1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
P.A.M. TRANSPORTATION SERVICES, INC.
--------------------------------------------------------------
(Exact name of registrant as specified in charter)
AMENDMENT NO. ONE
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on Form
8-K (Event: January 11, 1999) filed January 22, 1999:
(List all such items, financial statements,
exhibits or other portions amended)
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired:
DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
Report of Independent Public Accountants
Combined Balance Sheet as of December 31, 1998
Combined Statement of Income for the Year ended December 31,
1998
Combined Statement of Retained Earnings for the Year ended
December 31, 1998
Combined Statement of Cash Flows for the Year ended December
31, 1998
Notes to Combined Financial Statements
2
(b) Pro Forma Financial Information:
P.A.M. Transportation Services, Inc. Pro Forma Condensed Financial
Information (Unaudited)
Introduction
Unaudited Pro Forma Combined Balance Sheet as of December 31,
1998
Notes to Unaudited Pro Forma Combined Balance Sheet
Unaudited Pro Forma Combined Statement of Income for the
Year ended December 31, 1998
Notes to Unaudited Pro Forma Statement of Income
Consolidated Financial Statements of P.A.M. Transportation Services,
Inc. and Subsidiaries
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Income for the Years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the Years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
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TABLE OF CONTENTS
PAGE NO.
--------
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED:
DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
Report of Independent Public Accountants.......................................... 5
Combined Balance Sheet as of December 31, 1998.................................... 6
Combined Statement of Income for the Year ended December 31,
1998......................................................................... 7
Combined Statement of Retained Earnings for the Year ended
December 31, 1998............................................................ 8
Combined Statement of Cash Flows for the Year ended
December 31, 1998............................................................ 9
Notes to Combined Financial Statements............................................ 10
(B) PRO FORMA FINANCIAL INFORMATION:
P.A.M. Transportation Services, Inc. Pro Forma Condensed Financial
Information (Unaudited)
Introduction...................................................................... 16
Unaudited Pro Forma Combined Balance Sheet as of December 31,
1998......................................................................... 17
Notes to Unaudited Pro Forma Combined Balance Sheet............................... 18
Unaudited Pro Forma Combined Statement of Income for the
Year ended December 31, 1998................................................. 19
Notes to Pro Forma Condensed Financial Information (Unaudited).................... 20
Consolidated Financial Statements of P.A.M. Transportation Services, Inc.
and Subsidiaries
Report of Independent Public Accountants.......................................... F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997...................... F-2
Consolidated Statements of Income for the Years ended
December 31, 1998, 1997 and 1996............................................. F-4
Consolidated Statements of Shareholders' Equity for the Years
ended December 31, 1998, 1997 and 1996....................................... F-5
Consolidated Statements of Cash Flows for the Years ended
December 31, 1998, 1997 and 1996............................................. F-6
Notes to Consolidated Financial Statements........................................ F-7
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DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Decker Transport Co., Inc. and Van Houten Ltd.:
We have audited the accompanying combined balance sheet of Decker Transport
Co., Inc. (an Ohio corporation) and Van Houten Ltd. (a New Jersey corporation)
as of December 31, 1998, and the related combined statements of income,
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Decker Transport Co., Inc. and
Van Houten Ltd. as of December 31, 1998, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fayetteville, Arkansas
January 22, 1999
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DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
COMBINED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS:
Cash $ 482,837
Accounts receivable, net of allowance for doubtful accounts of $51,782 5,633,900
Net investment in direct financing and sales-type leases 502,064
Notes receivable 313,383
Prepaid expenses 870,241
Other current assets 37,101
-----------
Total current assets 7,839,526
PROPERTY AND EQUIPMENT, net of accumulated depreciation 11,357,908
OTHER ASSETS:
Net investment in direct financing and sales-type leases, less
current portion 284,987
Loans to stockholder and officer 730,515
Other 44,748
-----------
Total assets $20,257,684
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,706,616
Accounts payable 563,676
Accrued expenses 2,861,097
-----------
Total current liabilities 7,131,389
-----------
LONG-TERM DEBT, less current portion 6,818,177
-----------
DRIVERS' SECURITY DEPOSITS 127,538
-----------
STOCKHOLDER'S EQUITY:
Common stock 600
Paid-in capital 1,415
Retained earnings 6,178,565
-----------
Total stockholder's equity 6,180,580
-----------
Total liabilities and stockholder's equity $20,257,684
===========
The accompanying notes are an integral
part of this balance sheet.
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DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
OPERATING REVENUES $48,452,178
-----------
OPERATING EXPENSES AND COSTS:
Salaries, wages and benefits 11,841,749
Operating supplies and expenses 8,035,089
Rents and purchased transportation 20,434,759
Depreciation 3,011,257
Operating taxes and licenses 704,817
Insurance and claims 2,075,695
Communications and utilities 698,376
Other 1,044,416
Gains on sale of equipment (283,887)
-----------
47,562,271
-----------
Operating income 889,907
-----------
OTHER (INCOME)/EXPENSE:
Other income (81,450)
Interest expense 795,092
-----------
713,642
-----------
Income before income taxes 176,265
PROVISION FOR INCOME TAXES 37,557
-----------
NET INCOME $ 138,708
===========
The accompanying notes are an integral
part of this financial statement.
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DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
COMBINED STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
RETAINED EARNINGS, January 1, 1998 $ 7,322,165
NET INCOME 138,708
DISTRIBUTIONS TO STOCKHOLDER (1,282,308)
-----------
RETAINED EARNINGS, December 31, 1998 $ 6,178,565
===========
The accompanying notes are an integral
part of this financial statement.
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DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 138,708
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 3,011,257
Gains on sale of equipment (283,887)
Net gain from sales-type leases (220,813)
Provision for doubtful accounts 4,179
Changes in assets and liabilities:
Increase in accounts receivable (1,000,062)
Increase in notes receivable (149,505)
Decrease in prepaid expenses and other current assets 73,992
Decrease in other long-term assets 150,499
Increase in accounts payable and accrued expenses 1,114,522
Increase in drivers' security deposits 33,288
-----------
Net cash provided by operating activities 2,872,178
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (3,282,606)
Proceeds from sale of equipment 502,136
Lease payments received on direct financing and sales-type leases 491,730
Increase in long-term notes receivable, net (19,782)
Increase in loans to stockholder and officer, net (51,621)
-----------
Net cash used in investing activities (2,360,143)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of long-term debt 3,111,500
Repayments of long-term debt (3,461,123)
Distributions to stockholder (1,282,308)
-----------
Net cash used in financing activities (1,631,931)
-----------
Net decrease in cash (1,119,896)
CASH, beginning of the period 1,602,733
-----------
CASH, end of the period $ 482,837
===========
The accompanying notes are an integral
part of this financial statement.
