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, 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 Blvd, 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 by check mark whether the registrant is a shell company (as defined in
Exchange Act Rule 12b-2 of the Exchange Act).
Yes [ _ ] No [ X ]
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 4, 2005
----- -------------------------------
Common Stock, $.01 Par Value 10,744,207
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)
September 30, December 31,
2005 2004
---- ----
(unaudited) (see note)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 8,968 $ 19,659
Accounts receivable-net:
Trade 62,345 47,926
Other 1,236 1,110
Inventories 770 913
Prepaid expenses and deposits 9,989 14,862
Marketable equity securities available-for-sale 10,406 8,792
Income taxes refundable 561 754
--------- ---------
Total current assets 94,275 94,016
PROPERTY AND EQUIPMENT:
Land 2,674 2,674
Structures and improvements 9,319 9,299
Revenue equipment 249,889 238,750
Office furniture and equipment 6,644 6,449
--------- ---------
Total property and equipment 268,526 257,172
Accumulated depreciation (88,518) (83,029)
--------- ---------
Net property and equipment 180,008 174,143
OTHER ASSETS:
Goodwill 15,413 15,413
Non-compete agreements 467 654
Other 1,122 1,123
--------- ---------
Total other assets 17,002 17,190
--------- ---------
TOTAL ASSETS $ 291,285 $ 285,349
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 28,871 $ 28,702
Accrued expenses and other liabilities 11,512 9,828
Current maturities of long-term debt 2,336 2,080
Income taxes payable 1,281 -
Deferred income taxes-current 7,587 7,162
--------- ---------
Total current liabilities 51,587 47,772
Long-term debt-less current portion 23,928 23,225
Deferred income taxes-less current portion 47,351 45,375
Other 285 434
--------- ---------
Total liabilities 123,151 116,806
--------- ---------
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- 10,744,207 at September 30, 2005,
11,303,207 at December 31, 2004 113 113
Additional paid-in capital 76,429 76,050
Accumulated other comprehensive income 1,590 1,151
Treasury stock, at cost; 600,000 shares (10,023) -
Retained earnings 100,025 91,229
--------- ---------
Total shareholders' equity 168,134 168,543
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 291,285 $ 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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---- ---- ---- ----
OPERATING REVENUES:
Revenue, before fuel surcharge $ 79,062 $ 75,222 $ 242,492 $ 231,966
Fuel surcharge 9,422 3,857 23,211 9,518
--------- --------- --------- ---------
88,484 79,079 265,703 241,484
--------- --------- --------- ---------
OPERATING EXPENSES AND COSTS:
Salaries, wages, and benefits 29,992 28,060 92,641 88,098
Operating supplies and expenses 27,589 19,030 75,357 55,995
Rents and purchased transportation 9,495 9,505 28,750 29,277
Depreciation and amortization 7,662 7,649 22,785 22,534
Operating taxes and licenses 3,907 3,708 11,911 11,664
Insurance and claims 3,584 3,848 12,215 11,741
Communications and utilities 638 639 1,980 2,005
Other 1,698 745 4,365 3,649
(Gain) loss on sale or disposal of equipment (94) 306 (20) 584
--------- --------- --------- ---------
Total operating expenses and costs 84,471 73,490 249,984 225,547
--------- --------- --------- ---------
NET OPERATING INCOME 4,013 5,589 15,719 15,937
NON-OPERATING INCOME 155 161 454 316
INTEREST EXPENSE (422) (466) (1,341) (1,320)
--------- --------- --------- ---------
NET INCOME BEFORE INCOME TAXES 3,746 5,284 14,832 14,933
FEDERAL AND STATE INCOME TAXES:
Current 3,181 (257) 3,931 378
Deferred (1,648) 2,393 2,105 5,729
--------- --------- --------- ---------
Total federal and state income taxes 1,533 2,136 6,036 6,107
--------- --------- --------- ---------
NET INCOME $ 2,213 $ 3,148 $ 8,796 $ 8,826
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Basic $ 0.20 $ 0.28 $ 0.79 $ 0.78
========= ========= ========= =========
Diluted $ 0.20 $ 0.28 $ 0.79 $ 0.78
========= ========= ========= =========
AVERAGE COMMON SHARES OUTSTANDING:
Basic 10,818 11,298 11,077 11,296
========= ========= ========= =========
Diluted 10,821 11,324 11,090 11,323
========= ========= ========= =========
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,
2005 2004
---- ----
