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, 2001 [ _ ] 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 -------- P.A.M. TRANSPORTATION SERVICES, INC. ------------------------------------ (Exact name of registrant as specified in its charter) Delaware 71-0633135 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Highway 412 West, Tontitown, Arkansas 72770 ------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (501) 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 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 1, 2001 ----- ------------------------------- Common Stock, $.01 Par Value 8,524,546
PART I - FINANCIAL INFORMATION Item 1. Financial Statements
<TABLE> <CAPTION> P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2001 2000 ---- ---- (unaudited) (note) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 1,354 $ 485 Receivables: Trade, net of allowance 28,032 23,291 Other 572 640 Operating supplies and inventories 245 71 Deferred income taxes 581 401 Prepaid expenses and deposits 4,417 3,426 Income taxes refundable 173 628 --------- --------- Total current assets 35,374 28,942 Property and equipment, at cost 208,115 184,636 Less: accumulated depreciation (66,954) (59,308) --------- --------- Net property and equipment 141,161 125,328 Other assets: Excess of cost over net assets acquired 8,203 8,506 Non compete agreement 31 131 Other 1,748 1,611 --------- --------- Total other assets 9,982 10,248 --------- --------- Total assets $ 186,517 $ 164,518 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 15,550 $ 17,753 Trade accounts payable 12,662 10,610 Other current liabilities 9,430 8,074 --------- --------- Total current liabilities 37,642 36,437 Long-term debt, less current portion 51,497 42,073 Deferred income taxes 27,429 23,798 Shareholders' equity: Common stock 86 85 Additional paid-in capital 20,421 19,638 Accumulated other comprehensive income (loss) (571) - Retained earnings 50,013 42,487 --------- --------- Total shareholders' equity 69,949 62,210 --------- --------- Total liabilities and shareholders' equity $ 186,517 $ 164,518 ========= ========= Note: The balance sheet at December 31, 2000 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. </TABLE>
<TABLE> <CAPTION> 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, 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Operating revenues $ 53,662 $ 47,100 $ 169,530 $ 154,282 Operating expenses: Salaries, wages and benefits 24,097 21,137 74,960 68,187 Operating supplies 10,990 9,228 33,317 28,327 Rent/purchased transportation 2,015 2,498 8,434 9,429 Depreciation and amortization 5,139 4,629 14,989 14,253 Operating taxes and licenses 2,940 2,453 8,878 8,324 Insurance and claims 2,407 2,032 7,489 6,610 Communications and utilities 567 500 1,662 1,685 Other 892 874 3,634 2,851 (Gain) loss on sale of equipment 145 398 191 302 --------- --------- --------- --------- 49,192 43,749 153,554 139,968 --------- --------- --------- --------- Operating income 4,470 3,351 15,976 14,314 Other income (expense) Interest expense (1,148) (1,184) (3,455) (3,906) --------- --------- --------- --------- (1,148) (1,184) (3,455) (3,906) Income before income taxes 3,322 2,167 12,521 10,408 Income taxes --current 35 618 895 923 --deferred 1,285 205 4,100 3,193 --------- --------- --------- --------- 1,320 823 4,995 4,116 Net income $ 2,002 $ 1,344 $ 7,526 $ 6,292 ========= ========= ========= ========= Net income per common share: Basic $ 0.23 $ 0.16 $ 0.88 $ 0.74 ========= ========= ========= ========= Diluted $ 0.23 $ 0.16 $ 0.88 $ 0.74 ========= ========= ========= ========= Average common shares outstanding-Basic 8,525,334 8,465,309 8,524,546 8,449,861 ========= ========= ========= ========= Average common shares outstanding-Diluted 8,537,286 8,525,269 8,559,263 8,518,227 ========= ========= ========= ========= See notes to condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended September 30, 2001 2000 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 7,526 $ 6,292 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,989 14,253 Non compete agreement amortization 99 98 Provision for deferred income taxes 4,100 3,193 Loss /(gain) on retirement of property and equipment 191 302 Changes in operating assets and liabilities: Accounts receivable (4,804) (1,392) Prepaid expenses and other current assets (847) (1,467) Accounts payable 830 3,697 Accrued expenses 1,356 1,422 --------- --------- Net cash provided by operating activities 23,440 26,398 INVESTING ACTIVITIES Purchases of property and equipment (39,940) (24,354) Proceeds from sales of assets 9,230 11,467 Lease payments received on direct financing leases 133 192 --------- --------- Net cash used in investing activities (30,577) (12,695) FINANCING ACTIVITIES Borrowings under lines of credit 211,506 141,199 Repayments under lines of credit (194,417) (139,999) Borrowings of long-term debt 7,112 4,204 Repayments of long-term debt (16,979) (22,538) Proceeds from exercise of stock options 784 186 --------- --------- Net cash provided by (used in) financing activities 8,006 (16,948) --------- --------- Net increase (decrease) in cash and cash equivalents 869 (3,245) Cash and cash equivalents at beginning of period $ 485 $ 3,557 --------- --------- Cash and cash equivalents at end of period $ 1,354 $ 312 ========= ========= See notes to condensed consolidated financial statements. </TABLE>