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DECKER TRANSPORT CO., INC. AND VAN HOUTEN LTD.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. NATURE OF BUSINESS:
The principal activity of Decker Transport Co., Inc. (Decker) is as a contract
and common transportation carrier throughout the United States and portions of
Canada. The principal activity of Van Houten Ltd. (Van Houten) is the leasing
of transportation equipment. Decker Transport Co., Inc. and Van Houten Ltd.
(collectively, the Companies) shared common management, resources and
ownership. On January 11, 1999, all of the Companies' assets, with the
exception of certain related party notes receivable and loans, were sold to a
subsidiary of P.A.M. Transportation Services, Inc. (P.A.M.), along with the
assumption of substantially all of the Companies' liabilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF PRESENTATION
The combined financial statements include the accounts of Decker and Van
Houten. All significant intercompany accounts and transactions have been
eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the year. Actual results
could differ from these estimates.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a straight-line
basis over the following estimated useful lives of the respective assets:
Asset Class Estimated Asset Life
------------------------ --------------------
Revenue equipment 5-7 years
Service equipment 3-7 years
Furniture and equipment 5-7 years
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Maintenance and repairs are charged directly to expense as incurred; purchases
of items which will benefit future periods are capitalized. When assets are
disposed of, the cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is recorded.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Estimated uncollectible accounts are provided based on historical experience
and management's evaluation of outstanding accounts receivable.
INCOME TAXES
The Companies have elected S-corporation status for federal and state income
tax purposes. Therefore, the results of operations of the Companies are
included in the stockholder's individual tax returns. Accordingly, no
provisions for income taxes related to current operations have been made for
the Companies in the accompanying financial statements, except for provisions
required due to certain states in which the Companies operate that do not
recognize S-corporation status for state income tax purposes.
PREPAID EXPENSES
Prepaid expenses include licenses, registrations and insurance which are
amortized over the applicable period. Prepaid expenses also include tires and
parts which are expensed when placed on revenue equipment. Tires purchased with
revenue equipment are capitalized as a cost of the related equipment.
ACCRUED LIABILITIES
With respect to cargo loss and auto liability, Decker maintains the following
insurance coverage and deductibles: The auto liability coverage is subject to a
$25,000 deductible per occurrence while the cargo loss coverage has a $5,000
deductible. The auto liability policy covers incidents up to $5,000,000. Decker
has an excess liability policy for an additional $5,000,000 in coverage. Cargo
losses are limited to $500,000 per occurrence. Decker maintains collision
coverage on leased vehicles. The policy has a $5,000 deductible. Decker also
maintains an excess physical damage policy with a $100,000 deductible and a
$3,000,000 limit on the entire fleet. Decker maintains a reserve for estimated
losses for claims incurred. Decker maintains workers' compensation with
coverage maintained for all claims up to $500,000. Decker has a reserve for
estimated losses from previous policy periods which had a retroactive plan or a
deductible of $100,000. Letters of credits are maintained in the amounts of
$345,000 for the auto liability policy and $65,000 for the expired workers'
compensation policy, which had a deductible of $100,000. A reserve has been
established which management believes is adequate.
Decker is self-insured to the extent of specific stop-loss limits for its
employees' health care claims. Insurance providers assist Decker in determining
its estimated liabilities for these self-insured
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claims. Decker has an employee benefit plan to provide health care coverage for
its employees. Due to a stop-loss insurance policy, benefits payable by Decker
are limited to $50,000 per person during the policy year ending February 28,
1999, with an aggregate limit of $746,000 in claims.
REVENUE RECOGNITION POLICY
Decker recognizes revenue based upon pickup date and relative transit time in
each reporting period with expenses recognized as incurred.
BUSINESS SEGMENT AND CONCENTRATIONS OF CREDIT RISKS
Decker operates in one business segment, motor carrier operations. Decker
provides transportation services to customers throughout the United States and
portions of Canada. Decker performs ongoing credit evaluations and generally
does not require collateral. Decker maintains reserves for potential credit
losses and such losses have been within management's expectations. At December
31, 1998, two customers accounted for approximately 27% and 13% of the trade
accounts receivable balance. The same two customers accounted for approximately
24% and 15% of combined operating revenues for the year. Decker's largest
customer is a lawn and garden equipment manufacturer. This customer also
accounted for 69% of lease receivables.
3. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows:
Revenue equipment $22,783,757
Service equipment 347,878
Furniture and equipment 1,784,927
-----------
24,916,562
Less- accumulated depreciation 13,558,654
-----------
Property and equipment, net $11,357,908
===========
4. LONG-TERM DEBT:
The Companies finance a large portion of their revenue equipment and service
equipment through banks and other lending institutions. The notes payable are
due in varying monthly installments, including interest at variable rates
ranging from 5.75% to 9%. The notes are secured by liens on certain revenue and
service equipment.
Equipment financings $10,524,793
Less- current portion 3,706,616
-----------
$ 6,818,177
===========
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Annual installments on notes payable for the next five years are as follows:
1999 $ 3,706,616
2000 2,326,145
2001 1,946,745
2002 1,340,954
2003 1,109,148
Thereafter 95,184
-----------
$10,524,793
===========
As of December 31, 1998, the Companies had various unused lines of credit
available which were terminated subsequent to year-end in connection with the
sale of substantially all assets of the Companies to P.A.M.
Subsequent to year-end, approximately $1,020,000 in debt was repaid by P.A.M.
This amount is reflected in the current portion of long-term debt.
5. SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for interest and income taxes is as follows:
Interest $797,795
========
Income taxes $ 16,930
========
Supplemental schedule of noncash investing and financing activities:
Equipment purchased through a reduction in loans to stockholder
and officer $ 37,955
========
Increase in loans to stockholder and officer due to sale of
equipment $ 38,141
========
6. RELATED PARTY TRANSACTIONS:
Decker leases office and maintenance facilities, located in Riverdale, New
Jersey, from a partnership in which the stockholder of Decker has an interest.
The term of the lease expires December 31, 1999, and called for a monthly
rental of $20,000. Subsequent to year-end, in connection with the sale of
substantially all assets of the Corporation to P.A.M., the monthly rental was
reduced to $15,000.
Decker leased terminal facilities, located in Willard, Ohio, owned by Decker's
stockholder for a monthly rental of $10,000. Subsequent to year-end, the
terminal facilities were purchased by P.A.M. and the monthly rentals ceased.
