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, 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 May 2, 2001 ----- ------------------------------- Common Stock, $.01 Par Value 8,473,567
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, 2001 2000 ---- ---- (unaudited) (note) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 584 $ 485 Receivables: Trade, net of allowance 29,697 23,291 Other 625 640 Operating supplies and inventories 149 71 Deferred income taxes 348 401 Prepaid expenses and deposits 6,627 3,426 Income taxes refundable 651 628 --------- --------- Total current assets 38,681 28,942 Property and equipment, at cost 197,835 184,636 Less: accumulated depreciation (63,423) (59,308) --------- --------- Net property and equipment 134,412 125,328 Other assets: Excess of cost over net assets acquired 8,405 8,506 Non compete agreement 98 131 Other 1,574 1,611 --------- --------- Total other assets 10,077 10,248 --------- --------- Total assets $ 183,170 $ 164,518 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 19,702 $ 17,753 Trade accounts payable 11,556 10,610 Other current liabilities 9,214 8,074 --------- --------- Total current liabilities 40,472 36,437 Long-term debt, less current portion 53,104 42,073 Deferred income taxes 24,856 23,798 Shareholders' equity: Common stock 85 85 Additional paid-in capital 19,674 19,638 Accumulated other comprehensive income (loss) (147) - Retained earnings 45,126 42,487 --------- --------- Total shareholders' equity 64,738 62,210 --------- --------- Total liabilities and shareholders' equity $ 183,170 $ 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 March 31, 2001 2000 ---- ---- <S> <C> <C> Operating revenues $ 58,406 $ 54,147 Operating expenses: Salaries, wages and benefits 25,747 24,243 Operating supplies 10,761 9,835 Rent/purchased transportation 3,906 3,556 Depreciation and amortization 4,766 4,817 Operating taxes and licenses 2,924 2,956 Insurance and claims 2,435 2,290 Communications and utilities 533 587 Other 1,764 1,015 (Gain) loss on sale of equipment 25 (46) --------- --------- 52,861 49,253 --------- --------- Operating income 5,545 4,894 Other income (expense) Interest expense (1,147) (1,354) --------- --------- Income before income taxes 4,398 3,540 --------- --------- Income taxes --current 551 136 --deferred 1,208 1,276 --------- --------- 1,759 1,412 --------- --------- Net income $ 2,639 $ 2,128 ========= ========= Net income per common share: Basic $ 0.31 $ 0.25 ========= ========= Diluted $ 0.31 $ 0.25 ========= ========= Average common shares outstanding-Basic 8,473,567 8,440,298 ========= ========= Average common shares outstanding-Diluted 8,519,088 8,514,854 ========= ========= 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, 2001 2000 ---- ---- <S> <C> <C> OPERATING ACTIVITIES Net income $ 2,639 $ 2,128 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,766 4,817 Non compete agreement amortization 33 33 Provision for deferred income taxes 1,208 1,276 (Gain)/loss on retirement of property and equipment 25 (46) Changes in operating assets and liabilities: Accounts receivable (6,459) (4,312) Prepaid expenses and other current assets (3,243) (2,088) Accounts payable 702 2,554 Accrued expenses 1,140 1,597 --------- --------- Net cash provided by operating activities 811 5,959 INVESTING ACTIVITIES Purchases of property and equipment (15,130) (6,650) Proceeds from sales of assets 1,356 200 Lease payments received on direct financing leases 46 99 --------- --------- Net cash used in investing activities (13,728) (6,351) FINANCING ACTIVITIES Borrowings under lines of credit 74,809 46,975 Repayments under lines of credit (63,070) (44,849) Borrowings of long-term debt 7,112 4,204 Repayments of long-term debt (5,871) (4,845) Proceeds from exercise of stock options 36 7 --------- --------- Net cash provided by financing activities 13,016 1,492 --------- --------- Net increase in cash and cash equivalents 99 1,100 Cash and cash equivalents at beginning of period $ 485 $ 3,557 --------- --------- Cash and cash equivalents at end of period $ 584 $ 4,657 ========= ========= 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, 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 three-month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ended 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 three 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 instrument was entered into during the first quarter 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. The Company designates this $15,000,000 interest rate swap as a cash flow hedge of its exposure to variability in future cash flow resulting from interest payments indexed to "1-month" LIBOR. Changes in future cash flow from the interest rate swap will offset changes in interest rate payments on the first $15,000,000 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% plus the pricing spread (currently 1.15%) for the notional amount. This interest rate swap agreement meets 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 March 2, 2006, the 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, 2001, the net deferred hedging loss in accumulated other comprehensive loss was approximately $147,000. 