1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ( x ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ OR ( ) 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) (501) 361-9111 -------------- (Registrants telephone number, including area code) N/A --- (Former name, former address and former fiscal year, if changed since last report) 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 11, 1996 ----- -------------------------------- Common Stock, $.01 Par Value 5,031,157
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements 2
3 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS <TABLE> <CAPTION> September 30, December 31, 1996 1995 ---- ---- (Unaudited) (note) (thousands) ASSETS <S> <C> <C> Current assets: Cash and cash equivalents $ 562 $ 7,629 Receivables: Trade, net of allowance 17,944 12,517 Other 655 307 Equipment held for sale 1,223 1,223 Prepaid expenses 2,500 3,341 Investment in direct financing lease - 691 Income taxes refundable - 95 Deferred income taxes 161 - Other 409 468 -------- -------- Total current assets 23,454 26,271 Property and equipment, at cost 95,507 78,829 Less: accumulated depreciation (30,420) (21,540) -------- --------- Net property and equipment 65,087 57,289 Other assets: Investment in direct financing lease, less current portion - 548 Excess of cost over net assets acquired (Note C) 2,542 1,140 Non compete agreements (Note C) 1,288 1,059 Other 804 501 -------- -------- Total other assets 4,634 3,248 -------- -------- Total assets $ 93,175 $ 86,808 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Current maturities of long-term debt $ 17,426 $ 15,120 Trade accounts payable 7,030 6,729 Deferred income taxes - 409 Other current liabilities 4,418 3,048 -------- -------- Total current liabilities 28,874 25,306 Long-term debt, less current portion 35,906 37,966 Non compete agreement 810 815 Deferred income taxes 6,343 4,489 Shareholders' equity: Preferred stock Common stock 50 50 Additional paid-in capital 13,376 13,307 Retained earnings 7,816 4,875 -------- -------- Total shareholders' equity 21,242 18,232 -------- -------- Total liabilities and shareholders' equity $ 93,175 $ 86,808 ======== ======== </TABLE> Note: The balance sheet at December 31, 1995 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. 3
4 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- (in 000s except per share data) (in 000s except per share data) <S> <C> <C> <C> <C> Operating revenues $ 29,618 $ 22,241 $ 83,319 $ 68,158 Operating expenses: Salaries, wages and benefits 14,044 9,577 38,628 29,908 Operating supplies 5,510 4,023 15,574 12,267 Rent and purchased transportation 523 271 1,483 1,174 Depreciation and amortization 3,110 2,550 8,847 6,779 Operating taxes and licenses 1,702 1,342 4,965 4,131 Insurance and claims 1,296 1,032 3,661 3,170 Communications and utilities 222 244 780 649 (Gain) loss on sale of equipment 0 0 0 247 Other 485 326 1,432 1,174 -------- -------- -------- -------- 26,892 19,365 75,370 59,499 -------- -------- -------- -------- Operating income 2,726 2,876 7,949 8,659 Other income (expense) Interest expense (1,088) (922) (3,120) (2,582) Other 0 40 31 131 -------- -------- -------- -------- (1,088) (882) (3,089) (2,451) Income before income taxes 1,638 1,994 4,860 6,208 Income taxes--current 85 223 483 769 --deferred 570 535 1,436 1,590 -------- -------- -------- -------- 655 758 1,919 2,359 Net income $ 983 $ 1,236 $ 2,941 $ 3,849 ========= ========= ========= ========= Net income per share $ 0.13 $ 0.16 $ 0.38 $ 0.50 ========= ========= ========= ========= Average common and common equivalent shares outstanding 7,610,448 7,663,755 7,654,033 7,658,827 ========= ========= ========= ========= </TABLE> See notes to condensed consolidated financial statements. 4
5 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> Nine Months Ended September 30, 1996 1995 ---- ---- (000s) (000s) <S> <C> <C> OPERATING ACTIVITIES Net income $ 2,941 $ 3,849 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,847 6,779 Non compete agreement amortization 287 194 Loss on retirement of property and equipment - 247 Provision for deferred income taxes 1,436 1,590 Changes in operating assets and liabilities: Accounts receivable (3,543) (1,871) Prepaid expenses and other current assets 1,056 953 Accounts payable (1,487) (1,522) Accrued expenses 362 850 -------- -------- Net cash provided by operating activities 9,899 11,069 INVESTING ACTIVITIES Purchases of property and equipment (16,399) (2,793) Proceeds from sale or disposal of property and equipment - 1,422 Lease payments received on direct financing lease 1,240 461 -------- -------- Net cash used in investing activities (15,159) (910) FINANCING ACTIVITIES Borrowings under lines of credit 89,335 70,941 Repayments under lines of credit (90,750) (73,979) Borrowings of long-term debt 13,993 - Repayments of long-term debt (14,254) (9,915) Choctaw acquisition less cash acquired - (1,324) AFS acquisition less cash acquired (Note C) (200) - Proceeds from exercise of stock options 69 114 -------- -------- Net cash provided by (used in) financing activities (1,807) (14,163) -------- -------- Net decrease in cash and cash equivalents (7,067) (4,004) Cash and cash equivalents at beginning of period $ 7,629 $ 4,078 -------- -------- Cash and cash equivalents at end of period $ 562 $ 74 ======== ======== </TABLE> See notes to condensed consolidated financial statements. 5