Decker has two notes receivables, totaling $177,836, from a partnership in
which the stockholder of Decker has an interest.
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The stockholder and a officer of Decker and Van Houten have received interest
free advances from Decker and Van Houten. The advances are included in other
assets as loans to stockholder and officer and are unsecured.
7. OPERATING LEASES:
The Companies conduct their operations in leased facilities and lease certain
revenue equipment under arrangements expiring on various dates through 2001.
The future minimum rental commitments under operating leases are as follows:
1999 $535,421
2000 105,915
2001 15,001
8. DIRECT FINANCING AND SALES-TYPE LEASES:
Van Houten leases tractors and trailers under leases classified as direct
financing and sales-type leases. The leases expire over the next three years.
The following lists the components of the net investment in direct financing
and sales-type leases as of December 31, 1998:
Net minimum lease payments receivable $854,363
Estimated residual values of leased property (unguaranteed) 19,607
Less- unearned income 86,919
--------
Net investment in direct financing and sales-type leases 787,051
Less- current portion 502,064
--------
Net investment in direct financing and sales-type leases, long-term $284,987
========
At December 31, 1998, minimum lease payments for the next three years are as
follows:
1999 $565,808
2000 249,084
2001 39,471
--------
$854,363
========
9. OTHER LESSOR ARRANGEMENTS:
Certain tractors and trailers are leased by Van Houten under operating leases
that expire over the next four years. At December 31, 1998, minimum lease
payments receivable over the next four years are as follows:
1999 $124,484
2000 111,553
2001 90,000
2002 82,500
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The following provides Van Houten's investment in property on operating leases
in which it is lessor as of December 31, 1998:
Trailers $1,367,823
Less- accumulated depreciation 401,971
----------
$ 965,853
==========
10. RETIREMENT PLAN:
Decker has a qualified salary reduction plan for essentially all full-time
employees under which a participant is allowed to defer up to 15% of their
compensation to the plan. Decker has made no contributions to the plan.
11. COMMITMENTS AND CONTINGENCIES:
Decker maintains a credit insurance policy on its accounts receivable. The
policy has claim limits for each covered customer with a limit of $1,200,000
for the largest customer. The aggregate coverage on this policy amounts to
$1,500,000. The deductible is $30,000.
12. COMMON STOCK:
Common stock consists of:
December 31,
1998
------------
Decker Transport Co., Inc., common stock, no par value; 750
shares authorized; 10 shares issued and outstanding $ 500
Van Houten Ltd., common stock, $1 par value; 1,000 shares
authorized; 100 shares issued and outstanding 100
-----
$ 600
=====
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P.A.M. TRANSPORTATION SERVICES, INC. PRO FORMA CONDENSED FINANCIAL INFORMATION
(Unaudited)
The Unaudited Pro Forma Combined Condensed Balance Sheet at December 31, 1998
(the "Pro Forma Balance Sheet") and the Unaudited Pro Forma Combined Condensed
Statement of Income for the year ended December 31, 1998 (the "Pro Forma
Statement of Income" and, together with the Pro Forma Balance Sheet, the "Pro
Forma Financial Statements") are presented using the purchase method of
accounting to give effect to the Purchase and reflect the combination of
consolidated historical financial data of P.A.M. Transportation Services, Inc.,
Decker Transport Co., Inc. and Van Houten Ltd.
The Pro Forma Balance Sheet and the Pro Forma Statement of Income are derived
from the audited consolidated financial statements of P.A.M. Transportation
Services, Inc. for the year ended December 31, 1998, which are included in this
filing, and from the audited combined financial statements of Decker Transport
Co., Inc. and Van Houten Ltd. for the year ended December 31, 1998, which are
included in this filing. The Pro Forma Balance Sheet and the Pro Forma
Statement of Income are presented as if the Purchase had occurred on January 1,
1998.
The pro forma adjustments reflected in the Pro Forma Financial Statements
represent estimated values and amounts based on available information regarding
Decker Transport Co., Inc.'s and Van Houten Ltd.'s assets and liabilities. The
actual adjustments that will result from the Purchase will be based on further
evaluations and may differ substantially from the adjustments presented herein.
The Pro Forma Financial Statements are presented for illustrative purposes only
and are not necessarily indicative of the financial position or operating
results that would have been achieved had the Purchase been consummated as of
the dates indicated or of the results that may be obtained in the future.
The Pro Forma Financial Statements should be read in conjunction with the
accompanying notes and the historical financial statements of P.A.M.
Transportation Services, Inc., which are included in this filing, and the
historical combined financial statements of Decker Transport Co., Inc. and Van
Houten Ltd., which are included in this filing.
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P.A.M. TRANSPORTATION SERVICES, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
P.A.M. DECKER TRANSPORT
TRANSPORTATION CO., INC. AND PRO FORMA
SERVICES, INC. VAN HOUTEN LTD. ADJUSTMENTS COMBINED
-------------- ----------------- ----------- --------
ASSETS
Current assets $ 31,722 $ 7,840 $ (198)(3) $ 39,364
Net property and equipment 91,431 11,358 1,459 (1) 104,496
248(2)
Excess of cost over net assets
acquired, net 2,277 -- 7,040 (2) 9,317
Other assets 1,041 1,060 (731)(3) 1,370
-------- -------- -------- --------
Total assets $126,471 $20,258 $ 7,818 $154,547
======== ======== ======== ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
debt $ 13,362 $ 3,707 $ 9,999 (4) $ 27,068
Other current liabilities 13,672 3,424 -- 17,096
-------- -------- -------- --------
Total current liabilities 27,034 7,131 9,999 44,164
Long-term debt, less current
portion 44,816 6,818 4,000 (4) 55,634
Other long-term liabilities 13,164 128 -- 13,292
Shareholders' equity:
Common stock 83 1 (1)(5) 83
Additional paid-in capital 18,814 1 (1)(5) 18,814
Retained earnings 22,560 6,179 (6,179)(5) 22,560
-------- -------- -------- --------
Total shareholders'
equity 41,457 6,181 (6,181) 41,457
-------- -------- -------- --------
Total liabilities and
shareholders' equity $126,471 $20,258 $ 7,818 $154,547
======== ======== ======== ========
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NOTES TO UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
(in thousands)
(1) To increase the property and equipment of Decker and Van Houten to
estimated fair market value.
