-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IveoMgINnlk/orOi9+B38RkI/+TI7YGTyNpDr6fc+iStBc1xkOc7yjbsn9H3l/Oo q6Qb3bWNZ9agZdObE+BZ3Q== 0000950144-99-003737.txt : 19990402 0000950144-99-003737.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950144-99-003737 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAM TRANSPORTATION SERVICES INC CENTRAL INDEX KEY: 0000798287 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710633135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-15057 FILM NUMBER: 99581406 BUSINESS ADDRESS: STREET 1: HIGHWAY 412 WEST STREET 2: P O BOX 188 CITY: TONTITOWN STATE: AR ZIP: 72770 BUSINESS PHONE: 5013619111 MAIL ADDRESS: STREET 1: HIGHWAY 412 WEST CITY: TONTITOWN STATE: AR ZIP: 72770 10-K 1 PAM TRANSPORTATION SERVICES INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 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 P.O. Box 188 Tontitown, Arkansas 72770 (501) 361-9111 (Address of principal executive offices, including zip code, and telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, $.01 par value 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on March 12, 1999 was $18,547,227. Solely for the purposes of this response, executive officers, directors and beneficial owners of more than five percent of the Company's common stock are considered the affiliates of the Company at that date. The number of shares outstanding of the issuer's common stock, as of March 12, 1999: 8,371,257 shares of $.01 par value common stock. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in 1999 is incorporated by reference in answer to Part III of this report, with the exception of information regarding executive officers required under Item 10 of Part III, which information is included in Part I, Item 1. 2 Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial results and plans for future business development 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 in the transportation industry and other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. PART I ITEM 1. BUSINESS. P.A.M. Transportation Services, Inc. (the "Company"), operating through its wholly-owned subsidiaries, is an irregular route, common and contract motor carrier authorized to transport general commodities throughout the continental United States and the Canadian provinces of Ontario and Quebec, pursuant to operating authorities granted by the former Interstate Commerce Commission ("ICC"), various state regulatory agencies and Canadian regulatory agencies. Under its operating authorities, the Company may transport all types of freight (except household goods, commodities in bulk and certain explosives) intrastate within any state, and from any point in the continental United States, Ontario or Quebec to any other point in the continental United States or in Ontario or Quebec over any route selected by the Company. The Company transports dry freight commodities ("freight") in 48-foot and 53-foot long, high cube conventional and specialized freight vans ("trailers"). The freight consists primarily of automotive parts, consumer goods, such as general retail store merchandise and products from the manufacturing sector, such as heating and air conditioning units. All freight is transported as truckload quantities. The Company is a holding company organized under the laws of the State of Delaware in June 1986 and conducts its operations through its wholly-owned subsidiaries, P.A.M. Transport, Inc. ("P.A.M. Transport"), P.A.M. Special Services, Inc., T.T.X., Inc., P.A.M. Dedicated Services, Inc., P.A.M. Logistics Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc., Allen Freight Services, Inc. and Decker Transport Co. Inc. The Company's operating authorities are held by P.A.M. Transport, P.A.M. Dedicated Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc., Allen Freight Services, Inc. and Decker Transport Co. Inc. Although not organized until June 1986, the Company is, for financial accounting purposes, the successor to P.A.M. Transport, which was organized under the laws of the State of Arkansas in 1980. Unless the context otherwise requires, all references to the Company in this Annual Report on Form 10-K include P.A.M. Transportation Services, Inc. and its subsidiaries. At December 31, 1998, the Company operated a transport fleet consisting of 1,127 over-the-road tractors ("tractors") and 2,784 trailers. On January 11, 1999, the Company acquired, through a wholly-owned subsidiary, substantially all of the assets and liabilities of Decker Transport Inc. ("Decker") and Van Houten Ltd. (individually, "Van Houten" and collectively with Decker, "Sellers") of Riverdale, New Jersey. The assets include, but are not limited to, Sellers' tractors, trailers, personal property, equipment and other real and personal property leases, and business contracts. Prior to the acquisition, Decker conducted an irregular route, common and 2 3 contract motor carrier business and was authorized to transport general commodities throughout the continental United States and the Canadian provinces of Quebec and Ontario. Van Houten was an equipment leasing company. The Company intends to continue using the assets in the same manner as they were used by Sellers. Under the terms of the acquisition, the aggregate purchase price for Sellers' assets and for certain non-competition covenants entered into by Sellers and William Van Houten, Sellers' sole shareholder, was approximately $13.8 million (subject to certain post closing adjustments as set forth below) plus assumed liabilities of approximately $14.1 million. The transaction price was determined through arms-length negotiations between the Company and William Van Houten. The Company is headquartered and maintains its primary terminal, maintenance facilities and corporate and administrative offices in Tontitown in the northwest corner of Arkansas, a major center for the trucking industry and where the support services (including warranty repair services) of most major tractor and trailer equipment manufacturers are readily available. MARKETING/MAJOR CUSTOMERS The Company's marketing emphasis is directed to that segment of the truckload market which is generally service-sensitive, as opposed to being solely price competitive. Since 1990, the Company has diversified its marketing efforts to gain access to non-traditional freight traffic, including international (Mexico and Canada), domestic regional short-haul, dedicated fleetservices and intermodal transportation. The Company also participates in various "core carrier" partnerships with its larger customers. The Company estimates that approximately 60% of its deliveries to customers are made on a JIT ("just in time") basis, whereby products and raw materials are scheduled for delivery as they are needed on the retail customer's shelves or in the manufacturing customer's production line. Such requirements place a premium on the freight carrier's delivery performance and reliability. With respect to these JIT deliveries, approximately 40% require the use of two-man driver teams to meet the customer's schedule. The need for this service is a product of modern manufacturing and assembly methods which are designed to drastically decrease inventory levels and handling costs. The Company's marketing efforts are conducted by seven outside sales persons domiciled within the Company's major markets. Field personnel are supervised from Company headquarters, emphasizing an even flow of freight traffic (balance between originations and destinations in a given geographical area) and minimization of movement of empty equipment. During 1998, the Company's five largest customers, for which the Company provides carrier services covering a number of geographic locations, accounted for approximately 58% of total revenues. General Motors Corporation accounted for approximately 35% of 1998 revenues and Delphi Automotive System Corporation accounted for approximately 12% of 1998 revenues. A total loss of this business, however unlikely, would have an adverse impact on the Company's operations, at least over the short term. The Company also provides transportation services to other manufacturers who are suppliers for automobile manufacturers. As a result, concentration of the Company's business within the industry is greater than the concentration in a single customer. Of the Company's revenues for 1998 that were attributable to its top ten customers, approximately 48% were derived from transportation services provided to the automobile industry. 3 4 The Company is no longer required to file tariffs with the Interstate Commerce Commission ("ICC") or any successor agency. See "Regulation." OPERATIONS The Company maintains 24-hour dispatch offices at its headquarters, as well as its offices in Jacksonville, Florida; Columbia, Mississippi; Warren, Ohio; and Oklahoma City, Oklahoma; with a toll free WATS line to facilitate communications with both customers and drivers. The location, status and contact assignment of all of the Company's equipment are available on an up-to-date basis through the Company's computer system, which permits the Company to better meet delivery schedules, respond to customer inquiries and match equipment with the next available load. The Company has installed Qualcomm Omnitracs(TM) display units in all of its tractors. The Omnitracs system is a satellite-based global positioning and communications system that allows fleet managers to communicate directly with drivers. Drivers can provide location status and updates directly to the customer's computer, saving telephone usage cost, lost productivity, and inconvenience. The Omnitracs system provides customer service with accurate estimated time of arrival information which optimizes load selection and service levels to the Company's customers. The Company communicates through electronic data interchange with many of its customers, providing live status reports of freight shipments and arrival time information. This system provides the Company's customers flexibility and convenience by allowing the customer to tender freight electronically. The Company has contractual arrangements with some customers to move freight in dedicated lanes within the United States. A majority of this freight is moved on a round-trip basis, and due to the volume involved, the Company has agreed to dedicate equipment and personnel to handle this part of its business. The Company has found that dedicated service promotes increased utilization of equipment and greater driver satisfaction due to the greater regularity of the routes and schedules, which allows the drivers to be at home more often. There exists a large volume of dedicated-type business throughout the continental United States. The Company has enjoyed considerable success in entering this market, and is aggressively seeking to expand its share of the dedicated services market. OVER-THE-ROAD EQUIPMENT The Company operated a fleet of 1,127 tractors and 2,784 trailers at December 31, 1998. All of the trailers and all except 94 tractors are owned or leased by the Company. The trailer fleet is made up of 765 48' by 102" dry vans and 2,019 53' by 102" dry vans. In 1993, the Company began its trailer fleet conversion to air ride equipment and the Company intends to purchase only air ride trailers in the future. The Company also has certain specialized drop-frame trailers. The tractors that are not Company owned are leased from owner/operators on a per mile basis. At the end of the respective years, the average age of the Company's tractors was 1.85 in 1996, 1.94 in 1997, and 1.74 in 1998. The average age of the Company's trailer fleet was 2.60, 2.85, and 3.31 at the end of 1996, 1997, and 1998, respectively. 