UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 [ _ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______to______ Commission File Number 0-15057 ------- P.A.M. TRANSPORTATION SERVICES, INC. ------------------------------------ (Exact name of registrant as specified in its charter) Delaware 71-0633135 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Highway 412 West, Tontitown, Arkansas 72770 ------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrants telephone number, including area code: (479) 361-9111 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ _ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Class Outstanding at May 3, 2002 ----- ------------------------------- Common Stock, $.01 Par Value 11,250,207
PART I - FINANCIAL INFORMATION Item 1. Financial Statements
<TABLE> <CAPTION> P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) March 31, December 31, 2002 2001 ---- ---- (unaudited) (note) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 6,716 $ 896 Receivables: Trade, net of allowance 38,891 24,327 Other 488 744 Operating supplies and inventories 409 255 Deferred income taxes 392 472 Prepaid expenses and deposits 6,473 3,980 Income taxes refundable 170 393 --------- --------- Total current assets 53,539 31,067 Property and equipment, at cost 213,893 211,902 Less: accumulated depreciation (74,004) (70,190) --------- --------- Net property and equipment 139,889 141,712 Other assets: Excess of cost over net assets acquired 8,102 8,102 Other 1,772 1,635 --------- --------- Total other assets 9,874 9,737 --------- --------- Total assets $ 203,302 $ 182,516 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 4,849 $ 17,692 Trade accounts payable 15,638 7,800 Other current liabilities 10,625 8,722 --------- --------- Total current liabilities 31,112 34,214 Long-term debt, less current portion 20,962 47,023 Deferred income taxes 30,828 28,682 Shareholders' equity: Common stock 107 86 Additional paid-in capital 64,493 20,461 Accumulated other comprehensive income (loss) (364) (508) Retained earnings 56,164 52,558 --------- --------- Total shareholders' equity 120,400 72,597 --------- --------- Total liabilities and shareholders' equity $ 203,302 $ 182,516 ========= ========= Note: The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. </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 March 31, 2002 2001 ---- ---- <S> <C> <C> Operating revenues $ 63,313 $ 58,406 Operating expenses: Salaries, wages and benefits 27,981 25,747 Operating supplies 12,013 10,761 Rent/purchased transportation 2,794 3,906 Depreciation and amortization 5,277 4,766 Operating taxes and licenses 3,321 2,924 Insurance and claims 3,514 2,435 Communications and utilities 616 533 Other 782 1,764 (Gain) loss on sale of equipment 33 25 --------- --------- 56,331 52,861 --------- --------- Operating income 6,982 5,545 Other income (expense) Interest expense (972) (1,147) --------- --------- Income before income taxes 6,010 4,398 --------- --------- Income taxes --current 275 551 --deferred 2,129 1,208 --------- --------- 2,404 1,759 --------- --------- Net income $ 3,606 $ 2,639 ========= ========= Net income per common share: Basic $ 0.40 $ 0.31 ========= ========= Diluted $ 0.40 $ 0.31 ========= ========= Average common shares outstanding-Basic 8,927,546 8,473,567 ========= ========= Average common shares outstanding-Diluted 8,973,551 8,519,088 ========= ========= 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) Three months Ended March 31, 2002 2001 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 3,606 $ 2,639 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,277 4,766 Non compete agreement amortization - 33 Provision for deferred income taxes 2,129 1,208 (Gain)/loss on retirement of property and equipment 33 25 Changes in operating assets and liabilities: Accounts receivable (14,354) (6,459) Prepaid expenses and other current assets (2,561) (3,243) Accounts payable 8,078 702 Accrued expenses 1,903 1,140 --------- --------- Net cash provided by operating activities 4,111 811 INVESTING ACTIVITIES Purchases of property and equipment (5,730) (15,130) Proceeds from sales of assets 2,244 1,356 Lease payments received on direct financing leases 46 46 --------- --------- Net cash used in investing activities (3,440) (13,728) FINANCING ACTIVITIES Borrowings under lines of credit 86,752 74,809 Repayments under lines of credit (95,828) (63,070) Borrowings of long-term debt 1,459 7,112 Repayments of long-term debt (31,287) (5,871) Proceeds from issuance of common stock 43,890 - Proceeds from exercise of stock options 163 36 --------- --------- Net cash provided by financing activities 5,149 13,016 --------- --------- Net increase in cash and cash equivalents 5,820 99 Cash and cash equivalents at beginning of period $ 