months ending March 31, 2005 and 2004, approximately
$6.1 million and $2.4 million, respectively, of the Company's total revenue was
generated from fuel surcharges.
We also discuss certain changes in our expenses as a percentage of revenue,
before fuel surcharge, rather than absolute dollar changes. We do this because
we believe the high variable cost nature of certain expenses makes a comparison
of changes in expenses as a percentage of revenue more meaningful than absolute
dollar changes.
RESULTS OF OPERATIONS - TRUCKLOAD SERVICES
- ------------------------------------------
The following table sets forth, for truckload services, the percentage
relationship of expense items to operating revenues, before fuel surcharges, for
the periods indicated. Operating supplies expense, which includes fuel costs,
are shown net of fuel surcharges.
Three Months Ended
March 31,
2005 2004
---- ----
Operating revenues, before fuel surcharge 100.0% 100.0%
------ ------
Operating expenses:
Salaries, wages and benefits 43.5 44.5
Operating supplies (1) 23.9 23.9
Rent and purchased transportation 1.1 0.6
Depreciation and amortization 10.6 11.1
Operating taxes and licenses 5.7 6.0
Insurance and claims 5.9 6.0
Communications and utilities 0.9 1.0
Other 1.6 1.7
Loss on sale or disposal of property 0.1 0.4
------ ------
Total operating expenses 93.3 95.2
------ ------
Operating income 6.7 4.8
Non-operating income 0.3 0.1
Interest expense (0.5) (0.5)
------ ------
Income before income taxes 6.5 4.4
------ ------
- -----------------------------
(1) Net of fuel surcharges.
THREE MONTHS ENDED MARCH 31, 2005 VS. THREE MONTHS ENDED MARCH 31, 2004
For the quarter ended March 31, 2005, truckload services revenues, before fuel
surcharges, increased 4.4% to $70.1 million as compared to $67.1 million for the
quarter ended March 31, 2004. The increase was due to a 10.9% increase in the
average rate per total mile from $1.10 during the first quarter of 2004 to $1.22
during the first quarter of 2005. The revenue growth attributable to the
increase in average rate per mile was partially offset by a 5.9% reduction in
total miles traveled from 61,128,365 during the first three months of 2004 to
57,519,631 miles during the first three months of 2005.
Salaries, wages and benefits decreased from 44.5% of revenues, before fuel
surcharges, in the first quarter of 2004 to 43.5% of revenues, before fuel
surcharges, in the first quarter of 2005. The decrease relates primarily to a
decrease in driver lease expense as the average number of owner operators under
contract decreased from 99 in the first quarter of 2004 to 74 in the first
quarter of 2005 and to a decrease in amounts expensed for workers compensation
coverage as the Company continues to benefit from the restructuring of workers
compensation plans. The decrease associated with driver lease expense was
partially offset by an increase in amounts paid to the corresponding company
driver replacement, and in other costs normally absorbed by the owner operator
such as repairs and fuel.
Rent and purchased transportation increased from 0.6% of revenues, before fuel
surcharges, in the first quarter of 2004 to 1.1% of revenues, before fuel
surcharges in the first quarter of 2005. The increase relates primarily to an
increase in amounts paid to third party transportation companies for intermodal
services.
Depreciation and amortization decreased from 11.1% of revenues, before fuel
surcharges, in the first quarter of 2004 to 10.6% of revenues, before fuel
surcharges, in the first quarter of 2005. This decrease as a percentage of
revenues is the result of the interaction of higher revenues as a result of an
increased rate per mile charged to customers and the fixed cost nature of
depreciation expense.
The truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before fuel
surcharges, decreased to 93.3% for the first quarter of 2005 from 95.2% for the
first quarter of 2004.
RESULTS OF OPERATIONS - LOGISTICS AND BROKERAGE SERVICES
- --------------------------------------------------------
The following table sets forth, for logistics and brokerage services, the
percentage relationship of expense items to operating revenues, before fuel
surcharges, for the periods indicated. Brokerage service operations occur
specifically in certain divisions; however, brokerage operations occur
throughout the Company in similar operations having substantially similar
economic characteristics. Rent and purchased transportation, which includes
costs paid to third party carriers, are shown net of fuel surcharges.