4 5 During 1998, the Company purchased 403 new tractors and 770 new trailers and disposed of 251 tractors and 664 trailers. During 1999, the Company expects to purchase 370 new tractors and 455 new trailers while continuing to sell or trade older equipment. MAINTENANCE The Company has a strictly enforced comprehensive preventive maintenance program for the tractors and trailers it operates. Inspections and various levels of repair and preventive maintenance are performed at set mileage intervals on both tractors and trailers. Although a significant portion of maintenance is performed at the Company's maintenance facility in Tontitown, Arkansas, the Company's subsidiaries have additional maintenance facilities in Columbia, Mississippi; Springfield, Missouri; Riverdale, New Jersey; Willard and Warren, Ohio; Oklahoma City, Oklahoma; and Irving, Laredo and El Paso, Texas. These facilities enhance the Company's preventive and routine maintenance operations and are strategically located on major transportation routes where a majority of the Company's freight originates and terminates. A maintenance and safety inspection is performed on all vehicles each time they return to a terminal. The Company's primary maintenance facilities consist of thirteen mechanical repair bays, four body-shop bays and three safety and maintenance inspection bays. The Company believes that its current maintenance facilities will be adequate to accommodate its fleet for the foreseeable future. The Company's tractors carry full warranty coverage of at least 100,000 miles. Extended warranties are negotiated with the manufacturer and major component manufacturer (i.e., engine, transmission, differential) for up to 750,000 miles. Trailers are also warranted by the manufacturer and major component manufacturer for up to five years. Manufacturers of tractors are required to certify that new tractors meet federal emission standards and the Company receives such certifications on each new tractor it acquires. Certain governmental regulations require the Company to adhere to a fuel and oil spillage prevention plan and to comply with regulations concerning the discharge and disposal of waste oil. The Company believes it is in compliance with applicable waste disposal and emission regulations. The Company also maintains insurance to cover clean up expense in the event of a spill. DRIVERS At December 31, 1998, the Company utilized 1,367 drivers in its operations. All drivers are recruited, screened, drug tested and trained and are subject to the control and supervision of the Company's operations and safety departments. The Company's driver training program stresses the importance of safety and reliable, on-time delivery. Drivers are required to report to their dispatchers daily and at the earliest possible moment when any condition en route occurs which might delay their scheduled delivery time. The Company's drivers are selected only after strict application screening and drug testing. Before being permitted to operate a vehicle for the Company, drivers must undergo classroom instruction on Company policies and procedures, safety techniques and proper operation of equipment and then must pass both written and road tests. Instruction in defensive driving and safety techniques continues after hiring, with the Company holding seminars at its terminals in Tontitown, Arkansas; Jacksonville, Florida; 5 6 Columbia, Mississippi; Riverdale, New Jersey; Warren, Ohio; and Oklahoma City, Oklahoma. The Company currently employs approximately 41 persons on a full-time basis in its driver recruiting, training and safety instruction programs. The Company's drivers are compensated on the basis of miles driven, loading and unloading, extra stop pay and layovers in transit. Drivers can earn bonuses by recruiting other qualified drivers who become employed by the Company and both cash and non-cash prizes are awarded for consecutive periods of safe, accident-free driving. Intense competition in the trucking industry for qualified drivers over the last several years, along with difficulties and added expense in recruiting and retaining qualified drivers, has had a negative impact on the industry. The Company's operations have also been impacted and from time to time the Company has experienced under-utilization and increased expenses due to a shortage of qualified drivers. Management places the highest of priorities on the recruitment and retention of an adequate supply of qualified drivers. EMPLOYEES At December 31, 1998, the Company employed 1,656 persons, of which 1,367 are drivers, 78 are maintenance personnel, 98 are employed in operations, 21 are employed in marketing, 41 are employed in safety and personnel, and 51 are employed in general administration and accounting. Of the total number of employees, 167 of the Company's employees are salaried, and the remainder are employed on an hourly or mileage basis. The Company also has 94 owner/operators under contract who are compensated on a per mile basis. None of these employees are represented by a collective bargaining unit and the Company believes that its employee relations are good. REGULATION The Company is a common and contract motor carrier that is regulated by certain state and Canadian regulatory agencies. Prior to January 1, 1996, the Company was also regulated by the ICC. The ICC governed such activities as the authority to engage in motor carrier operations, rates and charges, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting. On January 1, 1996, however, the ICC Termination Act of 1995 (the "Termination Act") was enacted, terminating the ICC and substantially deregulating the rail and motor carrier industries. The Termination Act substantially revises the Motor Carrier Act of 1980, eliminating numerous unnecessary provisions and streamlining many of the ICC's functions regarding the regulation of the motor carrier industry. The majority of the remaining ICC functions are transferred to the Department of Transportation ("DOT"), with limited responsibilities transferred to a newly formed Surface Transportation Board. Some of the ICC functions that have been eliminated include: tariff filings, except for non-contiguous domestic trade; rate regulation, except for non-contiguous domestic trade and individual household goods movements; federal grants of operating authority; price regulation and tariff filing requirements for office and exhibit moves; the possibility of future undercharge claims; restrictions on intermodal ownership; review of motor carrier mergers; and state regulation of transportation intermediaries. In addition, registration and insurance filings under the Motor Carrier Act are streamlined 6 7 into a single federal registration and insurance system to eliminate duplicative and burdensome filing requirements. Exemption authority to permit administrative deregulation has also been substantially broadened, with restrictions remaining on only cargo loss and damage, insurance, safety fitness and antitrust immunity. Prior to the enactment of the Termination Act, most of the ICC's authority to oversee the commercial operation of the motor carrier industry had already been transferred to the DOT. The primary remaining functions which are transferred to the DOT by the Termination Act are motor carrier registration and the setting and maintenance of minimum levels of liability insurance. In addition, the maintenance of nationwide motor carrier industry commercial rules (such as leasing rules, uniform cargo loss and damage rules, rules for shipper payment, and perfecting security interests) are transferred to the DOT. Currently, the ICC and the DOT operate separate registration systems. The ICC requires that interstate, for hire carriers receive a license (operating authority) with the standards for granting of authority limited to a showing of safety and fitness and insurance coverage at a specified level. The DOT registration system extends to all carriers, including private and exempt carriers not regulated by the ICC. The DOT assigns each carrier an identification number. Carriers are not required to show proof of insurance at the time of DOT registration, nor is any fee currently charged. The Termination Act continues the two registration systems for a period of twenty-four months, during which time the Secretary of Transportation shall conduct a rule-making and implement changes to consolidate these two registration systems into one system. The new system will serve as a clearing house and depository of information on and identification of all domestic and foreign motor carriers, brokers, freight forwarders and others required to register. The DOT will utilize the information in overseeing safety fitness and compliance with required levels of insurance. Registrations will be renewed periodically and the on-line system will be available to state authorities and the public. The Termination Act also continues antitrust immunity granted by the ICC but contains reforms intended to prevent any potential market abuses. On January 1, 1995, federal legislation went into effect eliminating intrastate regulation of motor carrier operations. This action allows the Company to better compete for intrastate business, possibly reducing empty miles, and should result in more comprehensive service to the Company's existing customers. Motor carrier operations are also subject to safety requirements prescribed by the United States Department of Transportation governing interstate operation. Such matters as weight and dimensions of equipment are also subject to federal and state regulations. The Company believes that it is in compliance in all material respects with applicable regulatory requirements relating to its trucking business and operates with a satisfactory rating from the United States Department of Transportation. 7 8 COMPETITION The trucking industry is highly competitive. The Company competes primarily with other irregular route long-haul truckload carriers, with private carriage conducted by its existing and potential customers, and, to a lesser extent, with the railroads. Increased competition has resulted from deregulation of the trucking industry and has generally exerted downward pressure on prices. The Company competes on the basis of its quality of service and delivery performance as well as price. Many of the other irregular route long-haul truckload carriers have substantially greater financial resources, own more equipment or carry a larger total volume of freight than the Company. EXECUTIVE OFFICERS The executive officers of the Company are as follows:
Name Position with Company ---- --------------------- Robert W. Weaver President and Chief Executive Officer W. Clif Lawson Executive Vice President and Chief Operating Officer Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer
ROBERT W. WEAVER, age 49, is a co-founder of the Company and served as its Vice President from March 1980 to June 1986. He was President and Chief Operating Officer from June 1986 until he resigned in February 1987. Between February 1987 and September 1989, he was self-employed as a transportation consultant. In September 1989, Mr. Weaver returned to the Company as President and Chief Operating Officer and a director. On February 22, 1990, he was appointed Chief Executive Officer. W. CLIF LAWSON, age 45, has been Executive Vice President of the Company since August 1989 and Chief Operating Officer since March 1992. He joined the Company in June 1984 and served in various operations and sales capacities until August 1989. LARRY J. GODDARD, age 40, has been Vice President-Finance and Chief Financial Officer since January 1991 and served as Controller of the Company from May 1989 to January 1991. In addition, he has served as Secretary since September 1989, and Treasurer since May 1991. From November 1987 to May 1989, he served as General Accounting Manager of the Company. ITEM 2. PROPERTIES. The Company's executive offices and primary terminal facilities are located in Tontitown, Arkansas. The Company's facilities are located on approximately 45 acres and consist of 79,193 square feet of office 8 9 space and maintenance and storage facilities. The Company's facilities in Tontitown are owned by the Company. The Company's subsidiaries also lease terminal facilities in Jacksonville, Florida; Springfield, Missouri; Riverdale, New Jersey; Willard and Warren, Ohio; Oklahoma City, Oklahoma; Memphis, Tennessee; and Laredo, El Paso, and Irving, Texas; the terminal facilities in Columbia, Mississippi are owned. These facilities are leased primarily on a month-to-month basis, and provide on-the-road maintenance and trailer drop and relay stations. The Company's subsidiaries also lease an aggregate of 18 other locations as trailer drop and relay stations only. The Company has access to trailer drop and relay stations in various locations across the country. Certain of these facilities are leased by the Company on a month-to-month basis from an affiliate of its majority shareholder. The Company believes that all of the properties owned or leased by the Company are suitable for their purposes and adequate to meet the Company's needs. ITEM 3. LEGAL PROCEEDINGS. The nature of the Company's business routinely results in litigation, primarily involving claims for personal injuries and property damage incurred in the transportation of freight, and management of the Company believes all such litigation is adequately covered by insurance and that adverse results in one or more of those cases would not have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fourth quarter ended December 31, 1998. 9 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the Nasdaq National Market System under the Nasdaq symbol PTSI. The following table sets forth, for the fiscal quarters indicated, the range of the high and low sales price per share for the Common Stock as quoted on the Nasdaq National Market System.