896 $ 485 --------- --------- Cash and cash equivalents at end of period $ 6,716 $ 584 ========= ========= See notes to condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER EQUITY (unaudited) (in thousands) - ----------------------------------------------------------------------------------------------------------------- Additional Accumulated Common Paid-In Retained Other Stock Capital Earnings Comprehensive Total - ----------------------------------------------------------------------------------------------------------------- <S> <C> <C> <C> <C> <C> Balances at December 31, 2001 $ 86 $ 20,461 $ 52,558 $ (508) $ 72,597 Components of comprehensive income: Net earnings 3,606 3,606 Unrealized gain on hedge, net of tax of $ 95 144 144 ---- ----- Total comprehensive income 3,750 ----- Exercise of stock options - 163 163 Common stock offering 21 43,869 43,890 - ----------------------------------------------------------------------------------------------------------------- Balances at March 31, 2002 $ 107 $ 64,493 $ 56,164 $ (364) $ 120,400 ================================================================================================================ See notes to condensed consolidated financial statements. </TABLE>
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 2002 NOTE A: BASIS OF PRESENTATION - --------------------------------- The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management's opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2001. NOTE B: DERIVATIVE FINANCIAL INSTRUMENTS - ------------------------------------------ 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 March 31, 2002, the net deferred hedging loss in accumulated other comprehensive loss was approximately $364,000. 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. NOTE C: COMMON STOCK OFFERING - ------------------------------- During March 2002, the Company received net proceeds of approximately $43.9 million from a public offering of 2,100,000 shares of its common stock. The Company has repaid certain long-term debt obligations and intends to use the remaining proceeds to fund its capital expenditures and to finance general working capital needs. During April 2002, the Company received net proceeds of approximately $10.9 million from the sale of an additional 521,250 shares of its common stock in order to cover broker over-allotments. The Company intends to use the proceeds to fund its capital expenditures and to finance general working capital needs. NOTE D: NEW ACCOUNTING PRONOUNCEMENTS - --------------------------------------- In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," and announced the approval for issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all business combinations completed after June 30, 2001, to be accounted for under the purchase method. This standard also establishes for all business combinations made after June 30, 2001, specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 141 also requires that the excess of the fair value of acquired assets over cost (negative goodwill) be recognized immediately as an extraordinary gain, rather than deferred and amortized. The Company will account for all future business combinations under SFAS No. 141. SFAS No. 142 addresses the accounting for goodwill and other intangible assets after an acquisition. Goodwill and other intangibles that have indefinite lives will no longer be amortized, but will be subject to annual impairment tests. All other intangible assets will continue to be amortized over their estimated useful lives. An intangible asset with an indefinite useful life should be tested for impairment in accordance with guidance in SFAS No. 142 which applies a fair-value-based test. SFAS No. 142 is required to be applied in fiscal years beginning after December 15, 2001. The Company ceased amortization of all indefinite life intangibles upon adoption of SFAS No. 142 effective January 1, 2002, which had a positive effect on net income of approximately $60,000 during the quarter ended March 31, 2002 as compared to quarter ended March 31, 2001. The Company had approximately $8.1 million in net book value recorded for goodwill at March 31, 2002. SFAS No. 142 also requires the completion of a transitional goodwill impairment test within six months of adoption. At present, the Company is currently assessing but has not yet determined the complete impact, if any, that the adoption of SFAS No. 142 will have on its financial position and 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 and results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. This Statement also amends ARB No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on January 1, 2002 and there was not a material impact on the Company's financial position or results of operations.
