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 June 30, 1998 ---------------- 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 August 10, 1998 ----- ------------------------------ Common Stock, $.01 Par Value 8,324,957
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) <TABLE> <CAPTION> June 30, December 31, 1998 1997 ---- ---- ASSETS (unaudited) (note) <S> <C> <C> Current assets: Cash and cash equivalents $ 5,273 $ 6,401 Receivables: Trade, net of allowance 19,147 16,915 Other 390 1,703 Equipment held for sale 192 1,529 Operating supplies and inventories 458 449 Deferred income taxes 107 61 Prepaid expenses and deposits 3,769 3,384 Income taxes refundable 65 415 --------- --------- Total current assets 29,401 30,857 Property and equipment, at cost 124,140 103,572 Less: accumulated depreciation (42,773) (37,382) --------- --------- Net property and equipment 81,367 66,190 Other assets: Excess of cost over net assets acquired 2,339 2,400 Non compete agreement 517 737 Other 616 504 --------- --------- Total other assets 3,472 3,641 --------- --------- Total assets $ 114,240 $ 100,688 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 17,178 $ 15,544 Trade accounts payable 9,531 9,233 Other current liabilities 5,107 4,835 --------- --------- Total current liabilities 31,816 29,612 Long-term debt, less current portion 33,048 28,226 Non compete agreement 282 312 Deferred income taxes 11,456 9,376 Shareholders' equity: Common stock 83 83 Additional paid-in capital 18,708 18,592 Retained earnings 18,847 14,487 --------- --------- Total shareholders' equity 37,638 33,162 --------- --------- Total liabilities and shareholders' equity $ 114,240 $ 100,688 ========= ========= </TABLE> Note: The balance sheet at December 31, 1997 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. 2
3 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (thousands except per share data) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- <S> <C> <C> <C> <C> Operating revenues $ 36,012 $ 31,353 $ 71,451 $ 63,983 Operating expenses: Salaries, wages and benefits 16,252 13,656 32,433 28,813 Operating supplies 6,490 5,758 13,353 12,487 Rent/purchased transportation 253 445 474 856 Depreciation and amortization 3,588 3,112 7,045 6,354 Operating taxes and licenses 1,886 1,873 4,025 3,764 Insurance and claims 1,489 1,369 2,952 2,833 Communications and utilities 409 250 758 452 Other 696 626 1,345 1,150 Loss on sale of equipment 25 0 73 0 ----------- ----------- ----------- ----------- 31,088 27,089 62,458 56,709 ----------- ----------- ----------- ----------- Operating income 4,924 4,264 8,993 7,274 Other income (expense) Interest expense (1,027) (889) (1,857) (1,758) ----------- ----------- ----------- ----------- (1,027) (889) (1,857) (1,758) Income before income taxes 3,897 3,375 7,136 5,516 Income taxes --current 623 396 741 559 --deferred 858 887 2,035 1,580 ----------- ----------- ----------- ----------- 1,481 1,283 2,776 2,139 Net income $ 2,416 $ 2,092 $ 4,360 $ 3,377 =========== =========== =========== =========== Net income per common share: Basic $ 0.29 $ 0.26 $ 0.53 $ 0.42 =========== =========== =========== =========== Diluted $ 0.29 $ 0.25 $ 0.52 $ 0.41 =========== =========== =========== =========== Average common shares outstanding-Basic 8,299,702 8,147,492 8,292,906 8,137,037 =========== =========== =========== =========== Average common shares outstanding-Diluted 8,473,015 8,280,749 8,461,769 8,238,837 =========== =========== =========== =========== </TABLE> See notes to condensed consolidated financial statements. 3
4 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) (in thousands) <TABLE> <CAPTION> Six Months Ended June 30, 1998 1997 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 4,360 $ 3,377 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,045 6,354 Non compete agreement amortization 220 220 Provision for deferred income taxes 2,034 1,580 Loss on retirement of property and equipment 73 0 Changes in operating assets and liabilities: Accounts receivable (569) (3,182) Prepaid expenses and other current assets (506) (265) Accounts payable 298 1,138 Accrued expenses 272 711 -------- -------- Net cash provided by operating activities 13,227 9,933 INVESTING ACTIVITIES Purchases of property and equipment (23,174) (6,145) Proceeds from sales of assets 2,277 363 -------- -------- Net cash used in investing activities (20,897) (5,782) FINANCING ACTIVITIES Borrowings under lines of credit 80,441 68,619 Repayments under lines of credit (85,663) (71,124) Borrowings of long-term debt 20,807 1,747 Repayments of long-term debt (9,159) (8,677) Proceeds from exercise of stock options 116 166 -------- -------- Net cash provided by (used in) financing activities 6,542 (9,269) -------- -------- Net decrease in cash and cash equivalents (1,128) (5,118) Cash and cash equivalents at beginning of period $ 6,401 $ 5,940 -------- -------- Cash and cash equivalents at end of period $ 5,273 $ 822 ======== ======== </TABLE> See notes to condensed consolidated financial statements. 4