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, 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 MARCH 31, 2001 VS. THREE MONTHS ENDED MARCH 31, 2000 - -------------------------------------------------------------------------------- For the quarter ended March 31, 2001, revenues increased 7.9% to $58.4 million as compared to $54.1 million for the quarter ended March 31, 2000. The main factor contributing to the increase was improved utilization of existing revenue equipment, resulting in a 10.3% increase in average revenue generated per tractor each work day from $564 in the first quarter of 2000 to $622 in the first quarter of 2001. Salaries, wages and benefits decreased from 44.8% of revenues in the first quarter of 2000 to 44.1% of revenues in the first quarter of 2001. The decrease relates primarily to a decrease in the number of owner operators utilized in the Company's operations which were replaced with company drivers. Other expenses increased from 1.9% of revenues in the first quarter of 2000 to 3.0% of revenues in the first quarter of 2001. The increase is due to an increase in the Company's allowance for doubtful accounts. Depreciation and amortization decreased from 8.9% of revenues in the first quarter of 2000 to 8.2% of revenues in the first quarter of 2001. The main factor for the decrease was a decrease in the average number of tractors from 1,477 in the first quarter of 2000 to 1,468 in the first quarter of 2001 and increased utilization referenced above. The Company's operating ratio decreased to 90.5% for the first quarter of 2001 as compared to 91.0% for the first quarter of 2000, as a result of the factors described above. The Company's effective tax rate increased from 39.9% in the first quarter of 2000 to 40.0% in the first quarter of 2001, which, combined with increased revenues, resulted in an increase in the provision for income taxes from $136,000 for the first quarter of 2000 to $551,000 for the first quarter of 2001. Net income increased to $2.6 million, or 4.5% of revenues, in the first quarter of 2001 from $2.1 million, or 3.9% of revenues in the first quarter of 2000, representing an increase in diluted net income per share to $.31 in the first quarter of 2001 from $.25 in the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES - ---------------------------------- During the first three months of 2001, the Company generated $.8 million in cash from operating activities. Investing activities used $13.7 million in cash in the first three months of 2001. Financing activities generated $13.0 million in the first three months of 2001 primarily from long-term borrowings. The Company's principal subsidiary, P.A.M. Transport, Inc., maintains two $15.0 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 $8.5 million and $15.0 million at March 31, 2001, including $2.7 million in letters of credit. The Company's combined borrowing limitation on the two lines of credit at March 31, 2001 was $6.5 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 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 three months of 2001 at a cost of approximately $9.8 million using its existing line of credit. In addition, P.A.M. Transport, Inc. entered into installment obligations during the first three 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 291 tractors and to add approximately 75 trailers which would result in additional debt of approximately $13.1 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 March 31, 2001, to repay indebtedness coming due in the current year, and to fund its operating needs during the remainder of fiscal 2001. On November 22, 2000, P.A.M. Transport, Inc. ("the Company") entered into a $15,000,000 revolving credit facility with a maturity date of November 30, 2002. 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. Additionally, the Company anticipates it will continue to have interest rate exposure beyond the maturity of its current revolving credit facility. For this reason, the Company has hedged its exposure to the volatility in variable interest rates. However, the transactions entered 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. In February 2001 the Company entered into an interest rate swap effective February 28, 2001, 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. (See Note C).
PART II. OTHER INFORMATION ------------------------------ 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 an interest rate swap effective February 28, 2001, 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. (See Note C). 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. 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: May 14, 2001 By: /s/ Robert W. Weaver --------------------------------- Robert W. Weaver President and Chief Executive Officer (principal executive officer) Dated: May 14, 2001 By: /s/ Larry J. Goddard --------------------------------- Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer (principal accounting and financial officer)