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UNITED STATES
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, 2004
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.)
297 WEST HENRI DE TONTI BLVD, TONTITOWN, ARKANSAS 72770
(Address of principal executive offices) (Zip Code)
(479) 361-9111
Registrant's 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
(Title of class)
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 (Section 229.405 of this chapter) 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [ ]
The aggregate market value of the common stock of the registrant held by
non-affiliates of the registrant computed by reference to the average of the
closing bid and asked prices of the common stock as of the last business day of
the registrant's most recently completed second quarter was $122,863,693.
Solely for the purposes of this response, executive officers, directors and
beneficial owners of more than five percent of the registrant's common stock are
considered the affiliates of the registrant at that date.
The number of shares outstanding of the issuer's common stock, as of March 7,
2005: 11,307,207 shares of $.01 par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in 2005 are 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.
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements, including statements about our
operating and growth strategies, our expected financial position and operating
results, industry trends, our capital expenditure and financing plans and
similar matters. Such forward-looking statements are found throughout this
Report, including under Item 1, Business, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Item 7A,
Quantitative and Qualitative Disclosures About Market Risk. In those and other
portions of this Report, the words "believe," "may," "will," "estimate,"
"continue," "anticipate," "intend," "expect," "project" and similar expressions,
as they relate to us, our management, and our industry are intended to identify
forward-looking statements. We have based these forward-looking statements
largely on our current expectations and projections about future events and
financial trends affecting our business. Actual results may differ materially.
Some of the risks, uncertainties and assumptions about P.A.M. that may cause
actual results to differ from these forward-looking statements are described
under the headings "Management's Discussion and Analysis of Financial Condition
and Results of Operations," (including under its subheading "-Risk Factors"),
and "Quantitative and Qualitative Disclosures About Market Risk."
All forward-looking statements attributable to us, or to persons acting on our
behalf, are expressly qualified in their entirety by this cautionary statement.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this Report might not transpire.
P.A.M. TRANSPORTATION SERVICES, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
TABLE OF CONTENTS
PART I
------
Page
----
Item 1 Business....................................................... 1
Item 2 Properties..................................................... 8
Item 3 Legal Proceedings.............................................. 9
Item 4 Submission of Matters to a Vote of Security Holders............ 9
PART II
-------
Item 5 Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities.............. 10
Item 6 Selected Financial Data........................................ 11
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 12
Item 7A Quantitative and Qualitative Disclosures About Market Risk..... 26
Item 8 Financial Statements and Supplementary Data.................... 27
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................ 53
Item 9A Controls and Procedures........................................ 53
Item 9B Other Information.............................................. 54
PART III
--------
Item 10 Directors and Executive Officers of the Registrant............ 55
Item 11 Executive Compensation........................................ 55
Item 12 Security Ownership of Certain Beneficial Owners And
Management and Related Stockholder Matters.................... 56
Item 13 Certain Relationships and Related Transactions................ 56
Item 14 Principal Accountant Fees and Services........................ 56
PART IV
-------
Item 15 Exhibits, Financial Statement Schedules and Reports
On Form 8-K................................................... 57
SIGNATURES.................................................... 58
EXHIBIT INDEX................................................. 59
PART I
ITEM 1. BUSINESS.
Unless the context otherwise requires, all references in this Annual Report on
Form 10-K to "P.A.M.," the "Company," "we," "our," or "us" mean P.A.M.
Transportation Services, Inc. and its subsidiaries.
We are a truckload dry van carrier transporting general commodities throughout
the continental United States, as well as in the Canadian provinces of Ontario
and Quebec. We also provide transportation services in Mexico under agreements
with Mexican carriers. Our freight consists primarily of automotive parts,
consumer goods, such as general retail store merchandise, and manufactured
goods, such as heating and air conditioning units.