Fiscal Year Ended December 31, 1998 High Low ---- --- First Quarter $11 3/4 $8 3/4 Second Quarter 12 8 3/4 Third Quarter 10 6 1/4 Fourth Quarter 9 6 1/2
Fiscal Year Ended December 31, 1997 High Low ---- --- First Quarter $ 7 1/4 $4 3/8 Second Quarter 8 1/2 5 1/4 Third Quarter 10 1/8 7 7/8 Fourth Quarter 12 1/4 7 3/4
As of March 12, 1999, the number of stockholders of record was approximately 354. The Company has not declared or paid any cash dividend on its common stock. The policy of the Board of Directors of the Company is to retain earnings for the expansion and development of the Company's business. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including the Company's earnings, financial condition and other factors deemed relevant by the Board of Directors. 10 11 \ ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere herein.
Years ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (in thousands, except per share amounts) Statements of Operations: Operating revenues $ 143,164 $ 127,211 $ 113,021 $ 91,595 $ 76,147 --------- --------- --------- --------- --------- Operating Expenses: Salaries, wages and benefits 65,169 57,662 52,444 40,020 33,647 Operating supplies 26,511 24,666 21,909 16,719 14,688 Rent and purchased transportation 1,082 1,655 1,824 1,538 991 Depreciation and amortization 14,003 12,995 11,999 9,428 7,142 Operating taxes and licenses 8,388 7,581 6,734 5,608 5,078 Insurance and claims 6,069 5,571 5,004 4,163 3,816 Communications and utilities 1,583 1,001 1,090 852 868 Other 3,131 2,394 2,077 1,666 1,279 (Gain) loss on sale or disposal of property and equipment 168 71 375 159 (334) --------- --------- --------- --------- --------- Total operating expenses 126,104 113,596 103,456 80,153 67,175 --------- --------- --------- --------- --------- Operating income 17,060 13,615 9,565 11,442 8,972 Interest expense (3,830) (3,423) (4,137) (3,521) (2,926) Other 1 0 31 166 217 --------- --------- --------- --------- --------- Income before income taxes and dividends on redeemable preferred stock 13,231 10,192 5,459 8,087 6,263 Income taxes 5,158 3,892 2,147 3,073 2,493 --------- --------- --------- --------- --------- Income before dividends on redeemable preferred stock 8,073 6,300 3,312 5,014 3,770 Accrued dividends on redeemable preferred stock 0 0 0 0 30 --------- --------- --------- --------- --------- Net income $ 8,073 $ 6,300 $ 3,312 $ 5,014 $ 3,740 ========= ========= ========= ========= ========= Earnings per common share: Basic $ .97 $ .77 $ .66 $ 1.01 $ .76 ========= ========= ========= ========= ========= Diluted $ .96 $ .76 $ .44 $ .65 $ .50 ========= ========= ========= ========= ========= Average common shares outstanding- Basic 8,306 8,192 5,035 4,970 4,921 ========= ========= ========= ========= ========= Average common shares outstanding- Diluted 8,444(1) 8,290(1) 7,578(1) 7,654(1) 7,520(1) ========= ========= ========= ========= =========
- -------------------- (1) Income per share for 1998, 1997, 1996, 1995 and 1994 assumes the exercise of stock purchase warrants an stock options to purchase an aggregate of 317,040, 347,850, 3,545,280, 3,529,278 and 3,454,549 shares of Common Stock, respectively. 11 12
Balance Sheet Data At December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- (in thousands) Total assets $126,471 $100,688 $94,895 $86,808 $65,324 Long-term debt 44,816 28,226 34,938 37,966 32,206 Shareholders' equity 41,457 33,162 26,312 18,232 13,034
Operating Data For the Year Ended December 31, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Operating ratio(1) 88.1% 89.4% 91.5% 87.5% 88.2% Average number of truckloads per week 3,425 2,874 2,437 1,913 1,617 Average miles per trip 767 786 845 899 859 Total miles traveled (in thousands) 131,847 115,622 102,946 85,588 69,128 Average miles per tractor 125,569 125,404 122,250 118,424 116,181 Average revenue per tractor per week $ 2,716 $ 2,694 $ 2,684 $ 2,711 $ 2,668 Average revenue per loaded mile $ 1.15 $ 1.17 $ 1.17 $ 1.14 $ 1.18 Empty mile factor .5% 5.8% 6.1% 6.2% 6.8% AT END OF PERIOD: Total Company-owned/leased tractors 1,127(2) 975(2) 912(3) 716(4) 595(5) Average age of all tractors (in years) 1.74 1.94 1.85 1.26 1.70 Total trailers 2,784(6) 2,678(7) 2,398(8) 1,638(9) 1,434(8) Average age of trailers (in years) 3.31 2.85 2.60 2.34 2.09 Number of employees 1,656 1,446 1,438 1,192 859
(1) Total operating expenses as a percentage of total operating revenues. (2) Includes 94 owner operator tractors. (3) Includes 126 owner operator tractors. (4) Includes 45 owner operator tractors. (5) Includes 40 owner operator tractors. (6) Includes 46 trailers leased from an affiliate of the Company's majority shareholder. (7) Includes 66 trailers leased from an affiliate of the Company's majority shareholder. (8) Includes 74 trailers leased from an affiliate of the Company's majority shareholder. (9) Includes 82 trailers leased from an affiliate of the Company's majority shareholder. 12 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial results and plans for future business development 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 in the transportation industry and other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. The following table sets forth the percentage relationship of revenue and expense items to operating revenues for the periods indicated.
Percentage of Operating Revenues -------------------------------- Years ended December 31, ------------------------ 1998 1997 1996 ---- ---- ---- Operating revenues 100% 100% 100% ---- ---- ---- Operating expenses: Salaries, wages and benefits 45.5 45.3 46.4 Operating supplies 18.5 19.4 19.4 Rent and purchased transportation .8 1.3 1.6 Depreciation and amortization 9.8 10.2 10.6 Operating taxes and licenses 5.9 6.0 6.0 Insurance and claims 4.2 4.4 4.4 Communications and utilities 1.1 0.8 1.0 Other 2.2 1.9 1.8 Loss on sale or disposal of property and equipment 0.1 0.1 0.3 ---- ---- ---- Total operating expenses 88.1 89.4 91.5 ---- ---- ---- Operating income 11.9 10.6 8.5 Interest expense (2.7) (2.7) (3.7) Other, net -- -- -- ---- ---- ---- Income before income taxes 9.2 7.9 4.8 Federal and state income taxes (3.6) (3.1) (1.9) ---- ---- ---- Net income 5.6 4.8 2.9 ==== ==== ====
13 14 RESULTS OF OPERATIONS 1998 COMPARED TO 1997 For the year ended December 31, 1998, revenues increased 12.5% to $143 million as compared to $127 million for the year ended December 31, 1997. The Company's utilization (revenue per tractor per work day) increased .74% from $539 in 1997 to $543 in 1998. The Company's operating ratio improved from 89.4% in 1997 to 88.1% in 1998. Operating supplies and expenses decreased from 19.4% of revenues in 1997 to 18.5% of revenues in 1998, reflecting a decrease of 1.9% in fuel costs for 1998. This decrease was partially offset by an increase of .8% in driver recruiting and training costs. Rent and purchased transportation decreased from 1.3% of revenues in 1997 to 0.8% of revenues in 1998. This decrease was due to the replacement of rental trailers with Company-owned trailers and a planned decrease in intermodal operations, thus reducing purchased transportation costs. The Company's effective tax rate increased from 38.2% in 1997 to 39.0% in 1998. At December 31, 1998, the Company's deferred tax assets were $7.8 million and deferred tax liabilities were $20.9 million. In assessing the need for a valuation allowance against deferred tax assets at December 31, 1998, management considered the following factors: 1) the Company has recorded $13.1 million in deferred tax liabilities for future taxable temporary differences (primarily depreciation related) which will result in additional taxable income in future periods; 2) the Company's recent operating results have produced a total of more than $28.9 million of pretax accounting income for 1998, 1997 and 1996 and net operating loss carryovers have offset all taxable income in these years; 3) the Company has various alternatives, such as equipment leasing to utilize net operating losses, which might otherwise expire; and 4) the Company's carryover periods for its deferred tax assets are extensive, with expiration beginning in 2003 for net operating losses and 1999 for investment credits. 1997 COMPARED TO 1996 For the year ended December 31, 1997, revenues increased 12.6% to $127 million as compared to $113.0 million for the year ended December 31, 1996. The Company's utilization (revenue per tractor per work day) increased .37% from $537 in 1996 to $539 in 1997. The Company's operating ratio improved from 91.5% in 1996 to 89.4% in 1997. Salaries, wages and benefits decreased from 46.4% of revenues in 1996 to 45.3% in 1997. The major factor for the decrease was a 1.8% decrease in the amounts paid to Allen Freight Services, Inc. (AFS) fleet owners. This decrease was partially offset by an increase of .6% in amounts paid to the AFS company drivers that replaced the AFS fleet owners. 14 15 Interest expense decreased $714,507 in 1997 when compared to 1996, primarily as a result of the Company reducing its long term debt and its borrowings under its line of credit during the fourth quarter 1996 using proceeds of $4.6 million received by the Company in connection with the exercise of stock purchase warrants by its majority shareholder. The Company's effective tax rate decreased from 39.3% in 1996 to 38.2% in 1997 as a result of discontinuing the practice of reimbursing nondeductible per diem expenses to AFS's company drivers. The Company's effective tax rate reflects the statutory federal tax rate and the average tax rate of the states in which the Company conducts business. LIQUIDITY AND CAPITAL RESOURCES During 1998, the Company generated $23.5 million in cash from operating activities. The ratio of current assets to current liabilities was 1.2 at the end of 1998, compared to 1.0 at the end of 1997 and 1996. Investing activities used $38.3 million in cash in 1998 compared to $16.5 million and $16.9 million in 1997 and 1996, respectively. The cash used in all three years related primarily to the purchase of revenue equipment used in the Company's operations. Financing activities provided $14.3 million in cash in 1998 primarily from long term debt incurred to finance the purchase of revenue equipment used in the Company's operations. 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 general working capital needs and equipment at a reduced interest rate of LIBOR as of the first day of the month plus 1.50% (7.12% at December 31, 1998). The maximum amount of working capital and/or equipment that may be financed under this 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 as of the first day of the month plus 1.85% (7.47% at December 31, 1998). Outstanding advances on this line of credit at December 31, 1998 consisted solely of $1.5 million in letters of credit. The Company's borrowing limitation at December 31, 1998 was $13.5 million. This line of credit is guaranteed by the Company and matures May 31, 2000. The line of credit agreement contains restrictive covenants which require the Company to maintain a net worth of $12.5 million and a debt service coverage ratio of not less than 1.0 to 1.0. The line of credit agreement also includes restrictions on dividend payments and certain corporate acts such as mergers and consolidations. At December 31, 1998, the Company was in compliance with all such covenants. 