5 P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 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 six-month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 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, 1997. NOTE B: NOTES PAYABLE AND LONG-TERM DEBT In the first six months of 1998, the Company's subsidiary, P.A.M. Dedicated Services, Inc., entered into installment obligations for the purchase of revenue equipment in the aggregate amount of approximately $20.8 million. These obligations are payable in 36 and 60 monthly installments at interest rates ranging from 7.00% to 7.50%. NOTE C: NEW ACCOUNTING PRONOUNCEMENT In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivitive Instruments and Hedging Activities". The Statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability at its fair value. The Company has determined that the adoption of this statement will have no material effect on its financial statements. 5
6 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 contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to 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 and 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 JUNE 30, 1998 VS. THREE MONTHS ENDED JUNE 30, 1997 For the quarter ended June 30, 1998, revenues increased 14.9% to $36.0 million as compared to $31.4 million for the quarter ended June 30, 1997. The main factor for the increase in revenues was a 15.0% increase in the average number of tractors from 914 in the second quarter of 1997 compared to 1,051 in second quarter of 1998. The Company's operating ratio improved to 86.3% of revenues in the second quarter of 1998 compared to 86.4% in the second quarter of 1997. Salaries, wages and benefits increased from 43.6% of revenues in the second quarter of 1997 to 45.1% of revenues in the second quarter of 1998. This increase was due to an increase in amounts paid to drivers due to changes in driver pay packages early in the first quarter of 1998. Operating supplies and expenses decreased from 18.4% of revenues in the second quarter of 1997 to 18.0% of revenues in the second quarter of 1998. The decrease represents a lower price paid for diesel fuel. Rent and purchased transportation decreased from 1.4% of revenues in the second quarter of 1997 to 0.7% of revenues in the second quarter of 1998. This decrease was due to the replacement of rental trailers with company-owned trailers. Communications and utilities increased from 0.8% of revenues in the second quarter of 1997 to 1.1% of revenues in the second quarter of 1998 due to increased usage of Qualcomm units and federal surcharges related to inbound "toll-free" calls initiated from payphones. The Company's effective tax rate remained constant at 38% for the periods compared. SIX MONTHS ENDED JUNE 30, 1998 VS. SIX MONTHS ENDED JUNE 30, 1997 For the six months ended June 30, 1998, revenues increased 11.7% to $71.5 million as compared to $64.0 million for the six months ended June 30, 1997. The main factor for the increase in revenues was a 12.1% increase in the average number of tractors from 917 for the first six months of 1997 compared to 1,028 for the first six months of 1998. The Company's operating ratio improved to 87.4% of revenues in the first six months of 1998 compared to 88.6% in the first six months of 1997. Salaries, wages and benefits increased from 45.0% of revenues in the first six months of 1997 to 45.4% of revenues in the first six months of 1998. This increase was due to an increase in amounts paid to drivers due to changes in driver pay packages early in the first quarter of 1998. This increase in driver pay was partially offset by a reduction in the amount accrued for the Company's 1998 Incentive Bonus Plan. 6
7 Operating supplies and expenses decreased from 19.5% of revenues in the first six months of 1997 to 18.7% of revenues in the first six months of 1998. The decrease represents a lower price paid for diesel fuel. Rent and purchased transportation decreased from 1.3% of revenues in the first six months of 1997 to 0.7% of revenues in the first six months of 1998. This decrease was due to the replacement of rental trailers with company-owned trailers. Communications and utilities increased from 0.7% of revenues in the first six months of 1997 to 1.1% of revenues in the first six months of 1998 due to increased usage of Qualcomm units and federal surcharges related to inbound "toll-free"calls initiated from payphones. LIQUIDITY AND CAPITAL RESOURCES During the first six months of 1998, the Company generated $13.2 million in cash from operating activities. Investing activities used $20.9 million in cash in the first six months of 1998. Financing activities generated $6.5 million in the first six months of 1998 primarily from the borrowing of long-term debt. The Company's principal subsidiary, P.A.M. Transport, Inc., has a $15.0 million secured bank line of credit subject to borrowing limitations. The line of credit includes a provision that allows the Company to finance equipment at a reduced interest rate of LIBOR + 1.50% (currently 7.16%). The maximum amount of equipment that may be financed under this equipment provision is $7.5 million with the remaining $7.5 million representing a general "working capital" line of credit