(2) To record the remaining excess of cost over net assets acquired as
follows:
Purchase price paid:
Cash paid and notes issued for all of Decker's and Van
Houten's assets, with the exception of certain related party
notes receivables and loans, along with the assumption of
substantially all of Decker's and Van Houten's liabilities.
Purchase price paid includes purchase of a terminal facility
(not included in Decker's and Van Houten's net assets).
Total purchase price..................................................................................$13,999
Purchase price allocated:
Book value of Decker's and Van Houten's net assets acquired - $5,252
To increase Decker's and Van Houten's property and equipment to their fair value - $1,459
Purchase of terminal facility (not included in Decker's and Van Houten's net assets) - $248
Remaining amount of excess of cost over net assets acquired - $7,040
Total purchase price..................................................................................$13,999
(3) To reflect certain notes and loans receivable not acquired in the
Purchase.
(4) To reflect incremental additional debt required to finance the
Purchase. P.A.M. may retire the incremental additional debt through
cash flows generated from the combined operations or replace the
incremental additional debt incurred to finance the Purchase with debt
with different maturities.
(5) To eliminate Decker's and Van Houten's combined stockholder's equity
balances.
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P.A.M. TRANSPORTATION SERVICES, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1998
(in thousands, except per share data)
P.A.M. DECKER TRANSPORT
TRANSPORTATION CO., INC.AND PRO FORMA
SERVICES, INC. VAN HOUTEN LTD. ADJUSTMENTS COMBINED
--------------- ----------------- ----------- ----------
OPERATING REVENUES $143,164 $48,452 $ -- $191,616
OPERATING EXPENSES
AND COSTS 126,104 47,562 266 (1)
282 (2) 174,214
-------- ------- ------- --------
OPERATING INCOME 17,060 890 (548) 17,402
OTHER INCOME (EXPENSE)
(3,829) (714) (1,046)(3) (5,589)
-------- ------- ------ --------
INCOME BEFORE INCOME
TAXES 13,231 176 (1,594) 11,813
FEDERAL AND STATE 5,158 37 (621)(4) 4,574
INCOME TAXES -------- ------- ------ --------
NET INCOME $ 8,073 $ 139 $ (973) $ 7,239
======== ======= ====== ========
EARNINGS PER COMMON
SHARE:
Basic $ .97 $ .87
======== ========
Diluted $ .96 $ .86
======== ========
AVERAGE COMMON
SHARES OUTSTANDING:
Basic 8,306 8,306
======== ========
Diluted 8,444 8,444
======== ========
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NOTES TO UNAUDITED PRO FORMA
STATEMENT OF INCOME
(1) To increase depreciation expense for the amount of the purchase price
allocated to property and equipment. Additional depreciation computed
using the straight-line method over four years for tractors and seven
years for trailers.
(2) To amortize the excess of cost over net assets acquired in the
Purchase over 25 years.
(3) To reflect increased interest expense resulting from debt incurred
(net of debt paid off) in connection with the Purchase based on an
assumed interest rate of 7.47% which was P.A.M.'s interest rate at the
end of the year on borrowings for general working capital purposes.
(4) To reflect the net tax benefit resulting from the additional
depreciation expense, interest expense and the amortization of the
excess of cost over net assets acquired at an effective rate of 39%.
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P.A.M. TRANSPORTATION SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Public Accountants
22
P.A.M. Transportation Services, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Public Accountants...................................................................... F-1
Audited Consolidated Financial Statements:
Consolidated Balance Sheets................................................................................... F-2
Consolidated Statements of Income............................................................................. F-4
Consolidated Statements of Shareholders' Equity............................................................... F-5
Consolidated Statements of Cash Flows......................................................................... F-6
Notes to Consolidated Financial Statements.................................................................... F-7
23
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
P.A.M. Transportation Services, Inc.
We have audited the accompanying consolidated balance sheets of P.A.M.
Transportation Services, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of P.A.M.
Transportation Services, Inc. and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fayetteville, Arkansas
February 19, 1999
F-1
24
P.A.M. Transportation Services, Inc.
Consolidated Balance Sheets
(thousands, except par value)
DECEMBER 31,
1998 1997
--------- ---------
ASSETS (NOTE 1)
Current assets:
Cash and cash equivalents $ 5,963 $ 6,401
Accounts receivable (Note 1):
Trade, net of allowance for doubtful accounts
(1998--$579; 1997--$579) 20,816 16,915
Other 63 1,703
Equipment held for sale (Note 1) 505 1,529
Operating supplies and inventories 458 449
Prepaid expenses and deposits 3,860 3,384
Deferred income taxes (Note 4) 19 61
Income taxes refundable (Note 4) 38 415
--------- ---------
Total current assets 31,722 30,857
Property and equipment (Notes 1,3 and 8):
Land 959 959
Structures and improvements 2,667 2,654
Revenue equipment 124,354 94,439
Service vehicles 1,944 2,024
Office furniture and equipment 3,936 3,496
--------- ---------
133,860 103,572
Allowances for depreciation (42,429) (37,382)
--------- ---------
91,431 66,190
Other assets:
Excess of cost over net assets acquired, net of
accumulated amortization (1998--$849; 1997--$726) 2,277 2,400
Non-competition agreements, net of accumulated
amortization (1998--$1,549; 1997--$1,109) 297 737
Other 744 504
--------- ---------
3,318 3,641
--------- ---------
Total assets $ 126,471 $ 100,688
========= =========
F-2
25
DECEMBER 31,
----------------------
1998 1997
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 8,494 $ 9,233
Accrued expenses (Note 2) 5,178 4,835
Current portion of long-term debt (Notes 3 and 8) 13,362 15,544
-------- --------
Total current liabilities 27,034 29,612
Long-term debt, less current portion (Notes 3 and 8) 44,816 28,226
Deferred income taxes (Note 4) 13,164 9,376
Non-competition agreements _ 312
Shareholders' equity (Note 5):
Common stock, $.01 par value:
Authorized shares--20,000,000
Issued and outstanding shares: 1998--8,324,957;
1997--8,275,157 83 83
Additional paid-in capital 18,814 18,592
Retained earnings 22,560 14,487
-------- --------
Total shareholders' equity 41,457 33,162
-------- --------
Total liabilities and shareholders' equity $126,471 $100,688
======== ========
See accompanying notes.
F-3
26
P.A.M. Transportation Services, Inc.