P.A.M. Transportation Services, Inc. is a holding company organized under the
laws of the State of Delaware in June 1986 which conducts operations through the
following wholly owned subsidiaries: P.A.M. Transport, Inc., T.T.X., Inc.,
P.A.M. Dedicated Services, Inc., P.A.M. Logistics Services, Inc., Choctaw
Express, Inc., Choctaw Brokerage, Inc., Transcend Logistics, Inc., Allen Freight
Services, Inc., Decker Transport Co., Inc., East Coast Transport and Logistics,
LLC, S & L Logistics, Inc., P.A.M. International, Inc., P.A.M. Canada, Inc. and
McNeill Express, Inc. Our 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., T.T.X., Inc., Decker Transport Co., Inc., East
Coast Transport and Logistics, LLC, and McNeill Express, Inc.
We are headquartered and maintain our primary terminal and maintenance
facilities and our corporate and administrative offices in Tontitown, Arkansas,
which is located in northwest Arkansas, a major center for the trucking industry
and where the support services (including warranty repair services) for most
major tractor and trailer equipment manufacturers are readily available.
In order to conform to industry practice, the Company began to classify fuel
surcharges charged to customers as revenue rather than as a reduction of
operating supplies expense as had been presented in reports prior to the period
ended June 30, 2004. This reclassification has no effect on net operating
income, net income or earnings per share. The Company has made corresponding
reclassifications to comparative periods shown.
SEGMENT FINANCIAL INFORMATION
The Company's operations are all in the motor carrier segment and are aggregated
into a single operating segment in accordance with the aggregation criteria
presented in SFAS 131.
OPERATIONS
Our operations can generally be classified into truckload services or brokerage
and logistics services. Truckload services include those transportation
services in which we utilize company owned tractors or owner-operator owned
tractors for the pickup and delivery of freight. The brokerage and logistics
services consists of services such as transportation scheduling, routing, mode
selection, transloading and other value added services related to the
transportation of freight which may or may not involve the usage of company
owned or owner-operator owned equipment. Both our truckload operations and our
brokerage and logistics operations have similar economic characteristics and are
impacted by virtually the same economic factors as discussed elsewhere in this
Report. Truckload services operating revenues, before fuel surcharges
represented 86.4%, 86.7%, and 96.0% of total operating revenues for the years
ended December 31, 2004, 2003, and 2002, respectively. The remaining operating
revenues, before fuel surcharge for the same periods were generated by brokerage
and logistics services, representing 13.6%, 13.3%, and 4.0%, respectively.
Approximately 99% of the Company's revenues are generated by operations
conducted in the United States and all of the Company's assets are located or
based in the United States.
-1-
BUSINESS AND GROWTH STRATEGY
Our strategy focuses on the following elements:
Maintaining Dedicated Fleets in High Density Lanes. We strive to maximize
utilization and increase revenue per tractor while minimizing our time and empty
miles between loads. In this regard, we seek to provide dedicated equipment to
our customers where possible and to concentrate our equipment in defined regions
and disciplined traffic lanes. Dedicated fleets in high density lanes enable us
to:
- - maintain more consistent equipment capacity;
- - provide a high level of service to our customers, including time-sensitive
delivery schedules;
- - attract and retain drivers; and
- - maintain a sound safety record as drivers travel familiar routes.
Providing Superior and Flexible Customer Service. Our wide range of services
includes dedicated fleet services, logistics services, just-in-time delivery,
two-man driving teams, cross-docking and consolidation programs, specialized
trailers, and Internet-based customer access to delivery status. These
services, combined with a decentralized regional operating strategy, allow us to
quickly and reliably respond to the diverse needs of our customers, and provide
an advantage in securing new business. We also maintain ISO 9002 certification
to ensure that we operate in accordance with approved quality assurance
standards.
Many of our customers depend on us to make delivery on a "just-in-time" basis,
meaning that parts or raw materials are scheduled for delivery as they are
needed on the manufacturer's production line. The need for this service is a
product of modern manufacturing and assembly methods that are designed to
drastically decrease inventory levels and handling costs. Such requirements
place a premium on the freight carrier's delivery performance and reliability.
Employing Stringent Cost Controls. We focus intently on controlling our costs
while not sacrificing customer service. We maintain this balance by
scrutinizing all expenditures, minimizing non-driver personnel, operating a
late-model fleet of tractors and trailers to minimize maintenance costs and
enhance fuel efficiency, and adopting new technology only when proven and cost
justified.