OPERATING ACTIVITIES:
Net income $ 8,796 $ 8,826
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 22,785 22,534
Bad debt expense (recoveries) 765 (533)
Non-compete agreement amortization-net of payments 38 -
Provision for deferred income taxes 2,105 5,729
(Gain) loss on sale or disposal of equipment (20) 584
Changes in operating assets and liabilities:
Accounts receivable (15,329) (9,080)
Prepaid expenses, inventories, and other assets 5,016 (3,456)
Income taxes payable 1,474 (2,067)
Trade accounts payable (4,253) (635)
Accrued expenses 1,684 (380)
--------- ---------
Net cash provided by operating activities 23,061 21,522
--------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (39,591) (35,691)
Proceeds from sale or disposal of equipment 15,796 23,296
Purchase of marketable equity securities (1,291) (225)
Other 20 44
--------- ---------
Net cash used in investing activities (25,066) (12,576)
--------- ---------
FINANCING ACTIVITIES:
Borrowings under line of credit 298,605 259,313
Repayments under line of credit (297,365) (262,182)
Borrowings of long-term debt 1,977 4,380
Repayments of long-term debt (2,258) (3,669)
Repurchases of common stock (10,023) -
Other 378 54
--------- ---------
Net cash used in financing activities (8,686) (2,104)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (10,691) 6,842
CASH AND CASH EQUIVALENTS-Beginning of period 19,659 3,064
--------- ---------
CASH AND CASH EQUIVALENTS-End of period $ 8,968 $ 9,906
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
Cash paid during the period for:
Interest $ 1,428 $ 1,331
========= =========
Income taxes $ 2,603 $ 550
========= =========
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 Treasury Retained
Shares Amount Capital Income Income Stock Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2004 11,303 $113 $76,050 $1,151 $91,229 $168,543
Components of comprehensive income:
Net income $ 8,796 8,796 8,796
Other comprehensive income-
Unrealized gain on hedge,
net of tax of $168 244 244 244
Unrealized gain on marketable
securities, net of tax of $134 195 195 195
--------
Total comprehensive income $ 9,235
========
Treasury stock repurchases (600) $(10,023) (10,023)
Exercise of stock options-
shares issued including tax
benefits 41 379 379
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2005 10,744 $113 $76,429 $1,590 $(10,023) $100,025 $168,134
====================================================================================================================================
See notes to condensed consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 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 nine-month period ended September 30, 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.
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 December
31, 2004 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 September 30, 2005 was approximately
$57,000. The change in AOCI related to these swap agreements during the current
year was approximately $244,000. As of September 30, 2005 the fair value of
approximately $96,000 is included in accrued liabilities in the accompanying
consolidated financial statements. Ineffectiveness related to these hedges was
not significant.
In July 2001, the Company entered into an agreement to obtain price protection
and reduce a portion of our exposure to fuel price fluctuations. Under this
agreement, we were obligated to purchase a minimum amount of diesel fuel per
month, with a price protection component, for the six month period ended
February 28, 2002. The agreement also provided that if during 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 September 2005, the average NY MX HO price was $1.796. The value of the
agreement is 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 contract, and as of September 30, 2005 the estimated
fair value of $125,000 is included in accrued liabilities in the accompanying
consolidated financial statements. For the three and nine month period ended
September 30, 2005 an adjustment of $125,000 and $375,000, respectively was made
to reflect the decline in fair value of the agreement which had the effect of
reducing operating supplies expense and other current liabilities each by
$125,000 and $375,000 during each respective period in the accompanying
consolidated financial statements.