at an interest rate of LIBOR + 2.15% (currently 7.81%). Outstanding advances on this line of credit were approximately $1.5 million at June 30, 1998, which consisted entirely of letters of credit. The Company's borrowing base limitation at June 30, 1998 was $15.0 million. The line of credit is guaranteed by the Company and matures on May 31, 1999 while the equipment portion of the line of credit matures on May 31, 2000. In addition to cash flow from operations, the Company uses its existing line 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 six months of 1998 with a cost of approximately $3.2 million using its existing line of credit. In addition, P.A.M. Dedicated Services, Inc., a subsidiary of the Company, entered into installment obligations during the first six months of 1998 for the purchase of revenue equipment in the amount of approximately $20.8 million payable in 36 and 60 monthly installments at interest rates ranging from 7.00% to 7.50%. During the remainder of 1998, the Company plans to replace 338 tractors and to add 57 additional new tractors which would result in additional debt of approximately $21.1 million. Management expects that the Company's existing working capital and its available line of credit will be sufficient to meet the Company's capital commitments as of June 30, 1998, to repay indebtedness coming due in the current year, and to fund its operating needs during the remainder of fiscal 1998. YEAR 2000 In the next two years, many companies may face a potentially serious information systems problem because their computer software applications and operational programs may not properly recognize calendar dates beginning in the year 2000. This problem could force computers to either shut down or provide incorrect data or information. The Company began the process of identifying the changes required to its computer programs and hardware in 1997. Software upgrades designed to correct the year 2000 problem are scheduled to be implemented by the second quarter of 1999. Accordingly, the Company believes that it will timely meet its year 2000 compliance requirements, and does not presently anticipate the cost of these software and hardware changes to have a material adverse impact on its business, financial condition, or results of operation. However, there can be no assurance that unforeseen difficulties or costs will not arise. The Company has issued certification requests to the software companies on which its computer programs rely seeking assurance that they will be year 2000 compliant. Approximately 90% of the questionnaires have been returned. Respondents have indicated that they are year 2000 compliant now or will be in advance of the year 2000. 7
8 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The 1998 Annual Meeting of Stockholders of the Company was held on May 22, 1998. At the meeting, the following persons were elected as directors to serve for a term of one year and until their successors are elected and qualified: Robert W. Weaver, Daniel C. Sullivan, Matthew T. Moroun, Charles F. Wilkins, Fredrick P. Calderone and Joseph J. Casaroll. The results of voting with respect to the election of directors were as follows: <TABLE> <CAPTION> Votes Votes FOR WITHHELD --- -------- <S> <C> <C> Robert W. Weaver 7,789,546 23,530 Daniel C. Sullivan 7,789,546 23,530 Charles F. Wilkins 7,784,546 28,530 Matthew T. Moroun 7,789,546 23,530 Fredrick P. Calderone 7,789,546 24,230 Joseph J. Casaroll 7,789,546 24,230 </TABLE> Also at the 1998 Annual Meeting of Stockholders, the stockholders approved an amendment to the 1995 Stock Option Plan to increase the number of shares available for grant thereunder from 600,000 to 1,000,000 shares. Votes for approval of the amendment were 6,464,877, votes against were 600,800 and votes withheld were 2,185. Item 5. Other Information. Any proposal to be presented at next year's Annual Meeting of Stockholders must be received at the principal executive offices of the Company not later than December 29, 1998, directed to the attention of the Secretary, for consideration for inclusion in the Company's proxy statement and form of proxy relating to that meeting. Any such proposals must comply in all respects with the rules and regulations of the Securities and Exchange Commission. With respect to any such proposals received by the Company after March 15, 1999, the persons named in the form of proxy solicited by management will vote the proxy in accordance with their judgement of what is in the best interests of the Company. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed with this report: 10.1 - Employment Agreement between Robert W. Weaver and the Company. 11.1 - Statement Re: Computation of Diluted Earnings Per Share. 27.1 - Financial Data Schedule (for SEC use only). 27.2 - Restated Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K None. 8
9 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: August 12, 1998 /s/ Robert W Weaver President and Chief Executive Officer (principal executive officer) Dated: August 12, 1998 /s/ Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer (principal accounting and financial officer) 9