Making Strategic Acquisitions. We continually evaluate strategic acquisition
opportunities, focusing on those that complement our existing business or that
could profitably expand our business or services. Our operational integration
strategy is to centralize administrative functions of acquired businesses at our
headquarters, while maintaining the localized operations of acquired businesses.
We believe that allowing acquired businesses to continue to operate under their
pre-acquisition names and in their original regions allows such businesses to
maintain driver loyalty and customer relationships.
INDUSTRY
The U.S. market for truck-based transportation services is estimated to be
approximately $610 billion in annual revenue. We believe that truckload
services, such as those we provide, include approximately $65 billion of
for-hire revenues and $80 billion of private fleet revenue. The truckload
industry is highly fragmented and is impacted by several economic and business
factors, many of which are beyond the control of individual carriers.
-2-
The state of the economy, coupled with equipment capacity levels, can impact
freight rates. Volatility of various operating expenses, such as fuel and
insurance, make the predictability of profit levels unclear. Availability,
attraction, retention and compensation for drivers affect operating costs, as
well as equipment utilization. In addition, the capital requirements for
equipment, coupled with potential uncertainty of used equipment values, impact
the ability of many carriers to expand their operations. The current operating
environment is characterized by the following:
- - Price increases by insurance companies, rising fuel costs, erosion of
equipment values in the used truck market, and intense competition for
drivers.
- - In the last few years, many less profitable or undercapitalized carriers
have been forced to consolidate or to exit the industry.
COMPETITION
The trucking industry is highly competitive and includes thousands of carriers,
none of which dominates the market in which the Company operates. The Company's
market share is less than 1% and we compete primarily with other irregular route
medium- to long-haul truckload carriers, with private carriage conducted by our
existing and potential customers, and, to a lesser extent, with the railroads.
Increased competition has resulted from deregulation of the trucking industry.
We compete on the basis of 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.
MARKETING AND SIGNIFICANT CUSTOMERS
Our marketing emphasis is directed to that portion of the truckload market which
is generally service-sensitive, as opposed to being solely price competitive.
We seek to become a "core carrier" for our customers in order to maintain high
utilization and capitalize on recurring revenue opportunities. Our marketing
efforts are diversified and designed to gain access to dedicated fleet services
(including those in Mexico and Canada), domestic regional freight traffic, and
cross-docking and consolidation programs.
Our marketing efforts are conducted by a sales staff of seven employees who are
located in our major markets and supervised from our headquarters. These
individuals work to improve profitability by maintaining an even flow of freight
traffic (taking into account the balance between originations and destinations
in a given geographical area) and high utilization, and minimizing movement of
empty equipment.
Our five largest customers, for which we provide carrier services covering a
number of geographic locations, accounted for approximately 62%, 64% and 74% of
our total revenues in 2004, 2003 and 2002, respectively. General Motors
Corporation accounted for approximately 44%, 46% and 56% of our revenues in
2004, 2003 and 2002, respectively.
We also provide transportation services to other manufacturers who are suppliers
for automobile manufacturers. Approximately 56%, 58% and 68% of our revenues
were derived from transportation services provided to the automobile industry
during 2004, 2003 and 2002, respectively. This portion of our business,
however, is spread over 25 assembly plants and over 50 supplier/vendors located
throughout North America, which we believe reduces the risk of a material loss
of business.
-3-
REVENUE EQUIPMENT
At December 31, 2004, we operated a fleet of 1,857 tractors and 4,257 trailers.
We operate late-model, well-maintained premium tractors to help attract and
retain drivers, promote safe operations, minimize maintenance and repair costs,
and improve customer service by minimizing service interruptions caused by
breakdowns. We evaluate our equipment decisions based on factors such as
initial cost, useful life, warranty terms, expected maintenance costs, fuel
economy, driver comfort, customer needs, manufacturer support, and resale value.