NOTE C: RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS
No. 154"). SFAS No. 154 requires retrospective application to prior periods'
financial statements for changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. This Statement applies to all voluntary changes in
accounting principle as well as to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. SFAS No. 154 further requires a change in
depreciation, amortization or depletion method for long-lived, non-financial
assets to be accounted for as a change in accounting estimate effected by a
change in accounting principle. Corrections of errors in the application of
accounting principles will continue to be reported by retroactively restating
the affected financial statements. The provisions of this Statement are
effective for accounting changes and correction of errors made in fiscal years
beginning after December 15, 2005. Adoption of this statement is not expected to
have a material effect on the Company's consolidated financial statements.
In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional
Asset Retirement Obligations- an interpretation of FASB Statement No. 143 ("FIN
47"). FIN 47 clarifies the term conditional asset retirement obligation as used
in Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations, and requires an entity to recognize a liability for the
fair value of a conditional asset retirement obligation if the fair value can be
reasonably estimated. Any uncertainty about the amount and/or timing of future
settlement of a conditional asset retirement obligation should be factored into
the measurement of the liability when sufficient information exists. FIN 47 also
clarifies when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. FIN 47 is effective
for fiscal years ending after December 15, 2005. Adoption of this statement is
not expected to have a material effect on the Company's consolidated financial
statements.
In December 2004, the 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. 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.
Management is currently evaluating the possible future impact on the Company's
financial position and results of operations.
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 nine 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 September 30, 2005, these equity securities had a combined original cost
of approximately $7,629,000 and a combined fair market value of approximately
$10,406,000. For the nine months ended September 30, 2005, the Company had net
unrealized gains in market value of approximately $195,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately
$3,030,000 and gross unrealized losses of approximately $253,000. As of
September 30, 2005, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $1,647,000.
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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
------- ------- ------- -------
(in thousands, except per share data)
Net income $ 2,213 $ 3,148 $ 8,796 $ 8,826
Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (74) (74) (222) (222)
------- ------- ------- -------
Pro forma net income $ 2,139 $ 3,074 $ 8,574 $ 8,604
======= ======= ======= =======
Earnings per share:
Basic - as reported $ .20 $ .28 $ .79 $ .78
Basic - pro forma $ .20 $ .27 $ .77 $ .76
Diluted - as reported $ .20 $ .28 $ .79 $ .78
Diluted - pro forma $ .20 $ .27 $ .77 $ .76
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 a 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. Truckload Services revenues and Brokerage and
Logistics Services revenues, each before fuel surcharges, for the three and nine
months ending September 30, 2005 and 2004 were as follows:
Three Months Ended September 30, Nine Months Ended September 30,
2005 2004 2005 2004
-------------- -------------- --------------- ---------------
Amount % Amount % Amount % Amount %
------- ----- ------- ----- -------- ----- -------- -----
(in thousands, except percentage data)
Truckload
Services revenues (1) $69,437 87.8 $64,925 86.3 $212,951 87.8 $200,252 86.3
Brokerage and Logistics
Services revenues (1) 9,625 12.2 10,297 13.7 29,541 12.2 31,714 13.7
------- ----- ------- ----- -------- ----- -------- -----
Total revenues (1) $79,062 100.0 $75,222 100.0 $242,492 100.0 $231,966 100.0
======= ===== ======= ===== ======== ===== ======== =====
- ---------------------------
(1) Before fuel surcharges.
NOTE G: TREASURY STOCK
- -----------------------
On April 11, 2005, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 600,000 shares of its common stock
during the six month period ending October 11, 2005. All 600,000 shares of
common stock authorized under this plan have been repurchased as of September
30, 2005 as remaining purchases totaling 154,200 shares were made during the
three month period ending September 30, 2005.
On September 6, 2005, the Company announced that its Board of Directors had
authorized the Company to extend the stock repurchase program until September 6,
2006 and to include up to an additional 900,000 shares of its common stock.
During the three months ended September 30, 2005, the Company has made no
purchases under the extended program.
The Company accounts for Treasury stock using the cost method and as of
September 30, 2005, 600,000 shares were held in the treasury at an aggregate
cost of approximately $10,023,000.