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 and four year terms at fixed rates) are typically entered into for the purchase of revenue equipment; however, the Company purchased additional revenue equipment during 1998 with a cost of approximately $2.3 million using its existing line of credit. Three subsidiaries of the Company, P.A.M. Transport, Inc., P.A.M. Dedicated Services, Inc., and Choctaw Express, Inc., 15 16 entered into installment obligations in 1998 for the purchase of replacement revenue equipment which totaled approximately $2.9 million, $28.5 million, and $12.4 million, respectively, payable in 36, 48, and 60 monthly installments at interest rates ranging from 5.75% to 7.50%. The Company's weighted average interest rates on all borrowings were 7.68%, 7.69% and 7.67% for 1998, 1997 and 1996, respectively. During 1998, the Company sold or traded revenue equipment for approximately $7.8 million. The Company plans to replace 455 trailers and 370 tractors in 1999, which would result in additional debt of approximately $37.4 million. Management expects that the Company's existing working capital and its available line of credit will be sufficient to meet the Company's capital commitments as of December 31, 1998, to repay indebtedness coming due in the current year, and to fund its operating needs during fiscal 1999. INSURANCE Auto liability and collision coverage are generally subject to a $2,500 deductible per occurrence while cargo loss coverage generally has a $1,000 deductible. The Company maintains a reserve for estimated losses for claims incurred, and maintains a reserve for claims incurred but not reported (based on the Company's historical experience). During 1998, the Company changed from being self-insured for workers' compensation coverage in Arkansas, Oklahoma, Mississippi and Florida with excess coverage maintained for claims exceeding $250,000, to being fully-insured through an insurance company for workers' compensation coverage in those states. The Company continues to be self-insured for workers' compensation coverage in Ohio with excess coverage maintained for claims exceeding $350,000. The Company has reserved for estimated losses to pay such claims as incurred as well as claims incurred but not reported. The Company has not experienced any adverse trends involving differences in claims experienced versus claims estimates for workers' compensation reserves. The Company contracts a third-party licensed associate of risk management and a certified Hazard Control Manager to develop its workers' compensation reserves using the Company's historical data of past injuries. Letters of credit are held by a bank as security for workers' compensation claims in Arkansas, Oklahoma, Mississippi, and Florida, respectively, and two letters of credit are held by a bank for auto liability claims. SEASONALITY The Company's revenues do not exhibit a seasonal pattern, due primarily to its varied customer mix. Operating expenses are generally somewhat higher in the winter months, primarily due to decreased fuel efficiency and increased maintenance costs in cold weather. ENVIRONMENTAL The Company has no outstanding inquiries with any federal or state environmental agency at December 31, 1998. 16 17 INFLATION Inflation has an impact on most of the Company's operating costs. Recently, the effect of inflation has been minimal. Competition for drivers has increased in recent years, leading to increased labor costs. While increases in fuel and driver costs affect the Company's operating costs, the effects of such increases are not greater for the Company than for other trucking concerns. YEAR 2000 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 causing a temporary inability to process transactions. Accordingly, a disruption of normal business activities may occur. The Company began the process of identifying the changes required to its computer programs and hardware in 1997 and has completed its Year 2000 assessment consisting of an analysis of all information systems, data and voice networks, physical plants, rolling stock electronic systems and external suppliers and customers. The Company has determined its overall risk due to Year 2000 failures and has developed a strategy to repair or replace any system determined to be non-compliant by June 30, 1999. The Company anticipates funding all Year 2000 related expenditures, which are currently estimated at $50,000, from operating cash flows and as of December 31, 1998 the Company had incurred costs of approximately $10,000 related to Year 2000 issues. All information systems requiring replacement or remediation are under a vendor software maintenance contract, which includes an upgrade to a Year 2000 compatible version. The software vendor has released its Year 2000 compatible version, which has been initially installed and is being used by one of the Company's subsidiaries in order to analyze and test Year 2000 compatability. This version has passed all of the Company's Year 2000 tests and the Company believes that this software version is Year 2000 compliant. The Company's remaining subsidiaries are expected to convert to the Year 2000 software version by June 30, 1999. The Company has surveyed its major suppliers and customers as well as secondary suppliers and customers for their state of readiness. Major suppliers and customers whose responses indicate they may not be Year 2000 compatible in a timely fashion are being monitored on a monthly basis. The Company has also issued certification requests to the software companies on which its computer programs rely seeking assurance that they will be Year 2000 compliant. Approximately 97% of the questionnaires have been returned. Respondents have indicated that they are currently Year 2000 compliant or will be well in advance of the Year 2000. The Company's contingency plans relative to the Year 2000 have not been finalized. These plans are evolving as the testing of systems progresses and the Company's subsidiaries continue to convert to Year 2000 compliant software. During the testing and conversion phase (scheduled for 17 18 completion by June 30, 1999), management will develop and modify a "worst case scenario" contingency plan based on testing and conversion results. The related costs and projected completion dates for Year 2000 compatibility are based upon management's best estimates. However, management cannot predict the impact on the Company's business, financial condition, and results of operations if customers and suppliers fail or delay to address Year 2000 issues. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. The Company is exposed to cash flow and interest rate risk due to changes in interest rates with respect to its long-term debt. See note 3 to the consolidated financial statements for details on the Company's long-term debt. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following statements are filed with this report: Report of Independent Public Accountants Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Income - Years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No response is required to this item. 18 19 P.A.M. Transportation Services, Inc. and Subsidiaries Consolidated Financial Statements Years ended December 31, 1998, 1997 and 1996 CONTENTS Report of Independent Public Accountants Audited Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 19 20 Report of Independent Public Accountants To the Board of Directors and Shareholders of P.A.M. Transportation Services, Inc. We have audited the accompanying consolidated balance sheets of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Fayetteville, Arkansas February 19, 1999 20 21 P.A.M. Transportation Services, Inc. Consolidated Balance Sheets (thousands, except par value)
DECEMBER 31, 1998 1997 ------------------------- ASSETS (NOTE 1) Current assets: Cash and cash equivalents $ 5,963 $ 6,401 Accounts receivable (Note 1): Trade, net of allowance for doubtful accounts (1998--$579; 1997--$579) 20,816 16,915 Other 63 1,703 Equipment held for sale (Note 1) 505 1,529 Operating supplies and inventories 458 449 Prepaid expenses and deposits 3,860 3,384 Deferred income taxes (Note 4) 19 61 Income taxes refundable (Note 4) 38 415 ------------------------- Total current assets 31,722 30,857 Property and equipment (Notes 1,3 and 8): Land 959 959 Structures and improvements 2,667 2,654 Revenue equipment 124,354 94,439 Service vehicles 1,944 2,024 Office furniture and equipment 3,936 3,496 ========================= 133,860 103,572 Allowances for depreciation (42,429) (37,382) ------------------------- 91,431 66,190 Other assets: Excess of cost over net assets acquired, net of accumulated amortization (1998--$849; 1997--$726) 2,277 2,400 Non-competition agreements, net of accumulated amortization (1998--$1,549; 1997--$1,109) 297 737 Other 744 504 ------------------------- 3,318 3,641 ------------------------- Total assets $ 126,471 $ 100,688 =========================
21 22
DECEMBER 31, 1998 1997 ========================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 8,494 $ 9,233 Accrued expenses (Note 2) 5,178 4,835 Current portion of long-term debt (Notes 3 and 8) 13,362 15,544 -------- -------- Total current liabilities 27,034 29,612 Long-term debt, less current portion (Notes 3 and 8) 44,816 28,226 Deferred income taxes (Note 4) 13,164 9,376 Non-competition agreements _ 312 Shareholders' equity (Note 5): Common stock, $.01 par value: Authorized shares--20,000,000 Issued and outstanding shares: 1998--8,324,957; 1997--8,275,157 83 83 Additional paid-in capital 18,814 18,592 Retained earnings 22,560 14,487 -------- -------- Total shareholders' equity 41,457 33,162 -------- -------- Total liabilities and shareholders' equity $126,471 $100,688 ======== ========
See accompanying notes. 22 23 P.A.M. Transportation Services, Inc. Consolidated Statements of Income (thousands, except per share data)