6 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 1996 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, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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, 1995. NOTE B: NOTES PAYABLE AND LONG-TERM DEBT In the first nine months of 1996, the Company's subsidiary, P.A.M. Transport, Inc., entered into installment obligations for the purchase of revenue equipment in the approximate amount of $14.0 million payable in 48 and 60 monthly installments at interest rates ranging from 6.95% to 7.85%. NOTE C: ACQUISITION On March 11, 1996, the Company closed the purchase of all of the outstanding capital stock (the "Shares) of Allen Freight Services, Inc., a Missouri corporation ("AFS"). The total purchase price for the Shares was $200,000, which was negotiated by the parties at arms length. Assets of approximately $3.7 million were acquired and liabilities of approximately $3.5 million were assumed. The Company paid the purchase price by utilizing its existing line of credit. The acquisition has been accounted for under the purchase method, effective March 11, 1996, with the operations of AFS included in the Company's financial statements since that date. If the acquisition had occurred at the beginning of fiscal 1995, the effect on consolidated operating revenues, net income and net income per share would not have been material. The purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. Approximately $1.5 million in goodwill was recorded as a result of the purchase allocation and it is being amortized over a 25-year period. The Company also entered into three-year Non-competition Agreements with four former shareholders and officers/employees of AFS. 6
7 PART I - FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED SEPTEMBER 30, 1995 For the quarter ended September 30, 1996, revenues increased 33.2% to $29.6 million as compared to $22.2 million for the quarter ended September 30, 1995. The main factor for the increase in revenues was a 28.1% increase in average tractors from 683 in 1995 to 875 in 1996, of which 146 were added in connection with the acquisition of Allen Freight Services, Inc. (AFS). AFS produced revenues of $4.5 million for the third quarter of 1996. The Company's operating ratio was 90.8% of revenues in the third quarter of 1996 compared to 87.1% in the third quarter of 1995. Salaries, wages and benefits increased from 43.1% of revenues in the third quarter of 1995 to 47.4% of revenues in the third quarter of 1996. The major factor for the increase was a 3.5% increase attributable to amounts paid to AFS fleet owners. Operating supplies and expenses increased from 18.1% of revenues in the third quarter of 1995 to 18.6% of revenues in the third quarter of 1996, reflecting the approximate $.03 per share increase in fuel costs for the quarter. Rent and purchased transportation increased 0.5% of revenues in the third quarter of 1996 as compared to the same period in 1995. This increase relates primarily to the acquisition of AFS which uses operating leases for its trailer requirements. The Company incurred a decrease in depreciation expense of 1.0% of revenues in the third quarter of 1996 compared to the third quarter of 1995. This decrease reflects AFS' utilization of 71 fleet owners rather than company owned trucks. Interest expense increased approximately $166,000 in the third quarter of 1996 when compared to the third quarter of 1995, primarily as a result of borrowings associated with new equipment purchases and an increased line of credit balance. The Company's effective tax rate increased from 38% in the third quarter of 1995 to 40% in the third quarter of 1996. The increase is primarily due to state income taxes. NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. NINE MONTHS ENDED SEPTEMBER 30, 1995 For the nine months ended September 30, 1996, revenues increased 22.2% to $83.3 million as compared to $68.1 million for the nine months ended September 30, 1995. The main factor for the increase in revenues was a 24.2% increase in average tractors from 666 in 1995 to 829 in 1996, of which 145 were added in connection with the acquisition of AFS which produced revenues of $10.1 million for the first nine months of 1996. The Company's operating ratio was 90.5% of revenues in the first nine months of 1996 compared to 87.3% in the first nine months of 1995. Salaries, wages and benefits increased to 46.4% of revenues in the first nine months of 1996 compared to 43.9% of revenues in the first nine months of 1995. This increase results from a 2.5% increase attributable to amounts paid to AFS fleet owners. Operating supplies and expenses increased to 18.7% of revenues in the first nine months of 1996 from 18.0% of revenues in the first nine months of 1995, reflecting the increase in fuel costs for the nine month period which is approximately $.11 per share. 8