Consolidated Statements of Income
(thousands, except per share data)
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------- --------- --------
Operating revenues (Notes 1 and 7) $ 143,164 $ 127,211 $113,021
Operating expenses and costs:
Salaries, wages and benefits 65,169 57,662 52,444
Operating supplies and expenses 26,511 24,666 21,909
Rents and purchased transportation 1,082 1,655 1,824
Depreciation and amortization 14,003 12,995 11,999
Operating taxes and licenses 8,388 7,581 6,734
Insurance and claims 6,069 5,571 5,004
Communications and utilities 1,583 1,001 1,090
Other 3,131 2,394 2,077
Loss on sale or disposal of property and equipment 168 71 375
--------- --------- --------
126,104 113,596 103,456
--------- --------- --------
Operating income 17,060 13,615 9,565
Other income (expense):
Interest expense (3,830) (3,423) (4,137)
Other 1 -- 31
--------- --------- --------
(3,829) (3,423) (4,106)
--------- --------- --------
Income before income taxes 13,231 10,192 5,459
Federal and state income taxes:
Current 1,323 1,120 259
Deferred 3,835 2,772 1,888
--------- --------- --------
5,158 3,892 2,147
--------- --------- --------
Net income $ 8,073 $ 6,300 $ 3,312
========= ========= ========
Earnings per common share (Note 6):
Basic $ .97 $ .77 $ .66
========= ========= ========
Diluted $ .96 $ .76 $ .44
========= ========= ========
Average common shares outstanding:
Basic 8,306 8,192 5,035
========= ========= ========
Diluted 8,444 8,290 7,578
========= ========= ========
See accompanying notes.
F-4
27
P.A.M. Transportation Services, Inc.
Consolidated Statements of Shareholders' Equity
(thousands)
- ---------------------------------------------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
- ---------------------------------------------------------------------------------------------------------
Balances at January 1, 1996 $50 $13,307 $ 4,875 $18,232
Net income -- -- 3,312 3,312
Exercise of stock options--
shares issued (Note 5) 31 4,695 -- 4,726
Tax benefits of stock options
(Note 5) -- 42 -- 42
- ---------------------------------------------------------------------------------------------------------
Balances at December 31, 1996 81 18,044 8,187 26,312
Net income -- -- 6,300 6,300
Exercise of stock options--
shares issued (Note 5) 2 467 -- 469
Tax benefits of stock options
(Note 5) -- 81 -- 81
- ---------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 83 18,592 14,487 33,162
NET INCOME -- -- 8,073 8,073
EXERCISE OF STOCK OPTIONS--
SHARES ISSUED (NOTE 5) -- 175 -- 175
TAX BENEFITS OF STOCK OPTIONS
(NOTE 5) -- 47 -- 47
- ---------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 $83 $18,814 $22,560 $41,457
=========================================================================================================
See accompanying notes.
F-5
28
P.A.M. Transportation Services, Inc.
Consolidated Statements of Cash Flows
(thousands)
YEAR ENDED DECEMBER 31,
1998 1997 1996
--------- --------- ---------
OPERATING ACTIVITIES
Net income $ 8,073 $ 6,300 $ 3,312
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 14,003 12,995 11,999
Non-competition agreement amortization 440 440 408
Provision for doubtful accounts -- -- 140
Provision for deferred income taxes 3,835 2,772 1,888
Loss on sale or disposal of property and equipment 168 71 375
Changes in operating assets and liabilities:
Accounts receivable (2,261) (1,515) (2,047)
Prepaid expenses and other assets (724) (318) 749
Income taxes refundable 377 (415) --
Trade accounts payable (739) 3,650 (2,934)
Accrued expenses 343 1,018 (831)
--------- --------- ---------
Net cash provided by operating activities 23,515 24,998 13,059
INVESTING ACTIVITIES
Purchases of property and equipment (46,119) (16,736) (19,921)
Proceeds from sale or disposal of property and equipment 7,846 195 2,020
Lease payments received on direct financing lease -- -- 1,240
AFS acquisition -- -- (200)
--------- --------- ---------
Net cash used in investing activities (38,273) (16,541) (16,861)
--------- --------- ---------
FINANCING ACTIVITIES
Borrowings under line of credit 173,227 151,616 127,766
Repayments under line of credit (178,449) (153,624) (128,445)
Borrowings of long-term debt 43,785 12,784 17,527
Repayments of long-term debt (24,017) (18,792) (19,093)
Payments under non-competition agreements (448) (450) (407)
Proceeds from exercise of stock options and warrants 175 388 4,724
Tax benefits of stock options 47 81 42
--------- --------- ---------
Net cash provided by (used in) financing activities 14,320 (7,997) 2,114
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (438) 460 (1,688)
Cash and cash equivalents at beginning of year 6,401 5,941 7,629
--------- --------- ---------
Cash and cash equivalents at end of year $ 5,963 $ 6,401 $ 5,941
========= ========= =========
See accompanying notes.
F-6
29
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements
December 31, 1998
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND CONSOLIDATION
P.A.M. Transportation Services, Inc. (the "Company"), through its subsidiaries,
operates as a truckload motor carrier.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Majority ownership of the Company is held by an affiliate of another
transportation company, with whom the Company has certain business
relationships. (See Note 7.)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
TIRE PURCHASES
Tires purchased with revenue equipment are capitalized as a cost of the related
equipment. Replacement tires are included in other current assets and are
amortized over a 24-month period. Amounts paid for the recapping of tires are
expensed when incurred.
EXCESS OF COST OVER NET ASSETS ACQUIRED
The excess of cost over net assets acquired, or goodwill, is being amortized on
a straight-line basis over 25 years. The carrying value of goodwill will be
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
undiscounted cash flows expected over the remaining amortization period, the
Company's carrying value of the goodwill would be reduced by the estimated
shortfall of cash flows. No reduction of goodwill was required in 1998, 1997, or
1996.
CLAIMS LIABILITIES
With respect to cargo loss, collision and auto liability, the Company maintains
the following insurance coverage and deductibles: P.A.M. Transport, Inc., P.A.M.