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2001 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, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 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, 2000. NOTE B: NOTES PAYABLE AND LONG-TERM DEBT - ---------------------------------------------- In the first nine months of 2001, the Company's subsidiary, P.A.M. Transport, Inc., entered into installment obligations for the purchase of revenue equipment in the amount of approximately $4.5 million. These obligations are payable in 48 monthly installments at an interest rate of 7.43%. NOTE C: DERIVATIVE FINANCIAL INSTRUMENTS - ------------------------------------------ On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," issued by the Financial Accounting Standards Board in 1998. Statement No. 133, as amended, establishes accounting and reporting standards requiring the recording of each derivative instrument in the balance sheet as either an asset or liability measured at fair value. Changes in the derivative instrument's fair value must be recognized currently in earnings unless specific hedge accounting criteria are met. For hedges which meet the criteria, the derivative instrument's gains and losses, to the extent effective, may be recognized in accumulated other comprehensive income (loss) rather than current earnings. The Company had no transition adjustment as a result of adopting SFAS 133 on January 1, 2001 as the Company's only derivative instruments were entered into after January 1, 2001. Effective February 28, 2001 the Company entered into an interest rate swap agreement on a notional amount of $15,000,000. The pay fixed rate under the swap is 5.08%, while the receive floating rate is "1-month" LIBOR. This interest rate swap agreement terminates on March 2, 2006. Effective May 31, 2001 the Company entered into an interest rate swap agreement on a notional amount of $5,000,000. The pay fixed rate under the swap is 4.83%, while the receive floating rate is "1-month" LIBOR. This interest rate swap agreement terminates on June 2, 2006. The Company designates both of these interest rate swaps as cash flow hedges of its exposure to variability in future cash flows resulting from interest payments indexed to "1-month" LIBOR. Changes in future cash flows from the interest rate swaps will offset changes in interest rate payments on the first $20,000,000 of the Company's current revolving credit facility or future "1-month" LIBOR based borrowings that reset on the second London Business Day prior to the start of the next interest period. The hedge locks the interest rate at 5.08% or 4.83% plus the pricing spread (currently 1.15%) for the notional amounts of $15,000,000 and $5,000,000, respectively. These interest rate swap agreements meet the specific hedge accounting criteria. The effective portion of the cumulative gain or loss has been reported as a component of accumulated other comprehensive loss in shareholders' equity and will be reclassified into current earnings by June 2, 2006, the latest termination date for all current swap agreements. The Company records all derivatives at fair value as assets or liabilities in the condensed consolidated balance sheet, with classification as current or long-term depending on the duration of the instrument. At September 30, 2001, the net deferred hedging loss in accumulated other comprehensive loss was approximately $571,000. The measurement of hedge effectiveness is based upon a comparison of the floating-rate leg of the swap and the hedged floating-rate cash flows on the underlying liability. This method is based upon the premise that only the floating-rate component of the swap provides the cash flow hedge, and any changes in the swap's fair value attributable to the fixed-rate leg is not relevant to the variability of the hedged interest payments on the floating-rate liability. The calculation of ineffectiveness involves a comparison of the present value of the cumulative change in the expected future cash flows on the variable leg of the swap and the present value of the cumulative change in the expected future interest cash flows on the floating-rate liability.
PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING INFORMATION - ---------------------------- Certain information included in this Quarterly Report on Form 10-Q constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which are indicated by the use of words such as "expect", "intend", "estimate", "project" or similar expressions, may relate to future financial results and plans for future business activities, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, general economic conditions, competition, the price of fuel, the availability of drivers, economic and other disruptions and uncertainties resulting from the terrorist attacks in New York City and Washington, D.C. on September 11, 2001 and a continuing war on terrorism, including military action, new terrorist attacks, actual or threatened, regulatory action which may increase operating expenses, and related political events as well as other uncertainties detailed in this report and detailed from time to time in other filings by the Company with the Securities and Exchange Commission. THREE MONTHS ENDED SEPTEMBER 30, 2001 VS. THREE MONTHS ENDED SEPTEMBER 30, 2000 - -------------------------------------------------------------------------------- For the quarter ended September 30, 2001, revenues increased 13.9% to $53.7 million as compared to $47.1 million for the quarter ended September 30, 2000. The main factor contributing to the increase was an increase in the average number of tractors from 1,379 in the third quarter of 2000 to 1,554 in the third quarter of 2001. Operating supplies and expenses increased from 19.6% of revenues in the third quarter of 2000 to 20.5% of revenues in the third quarter of 2001. The increase relates to increased equipment repair costs and increased net fuel costs due to a reduction of fuel surcharges passed to customers. Rent and purchased transportation decreased from 5.3% of revenues in the third quarter of 2000 to 3.8% of revenues in the third quarter of 2001. The decrease relates primarily to a decrease in amounts paid to other transportation companies in the form of brokerage fees. The Company's operating ratio decreased to 91.7% for the third quarter of 2001 from 92.9% for the third quarter of 2000, as a result of the factors described above. The Company's effective tax rate increased from 38.0% in the third quarter of 2000 to 39.9% in the third quarter of 2001, which, combined with increased revenues, resulted in an increase in the provision for income taxes from $823,520 for the third quarter of 2000 to $1,320,549 for the third quarter of 2001. Net income increased to $2.0 million, or 3.7% of revenues, in the third quarter of 2001 from $1.3 million, or 2.9% of revenues in the third quarter of 2000, representing an increase in diluted net income per share to $.23 in the third quarter of 2001 from $.16 in the third quarter of 2000. NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. NINE MONTHS ENDED SEPTEMBER 30, 2000 - -------------------------------------------------------------------------------- For the nine months ended September 30, 2001, revenues increased 9.9% to $169.5 million as compared to $154.3 million for the nine months ended September 30, 2000. The increase was due to improved utilization of existing revenue equipment and an increase in the average number of tractors from 1,418 in the first nine months of 2000 to 1,540 in the first nine months of 2001. Improved utilization of existing revenue equipment resulted in a 2.8% increase in average revenue generated per tractor each work day from $577 in the first nine months of 2000 to $593 in the first nine months of 2001. Operating supplies and expenses increased from 18.4% of revenues in the first nine months of 2000 to 19.7% of revenues in the first nine months of 2001. The increase relates to increased equipment repair costs and to an increase in fuel costs of .6%, net of fuel surcharges passed on to customers. Rent and purchased transportation decreased from 6.1% of revenues in the first nine months of 2000 to 5.0% of revenues in the first nine months of 2001. The decrease relates primarily to a decrease in amounts paid to other transportation companies in the form of brokerage fees. Other expenses increased from 1.8% of revenues in the first nine months of 2000 to 2.1% of revenues in the first nine months of 2001. The increase is due to an increase in the Company's allowance for doubtful accounts. Depreciation and amortization decreased from 9.2% of revenues in the first nine months of 2000 to 8.8% of revenues in the first nine months of 2001. The primary reason for the decrease was increased utilization of existing revenue equipment. The Company's operating ratio