NOTE H: COMPREHENSIVE INCOME
- -----------------------------
Comprehensive income was comprised of net income plus or minus market value
adjustments related to our interest rate swap agreements and marketable
securities. The components of comprehensive income were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---- ---- ---- ----
(in thousands)
Net income $ 2,213 $ 3,148 $ 8,796 $ 8,826
Other comprehensive income (loss):
Reclassification adjustment for losses (gains) on
derivative instruments included in net income
accounted for as hedges, net of income taxes 51 111 193 349
Change in fair value of interest rate
swap agreements, net of income taxes 18 (84) 51 (10)
Change in fair value of marketable
securities, net of income taxes 139 74 195 65
------- ------- ------- -------
Total comprehensive income $ 2,421 $ 3,249 $ 9,235 $ 9,230
======= ======= ======= =======
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 is tested annually and as
of December 31, 2004 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. For both the
three and nine month period ended September 30, 2005, truckload services
revenues, excluding fuel surcharges, represented 87.8% of total revenues,
excluding fuel surcharges, with remaining revenues, excluding fuel surcharges,
being generated by our brokerage and logistics services. For both the three and
nine month period ended September 30, 2004, truckload services revenues,
excluding fuel surcharges, represented 86.3% of total revenues, excluding fuel
surcharges, with remaining revenues, excluding fuel surcharges, being generated
by our brokerage and logistics services.
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 and nine months ending September 30, 2005,
approximately $9.4 million and $23.2 million, respectively, of the Company's
total revenue was generated from fuel surcharges. For the three and nine months
ending September 30, 2004, approximately $3.9 million and $9.5 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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---- ---- ---- ----
Operating revenues, before fuel surcharge 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Operating expenses:
Salaries, wages, and benefits 42.4 42.4 42.8 43.1
Operating supplies and expenses (1) 26.6 23.6 24.8 23.4
Rent and purchased transportation 1.2 0.5 1.0 0.5
Depreciation and amortization 11.0 11.7 10.7 11.2
Operating taxes and licenses 5.6 5.7 5.6 5.8
Insurance and claims 5.2 5.9 5.7 5.9
Communications and utilities 0.9 0.9 0.9 0.9
Other 2.1 0.9 1.8 1.6
(Gain) loss on sale or disposal of property (0.1) 0.5 0.0 0.3
------- ------ ------ ------
Total operating expenses 94.9 92.1 93.3 92.7
------- ------ ------ ------
Operating income 5.1 7.9 6.7 7.3
Non-operating income 0.2 0.2 0.2 0.1
Interest expense (0.5) (0.6) (0.5) (0.5)
------- ------ ------ ------
Income before income taxes 4.8% 7.5% 6.4% 6.9%
------- ------ ------ ------
- -----------------------------
(1) Net of fuel surcharges.
THREE MONTHS ENDED SEPTEMBER 30, 2005 VS. THREE MONTHS ENDED SEPTEMBER 30, 2004
For the quarter ended September 30, 2005, truckload services revenues, before
fuel surcharges, increased 6.9% to $69.4 million as compared to $64.9 million
for the quarter ended September 30, 2004. The increase was due to a 7.5%
increase in the average rate per total mile from $1.15 during the third quarter
of 2004 to $1.23 during the third quarter of 2005.
Operating supplies and expenses increased from 23.6% of revenues, before fuel
surcharges, in the third quarter of 2004 to 26.6% of revenues, before fuel
surcharges in the third quarter of 2005. The increase relates to an increase in
fuel costs resulting from a 39.3% increase in the average price per gallon paid
by the Company during the third quarter of 2005 as compared to the third quarter
of 2004. During periods of rising fuel prices the Company is often able to
recoup at least a portion of the increase through fuel surcharges passed along
to its customers. Fuel costs, net of fuel surcharges, increased to $12.5 million
in the third quarter of 2005 from $10.0 million in the third quarter of 2004.
Rent and purchased transportation increased from 0.5% of revenues, before fuel
surcharges, in the third quarter of 2004 to 1.2% of revenues, before fuel
surcharges in the third 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 11.7% of revenues, before fuel
surcharges, in the third quarter of 2004 to 11.0% of revenues, before fuel
surcharges, in the third 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.