Our current policy is to replace most of our tractors at 500,000 miles, which
normally occurs 30 to 48 months after purchase. The following table provides
information regarding our tractor and trailer turnover and the age of our fleet
over the past three years:
2004 2003 2002
---- ---- ----
Tractors
- --------
Additions............................... 502 781 430
Deletions............................... 558 649 309
End of year total....................... 1,857 1,913 1,781
Average age at end of year (in years)... 1.7 1.9 2.1
Trailers
- --------
Additions............................... 803 991 127
Deletions............................... 721 789 86
End of year total....................... 4,257 4,175 3,973
Average age at end of year (in years)... 4.7 5.2 5.7
We historically have contracted with owner-operators to provide and operate a
small portion of our tractor fleet. Owner-operators provide their own tractors
and are responsible for all associated expenses, including financing costs,
fuel, maintenance, insurance, and taxes. We believe that a combined fleet
complements our recruiting efforts and offers greater flexibility in responding
to fluctuations in shipper demand. At December 31, 2004 the Company's tractor
fleet included 85 owner-operator tractors.
Effective October 1, 2002, all newly manufactured truck engines must comply with
new engine emission standards mandated by the Environmental Protection Agency
("EPA"). All truck engines manufactured prior to October 1, 2002 are not
subject to these new standards. As of December 31, 2004, approximately 60% of
the Company-owned truck fleet consisted of trucks with the post-October 2002
engines. The Company has experienced a reduction in fuel efficiency to date,
and increased depreciation expense due to the higher cost of the new engines. A
new set of more stringent emissions standards mandated by the EPA will become
effective for newly manufactured trucks beginning in January 2007. The Company
expects that the engines produced under the 2007 standards will be less
fuel-efficient and have a higher cost than the current engines.
TECHNOLOGY
We have installed Qualcomm Omnitracs display units in all of our 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 our computer which
increases productivity and convenience. The Omnitracs system provides us with
accurate estimated time of arrival information, which optimizes load selection
and service levels to our customers. In order to optimize our
tractor-to-trailer ratio, we have also installed Qualcomm TrailerTracs tracking
units in all of our trailers. The TrailerTracs system is a tethered trailer
tracking product that enables us to more efficiently track the location of all
trailers in our inventory as they connect to and disconnect from
Qualcomm-equipped tractors.
-4-
Our computer system manages the information provided by the Qualcomm devices to
provide us real-time information regarding the location, status and load
assignment of all of our equipment, which permits us to better meet delivery
schedules, respond to customer inquiries and match equipment with the next
available load. Our system also provides electronically to our customers
real-time information regarding the status of freight shipments and anticipated
arrival times. This system provides our customers flexibility and convenience
by extending supply chain visibility through electronic data interchange, the
Internet and e-mail.
MAINTENANCE
We have a strictly enforced comprehensive preventive maintenance program for our
tractors and trailers. Inspections and various levels of preventive maintenance
are performed at set mileage intervals on both tractors and trailers. A
maintenance and safety inspection is performed on all vehicles each time they
return to a terminal.
Our tractors carry full warranty coverage for at least three years or 350,000
miles. Extended warranties are negotiated with the tractor manufacturer and
manufacturers of major components, such as engine, transmission and differential
manufacturers, for up to four years or 500,000 miles. Trailers carry full
warranties by the manufacturer and major component manufacturers for up to five
years.
EMPLOYEES
At December 31, 2004, we employed 2,736 persons, of whom 2,237 were drivers, 143
were maintenance personnel, 203 were employed in operations, 20 were employed in
marketing, 60 were employed in safety and personnel, and 73 were employed in
general administration and accounting. None of our employees are represented by
a collective bargaining unit and we believe that our employee relations are
good.
DRIVERS
At December 31, 2004, we utilized 2,237 company drivers in our operations. We
also had 85 owner-operators under contract compensated on a per mile basis. Our
drivers are compensated on the basis of miles driven, loading and unloading,
extra stops and layovers in transit. Drivers can earn bonuses by recruiting
other qualified drivers who become employed by us and both cash and non-cash
prizes are awarded for consecutive periods of safe, accident-free driving. All
of our drivers are recruited, screened, drug tested and trained and are subject
to the control and supervision of our operations and safety departments. Our
driver training program stresses the importance of safety and reliable, on-time
delivery. Drivers are required to report to their driver managers daily and at
the earliest possible moment when any condition en route occurs that might delay
their scheduled delivery time.