decreased to 90.6% for the first nine months of 2001 from 90.7% for the first nine months of 2000, as a result of the factors described above. The Company's effective tax rate increased from 39.5% in the first nine months of 2000 to 39.9% in the first nine months of 2001, which, combined with increased revenues, resulted in an increase in the provision for income taxes from $4,116,334 for the first nine months of 2000 to $4,995,238 for the first nine months of 2001. Net income increased to $7.5 million, or 4.4% of revenues, in the first nine months of 2001 from $6.3 million, or 4.1% of revenues in the first nine months of 2000, representing an increase in diluted net income per share to $.88 in the first nine months of 2001 from $.74 in the first nine months of 2000. LIQUIDITY AND CAPITAL RESOURCES - ---------------------------------- During the first nine months of 2001, the Company generated $23.4 million in cash from operating activities. Investing activities used $30.6 million in cash in the first nine months of 2001. Financing activities generated $8.0 million in the first nine months of 2001, primarily from long-term borrowings. The Company's principal subsidiary, P.A.M. Transport, Inc., maintains two $20.0 million lines of credit with separate financial institutions. These bank lines of credit are secured by accounts receivable or revenue equipment and are subject to borrowing limitations. Withdrawals from the lines of credit bear interest at LIBOR (as of the first day of the month) plus either 1.40% or 1.15%. Outstanding advances on the lines of credit were approximately $8.9 million and $20.0 million at September 30, 2001, including $2.7 million in letters of credit. The Company's combined borrowing limitation on the two lines of credit at September 30, 2001 was $11.1 million. These lines of credit are guaranteed by the Company and mature on May 31, 2002 and November 30, 2002. In addition to cash flows from operations, the Company uses its existing lines of credit on an interim basis to finance capital expenditures and repay long-term debt. Longer-term transactions, such as installment notes (generally three to five year terms at fixed rates), are typically entered into for the purchase of revenue equipment; however, the Company purchased additional revenue equipment during the first nine months of 2001 at a cost of approximately $32.1 million using its existing line of credit. In addition, P.A.M. Transport, Inc. entered into installment obligations during the first nine months of 2001 for the purchase of revenue equipment in the amount of approximately $4.5 million, payable in 48 monthly installments at an interest rate of 7.43%. During the remainder of 2001, the Company plans to replace approximately 60 tractors which would result in additional debt of approximately $2.4 million. Management expects that the Company's existing working capital and its available line of credit will be sufficient to meet the Company's expected capital commitments to repay indebtedness, and to fund its operating needs for the next 12 months. On November 22, 2000, P.A.M. Transport, Inc. entered into a $15,000,000 revolving credit facility with a maturity date of November 30, 2002. This revolving credit facility was increased to $20,000,000 on May 31, 2001. The purpose of the facility is to provide a means for financing working capital, capital expenditure and acquisition requirements. Through this facility the Company can elect to borrow at LIBOR rates, plus a pricing spread. Therefore, the Company's forecasted future cash flow is exposed to interest rate risk related to variability in LIBOR rates with respect to amounts outstanding under the facility. Additionally, the Company anticipates it will continue to have interest rate exposure beyond the maturity of its current revolving credit facility and has therefore hedged its exposure to the volatility in variable interest rates. However, the hedging transactions will only serve to provide interest rate protection and create an interest rate neutral position by specifically matching notional amounts, maturity dates, and interest rate indices. During February 2001 and May 2001 the Company entered into separate interest rate swap agreements on notional amounts of $15,000,000 and $5,000,000, respectively. The pay fixed rate under the swaps are 5.08% and 4.83%, respectively, while the receive floating rate is "1-month" LIBOR. The $15,000,000 swap agreement terminates on March 2, 2006 while the $5,000,000 swap agreement terminates on June 2, 2006. For additional information with respect to the interest rate swap agreements, see Note C to the condensed consolidated financial statements. NEW ACCOUNTING PRONOUNCEMENTS - ----------------------------- In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," and announced the approval for issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all business combinations completed after June 30, 2001, to be accounted for under the purchase method. This standard also establishes for all business combinations made after June 30, 2001, specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 141 also requires that the excess of the fair value of acquired assets over cost (negative goodwill) be recognized immediately as an extraordinary gain, rather than deferred and amortized. The Company will account for all future business combinations under SFAS No. 141. SFAS No. 142 addresses the accounting for goodwill and other intangible assets after an acquisition. Goodwill and other intangibles that have indefinite lives will no longer be amortized, but will be subject to annual impairment tests. All other intangible assets will continue to be amortized over their estimated useful lives. The Company will adopt this statement effective January 1, 2002. At that time, amortization of existing goodwill will cease on the unamortized portion of goodwill associated with acquisitions. This will have a favorable annual impact of approximately $110,000, net of tax, beginning in 2002. Goodwill existing at September 30, 2001, will continue to be amortized through the end of fiscal 2001. SFAS No. 142 also requires a new methodology for the testing of impairment of goodwill and other intangibles that have indefinite lives. During 2002, the Company will begin testing goodwill for impairment under the new rules, applying a fair-value-based test. At this time, the Company has not yet determined what impact, if any, the change in the required approach to impairment testing will have on either its financial position or results of operations. SFAS No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets, including: (i) the timing of liability recognition; (ii) initial measurement of the liability; (iii) allocation of asset retirement cost to expense; (iv) subsequent measurement of the liability; and (v) financial statement disclosures. SFAS No. 143 requires that an asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. This standard becomes effective for fiscal years beginning after June 15, 2002. The Company will adopt the Statement effective January 1, 2003. At this time, the Company has not yet determined what impact, if any, the adoption of this Statement will have on either its financial position or results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. This Statement also amends ARB No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. At present, the Company is currently assessing but has not yet determined the complete impact, if any, that the adoption of SFAS No. 144 will have on its financial position and results of operations. Item 3. Quantitative and Qualitative Disclosure about Market Risk. - ---------------------------------------------------------------------------- The Company is exposed to market risks from changes in interest rates. The Company's two lines of credit bear interest at a floating rate equal to LIBOR plus either 1.40% or 1.15%. Accordingly, changes in LIBOR, which is effected by changes in interest rates generally, will affect the interest rate on, and therefore the Company's costs under, the lines of credit. In an effort to manage the risks associated with changing interest rates the Company entered into interest rate swaps effective February 28, 2001 and May 31, 2001, on notional amounts of $15,000,000 and $5,000,000, respectively. The pay fixed rate 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. For additional information with respect to the interest rate swap agreements, see Note C to the condensed consolidated financial statements. The Company may temporarily invest excess cash in money market funds. Changes in interest rates would not significantly affect the fair value of these cash investments.
PART II. OTHER INFORMATION ------------------------------ Item 6. Exhibits and Reports on Form 8-K. - -------------------------------------------------- (a) The following exhibits are filed with this report: 11.1 - Statement Re: Computation of Diluted Earnings Per Share. (b) Reports on Form 8-K None.
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 12, 2001 By: /s/ Robert W. Weaver --------------------------------- Robert W. Weaver President and Chief Executive Officer (principal executive officer) Dated: November 12, 2001 By: /s/ Larry J. Goddard --------------------------------- Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer (principal accounting and financial officer)