Insurance and claims decreased from 5.9% of revenues, before fuel surcharges, in
the third quarter of 2004 to 5.2% of revenues, before fuel surcharges, in the
third quarter of 2005. The decrease was the result of renegotiations with one of
the Company's insurance providers to change the method of determining the
Company's auto liability insurance premiums. Previously, the Company's auto
liability premiums were determined using a specified rate per one hundred
dollars of revenue including fuel surcharges. This method had the unintended
consequence of penalizing the Company with increased insurance costs solely from
passing increased fuel costs along to its customers in the form of fuel
surcharges. The method of determining the Company's auto liability premium is
now based on the number of miles traveled instead of revenue generated.
Other expenses increased from .9% of revenues, before fuel surcharges, in the
third quarter of 2004 to 2.1% of revenues, before fuel surcharges, in the third
quarter of 2005. The increase relates to the recovery of approximately $635,000
during the third quarter of 2004 of amounts previously reserved by the Company
pending the outcome of a lawsuit alleging that preferential transfers in the
amount of $660,055 were made within the 90 day period preceding the bankruptcy
petition date of a customer. The lawsuit was settled October 21, 2004 at a cost
of approximately $25,000. Accordingly, the remaining amount of approximately
$635,000 was removed as a liability on the Company's financial statements and
the related expense originally recorded as bad debt expense was appropriately
reduced during the third quarter of 2004. The increase was partially offset by a
decrease in amounts paid for advertising during the third quarter of 2005 as
compared to the third quarter of 2004.
The truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before fuel
surcharges, increased to 94.9% for the third quarter of 2005 from 92.1% for the
third quarter of 2004.
NINE MONTHS ENDED SEPTEMBER 30, 2005 VS. NINE MONTHS ENDED SEPTEMBER 30, 2004
For the first nine months ended September 30, 2005, truckload services revenues,
before fuel surcharges, increased 6.3% to $213.0 million as compared to $200.3
million for the nine months ended September 30, 2004. The increase was due to a
9.8% increase in the average rate per total mile from $1.12 during the first
nine months of 2004 to $1.23 during the first nine months of 2005. The revenue
growth attributable to the increase in average rate per mile was partially
offset by a 2.9% reduction in total miles traveled from approximately
178,957,000 during the first nine months of 2004 to approximately 173,782,000
miles during the first nine months of 2005.
Salaries, wages and benefits decreased from 43.1% of revenues, before fuel
surcharges, in the first nine months of 2004 to 42.8% of revenues, before fuel
surcharges, in the first nine months of 2005. The decrease relates primarily to
a decrease in driver lease expense as the average number of owner operators
under contract decreased from 95 in the first nine months of 2004 to 70 in the
first nine months of 2005. 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.
Operating supplies and expenses increased from 23.4% of revenues, before fuel
surcharges, in the first nine months of 2004 to 24.8% of revenues, before fuel
surcharges, in the first nine months of 2005. The primary reason for the
increase relates to an increase in fuel costs resulting from a 34.7% increase in
the average price per gallon paid by the Company during the first nine months of
2005 as compared to the first nine months of 2004. During periods of rising fuel
prices the Company is often able to recoup at least a portion of the increase
through fuel surcharges passed along to its customers. Fuel costs, net of fuel
surcharges, increased to $35.6 million in the first nine months of 2005 from
$30.6 million in the first nine months of 2004. Fuel costs were also affected
by the replacement of owner operators with company drivers as discussed above.
Rent and purchased transportation increased from 0.5% of revenues, before fuel
surcharges, in the first nine months of 2004 to 1.0% of revenues, before fuel
surcharges in the first nine months 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 11.2% of revenues, before fuel
surcharges, in the first nine months of 2004 to 10.7% of revenues, before fuel
surcharges, in the first nine months 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.
Other expenses increased from 1.6% of revenues, before fuel surcharges, in the
first nine months of 2004 to 1.8% of revenues, before fuel surcharges, in the
first nine months of 2005. The increase relates to the recovery of approximately
$635,000 during the third quarter of 2004 of amounts previously reserved by the
Company pending the outcome of a lawsuit alleging that preferential transfers in
the amount of $660,055 were made within the 90 day period preceding the
bankruptcy petition date of a customer. The lawsuit was settled October 21, 2004
at a cost of approximately $25,000. Accordingly, the remaining amount of
approximately $635,000 was removed as a liability on the Company's financial
statements and the related expense originally recorded as bad debt expense was
appropriately reduced during the third quarter of 2004. The increase was
partially offset by a decrease in amounts paid for advertising during the first
nine months of 2005 as compared to the first nine months of 2004.
The truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before fuel
surcharges, increased to 93.3% for the first nine months of 2005 from 92.7% for
the first nine months 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 Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
---- ---- ---- ----
Operating revenues, before fuel surcharge 100.0% 100.0% 100.0% 100.0%
------ ------ ------ ------
Operating expenses:
Salaries, wages, and benefits 5.4 5.6 5.2 5.4
Operating supplies and expenses 0.0 0.0 0.0 0.0
Rent and purchased transportation (1) 87.1 87.4 87.6 87.8
Depreciation and amortization 0.2 0.3 0.3 0.3
Operating taxes and licenses 0.0 0.0 0.0 0.0
Insurance and claims 0.1 0.1 0.1 0.1
Communications and utilities 0.4 0.4 0.4 0.4
Other 2.1 1.5 1.7 1.5
(Gain) loss on sale or disposal of property 0.0 0.0 0.0 0.0
------ ------ ------ ------
Total operating expenses 95.3 95.3 95.3 95.5
------ ------ ------ ------
Operating income 4.7 4.7 4.7 4.5
Non-operating income 0.0 0.0 0.0 0.0
Interest expense (0.6) (0.7) (0.6) (0.7)
------ ------ ------ ------
Income before income taxes 4.1% 4.0% 4.1% 3.8%
------ ------ ------ ------
- -----------------------------
(1) Net of fuel surcharges.
THREE MONTHS ENDED SEPTEMBER 30, 2005 VS. THREE MONTHS ENDED SEPTEMBER 30, 2004
For the quarter ended September 30, 2005, logistics and brokerage services
revenues, before fuel surcharges, decreased 6.5% to $9.6 million as compared to
$10.3 million for the quarter ended September 30, 2004. The decrease was
primarily due to a 26.3% decrease in the number of loads serviced during the
third quarter of 2005 as compared to the third quarter of 2004. The decrease was
partially offset by an increase in the average revenue collected per load
resulting from increased fees charged by the Company.
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, remained at 95.3% for both periods compared.
NINE MONTHS ENDED SEPTEMBER 30, 2005 VS. NINE MONTHS ENDED SEPTEMBER 30, 2004
For the nine months ended September 30, 2005, logistics and brokerage services
revenues, before fuel surcharges, decreased 6.9% to $29.5 million as compared to
$31.7 million for the nine months ended September 30, 2004. The decrease was
primarily due to a 20.8% decrease in the number of loads serviced during the
first nine months of 2005 as compared to the first nine months of 2004. The
decrease was partially offset by an increase in the average revenue collected
per load resulting from increased fees charged by the Company.
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, decreased to 95.3% for the first nine months of 2005
from 95.5% for the first nine months of 2004.
RESULTS OF OPERATIONS - COMBINED SERVICES
- -----------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 2005 VS. NINE MONTHS ENDED SEPTEMBER 30, 2004
Net income for all divisions was $8.8 million, or 3.6% of revenues, before fuel
surcharge in the first nine months of 2005 as compared to $8.8 million, or 3.8%
of revenues, before fuel surcharge in the first nine months of 2004. Net income
for the nine months compared remained constant, however basic and diluted net
income per share increased to $.79 in the first nine months of 2005 from $.78 in
the first nine months of 2004. The increase was the result of a decrease in
average shares outstanding due to treasury stock repurchases.
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 nine months of 2005, the Company generated $23.1 million of
cash from operating activities. Investing activities used $25.1 million in cash
in the first nine months of 2005. Financing activities used $8.7 million in the
first nine 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 nine months of 2005, we utilized cash on hand
and our lines of credit to finance revenue equipment purchases of approximately
$39.3 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 September 30, 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 nine months ended September 30, 2005, the Company received
approximately $8.9 million for tractors delivered for trade and expects to
receive approximately $9.9 million during the remainder of the year.