Dedicated Services, Inc., and Choctaw Express, Inc. are covered under the same
insurance policy issued by St. Paul Insurance Company. The auto liability and
collision coverages are subject to a $2,500 deductible per
F-7
30
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (continued)
occurrence while the cargo loss coverage has a $1,000 deductible. Allen Freight
Services, Inc., is insured by Great West Insurance Company. The auto liability
coverage is not subject to a deductible while the collision deductible for
tractors and trailers are $2,500 and $500, respectively, per occurrence. The
cargo loss coverage is subject to a deductible of $5,000 per occurrence. The
Company maintains a reserve for estimated losses for claims incurred and
maintains a reserve for claims incurred but not reported (based on the Company's
historical experience). During 1998, the Company changed from being self-insured
for workers' compensation coverage in Arkansas, Oklahoma, Mississippi and
Florida with excess coverage maintained for claims exceeding $250,000, to being
fully-insured through Virginia Surety Insurance Company for workers'
compensation coverage in those states. The Company continues to be self-insured
for workers' compensation coverage in Ohio with excess coverage maintained for
claims exceeding $350,000. The Company has reserved for estimated losses to pay
such claims as incurred as well as claims incurred but not reported. The Company
has not experienced any adverse trends involving differences in claims
experienced versus claims estimates for workers' compensation reserves. The
Company contracts a third-party licensed associate of risk management and a
certified Hazard Control Manager to develop its workers' compensation reserves
using the Company's historical data of past injuries. Letters of credit in the
amounts of $300,000, $200,000, $250,000, and $500,000 are held by a bank as
security for workers' compensation claims in Arkansas, Oklahoma, Mississippi,
and Florida, respectively, and two letters of credit in the amount of $150,000
each are held by a bank for auto liability claims.
REVENUE RECOGNITION POLICY
The Company recognizes revenue based upon relative transit time in each
reporting period with expenses recognized as incurred.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. For financial reporting purposes,
the cost of such property is depreciated principally by the straight-line
method. For tax reporting purposes, accelerated depreciation or applicable cost
recovery methods are used. Gains and losses are reflected in the year of
disposal. The following is a table reflecting estimated ranges of asset lives by
major class of depreciable assets:
Asset Class Estimated Asset Life
----------- --------------------
Tractors 3-4 years
Trailers 5-7 years
Service Vehicles 3-5 years
Office Furniture 3-7 years
Buildings 5-30 years
F-8
31
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (continued)
EQUIPMENT HELD FOR SALE
Equipment held for sale consists of revenue equipment no longer in service that
is expected to be sold within the next year. This equipment is recorded at its
estimated net realizable value.
INCOME TAXES
The Company applies the provisions of Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109
requires recognition of deferred tax liabilities and assets for expected future
consequences of events that have been included in a company's financial
statements or tax return. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial statements and the
tax basis of assets and liabilities using enacted tax rates.
BUSINESS SEGMENT AND CONCENTRATIONS OF CREDIT RISK
The Company operates in one business 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. The Company maintains
reserves for potential credit losses and such losses have been within
management's expectations.
In 1998, 1997 and 1996, one customer accounted for 35%, 25% and 22% of revenues,
respectively. A second customer accounted for 12% of revenues in 1998, 1997 and
1996. The Company's largest customer is an automobile manufacturer. The Company
also provides transportation services to other manufacturers who are suppliers
for automobile manufacturers including the Company's largest customer. As a
result, concentration of the Company's business within the automobile industry
is greater than the concentration in a single customer. Of the Company's
revenues for 1998, 1997 and 1996, 53%, 41% and 37%, respectively, were derived
from transportation services provided to the automobile manufacturing industry.
COMPENSATION TO EMPLOYEES
Stock based compensation to employees is accounted for based on the intrinsic
value method under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 129, Disclosures of Information about Capital Structure, ("SFAS
No. 129") effective for the year ended December 31, 1997. This Statement
consolidates existing pronouncements on required disclosures about a company's
capital structure including a brief discussion of rights and privileges for
securities outstanding. The adoption of this Statement had no material effect on
the Company's consolidated financial statements.
F-9
32
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (continued)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income, ("SFAS
No. 130"). This Statement requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 is effective for fiscal years beginning
after December 15, 1997. The adoption of this Statement had no material effect
on the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, ("SFAS No. 131"). This Statement established
standards for reporting information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 is effective for financial
statement periods beginning after December 15, 1997. The adoption of this
Statement had no material effect on the Company's consolidated financial
statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("SFAS No. 133"). SFAS No. 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement. Companies
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999; however, companies may implement the statement as
of the beginning of any fiscal quarter beginning on or after June 16, 1998.
SFAS No. 133 cannot be applied retroactively and must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and, at the company's election, before January 1, 1998). The Company
has not yet quantified the impact of adopting SFAS No. 133 on its financial
statements and has not determined the timing of or method of the adoption of
SFAS No. 133. However, as of December 31, 1998, the Company had no outstanding
derivative instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated financial
statements to conform to the current year presentation.
F-10
33
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
1. ACCOUNTING POLICIES (continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
2. ACCRUED EXPENSES
DECEMBER 31,
1998 1997
------- -------
(thousands)
Payroll $ 1,382 $ 1,818
Taxes 1,094 702
Interest 163 175
Driver escrows 681 307
Insurance 461 328
Current portion of non-competition agreements 312 448
Self-insurance claims reserves 1,085 1,057
------- -------
$ 5,178 $ 4,835
======= =======
3. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
1998 1997
------- -------
(thousands)
Equipment financings(1) $55,655 $35,733
Line of credit with a bank, with interest at the LIBOR rate
plus 1.50% or 1.85% due May 31, 2000 and
collateralized by accounts receivable (2) -- 5,222
Note payable(3) 308 364
Capitalized lease obligations(4) 1,269 2,451
Insurance financings(5) 946 --
------- -------
58,178 43,770
Less current maturities 13,362 15,544
------- -------
$44,816 $28,226
======= =======
(1) Equipment financings consist of installment obligations for revenue and
service equipment purchases, payable in various monthly installments
through 2004, at a weighted average interest rate of 7.68% and
collateralized by equipment with a net book value of approximately
$59.5 million at December 31, 1998.
(2) The line of credit agreement with a bank provides for maximum
borrowings of $15.0 million and contains restrictive covenants which
requires the Company to maintain, on a consolidated
F-11
34
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
basis, a net worth of $12.5 million and a debt service coverage ratio
of not less than 1.0 to 1.0. The interest rate varies based on the use
of the funds. Equipment financed using the line of credit is at an
interest rate of LIBOR as of the first day of the month plus 1.50%
(7.12% at December 31, 1998). Withdrawals for general working capital
is at an interest rate of LIBOR as of the first day of the month plus
1.85% (7.47% at December 31, 1998). The line of credit agreement also
includes restrictions on dividend payments and certain corporate acts
such as mergers and consolidations.
(3) 8% real estate note to the former majority shareholder, payable in
monthly installments through March 2003.
(4) Capitalized lease obligations to a financial service organization for
revenue equipment are payable in various monthly installments through
December 1999 at rates ranging from 8.15% to 8.86%, collateralized by
equipment with a net book value of approximately $2.3 million, as of
December 31, 1998 (See Note 8).