Three Months Ended
March 31,
2005 2004
---- ----
Operating revenues, before fuel surcharge 100.0% 100.0%
------ ------
Operating expenses:
Salaries, wages and benefits 5.0 5.1
Operating supplies 0.0 0.0
Rent and purchased transportation (1) 88.2 87.4
Depreciation and amortization 0.3 0.3
Operating taxes and licenses 0.0 0.0
Insurance and claims 0.1 0.1
Communications and utilities 0.4 0.4
Other 1.7 1.6
Loss on sale or disposal of property 0.0 0.0
------ ------
Total operating expenses 95.7 94.9
------ ------
Operating income 4.3 5.1
Non-operating income 0.0 0.0
Interest expense (0.6) (0.6)
------ ------
Income before income taxes 3.7 4.5
------ ------
- -----------------------------
(1) Net of fuel surcharges.
THREE MONTHS ENDED MARCH 31, 2005 VS. THREE MONTHS ENDED MARCH 31, 2004
For the quarter ended March 31, 2005, logistics and brokerage services revenues,
before fuel surcharges, decreased 4.9% to $10.0 million as compared to $10.5
million for the quarter ended March 31, 2004. The decrease was primarily due to
a 5.5% decrease in the number of loads serviced during the first three months of
2005 as compared to the first three months of 2004.
Rent and purchased transportation increased from 87.4% of revenues, before fuel
surcharges, in the first quarter of 2004 to 88.2% of revenues, before fuel
surcharges, in the first quarter of 2005. The increase relates to an increase in
amounts charged by third party logistics and brokerage service providers as a
result of higher fuel costs.
The logistics and brokerage services division operating ratio, which measures
the ratio of operating expenses, net of fuel surcharges, to operating revenues,
before fuel surcharges, increased to 95.7% for the first quarter of 2005 from
94.9% for the first quarter of 2004.
RESULTS OF OPERATIONS - COMBINED SERVICES
- -----------------------------------------
The increase in the combined income before income taxes to $4.9 million from
$3.4 million, respectively, for the three month period ended March 31, 2005 and
2004 resulted in an increase in the provision for income taxes from $1.4 million
for the first quarter of 2004 to $2.0 million for the first quarter of 2005.
Net income for all divisions increased to $2.9 million, or 3.6% of revenues, in
the first quarter of 2005 from $2.0 million, or 2.6% of revenues in the first
quarter of 2004. The increase in net income resulted in an increase in diluted
net income per share to $.26 in the first quarter of 2005 from $.18 in the first
quarter of 2004.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The growth of our business has required, and will continue to require, a
significant investment in new revenue equipment. Our primary sources of
liquidity have been funds provided by operations, proceeds from the sales of
revenue equipment, issuances of equity securities, and borrowings under our line
of credit.
During the first three months of 2005, the Company generated $2.8 million of
cash from operating activities. Investing activities used $10.1 million in cash
in the first three months of 2005. Financing activities provided $5.5 million in
the first three months of 2005.
Our primary use of funds is for the purchase of revenue equipment. We typically
use our existing lines of credit, proceeds from the sale or trade of equipment,
and cash flows from operations to finance capital expenditures and repay
long-term debt. During the first three months of 2005 we utilized cash on hand
and our lines of credit to finance revenue equipment purchases of approximately
$13.1 million.
Occasionally we finance the acquisition of revenue equipment through installment
notes with fixed interest rates and terms ranging from 36 to 48 months, however
as of March 31, 2005, we had no outstanding indebtedness under such installment
notes.
In order to maintain our tractor fleet count it is often necessary to purchase
replacement tractors and place them in service before trade units are removed
from service. The timing difference created during this process often requires
the Company to pay for new units without any reduction in price for trade units.
In this situation, the Company later receives payment for the trade units as
they are delivered to the equipment vendor and have passed vendor inspection.
During the three months ended March 31, 2005, the Company received approximately
$1.6 million for tractors delivered for trade.