During the remainder of 2005, we expect to purchase approximately 177 new
tractors and approximately 225 new trailers while continuing to sell or trade
older equipment, which we expect to result in net capital expenditures of
approximately $14.9 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,
as determined on the first day of each month, plus 1.40% (5.1% at September 30,
2005), are secured by our accounts receivable and mature on May 31, 2007. At
September 30, 2005, $1.5 million, including $.3 million in letters of credit
were outstanding under Line A with availability to borrow $18.5 million. Amounts
outstanding under Line B bear interest at LIBOR, as determined on the last day
of the previous month, plus 1.15% (4.83 at September 30, 2005), are secured by
revenue equipment and mature on June 30, 2007. At September 30, 2005, $26.6
million, including $6.6 million in letters of credit were outstanding under Line
B with availability to borrow $3.4 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 September 30, 2005 increased approximately $14.4
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 September 30, 2005 decreased approximately $4.9
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.
Treasury stock at September 30, 2005 increased approximately $10.0 million as
compared to December 31, 2004. This increase relates to the repurchase of
600,000 shares of the Companys common stock under its stock repurchase program.
For additional information regarding the stock repurchase program, see Note G to
the condensed consolidated financial statements.
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 in the overall economy may have 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 increased to $10.4 million at September 30, 2005 from $8.8 million at
December 31, 2004. The increase is primarily the result of additional purchases
during the first nine months of 2005. 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 $1,040,000. 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 July 2001, the Company entered into an agreement to obtain price protection
and reduce a portion of our exposure to fuel price fluctuations. Under this
agreement, we were obligated to purchase a minimum amount of diesel fuel per
month, with a price protection component, for the six month period ended
February 28, 2002. The agreement also provided that if during 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 September 2005, the average NY MX HO price was $1.796. The value of the
agreement is 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 contract, and as of September 30, 2005 the estimated
fair value of $125,000 is included in accrued liabilities in the accompanying
consolidated financial statements. For the three and nine month period ended
September 30, 2005 an adjustment of $125,000 and $375,000, respectively was made
to reflect the decline in fair value of the agreement which had the effect of
reducing operating supplies expense and other current liabilities each by
$125,000 and $375,000 during each respective period 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 September 30, 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 September 30, 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 September 30, 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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
- ---------------------------------------------------------------------
On April 11, 2005, the Company announced that its Board of Directors had
authorized the Company to repurchase up to 600,000 shares of its common stock
during the six month period ending October 11, 2005. On September 6, 2005, the
Company announced that its Board of Directors had authorized the Company to
extend the stock repurchase program until September 6, 2006 and to include up to
an additional 900,000 shares of its common stock.
The following table summarizes the Company's common stock repurchases during the
third quarter of 2005 made pursuant to this authorization. No shares were
purchased during the quarter other than through this program, and all purchases
were made by or on behalf of the Company and not by any "affiliated purchaser".
Issuer Purchases of Equity Securities
Maximum Number
(or Approximate)
Total Number of Dollar Value) of
Total Number Shares (or Units) Shares (or Units)
of Shares Average Price Purchased as Part of that May Yet Be
(or Units) Paid per Share Publicly Announced Purchased Under the
Period Purchased (or Unit) Plans or Programs Plans or Programs
- ------------------------------------------------------------------------------------------------------
July 1-31, 2005 - - - 154,200
August 1-31, 2005 154,200 $16.5796 154,200 -
September 1-30, 2005 - - - 900,000
-------- -------- ---------
Total 154,200 $16.5796 154,200 900,000
======== ======== =========
Item 6. Exhibits.
- ------------------
Exhibits required by Item 601 of Regulations S-K:
3.1 - Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
the Company's Form 10-Q filed on May 15, 2002.)
3.2 - Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 of the Company's Form 10-Q filed
on May 15, 2002.)
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: November 7, 2005 By: /s/ Robert W. Weaver
---------------------------------
Robert W. Weaver
President and Chief Executive Officer
(principal executive officer)
Dated: November 7, 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
- -------- ---------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
the Company's Form 10-Q filed on May 15, 2002.)
3.2 Amended and Restated By-Laws of the Registrant (incorporated
by reference to Exhibit 3.2 of the Company's Form 10-Q filed
on May 15, 2002.)
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