YEAR ENDED DECEMBER 31, 1998 1997 1996 ========================================= Operating revenues (Notes 1 and 7) $ 143,164 $ 127,211 $ 113,021 Operating expenses and costs: Salaries, wages and benefits 65,169 57,662 52,444 Operating supplies and expenses 26,511 24,666 21,909 Rents and purchased transportation 1,082 1,655 1,824 Depreciation and amortization 14,003 12,995 11,999 Operating taxes and licenses 8,388 7,581 6,734 Insurance and claims 6,069 5,571 5,004 Communications and utilities 1,583 1,001 1,090 Other 3,131 2,394 2,077 Loss on sale or disposal of property and equipment 168 71 375 ----------------------------------------- 126,104 113,596 103,456 ========================================= Operating income 17,060 13,615 9,565 Other income (expense): Interest expense (3,830) (3,423) (4,137) Other 1 - 31 ----------------------------------------- (3,829) (3,423) (4,106) ----------------------------------------- Income before income taxes 13,231 10,192 5,459 Federal and state income taxes: Current 1,323 1,120 259 Deferred 3,835 2,772 1,888 ----------------------------------------- 5,158 3,892 2,147 ----------------------------------------- Net income $ 8,073 $ 6,300 $ 3,312 ========================================= Earnings per common share (Note 6): Basic $ .97 $ .77 $ .66 Diluted $ .96 $ .76 $ .44 ----------------------------------------- Average common shares outstanding: Basic 8,306 8,192 5,035 Diluted 8,444 8,290 7,578 =========================================
See accompanying notes. 23 24 P.A.M. Transportation Services, Inc. Consolidated Statements of Shareholders' Equity (thousands)
- --------------------------------------------------------------------------------------------------------------------- Additional Common Paid-In Retained Stock Capital Earnings Total - --------------------------------------------------------------------------------------------------------------------- Balances at January 1, 1996 $50 $13,307 $4,875 $18,232 Net income - - 3,312 3,312 Exercise of stock options-- shares issued (Note 5) 31 4,695 - 4,726 Tax benefits of stock options (Note 5) - 42 - 42 - --------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1996 81 18,044 8,187 26,312 Net income - - 6,300 6,300 Exercise of stock options-- shares issued (Note 5) 2 467 - 469 Tax benefits of stock options (Note 5) - 81 - 81 - --------------------------------------------------------------------------------------------------------------------- BALANCES AT DECEMBER 31, 1997 83 18,592 14,487 33,162 Net income - - 8,073 8,073 Exercise of stock options-- shares issued (Note 5) - 175 - 175 Tax benefits of stock options (Note 5) - 47 - 47 - --------------------------------------------------------------------------------------------------------------------- Balances at December 31, 1998 $83 $18,814 $ 22,560 $41,457 =====================================================================================================================
See accompanying notes. 24 25 P.A.M. Transportation Services, Inc. Consolidated Statements of Cash Flows (thousands)
Year ended December 31, 1998 1997 1996 ========================================= OPERATING ACTIVITIES Net income $ 8,073 $ 6,300 $ 3,312 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,003 12,995 11,999 Non-competition agreement amortization 440 440 408 Provision for doubtful accounts - - 140 Provision for deferred income taxes 3,835 2,772 1,888 Loss on sale or disposal of property and equipment 168 71 375 Changes in operating assets and liabilities: Accounts receivable (2,261) (1,515) (2,047) Prepaid expenses and other assets (724) (318) 749 Income taxes refundable 377 (415) - Trade accounts payable (739) 3,650 (2,934) Accrued expenses 343 1,018 (831) ========================================= Net cash provided by operating activities 23,515 24,998 13,059 INVESTING ACTIVITIES Purchases of property and equipment (46,119) (16,736) (19,921) Proceeds from sale or disposal of property and equipment 7,846 195 2,020 Lease payments received on direct financing lease - - 1,240 AFS acquisition - - (200) ----------------------------------------- Net cash used in investing activities (38,273) (16,541) (16,861) ----------------------------------------- FINANCING ACTIVITIES Borrowings under line of credit 173,227 151,616 127,766 Repayments under line of credit (178,449) (153,624) (128,445) Borrowings of long-term debt 43,785 12,784 17,527 Repayments of long-term debt (24,017) (18,792) (19,093) Payments under non-competition agreements (448) (450) (407) Proceeds from exercise of stock options and warrants 175 388 4,724 Tax benefits of stock options 47 81 42 ----------------------------------------- Net cash provided by (used in) financing activities 14,320 (7,997) 2,114 ========================================= Net (decrease) increase in cash and cash equivalents (438) 460 (1,688) Cash and cash equivalents at beginning of year 6,401 5,941 7,629 ----------------------------------------- Cash and cash equivalents at end of year $ 5,963 $ 6,401 $ 5,941 =========================================
See accompanying notes. 25 26 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements December 31, 1998 1. ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND CONSOLIDATION P.A.M. Transportation Services, Inc. (the "Company"), through its subsidiaries, operates as a truckload motor carrier. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Majority ownership of the Company is held by an affiliate of another transportation company, with whom the Company has certain business relationships. (See Note 7.) CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. TIRE PURCHASES Tires purchased with revenue equipment are capitalized as a cost of the related equipment. Replacement tires are included in other current assets and are amortized over a 24-month period. Amounts paid for the recapping of tires are expensed when incurred. EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets acquired, or goodwill, is being amortized on a straight-line basis over 25 years. The carrying value of goodwill will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on undiscounted cash flows expected over the remaining amortization period, the Company's carrying value of the goodwill would be reduced by the estimated shortfall of cash flows. No reduction of goodwill was required in 1998, 1997, or 1996. CLAIMS LIABILITIES With respect to cargo loss, collision and auto liability, the Company maintains the following insurance coverage and deductibles: P.A.M. Transport, Inc., P.A.M. Dedicated Services, Inc., and Choctaw Express, Inc. are covered under the same insurance policy issued by St. Paul Insurance Company. The 26 27 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 1. ACCOUNTING POLICIES (continued) auto liability and collision coverages are subject to a $2,500 deductible per occurrence while the cargo loss coverage has a $1,000 deductible. Allen Freight Services, Inc., is insured by Great West Insurance Company. The auto liability coverage is not subject to a deductible while the collision deductible for tractors and trailers are $2,500 and $500, respectively, per occurrence. The cargo loss coverage is subject to a deductible of $5,000 per occurrence. The Company maintains a reserve for estimated losses for claims incurred and maintains a reserve for claims incurred but not reported (based on the Company's historical experience). During 1998, the Company changed from being self-insured for workers' compensation coverage in Arkansas, Oklahoma, Mississippi and Florida with excess coverage maintained for claims exceeding $250,000, to being fully-insured through Virginia Surety Insurance Company for workers' compensation coverage in those states. The Company continues to be self-insured for workers' compensation coverage in Ohio with excess coverage maintained for claims exceeding $350,000. The Company has reserved for estimated losses to pay such claims as incurred as well as claims incurred but not reported. The Company has not experienced any adverse trends involving differences in claims experienced versus claims estimates for workers' compensation reserves. The Company contracts a third-party licensed associate of risk management and a certified Hazard Control Manager to develop its workers' compensation reserves using the Company's historical data of past injuries. Letters of credit in the amounts of $300,000, $200,000, $250,000, and $500,000 are held by a bank as security for workers' compensation claims in Arkansas, Oklahoma, Mississippi, and Florida, respectively, and two letters of credit in the amount of $150,000 each are held by a bank for auto liability claims. REVENUE RECOGNITION POLICY The Company recognizes revenue based upon relative transit time in each reporting period with expenses recognized as incurred. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Gains and losses are reflected in the year of disposal. The following is a table reflecting estimated ranges of asset lives by major class of depreciable assets:
Asset Class Estimated Asset Life ----------- -------------------- Tractors 3-4 years Trailers 5-7 years Service Vehicles 3-5 years Office Furniture 3-7 years
27 28 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) Buildings 5-30 years 1. ACCOUNTING POLICIES (continued) EQUIPMENT HELD FOR SALE Equipment held for sale consists of revenue equipment no longer in service that is expected to be sold within the next year. This equipment is recorded at its estimated net realizable value. INCOME TAXES The Company applies the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax liabilities and assets for expected future consequences of events that have been included in a company's financial statements or tax return. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates. BUSINESS SEGMENT AND CONCENTRATIONS OF CREDIT RISK The Company operates in one business segment, motor carrier operations. The Company provides transportation services to customers throughout the United States and portions of Canada and Mexico. The Company performs ongoing credit evaluations and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. In 1998, 1997 and 1996, one customer accounted for 35%, 25% and 22% of revenues, respectively. A second customer accounted for 12% of revenues in 1998, 1997 and 1996. The Company's largest customer is an automobile manufacturer. The Company also provides transportation services to other manufacturers who are suppliers for automobile manufacturers including the Company's largest customer. As a result, concentration of the Company's business within the automobile industry is greater than the concentration in a single customer. Of the Company's revenues for 1998, 1997 and 1996, 53%, 41% and 37%, respectively, were derived from transportation services provided to the automobile manufacturing industry. COMPENSATION TO EMPLOYEES Stock based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. 28 29 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 1. ACCOUNTING POLICIES (continued) RECENT ACCOUNTING PRONOUNCEMENTS The Company adopted the provisions of Statement of Financial Accounting Standards No. 129, Disclosures of Information about Capital Structure, ("SFAS No. 129") effective for the year ended December 31, 1997. This Statement consolidates existing pronouncements on required disclosures about a company's capital structure including a brief discussion of rights and privileges for securities outstanding. The adoption of this Statement had no material effect on the Company's consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, ("SFAS No. 130"). This Statement requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. The adoption of this Statement had no material effect on the Company's consolidated financial statements. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, ("SFAS No. 131"). This Statement established standards for reporting information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial reports issued to stockholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statement periods beginning after December 15, 1997. The adoption of this Statement had no material effect on the Company's consolidated financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement. Companies must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999; however, companies may implement the statement as of the beginning of any fiscal quarter beginning on or after June 16, 1998. 29 30 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 1. ACCOUNTING POLICIES (continued) SFAS No. 133 cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the company's election, before January 1, 1998). The Company has not yet quantified the impact of adopting SFAS No. 133 on its financial statements and has not determined the timing of or method of the adoption of SFAS No. 133. However, as of December 31, 1998, the Company had no outstanding derivative instruments. RECLASSIFICATIONS Certain reclassifications have been made to prior years' consolidated financial statements to conform to the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. ACCRUED EXPENSES
DECEMBER 31, 1998 1997 ============================ (thousands) Payroll $ 1,382 $ 1,818 Taxes 1,094 702 Interest 163 175 Driver escrows 681 307 Insurance 461 328 Current portion of non-competition agreements 312 448 Self-insurance claims reserves 1,085 1,057 ---------------------------- $ 5,178 $ 4,835 ============================
30 31 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 3. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, 1998 1997 ------------------------------- (thousands) Equipment financings(1) $ 55,655 $ 35,733 Line of credit with a bank, with interest at the LIBOR rate plus 1.50% or 1.85% due May 31, 2000 and collateralized by accounts receivable (2) - 5,222 Note payable(3) 308 364 Capitalized lease obligations(4) 1,269 2,451 Insurance financings(5) 946 - 58,178 43,770 Less current maturities 13,362 15,544 ------------------------------- $ 44,816 $ 28,226 ===============================
(1) Equipment financings consist of installment obligations for revenue and service equipment purchases, payable in various monthly installments through 2004, at a weighted average interest rate of 7.68% and collateralized by equipment with a net book value of approximately $59.5 million at December 31, 1998. (2) The line of credit agreement with a bank provides for maximum borrowings of $15.0 million and contains restrictive covenants which requires the Company to maintain, on a consolidated basis, a net worth of $12.5 million and a debt service coverage ratio of not less than 1.0 to 1.0. The interest rate varies based on the use of the funds. Equipment financed using the line of credit is at an interest rate of LIBOR as of the first day of the month plus 1.50% (7.12% at December 31, 1998). Withdrawals for general working capital is at an interest rate of LIBOR as of the first day of the month plus 1.85% (7.47% at December 31, 1998). The line of credit agreement also includes restrictions on dividend payments and certain corporate acts such as mergers and consolidations. (3) 8% real estate note to the former majority shareholder, payable in monthly installments through March 2003. (4) Capitalized lease obligations to a financial service organization for revenue equipment are payable in various monthly installments through December 1999 at rates ranging from 8.15% to 8.86%, collateralized by equipment with a net book value of approximately $2.3 million, as of December 31, 1998 (See Note 8). 31 32 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 3. LONG-TERM DEBT(continued) (5) Insurance financings consist of a premium finance agreement with an insurance premium funding company, payable in monthly installments through 2001 at an interest rate of 6%. Scheduled annual maturities on long-term debt outstanding, excluding capital lease obligations (see Note 8), at December 31, 1998 are:
(thousands) 1999 $ 12,093 2000 15,879 2001 13,322 2002 14,120 2003 1,451 Thereafter 44 ---------- $ 56,909 ----------
Interest payments of approximately $3.8 million, $3.5 million, and $4.0 million were made during 1998, 1997 and 1996, respectively. 4. INCOME TAXES Under SFAS No. 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. 32 33 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 4. INCOME TAXES (continued) Significant components of the Company's deferred tax liabilities and assets are as follows:
DECEMBER 31, 1998 1997 (thousands) --------------------- Deferred tax liabilities: Property and equipment $19,619 $14,677 Prepaid expenses 1,275 982 -------------------- Total deferred tax liabilities 20,894 15,659 Deferred tax assets: Net operating loss carryovers 792 869 Alternative minimum tax credit 4,106 3,037 Investment credit carryovers 1,096 1,096 Allowance for doubtful accounts 220 220 Vacation reserves 277 220 Self-insurance reserves 560 454 Non-competition agreement 422 300 Revenue recognition 276 148 -------------------- Total deferred tax assets 7,749 6,344 -------------------- Net deferred tax liabilities $13,145 $ 9,315 ======= =======
33 34 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 4. INCOME TAXES (continued) The reconciliation between the effective income tax rate and the statutory Federal income tax rate is presented in the following table:
YEAR ENDED DECEMBER 31, 1998 1997 1996 ------------------------------------- (thousands) Income tax at the statutory Federal rate of 34% $ 4,499 $ 3,465 $ 1,856 Nondeductible expenses 60 63 108 State income taxes (85) (85) (118) Other (329) (412) (46) Federal income taxes 4,145 3,031 1,800 State income taxes 1,013 861 347 ------- ------- ------- Total income taxes $ 5,158 $ 3,892 $ 2,147 ======= ======= ======= Effective tax rate 39.0% 38.2% 39.3% ======= ======= =======
The current income tax provision consists of the following:
1998 1997 1996 ------------------------------------- (thousands) Federal $1,073 $ 870 $ 179 State 250 250 80 ------ ------ ----- $1,323 $ 1,120 $ 259 ====== ======= =====
As of December 31, 1998, the Company has Federal net operating loss and investment tax credit carryovers of approximately $2.1 million and $1.1 million, respectively. The net operating loss carryovers begin to expire in 2003, and the investment credit carryovers begin to expire in 1999. The current taxes provided in 1998, 1997 and 1996 result from alternative minimum taxable income. The Company has alternative minimum tax credits of approximately $4.1 million at December 31, 1998, which carryover indefinitely. Income taxes paid totaled approximately $1,200,000, $1,300,000 and $400,000 for the years ended December 31, 1998, 1997 and 1996, respectively. 5. SHAREHOLDERS' EQUITY The Company maintains an incentive stock option plan, a nonqualified stock option plan, and an employee stock option plan for the issuance of options to directors, officers, key employees and others. During 1998, the incentive stock option plan was amended to include an additional 400,000 shares 34 35 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 5. SHAREHOLDERS' EQUITY (continued) available for future granting. The option price under these plans is the fair market value of the stock at the date the options were granted, ranging from $2.38 to $10.63 as of December 31, 1998. At December 31, 1998, approximately 700,000 shares were available for granting future options. Outstanding incentive stock options and employee stock options at December 31, 1998, must be exercised within six years from the date of grant and vest in increments of 20% each year. Outstanding nonqualified stock options at December 31, 1998, must be exercised within five to six years and certain nonqualified options may not be exercised within one year of the date of grant. Transactions in stock options under these plans are summarized as follows:
SHARES UNDER OPTION Price Range =============================== Outstanding at January 1, 1996 532,100 $2.38-$6.75 Granted 10,000 $6.50-$7.38 Exercised (36,600) $2.38-$6.00 Canceled (13,900) $2.38-$6.75 ------------------------------- Outstanding at December 31, 1996 491,600 $2.38-$7.38 Granted 3,000 $6.00 Exercised (146,350) $2.38-$6.00 Canceled (400) $2.38-$6.75 ------------------------------- Outstanding at December 31, 1997 347,850 $2.38-$7.38 Granted 3,000 $10.63 Exercised (49,800) $2.38-$5.75 Outstanding at December 31, 1998 301,050 $2.38-$10.63 =============================== Options exercisable at December 31, 1998 260,050 ==========
35 36 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 5. SHAREHOLDERS' EQUITY (continued) The following is a summary of stock options outstanding as of December 31, 1998:
Weighted Option Average OPTIONS Exercise Remaining Options OUTSTANDING Price Years Exercisable ---------------------------------------------------------------------- 48,050 $2.38 .2 48,050 10,000 $4.38 1.7 10,000 200,000 $5.75 2.7 166,000 5,000 $6.00 3.0 5,000 25,000 $6.32 2.5 20,000 5,000 $6.50 3.4 3,000 2,000 $6.75 2.2 2,000 3,000 $7.38 3.2 3,000 3,000 $10.63 5.2 3,000 ------------- ----------- 301,050 260,050 ============= ===========
36 37 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 5. SHAREHOLDERS' EQUITY (continued) The Company adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"). Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been determined consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1998 1997 ------------------------------- Net income: (thousands) As reported $8,073 $6,300 Pro forma $7,941 $6,178 Earnings per share as reported: Basic $ .97 $ .77 Diluted $ .96 $ .76 Pro forma earnings per share: Basic $ .96 $ .75 Diluted $ .94 $ .75
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 65.15% to 76.64%; risk-free interest rate of 5.73% to 7.02%; and expected lives of five years. The majority shareholder exercised stock warrants to purchase an aggregate of 3,092,000 shares of the Company's common stock at $1.50 per warrant on December 30, 1996. 6. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share ("SFAS No. 128"), establishing new standards for computing and presenting earnings per share. The provisions of SFAS No. 128 are effective for financial statements issued for periods ending after December 15, 1997. The Company has adopted SFAS No. 128 effective December 31, 1997, and all earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the SFAS No. 128 requirements. Basic earnings per common share were 37 38 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 6. EARNINGS PER SHARE (continued) computed by dividing the income by the weighted average number of shares outstanding during the period. Diluted earnings per share were calculated as follows:
1998 1997 1996 ------------------------------------ (thousands, except per share data) Actual net income (A) $ 8,073 $ 6,300 $ 3,312 =================================== Assumed exercise of options and warrants 317 348 3,545 Application of assumed proceeds ($1,606, $1,972 and $5,035, respectively) toward repurchase of stock at an average market price of $8.958, $7.888 and $5.025 per share, respectively (179) (250) (1,002) ----------------------------------- Net additional shares issuable 138 98 2,543 =================================== Adjustment of shares outstanding: Weighted average common shares outstanding 8,306 8,192 5,035 Net additional shares issuable 138 98 2,543 ----------------------------------- Adjusted shares outstanding (B) 8,444 8,290 7,578 =================================== Net income per common share (A) divided by (B) $ .96 $ .76 $ .44 ===================================
7. RELATED PARTY TRANSACTIONS The Company provides motor carrier services to an affiliate of its majority shareholder. Revenues from these transactions totaled approximately $.5 million, $1.9 million and $.4 million for 1998, 1997, and 1996, respectively. Payments made by the Company to an affiliate of the majority shareholder for the reimbursement of operating and other expenses paid on behalf of the Company and debt repayments made on notes payable to the affiliate totaled approximately $1.1 million, $.9 million and $6.4 million in 1998, 1997, and 1996, respectively. 38 39 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) Trade accounts payable at December 31, 1998, includes a payable to an affiliate of the majority shareholder of $477,170. 8. LEASES AND COMMITMENTS The Company leases certain revenue equipment under capital leases. The future minimum payments under these leases (see Note 3) at December 31, 1998, consisted of the following:
(thousands) 1999 $ 1,342 ------------ Total minimum lease payments 1,342 Amounts representing interest 73 ------------ Present value of minimum lease payments $1,269 ============
Assets held under capitalized leases are included in property, plant and equipment as of December 31, 1998, as follows:
(thousands) Revenue equipment $5,238 Accumulated amortization (2,977) ------------ $2,261 ------------
No capital lease obligations were entered into during 1998 or 1997. Lease amortization is included in depreciation expense. 9. PROFIT SHARING PLAN P.A.M. Transport, Inc., a subsidiary of the Company, sponsors a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax deductible contributions to the plan. The plan provides for employer matching contributions of 50% of each participant's voluntary contribution up to 3% of the participant's compensation. Allen Freight Services, Inc. (AFS), a subsidiary of the Company, sponsored a profit sharing plan for the benefit of all eligible employees. The AFS profit sharing plan was merged into the P.A.M. Transport, Inc. profit sharing plan effective December 31, 1997. Total contributions to the above plans totaled approximately $133,000, $92,000 and $100,000 in 1998, 1997 and 1996, respectively. 39 40 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 10. LITIGATION The Company is not a party to any pending legal proceedings which management believes to be material to the financial position or results of operations of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business. 11. SUBSEQUENT EVENT On January 11, 1999, the Company acquired substantially all of the assets and assumed certain liabilities of a truckload carrier located in New Jersey. The Company acquired assets, which consisted primarily of revenue equipment and trade accounts receivable, totaling approximately $21.0 million and assumed liabilities, which consisted primarily of installment note obligations and trade accounts payable, totaling approximately $14.1 million. In connection with this acquisition, the Company issued to the seller an installment note in the amount of $4.0 million at an interest rate of 6% and paid cash of approximately $9.8 million utilizing existing cash and its line of credit. 12. QUARTERLY RESULTS OF OPERATIONS (Unaudited) The tables below presents quarterly financial information for 1998 and 1997:
1998 THREE MONTHS ENDED MARCH 31 June 30 September 30 December 31 ------------------------------------------------------------------ (thousands, except per share data) Operating revenues $ 35,440 $ 36,012 $ 34,131 $ 37,581 Operating expenses 31,371 31,088 30,122 33,523 ----------------------------------------------------------------- Operating income 4,069 4,924 4,009 4,058 Other expenses - net 829 1,027 981 992 Income taxes 1,296 1,481 1,175 1,206 Net income $ 1,944 $ 2,416 $ 1,853 $ 1,860 ---------------- ---------------- --------------- --------------- Net income per common share: Basic $ .23 $ .29 $ .22 $ .22 ================================================================= Diluted $ .23 $ .29 $ .22 $ .22 ================================================================= Average common shares outstanding: Basic 8,286 8,300 8,313 8,325 Diluted 8,443 8,473 8,421 8,410 =================================================================
40 41 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 12. QUARTERLY RESULTS OF OPERATIONS (Unaudited) (continued)
1997 THREE MONTHS ENDED MARCH 31 June 30 September 30 December 31 -------------------------------------------------------------------- (thousands, except per share data) Operating revenues $ 32,630 $ 31,353 $ 30,776 $ 32,452 Operating expenses 29,620 27,089 27,581 29,306 ================================================================== Operating income 3,010 4,264 3,195 3,146 Other expenses - net 869 888 801 864 Income taxes 856 1,283 910 844 ------------------------------------------------------------------ Net income $ 1,285 $ 2,093 $ 1,484 $ 1,438 ================================================================== Net income per common share: Basic $ .16 $ .26 $ .18 $ .17 ================================================================== Diluted $ .16 $ .25 $ .18 $ .17 ================================================================== Average common shares outstanding: Basic 8,126 8,147 8,223 8,269 ================================================================== Diluted 8,250 8,281 8,363 8,439 ==================================================================
13. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash and cash equivalents - The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. Long-term debt - The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Line of credit - The carrying amount for the line of credit approximates fair value. 41 42 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements (continued) 13. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows (in thousands):
1998 1997 - -------------------------------------------------------------------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE - -------------------------------------------------------------------------------- Cash and cash equivalents $ 5,963 $ 5,963 $ 6,401 $ 6,401 LONG-TERM DEBT 58,178 58,567 38,548 38,759 LINE OF CREDIT - - 5,222 5,222 - --------------------------------------------------------------------------------
42 43 PART III Except as to information with respect to executive officers which is contained in a separate heading under Item 1 to this Form 10-K, the information required by Part III of Form 10-K is, pursuant to General Instruction G(3) of Form 10-K, incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A for the Company's Annual Meeting of Shareholders to be held on May 20, 1999. The Company will, within 120 days of the end of its fiscal year, file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information responsive to this item is incorporated by reference from the section entitled "Election of Directors" contained in the proxy statement. ITEM 11. EXECUTIVE COMPENSATION. The information responsive to this item is incorporated by reference from the section entitled "Executive Compensation" contained in the proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information responsive to this item is incorporated by reference from the section entitled "Security Ownership of Certain Beneficial Owners and Management" contained in the proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information responsive to this item is incorporated by reference from the section entitled "Certain Relationships and Related Transactions" contained in the proxy statement. 43 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements and Auditors' Report. The following financial statements and auditors' report have been filed as Item 8 in Part II of this report: Reports of Independent Public Accountants Consolidated Balance Sheets - December 31, 1998 and 1997 Consolidated Statements of Income - Years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows - Years ended December 31, 1998, 1997 and 1996 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules. The following supporting financial statement schedule is filed with this report: II - Valuation and Qualifying Accounts - Years Ended December 31, 1998, 1997 and 1996 All other schedules are omitted as the required information is inapplicable, or the information is presented in the consolidated financial statements or related notes. 44 45 (a) 3. Exhibits. The following exhibits are filed with or incorporated by reference into this report. The exhibits which are denominated by an asterisk (*) were previously filed as a part of, and are hereby incorporated by reference from either (i) the Form S-1 Registration Statement under the Securities Act of 1933, as filed with the Securities and Exchange Commission on July 30, 1986, Registration No. 33-7618, as amended on August 8, 1986, September 3, 1986 and September 10, 1986 ("1986 S-1"); (ii) the Annual Report on Form 10-K for the year ended December 31, 1987 ("1987 10-K"); (iii) the Annual Report on Form 10-K for the year ended December 31, 1992 ("1992 10-K"); (iv) the Annual Report on Form 10-K for the year ended December 31, 1993 ("1993 10-K"); (v) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 ("6/30/94 10-Q"); (vi) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 ("6/30/95 10-Q"); (vii) the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (9/30/96 10-Q); (viii) the Annual Report on Form 10-K for the year ended December 31, 1996 ("1996 10-K"); (ix) the Annual Report on Form 10-K for the year ended December 31, 1997 ("1997 10-K"); (x) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 ("6/30/98 10-Q"); or (xi) the Current Report on Form 8-K dated January 11, 1999 ("1/11/99 8-K").