9 The Company incurred an increase in depreciation expense as a result of the new equipment being placed into service. Depreciation expense increased from 9.9% of revenues in the first nine months of 1995 to 10.6% of revenues in the first nine months of 1996. Interest expense increased approximately $539,000 in the first nine months of 1996 when compared to the same period in 1995. This increase relates to borrowings for new equipment purchases and an increased line of credit balance. The Company's effective tax rate increased to 39.5% in 1996 from 38% in 1995 as a result of AFS' practice of paying per diem expenses to its drivers a portion of which is a nondeductible permanent difference in the calculation of income tax expense, and as a result of an increase in state income taxes. Subsequent to July 1, 1996 per diems are no longer paid to AFS drivers. The Company's results for the first quarter of 1996 were adversely affected by a General Motors brake plant strike for 23 days. The strike not only idled the G.M. system, but had repercussions felt by manufacturers and suppliers not normally thought to be associated with the auto industry. Equipment utilization, as measured in miles per truck per day, decreased 48 miles as a result of the strike, while costs declined only marginally due to the proportion of costs which are relatively fixed. LIQUIDITY AND CAPITAL RESOURCES The Company's principal subsidiary, P.A.M. Transport, Inc., has a $15 million secured bank line of credit subject to borrowing limitations. Outstanding advances on this line of credit were approximately $8.2 million, including $0.7 million in letters of credit, (at an interest rate of 7.9125%) at September 30, 1996. The Company's borrowing base limitation at September 30, 1996 was $12.4 million. The line of credit is guaranteed by the Company and matures May 31, 1998. The Company entered into installment obligations in the first nine months of 1996 for the purchase of revenue equipment for approximately $14 million payable in 48 and 60 monthly installments at interest rates ranging from 6.95% to 7.85%. Operating results during the first nine months of 1996 provided net cash from operations of approximately $9.9 million. Management expects that the Company's existing working capital and its available line of credit will be sufficient to meet the Company's commitments as of September 30, 1996, and to fund its operating needs for the foreseeable future. ACQUISITION On March 11, 1996, the Company closed the purchase of all of the outstanding capital stock (the "Shares") of Allen Freight Services, Inc. ("AFS"), a Missouri corporation. The total purchase price for the Shares was $200,000, which was negotiated by the parties at arms-length. The acquisition was financed through borrowings under the Company's bank line of credit agreement and the acquisition has been accounted for under the purchase method of accounting effective March 11, 1996 with operations included in the Company's financial statements beginning on the acquisition date. The Company will also make payments under three-year Non-competition Agreements which were entered into with four AFS former stockholders and officers/employees. See Note C to the accompanying condensed consolidated financial statements (unaudited). 9
10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed with this report: 4.1.1 - Second Amendment to Loan Agreement dated July 3, 1996 by and among P.A.M. Transport, Inc., First Tennessee Bank National Association and P.A.M. Transportation Services, Inc., together with Promissory Note in the principal amount of $5,000,000. 4.1.2 - Second Amendment to Security Agreement dated July 3, 1996 by and between P.A.M. Transport, Inc. and First Tennessee National Bank Association. 4.1.3 - First Amendment to Security Agreement dated July 3, 1996 by and between Choctaw Express, Inc. and First Tennessee Bank National Association. 4.1.4 - Security Agreement dated July 3, 1996 by and between Allen Freight Services, Inc. and First Tennessee Bank National Association. 11.1 - Statement Re: Computation of Per Share Earnings. 27.1 - Financial Data Schedule (for SEC use only). Reports on Form 8-K None. 10
11 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 13, 1996 By: /s/ Robert W. Weaver --------------------------------------- Robert W. Weaver President and Chief Executive Officer (principal executive officer) Dated: November 13, 1996 By: /s/ Larry J. Goddard --------------------------------------- Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer (principal accounting and financial officer) 11