In addition to strict application screening and drug testing, before being
permitted to operate a vehicle our drivers must undergo classroom instruction on
our policies and procedures, safety techniques as taught by the Smith System of
Defensive Driving, the proper operation of equipment, and must pass both written
and road tests. Instruction in defensive driving and safety techniques
continues after hiring, with seminars at several of our terminals. At December
31, 2004, we employed 60 persons on a full-time basis in our driver recruiting,
training and safety instruction programs.
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. Our
operations have also been impacted and from time to time we have experienced
under-utilization and increased expenses due to a shortage of qualified drivers.
We place a high priority on the recruitment and retention of an adequate supply
of qualified drivers.
-5-
EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are as follows:
YEARS OF SERVICE
NAME AGE POSITION WITH COMPANY WITH P.A.M.
- ---------------- --- ------------------------ -------------
Robert W. Weaver 55 President and Chief 22
Executive Officer
W. Clif Lawson 51 Executive Vice President
and Chief Operating Officer 20
Larry J. Goddard 46 Vice President - Finance,
Chief Financial Officer,
Secretary and Treasurer 17
Each of our executive officers has held his present position with the Company
for at least the last five years. We have entered into employment agreements
with our executive officers with terms remaining from three to fifteen months.
INTERNET WEB SITE
The Company maintains a web site where additional information concerning its
business can be found. The address of that web site is www.pamt.com. The
Company makes available free of charge on its Internet web site its Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and amendments to those reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") as
soon as reasonably practicable after it electronically files or furnishes such
materials to the Securities and Exchange Commission.
SEASONALITY
Our revenues do not exhibit a significant seasonal pattern due primarily to our
varied customer mix. Operating expenses can be somewhat higher in the winter
months primarily due to decreased fuel efficiency and increased maintenance
costs associated with inclement weather. In addition, the automobile plants for
which we transport a large amount of freight typically utilize scheduled
shutdowns of two weeks in July and one week in December and the volume of
freight we ship is reduced during such scheduled plant shutdowns.
REGULATION
We are a common and contract motor carrier regulated by various federal and
state agencies. We are subject to safety requirements prescribed by the U.S.
Department of Transportation ("DOT"). Such matters as weight and dimension of
equipment are also subject to federal and state regulations. All of our drivers
are required to obtain national driver's licenses pursuant to the regulations
promulgated by the DOT. Also, DOT regulations impose mandatory drug and alcohol
testing of drivers. We believe that we are in compliance in all material
respects with applicable regulatory requirements relating to our trucking
business and operate with a "satisfactory" rating (the highest of three grading
categories) from the DOT.
Our motor carrier operations are also subject to environmental laws and
regulations, including laws and regulations dealing with underground fuel
storage tanks, the transportation of hazardous materials and other environmental
matters, and our operations involve certain inherent environmental risks. We
maintain five bulk fuel storage and fuel islands. Our operations involve the
risks of fuel spillage or seepage, environmental damage, and hazardous waste
disposal, among others. We have instituted programs to monitor and control
environmental risks and assure compliance with applicable environmental laws.
-6-
As part of our safety and risk management program, we periodically perform
internal environmental reviews so that we can achieve environmental compliance
and avoid environmental risk. We transport a minimum amount of environmentally
hazardous substances and, to date, have experienced no significant claims for
hazardous materials shipments. If we should fail to comply with applicable
regulations, we could be subject to substantial fines or penalties and to civil
and criminal liability.
Company operations conducted in industrial areas, where truck terminals and
other industrial activities are conducted, and where groundwater or other forms
of environmental contamination have occurred, potentially expose us to claims
that we contributed to the environmental contamination.
We believe we are currently in material compliance with applicable laws and
regulations and that the cost of compliance has not materially affected results
of operations.
In addition to environmental regulations directly affecting our business, we are
also subject to the effects of new tractor engine design requirements
implemented by the EPA effective October 1, 2002. See "Revenue Equipment" above.