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, and the availability of drivers, 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 MARCH 31, 2002 VS. THREE MONTHS ENDED MARCH 31, 2001 - -------------------------------------------------------------------------------- For the quarter ended March 31, 2002, revenues increased 8.4% to $63.3 million as compared to $58.4 million for the quarter ended March 31, 2001. The main factor contributing to the increase was an increase in the average number of tractors from 1,468 in the first quarter of 2001 to 1,679 in the first quarter of 2002. Operating supplies and expenses increased from 18.4% of revenues in the first quarter of 2001 to 19.0% of revenues in the first quarter of 2002. The increase relates to increased equipment repair costs. Rent and purchased transportation decreased from 6.7% of revenues in the first quarter of 2001 to 4.4% of revenues in the first quarter of 2002. The decrease relates primarily to a decrease in amounts paid to other transportation companies in the form of brokerage fees. Other expenses decreased from 3.0% of revenues in the first quarter of 2001 to 1.2% of revenues in the first quarter of 2002. The decrease relates to a decrease in amounts considered uncollectible as of March 31, 2002 as compared to uncollectible balances as of March 31, 2001. Insurance and claims increased from 4.2% of revenues in the first quarter of 2001 to 5.6% of revenues in the first quarter of 2002. The increase relates to increased premiums associated with the annual renewal of insurance policies. The Company's operating ratio decreased to 89.0% for the first quarter of 2002 as compared to 90.5% for the first quarter of 2001, as a result of the factors described above. The Company's effective tax rate remained constant for the periods compared at 40.0%, which, combined with increased revenues, resulted in an increase in the provision for income taxes from $1.8 million for the first quarter of 2001 to $2.4 million for the first quarter of 2002. Net income increased to $3.6 million, or 5.7% of revenues, in the first quarter of 2002 from $2.6 million, or 4.5% of revenues in the first quarter of 2001, representing an increase in diluted net income per share to $.40 in the first quarter of 2002 from $.31 in the first quarter of 2001. LIQUIDITY AND CAPITAL RESOURCES - ---------------------------------- During the first three months of 2002, the Company generated $4.1 million in cash from operating activities. Investing activities used $3.4 million in cash in the first three months of 2002. Financing activities generated $5.1 million in the first three months of 2002 primarily from the issuance of common stock. Accounts receivable at March 31, 2002 increased approximately $14.4 million from December 31, 2001. The increase relates primarily to new trade terms between the Company and its largest customer which have the effect of extending the collection of the receivable to the next accounting period. During March and April 2002, the Company received net proceeds of approximately $54.5 million from a public offering of 2,621,250 shares of its common stock. The Company has repaid certain long-term debt obligations and intends to use the remaining proceeds to fund its capital expenditures and to finance general working capital needs. For additional information see Note C to the condensed consolidated financial statements. The Company's principal subsidiary, P.A.M. Transport, Inc., maintains two $20.0 million lines of credit (Line A and Line B) with separate financial institutions. Amounts outstanding under Line A bear interest at LIBOR (on the first day of the month) plus 1.40%, are secured by accounts receivable and mature on May 31, 2003. At March 31, 2002, the entire outstanding balance of $3.1 million on Line A was comprised of letters of credit, with availability to borrow $16.9 million. Amounts outstanding under Line B bear interest at LIBOR (on the last day of the previous month) plus 1.15%, are secured by revenue equipment and mature on November 30, 2003. At March 31, 2002, Line B was fully utilized with $20.0 million outstanding. In addition to cash flows from operations, the Company uses its existing lines of credit on an interim basis to finance capital expenditures and repay long-term debt. Longer-term transactions, such as installment notes (generally three to five year terms at fixed rates), are typically entered into for the purchase of revenue equipment; however, the Company purchased additional revenue equipment during the first three months of 2002 at a cost of approximately $4.6 million using its existing lines of credit. During the remainder of 2002, the Company plans to replace 400 tractors and 180 trailers, and plans to add 100 additional trailers, which would result in net capital expenditures of approximately $21.1 million. Management expects that the Company's existing working capital and its available lines of credit will be sufficient to meet the Company's present capital commitments, to repay indebtedness coming due in the current year, and to fund its operating needs during the remainder of fiscal 2002. During February 2001 and May 2001 the Company entered into separate interest rate swap agreements on notional amounts of $15,000,000 and $5,000,000, respectively. The pay fixed rate under the swaps are 5.08% and 4.83%, respectively, while the receive floating rate is "1-month" LIBOR. The $15,000,000 swap agreement terminates on March 2, 2006 while the $5,000,000 swap agreement terminates on June 2, 2006. For additional information with respect to the interest rate swap agreements, see Note B to the condensed consolidated financial statements. NEW ACCOUNTING PRONOUNCEMENTS - ----------------------------- In July 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," and announced the approval for issuance of SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all business combinations completed after June 30, 2001, to be accounted for under the purchase method. This standard also establishes for all business combinations made after June 30, 2001, specific criteria for the recognition of intangible assets separately from goodwill. SFAS No. 141 also requires that the excess of the fair value of acquired assets over cost (negative goodwill) be recognized immediately as an extraordinary gain, rather than deferred and amortized. The Company will account for all future business combinations under SFAS No. 141. SFAS No. 142 addresses the accounting for goodwill and other intangible assets after an acquisition. Goodwill and other intangibles that have indefinite lives will no longer be amortized, but will be subject to annual impairment tests. All other intangible assets will continue to be amortized over their estimated useful lives. An intangible asset with an indefinite useful life should be tested for impairment in accordance with guidance in SFAS No. 142 which applies a fair-value-based test. SFAS No. 142 is required to be applied in fiscal years beginning after December 15, 2001. The Company ceased amortization of all indefinite life intangibles upon adoption of SFAS No. 142 effective January 1, 2002, which had a positive effect on net income of approximately $60,000 during the quarter ended March 31, 2002 as compared to quarter ended March 31, 2001. The Company had approximately $8.1 million in net book value recorded for goodwill at March 31, 2002. SFAS No. 142 also requires the completion of a transitional goodwill impairment test within six months of adoption. At present, the Company is currently assessing but has not yet determined the complete impact, if any, that the adoption of SFAS No. 142 will have on its financial position and 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 and results of operations. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting for impairment or disposal of long-lived assets. This Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business. This Statement also amends ARB No. 51, "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on January 1, 2002 and there was not a material impact on the Company's financial position or results of operations.
PART II. OTHER INFORMATION ------------------------------ Item 2. Changes in Securities and Use of Proceeds - --------------------------------------------------------- At the 2002 Annual Meeting of Stockholders of the Company held May 2, 2002, the Company's stockholders approved, among other things, (i) an amendment to the Company's Certificate of Incorporation to effect an increase in the authorized shares of common stock of the Company from 20 million to 40 million, and (ii) amendments to the Certificate of Incorporation and Bylaws of the Company to cause the Company to be governed by the anti-takeover provisions of Section 203 of the Delaware General Corporation Law rather than the similar anti-takeover provisions adopted by the Company prior to the enactment of Section 203. A more detailed description of these matters appears in pages 10-14 of the Company's definitive proxy statement delivered to stockholders in connection with the 2002 Annual Meeting, and such pages are incorporated herein by reference. The Company's Certificate of Incorporation and Bylaws, each as amended pursuant to the stockholder vote at the 2002 Annual Meeting, are filed as Exhibit 3.1 and 3.2 to this Form 10-Q, respectively. Item 3. Quantitative and Qualitative Disclosure about Market Risk. - -------------------------------------------------------------------------- The Company's primary market risk exposures include commodity price risk (the price paid to obtain diesel fuel for our tractors) and interest rate risk. The potential adverse impact of these risks and the general strategies the Company employs to manage such risks are discussed below. The following sensitivity analyses do not consider the effects that an adverse change may have on the overall economy nor do they consider additional actions the Company may take to mitigate our exposure to such changes. Actual results of changes in prices or rates may differ materially from the hypothetical results described below. Commodity Price Risk Prices and availability of all petroleum products are subject to political, economic and market factors that are generally outside of the Company's control. Accordingly, the price and availability of diesel fuel, as well as other petroleum products, can be unpredictable. Because the Company's operations are dependent upon diesel fuel, significant increases in diesel fuel costs could materially and adversely