(5) Insurance financings consist of a premium finance agreement with an
insurance premium funding company, payable in monthly installments
through 2001 at an interest rate of 6%.
Scheduled annual maturities on long-term debt outstanding, excluding capital
lease obligations (see Note 8), at December 31, 1998 are:
(thousands)
1999 $12,093
2000 15,879
2001 13,322
2002 14,120
2003 1,451
Thereafter 44
-------
$56,909
=======
Interest payments of approximately $3.8 million, $3.5 million, and $4.0 million
were made during 1998, 1997 and 1996, respectively.
4. INCOME TAXES
Under SFAS No. 109, deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
F-12
35
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES (continued)
Significant components of the Company's deferred tax liabilities and assets are
as follows:
DECEMBER 31,
1998 1997
--------------------
(thousands)
Deferred tax
liabilities:
Property and equipment $19,619 $14,677
Prepaid expenses 1,275 982
------- -------
Total deferred tax liabilities 20,894 15,659
Deferred tax assets:
Net operating loss carryovers 792 869
Alternative minimum tax credit 4,106 3,037
Investment credit carryovers 1,096 1,096
Allowance for doubtful accounts 220 220
Vacation reserves 277 220
Self-insurance reserves 560 454
Non-competition agreement 422 300
Revenue recognition 276 148
------- -------
Total deferred tax assets 7,749 6,344
------- -------
Net deferred tax liabilities $13,145 $ 9,315
======= =======
The reconciliation between the effective income tax rate and the statutory
Federal income tax rate is presented in the following table:
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- ------- -------
(thousands)
Income tax at the statutory Federal rate of 34% $ 4,499 $ 3,465 $ 1,856
Nondeductible expenses 60 63 108
State income taxes (85) (85) (118)
Other (329) (412) (46)
------- ------- -------
Federal income taxes 4,145 3,031 1,800
State income taxes 1,013 861 347
------- ------- -------
Total income taxes $ 5,158 $ 3,892 $ 2,147
------- ------- -------
Effective tax rate 39.0% 38.2% 39.3%
======= ======= =======
F-13
36
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
4. INCOME TAXES (continued)
The current income tax provision consists of the following:
1998 1997 1996
------ ------ ----
(thousands)
Federal $1,073 $ 870 $179
State 250 250 80
------ ------ ----
$1,323 $1,120 $259
====== ====== ====
As of December 31, 1998, the Company has Federal net operating loss and
investment tax credit carryovers of approximately $2.1 million and $1.1 million,
respectively. The net operating loss carryovers begin to expire in 2003, and the
investment credit carryovers begin to expire in 1999. The current taxes provided
in 1998, 1997 and 1996 result from alternative minimum taxable income. The
Company has alternative minimum tax credits of approximately $4.1 million at
December 31, 1998, which carryover indefinitely.
Income taxes paid totaled approximately $1,200,000, $1,300,000 and $400,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
5. SHAREHOLDERS' EQUITY
The Company maintains an incentive stock option plan, a nonqualified stock
option plan, and an employee stock option plan for the issuance of options to
directors, officers, key employees and others. During 1998, the incentive stock
option plan was amended to include an additional 400,000 shares available for
future granting. The option price under these plans is the fair market value of
the stock at the date the options were granted, ranging from $2.38 to $10.63 as
of December 31, 1998. At December 31, 1998, approximately 700,000 shares were
available for granting future options.
Outstanding incentive stock options and employee stock options at December 31,
1998, must be exercised within six years from the date of grant and vest in
increments of 20% each year. Outstanding nonqualified stock options at December
31, 1998, must be exercised within five to six years and certain nonqualified
options may not be exercised within one year of the date of grant.
F-14
37
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY (continued)
Transactions in stock options under these plans are summarized as follows:
SHARES
UNDER
OPTION PRICE RANGE
--------- -------------
Outstanding at January 1, 1996 532,100 $2.38-$6.75
Granted 10,000 $6.50-$7.38
Exercised (36,600) $2.38-$6.00
Canceled (13,900) $2.38-$6.75
--------- -------------
Outstanding at December 31, 1996 491,600 $2.38-$7.38
Granted 3,000 $6.00
Exercised (146,350) $2.38-$6.00
Canceled (400) $2.38-$6.75
--------- -------------
Outstanding at December 31, 1997 347,850 $2.38-$7.38
Granted 3,000 $10.63
Exercised (49,800) $2.38-$5.75
--------- -------------
Outstanding at December 31, 1998 301,050 $2.38-$10.63
========= =============
Options exercisable at December 31, 1998 260,050
=========
The following is a summary of stock options outstanding as of December 31, 1998:
WEIGHTED
OPTION AVERAGE
OPTIONS EXERCISE REMAINING OPTIONS
OUTSTANDING PRICE YEARS EXERCISABLE
----------- -------- --------- -----------
48,050 $2.38 .2 48,050
10,000 $4.38 1.7 10,000
200,000 $5.75 2.7 166,000
5,000 $6.00 3.0 5,000
25,000 $6.32 2.5 20,000
5,000 $6.50 3.4 3,000
2,000 $6.75 2.2 2,000
3,000 $7.38 3.2 3,000
3,000 $10.63 5.2 3,000
------- -------
301,050 260,050
======= =======
F-15
38
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
5. SHAREHOLDERS' EQUITY (continued)
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the Company's stock option plans been
determined consistent with the provisions of SFAS No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
1998 1997
-------- ---------
(thousands)
Net income:
As reported $ 8,073 $ 6,300
Pro forma $ 7,941 $ 6,178
Earnings per share as reported:
Basic $.97 $.77
Diluted $.96 $.76
Pro forma earnings per share:
Basic $.96 $.75
Diluted $.94 $.75
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions: dividend yield of 0%; expected volatility of 65.15% to 76.64%;
risk-free interest rate of 5.73% to 7.02%; and expected lives of five years.
The majority shareholder exercised stock warrants to purchase an aggregate of
3,092,000 shares of the Company's common stock at $1.50 per warrant on December
30, 1996.
6. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("SFAS No. 128"), establishing new standards for
computing and presenting earnings per share. The provisions of SFAS No. 128 are
effective for financial statements issued for periods ending after December 15,
1997. The Company has adopted SFAS No. 128 effective December 31, 1997, and all
earnings per share amounts for all periods have been presented, and where
appropriate, restated to conform to the SFAS No. 128 requirements. Basic
earnings per common share were computed by dividing the income by the weighted
average number of shares outstanding during the period. Diluted earnings per
share were calculated as follows:
F-16
39
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
6. EARNINGS PER SHARE (continued)
1998 1997 1996
------- ------- -------
(thousands, except per share data)
Actual net income (A) $ 8,073 $ 6,300 $ 3,312
======= ======= =======
Assumed exercise of options and warrants 317 348 3,545
Application of assumed proceeds ($1,606,
$1,972 and $5,035, respectively)
toward repurchase of stock at an average
market price of $8.958, $7.888 and
$5.025 per share, respectively (179) (250) (1,002)
------- ------- -------
Net additional shares issuable 138 98 2,543
======= ======= =======
Adjustment of shares outstanding:
Weighted average common shares outstanding 8,306 8,192 5,035
Net additional shares issuable 138 98 2,543
------- ------- -------
Adjusted shares outstanding (B) 8,444 8,290 7,578
======= ======= =======
Net income per common share (A) divided by (B) $ .96 $ .76 $ .44
======= ======= =======
7. RELATED PARTY TRANSACTIONS
The Company provides motor carrier services to an affiliate of its majority
shareholder. Revenues from these transactions totaled approximately $.5 million,
$1.9 million and $.4 million for 1998, 1997, and 1996, respectively.
Payments made by the Company to an affiliate of the majority shareholder for the
reimbursement of operating and other expenses paid on behalf of the Company and
debt repayments made on notes payable to the affiliate totaled approximately
$1.1 million, $.9 million and $6.4 million in 1998, 1997, and 1996,
respectively.
Trade accounts payable at December 31, 1998, includes a payable to an affiliate
of the majority shareholder of $477,170.
8. LEASES AND COMMITMENTS
The Company leases certain revenue equipment under capital leases.
F-17
40
P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
The future minimum payments under these leases (see Note 3) at December 31,
1998, consisted of the following:
(thousands)
1999 $1,342
------
Total minimum lease payments 1,342
Amounts representing interest 73
------
Present value of minimum lease payments $1,269
======
Assets held under capitalized leases are included in property, plant and
equipment as of December 31, 1998, as follows:
(thousands)
Revenue equipment $5,238
Accumulated amortization (2,977)
------
$2,261
======
No capital lease obligations were entered into during 1998 or 1997. Lease
amortization is included in depreciation expense.
9. PROFIT SHARING PLAN
P.A.M. Transport, Inc., a subsidiary of the Company, sponsors a profit sharing
plan for the benefit of all eligible employees. The plan qualifies under Section
401(k) of the Internal Revenue Code thereby allowing eligible employees to make
tax deductible contributions to the plan. The plan provides for employer
matching contributions of 50% of each participant's voluntary contribution up to
3% of the participant's compensation.
Allen Freight Services, Inc. (AFS), a subsidiary of the Company, sponsored a
profit sharing plan for the benefit of all eligible employees. The AFS profit
sharing plan was merged into the P.A.M.
Transport, Inc. profit sharing plan effective December 31, 1997.
Total contributions to the above plans totaled approximately $133,000, $92,000
and $100,000 in 1998, 1997 and 1996, respectively.
F-18
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P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
10. LITIGATION
The Company is not a party to any pending legal proceedings which management
believes to be material to the financial position or results of operations of
the Company. The Company maintains liability insurance against risks arising out
of the normal course of its business.
11. SUBSEQUENT EVENT
On January 11, 1999, the Company acquired substantially all of the assets and
assumed certain liabilities of a truckload carrier located in New Jersey. The
Company acquired assets, which consisted primarily of revenue equipment and
trade accounts receivable, totaling approximately $21.0 million and assumed
liabilities, which consisted primarily of installment note obligations and trade
accounts payable, totaling approximately $14.1 million. In connection with this
acquisition, the Company issued to the seller an installment note in the amount
of $4.0 million at an interest rate of 6% and paid cash of approximately $9.8
million utilizing existing cash and its line of credit.
12. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The tables below presents quarterly financial information for 1998 and 1997:
1998
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------
(thousands, except per share data)
Operating revenues $35,440 $36,012 $34,131 $37,581
Operating expenses 31,371 31,088 30,122 33,523
------- ------- ------- -------
Operating income 4,069 4,924 4,009 4,058
Other expenses - net 829 1,027 981 992
Income taxes 1,296 1,481 1,175 1,206
------- ------- ------- -------
Net income $ 1,944 $ 2,416 $ 1,853 $ 1,860
------- ------- ------- -------
Net income per common share:
Basic $ .23 $ .29 $ .22 $ .22
======= ======= ======= =======
Diluted $ .23 $ .29 $ .22 $ .22
======= ======= ======= =======
Average common shares outstanding:
Basic 8,286 8,300 8,313 8,325
======= ======= ======= =======
Diluted 8,443 8,473 8,421 8,410
======= ======= ======= =======
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P.A.M. Transportation Services, Inc.
Notes to Consolidated Financial Statements (continued)
12. QUARTERLY RESULTS OF OPERATIONS (Unaudited) (continued)
1997
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------------------------
(thousands, except per share data)
Operating revenues $32,630 $31,353 $30,776 $32,452
Operating expenses 29,620 27,089 27,581 29,306
------- ------- ------- -------
Operating income 3,010 4,264 3,195 3,146
Other expenses - net 869 888 801 864
Income taxes 856 1,283 910 844
------- ------- ------- -------
Net income $ 1,285 $ 2,093 $ 1,484 $ 1,438
======= ======= ======= =======
Net income per common share:
Basic $ .16 $ .26 $ .18 $ .17
======= ======= ======= =======
Diluted $ .16 $ .25 $ .18 $ .17
======= ======= ======= =======
Average common shares outstanding:
Basic 8,126 8,147 8,223 8,269
======= ======= ======= =======
Diluted 8,250 8,281 8,363 8,439
======= ======= ======= =======
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
Cash and cash equivalents - The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
Long-term debt - The fair values of the Company's long-term debt are estimated
using discounted cash flow analyses, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
Line of credit - The carrying amount for the line of credit approximates fair
value.
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows (in thousands):
1998 1997
- ------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------
Cash and cash equivalents $ 5,963 $ 5,963 $ 6,401 $ 6,401
LONG-TERM DEBT 58,178 58,567 38,548 38,759
LINE OF CREDIT - - 5,222 5,222
========================================================================
F-20
43
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 hereunto duly authorized.
P.A.M. TRANSPORTATION SERVICES, INC.
Date: March 22, 1999 By: /s/ Larry J. Goddard
-------------- --------------------------
Larry J. Goddard
Vice President Finance and Chief Financial
Officer