Exhibit # Description of Exhibit - --------- -------------------------------------------------------------------- *2.1 - Asset Purchase Agreement, dated as of January 11, 1999, by and among P.A.M. NewCo., Inc. (a wholly-owned subsidiary of the Registrant), Decker Transport Co. Inc., Van Houten Ltd. and William Van Houten (Exh. 2.1, 1/11/99 8-K) *3.1 - Amended and Restated Certificate of Incorporation of the Registrant (Exh. 3.1, 1986 S-1) *3.1.1 - Amendment to Certificate of Incorporation dated June 24, 1987 (Exh. 3.1.1, 1987 10-K) *3.2 - Amended and Restated By-Laws of the Registrant (Exh. 3.2, 1986 S-1) *3.2.1 - Amendment to Article I, Section 3 of Bylaws of Registrant (Exh. 3.2.1, 1986 S-1) *3.2.2 - Amendments to Bylaws of Registrant adopted May 7, 1987 (Exh. 3.2.2, 1987 10-K) *3.2.3 - Amendments to Bylaws of Registrant adopted January 4, 1993 (Exh. 3.2.3, 1992 10-K) *4.1 - Specimen Stock Certificate (Exh. 4.1, 1986 S-1) *4.2 - Loan Agreement dated July 26, 1994 among First Tennessee Bank National Association, Registrant and P.A.M. Transport, Inc. together with Promissory Note (Exh. 4.1, 6/30/94 10-Q) *4.2.1 - Security Agreement dated July 26, 1994 between First Tennessee Bank National Association and P.A.M. Transport, Inc. (Exh. 4.2, 6/30/94 10-Q) *4.3 - First Amendment to Loan Agreement date June 27, 1995 by and among P.A.M. Transport, Inc., First Tennessee Bank National Association and P.A.M. Transportation Services, Inc.,
45 46 together with Promissory Note in the principal amount of $2,500,000 (Exh. 4.1.1, 6/30/95 10-Q) *4.3.1 - First Amendment to Security Agreement dated June 28, 1995 by and between P.A.M. Transport, Inc. and First Tennessee Bank National Association (Exh. 4.2.2, 6/30/95 10-Q) *4.3.2 - Security Agreement dated June 27, 1995 by and between Choctaw Express, Inc. and First Tennessee Bank National Association (Exh. 4.1.3, 6/30/95 10-Q) *4.3.3 - Guaranty Agreement of P.A.M. Transportation Services, Inc. dated June 27, 1995 in favor of First Tennessee Bank National Association respecting $10,000,000 line of credit (Exh. 4.1.4, 6/30/95 10-Q) *4.4 - 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 (Exh. 4.1.1, 9/30/96 10-Q) *4.4.1 - Second Amendment to Security Agreement dated July 3, 1996 by and between P.A.M. Transport, Inc. and First Tennessee National Bank Association (Exh. 4.1.2, 9/30/96 10-Q) *4.4.2 - First Amendment to Security Agreement dated July 3, 1996 by and between Choctaw Express, Inc. and First Tennessee Bank National Association (Exh. 4.1.3, 9/30/96 10-Q) *4.4.3 - Security Agreement dated July 3, 1996 by and between Allen Freight Services, Inc. and First Tennessee Bank National Association (Exh. 4.1.4, 9/30/96 10-Q) - No other long-term debt instrument of the Registrant or its subsidiaries authorizes indebtedness exceeding 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis and the Registrant hereby undertakes to provide the Commission upon request with any long-term debt instrument not filed herewith. *10.1 - Incentive Stock Option Plan, dated July 25, 1986 (Exh. 10.2, 1986 S-1) *10.1.1 - Amendment to 1986 Incentive Stock Option Plan, dated June 2, 1987 (Exh. 10.2.1, 1987 10-K) *10.2 - Non-Qualified Stock Option Plan, dated July 25, 1986 (Exh. 10.3, 1986 S-1) *10.2.1 - Amendment No. 1 to Non-Qualified Stock Option Plan (Exh. 10.2.1, 1993 10-K) *10.3 - Employment Agreement between the Registrant and Robert W. Weaver dated July 1, 1998 (Exh. 10.1, 6/30/98 10-Q) *10.4 - Non-Competition Agreement dated January 31, 1995 between Registrant and Joe M. Bussell (Exh. 10.1, 1/31/95 8-K)
46 47 *10.5 - Incentive Compensation Plan of Registrant adopted February 28, 1996 for fiscal years 1996 and 1997 (Exh. 10.5, 1996 10-K) *10.5.1 - Incentive Compensation Plan of Registrant adopted October 17, 1997 for fiscal years 1998 and 1999 (Exh. 10.5.1, 1997 10-K) *10.6 - 1995 Stock Option Plan, effective June 29, 1995 (Exh. 10.6, 1996 10-K) 21.1 - Subsidiaries of the Registrant 23.1 - Consent of Arthur Andersen LLP 27 - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter ended December 31, 1998. 47 48 SCHEDULE II P.A.M. TRANSPORTATION SERVICES, INC. VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1998, 1997 and 1996
ADDITIONS --------- Charged to Balance at Charged to Other Balance Beginning Costs and Accounts Deductions at End Description of Period Expenses (Describe) (Describe) of Period ----------- --------- ---------- ---------- ---------- --------- 1998 - Allowance for doubtful accounts $579,333 -- -- -- $579,333 1997 - Allowance for doubtful accounts $579,333 -- -- -- $579,333 1996 - Allowance for doubtful accounts 323,887 140,446 115,000(A) -- 579,333
Note A - Allen Freight Services, Inc. Allowance for Bad Debts. 48 49 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. P.A.M. TRANSPORTATION SERVICES, INC. Dated: March 30, 1999 By: /s/ Robert W. Weaver ------------------------------------------- ROBERT W. WEAVER President and Chief Executive Officer (principal executive officer) Dated: March 30, 1999 By: /s/ Larry J. Goddard ------------------------------------------- LARRY J. GODDARD, Vice President - Finance, Chief Financial Officer, Secretary and Treasurer (principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: P.A.M. TRANSPORTATION SERVICES, INC. Dated: March 30, 1999 By: /s/ Robert W. Weaver ---------------------------------------- ROBERT W. WEAVER, President and Chief Executive Officer, Director Dated: March 30, 1999 By: /s/ Matthew T. Moroun ----------------------------------------- MATTHEW T. MOROUN, Director Dated: March 30, 1999 By: /s/ Daniel C. Sullivan ----------------------------------------- DANIEL C. SULLIVAN, Director Dated: March 30, 1999 By: /s/ Charles F. Wilkins ----------------------------------------- CHARLES F. WILKINS, Director Dated: March 30, 1999 By: /s/ Frederick P. Calderone ----------------------------------------- FREDERICK P. CALDERONE, Director Dated: March 30, 1999 By: /s/ Joseph J. Casaroll ----------------------------------------- JOSEPH J. CASAROLL, Director
49 50 EXHIBIT INDEX
Exhibit No. Description ----------- ------------------------------- 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP 27 Financial Data Schedule
50 EX-21.1 2 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT P.A.M. Transport, Inc. (Arkansas Corporation) P.A.M. Special Services, Inc. (Arkansas Corporation) P.A.M. Dedicated Services, Inc. (Ohio Corporation) P.A.M. Logistics Services, Inc. (Arkansas Corporation) T.T.X., Inc. (Texas Corporation) Choctaw Express, Inc. (Oklahoma Corporation) Choctaw Brokerage, Inc. (Oklahoma Corporation) Allen Freight Services, Inc. (Missouri Corporation) Decker Transport Co. Inc. (Ohio Corporation) 51 EX-23.1 3 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-16220, Form S-8 No. 33-16084, Form S-8 No. 33-60926, and Form S-8 No. 333-10813 pertaining to the Incentive Stock Option Plan, the Non-Qualified Stock Option Plan, the 1993 Employee Stock Option Plan and the 1995 Stock Option Plan) of P.A.M. Transportation Services, Inc. of our report dated February 19, 1999, with respect to the consolidated financial statements and schedule of P.A.M. Transportation Services, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1998. ARTHUR ANDERSEN LLP Fayetteville, Arkansas March 30, 1999 52 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 5,963 0 21,458 579 458 31,722 133,860 42,429 126,471 27,034 44,816 0 0 83 41,374 126,471 0 143,164 0 126,104 0 0 3,829 13,231 5,158 8,073 0 0 0 8,073 .97 .96
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