affect the Company's results of operations and financial condition. Based upon the Company's 2001 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase the Company's annual fuel expenses by $3.2 million. In August 2000 and July 2001, the Company entered into agreements to obtain price protection and reduce a portion of the Company's exposure to fuel price fluctuations. Under these agreements, the Company was obligated to purchase minimum amounts of diesel fuel per month, with a price protection component, for the six month periods ended March 31, 2001 and February 28, 2002. The agreements also provide that if during the 48 months commencing April 2001, the price of heating oil on the New York Mercantile Exchange ("NY MX HO") falls below $.58 per gallon, the Company is obligated to pay, for a maximum of twelve different months selected by the contract holder during such 48-month period, the difference between $.58 per gallon and NY MX HO average price, multiplied by 900,000 gallons. Accordingly, in any month in which the holder exercises such right, the Company would be obligated to pay the holder $9,000 for each cent by which $.58 exceeds the average NY MX HO price for that month. For example, the NY MX HO average price during February 2002 was approximately $.54, and if the holder were to exercise its payment right, the Company would be obligated to pay the holder approximately $36,000. In addition, if during any month in the twelve-month period commencing January 2005, the average NY MX HO is below $.58 per gallon, the Company will be obligated to pay the contract holder the difference between $.58 and the average NY MX HO price for such month, multiplied by 1,000,000 gallons. Interest Rate Risk The Company's two $20.0 million lines of credit each bear interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR, which are effected by changes in interest rates generally, will affect the interest rate on, and therefore the Company's costs under, the lines of credit. In an effort to manage the risks associated with changing interest rates, the Company entered into interest rate swap agreements effective February 28, 2001 and May 31, 2001, on notional amounts of $15,000,000 and $5,000,000, respectively. The "pay fixed rates" under the $15,000,000 and $5,000,000 swap agreements are 5.08% and 4.83%, respectively. The "receive floating rate" for both swap agreements is "1-month" LIBOR. These interest rate swap agreements terminate on March 2, 2006 and June 2, 2006, respectively. Assuming $20.0 million of variable rate debt was outstanding under each of Line A and Line B for a full fiscal year, a hypothetical 100 basis point increase in LIBOR would result in approximately $200,000 of additional interest expense, net of the effect of the swap agreements. For additional information with respect to the interest rate swap agreements, see Note B to the Company's condensed consolidated financial statements. Item 5. Other Matters - ------------------------ The 2002 Annual Meeting of Stockholders of the Company was held on May 2, 2002. The results of the voting with respect to each matter voted on at the meeting is set forth below: (1) Proposal to increase the size of the Board of Directors from five members to eight members: Votes Votes Votes FOR AGAINST ABSTAINING --- ------- ---------- 7,338,624 317,975 1,600 (2) Proposal to elect six directors: Votes Votes FOR WITHHELD --- -------- Robert W. Weaver 7,267,749 389,750 Daniel C. Sullivan 7,267,749 389,750 Charles F. Wilkins 7,267,749 389,750 Matthew T. Moroun 7,267,749 389,750 Fredrick P. Calderone 7,267,749 389,750 Manuel J. ("Matty") Moroun 7,294,424 355,175 (3) Proposal to amend the company's Certificate of Incorporation to increase the number of authorized shares of common stock of the company from 20,000,000 to 40,000,000: Votes Votes Votes FOR AGAINST ABSTAINING --- ------- ---------- 7,239,647 418,551 0 (4) Proposal to amend the Company's Certificate of Incorporation to delete Articles 12 and 13 thereof and amend the Bylaws of the Company to delete Article XIII thereof, resulting in the Company being governed by the anti-takeover provisions of Section 203 of the Delaware General Corporation Law: Votes Votes Votes FOR AGAINST ABSTAINING --- ------- ---------- 7,341,147 316,951 100 Item 6. Exhibits and Reports on Form 8-K. - -------------------------------------------------- (a) The following exhibits are filed with this report: 3.1 - Certificate of Incorporation of the Company, as amended. 3.2 - Bylaws of the Company, as amended 11.1 - Statement Re: Computation of Diluted Earnings Per Share. (b) Reports on Form 8-K A Current Report on Form 8-K was filed on February 14, 2002 regarding a press release issued to announce the Company's fourth quarter 2001 results. No other reports on Form 8-K were filed during the first quarter ending March 31, 2002.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. P.A.M. TRANSPORTATION SERVICES, INC. Dated: May 14, 2002 By: /s/ Robert W. Weaver --------------------------------- Robert W. Weaver President and Chief Executive Officer (principal executive officer) Dated: May 14, 2002 By: /s/ Larry J. Goddard --------------------------------- Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer (principal accounting and financial officer)