During the remainder of 2005, we expect to purchase approximately 460 new
tractors and approximately 375 new trailers while continuing to sell or trade
older equipment, which we expect to result in net capital expenditures of
approximately $27.5 million. Management believes we will be able to finance our
near term needs for working capital over the next twelve months, as well as
acquisitions of revenue equipment during such period, with cash balances, cash
flows from operations, and borrowings believed to be available from financing
sources. We will continue to have significant capital requirements over the
long-term, which may require us to incur debt or seek additional equity capital.
The availability of additional capital will depend upon prevailing market
conditions, the market price of our common stock and several other factors over
which we have limited control, as well as our financial condition and results of
operations. Nevertheless, based on our recent operating results, current cash
position, anticipated future cash flows, and sources of financing that we expect
will be available to us, we do not expect that we will experience any
significant liquidity constraints in the foreseeable future.
We maintain a $20.0 million revolving line of credit and a $30.0 million
revolving line of credit (Line A and Line B, respectively) with separate
financial institutions. Amounts outstanding under Line A bear interest at LIBOR
(determined as of the first day of each month) plus 1.40%, are secured by our
accounts receivable and mature on May 31, 2006. At March 31, 2005, $6.6 million,
including $.3 million in letters of credit were outstanding under Line A with
availability to borrow $13.4 million. Amounts outstanding under Line B bear
interest at LIBOR (determined on the last day of the previous month) plus 1.15%,
are secured by revenue equipment and mature on June 30, 2006. At March 31, 2005,
$27.3 million, including $7.3 million in letters of credit were outstanding
under Line B with availability to borrow $2.7 million. In an effort to reduce
interest rate risk associated with these floating rate facilities, we have
entered into interest rate swap agreements in an aggregate notional amount of
$20.0 million. For additional information regarding the interest rate swap
agreements, see Note B to the condensed consolidated financial statements.
Trade accounts receivable at March 31, 2005 increased approximately $5.4 million
from December 31, 2004. Certain of the Company's largest customers regularly
schedule plant shutdowns for various periods during December and the volume of
freight we ship is reduced during such scheduled shutdowns. This reduction in
freight volume results in a reduction in accounts receivable at the end of each
year.
Prepaid expenses and deposits at March 31, 2005 decreased approximately $4.6
million as compared to December 31, 2004. The decrease reflects the amortization
of prepaid tractor and trailer license fees and auto liability insurance
premiums. In December 2004 approximately $3.0 million of the 2005 license fees
and approximately $5.0 million of the 2005 auto liability insurance premiums
were paid in advance. These prepaid expenses will be amortized to expense
through the remainder of the year.
Accounts payable at March 31, 2005 decreased approximately $9.2 million as
compared to December 31, 2004. The decrease is primarily related to a decrease
in the amount of bank drafts outstanding in excess of bank balance as compared
to bank drafts outstanding at December 31, 2004. As of March 31, 2005 bank
drafts of approximately $4.5 million were reclassified to accounts payable as
compared to approximately $16.5 million reclassified as of December 31, 2004.
The net decrease also reflects the increase of approximately $1.5 million in
amounts accrued for the payment of revenue equipment placed in service but not
yet invoiced by the equipment vendor and an increase of approximately $1.3
million in amounts accrued for fuel purchases and third party equipment repair
costs.
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
See Note C 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 Disclosures about Market Risk.
- --------------------------------------------------------------------
Our primary market risk exposures include equity price risk, interest rate risk,
and commodity price risk (the price paid to obtain diesel fuel for our
tractors). The potential adverse impact of these risks and the general
strategies we employ 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
we 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.
EQUITY PRICE RISK
We hold certain actively traded marketable equity securities which subjects the
Company to fluctuations in the fair market value of its investment portfolio
based on current market price. The recorded value of marketable equity
securities remained constant at $8.8 million at March 31, 2005 when compared to
December 31, 2004. A 10% decrease in the market price of our marketable equity
securities would cause a corresponding 10% decrease in the carrying amounts of
these securities, or approximately $880,000. For additional information with
respect to the marketable equity securities, see Note D to our condensed
consolidated financial statements.
INTEREST RATE RISK
Our two 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, will affect the interest rate on, and therefore our
costs under, the lines of credit. In an effort to manage the risks associated
with changing interest rates, we 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.
Assuming $20.0 million of variable rate debt was outstanding under Line "A" and
not covered by the hedge agreement for a full fiscal year, a hypothetical 100
basis point increase in LIBOR would result in approximately $200,000 of
additional interest expense, net of the effect of the swap agreements. For
additional information with respect to the interest rate swap agreements, see
Note B to our condensed consolidated financial statements.
COMMODITY PRICE RISK
Prices and availability of all petroleum products are subject to political,
economic and market factors that are generally outside of our control.
Accordingly, the price and availability of diesel fuel, as well as other
petroleum products, can be unpredictable. Because our operations are dependent
upon diesel fuel, significant increases in diesel fuel costs could materially
and adversely affect our results of operations and financial condition. Based
upon our 2004 fuel consumption, a 10% increase in the average annual price per
gallon of diesel fuel would increase our annual fuel expenses by $5.6 million.
In August 2000 and July 2001, the Company entered into agreements to obtain
price protection and reduce a portion of our exposure to fuel price
fluctuations. Under these agreements, we were 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, we are 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, we
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, we 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,
we 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.
During March 2005, the average NY MX HO price was $1.54. The value of the
agreements are periodically adjusted to fair value, as determined by obtaining
an offer from the contract holder of the dollar amount required to terminate all
future liability under the contracts, and as of March 31, 2005 the estimated
fair value of $375,000 is included in accrued liabilities in the accompanying
consolidated financial statements. For the three-month period ended March 31,
2005 an adjustment of $125,000 was made to reflect the decline in fair value of
the agreements which had the effect of reducing operating supplies expense and
other current liabilities each by $125,000 in the accompanying consolidated
financial statements. For additional information with respect to this agreement,
see Note B to our condensed consolidated financial statements.
Item 4. Controls and Procedures.
- ---------------------------------
Evaluation of disclosure controls and procedures.
In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), the Company's management evaluated, with the participation of
the Company's President and Chief Executive Officer and Chief Financial Officer,
the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of March 31, 2005. Based upon that evaluation of these
disclosure controls and procedures, the President and Chief Executive Officer
and the Chief Financial Officer concluded that the disclosure controls and
procedures were effective as of March 31, 2005 so that material information
relating to the Company, including its consolidated subsidiaries, was made known
to them by others within those entities, particularly during the period in which
this quarterly report on Form 10-Q was being prepared.
Changes in internal controls over financial reporting.
There was no change in the Company's internal control over financial reporting
that occurred during the quarter ended March 31, 2005 that has materially
affected, or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- --------------------------
The nature of the our business routinely results in litigation, primarily
involving claims for personal injuries and property damage incurred in the
transportation of freight. We believe that an unfavorable outcome in one or more
of those cases would not have a material adverse effect on our financial
condition.
Item 6. Exhibits
- -----------------
Exhibits required by Item 601 of Regulations S-K:
11.1 - Statement Re: Computation of Diluted Earnings Per Share
31.1 - Rule 13a-14(a) Certification of Principal Executive Officer
31.2 - Rule 13a-14(a) Certification of Principal Financial Officer
32.1 - Section 1350 Certification of Chief Executive Officer
32.2 - Section 1350 Certification of Chief Financial Officer
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: May 5, 2005 By: /s/ Robert W. Weaver
---------------------------------
Robert W. Weaver
President and Chief Executive Officer
(principal executive officer)
Dated: May 5, 2005 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
- -------- ---------------------------------------------------------
11.1 Statement Re: Computation of Diluted Earnings Per Share
31.1 Rule 13a-14(a) Certification of Principal Executive Officer
31.2 Rule 13a-14(a) Certification of Principal Financial Officer
32.1 Section 1350 Certification of Chief Executive Officer
32.2 Section 1350 Certification of Chief Financial Officer