The Federal Motor Carrier Safety Administration ("FMCSA") issued a final rule on
April 24, 2003 that made several changes to the regulations that govern truck
drivers' hours of service ("HOS"). These new federal regulations became
effective on January 4, 2004. On July 16, 2004, the U.S. Circuit Court of
Appeals for the District of Columbia rejected these new hours of service rules
for truck drivers that had been in place since January 2004 because it said the
FMCSA had failed to address the impact of the rules on the health of drivers as
required by Congress. In addition, the judge's ruling noted other areas of
concern including the increase in driving hours from 10 hours to 11 hours, the
exception that allows drivers in trucks with sleeper berths to split their
required rest periods, the new rule allowing drivers to reset their 70-hour
clock to 0 hours after 34 consecutive hours off duty, and the decision by the
FMCSA not to require the use of electronic onboard recorders to monitor driver
compliance. On September 30, 2004, the extension of the Federal highway bill
signed into law by the President of the United States extended the current hours
of service rules for one year or until the FMCSA develops a new set of
regulations, whichever comes first. On January 24, 2005, the FMCSA re-proposed
its April 2003 HOS rules, adding references to how the rules would affect driver
health, but making no changes to the regulations. The FMCSA sought public
comments by March 10, 2005 on what changes to the rule, if any, are necessary
to respond to the concerns raised by the court, and to provide data or studies
that would support changes to, or continued use of, the 2003 rule. The
Company cannot predict what rule changes, if any, will result from the court's
ruling, nor the ultimate impact of any upcoming changes to the hours of service
rules. Any changes could have an adverse effect on the operations and
profitability of the Company.
-7-
ITEM 2. PROPERTIES.
Our executive offices and primary terminal facilities, which we own, are located
in Tontitown, Arkansas. These facilities are located on approximately 49.3 acres
and consist of 114,403 square feet of office space and maintenance and storage
facilities.
Our subsidiaries lease facilities in West Memphis, Arkansas; Jacksonville,
Florida; Breese and Effingham, Illinois; Riverdale and Paulsboro, New Jersey;
North Jackson, Ohio; Oklahoma City, Oklahoma; and Laredo, and El Paso, Texas.
Our terminal facilities in Columbia, Mississippi; Irving, Texas; North Little
Rock, Arkansas; and Willard, Ohio are owned. The leased facilities are leased
primarily on a month-to-month basis. The following provides a summary of the
ownership and types of activities conducted at each location:
Own/ Dispatch Maintenance Safety
Location Lease Office Facility Training
-------- ----- ------ -------- --------
Tontitown, Arkansas Own Yes Yes Yes
North Little Rock, Arkansas Own Yes Yes Yes
West Memphis, Arkansas Lease No Yes No
Jacksonville, Florida Lease Yes Yes Yes
Breese, Illinois Lease Yes No No
Effingham, Illinois Lease No Yes No
Columbia, Mississippi Own Yes Yes No
Riverdale, New Jersey Lease Yes Yes Yes
Paulsboro, New Jersey Lease Yes No No
North Jackson, Ohio Lease Yes Yes Yes
Willard, Ohio Own Yes Yes No
Oklahoma City, Oklahoma Lease Yes Yes Yes
El Paso, Texas Lease Yes Yes No
Irving, Texas Own Yes Yes Yes
Laredo, Texas Lease Yes Yes No
We also have access to trailer drop and relay stations in various other
locations across the country. We lease certain of these facilities on a
month-to-month basis from an affiliate of our largest shareholder.
We believe that all of the properties that we own or lease are suitable for
their purposes and adequate to meet our needs.
-8-
ITEM 3. LEGAL PROCEEDINGS.
During the fourth quarter of 2004, a suit which was originally filed on October
10, 2002 and entitled "The Official Committee of Unsecured Creditors of Bill's
Dollar Stores, Inc. v. Allen Freight Services Co.", was settled in the amount of
$25,000. The suit, which was filed in the United States Bankruptcy Court for
the District of Delaware, alleged preferential transfers of $660,055 were made
to the defendant, Allen Freight Services Co., within the 90 day period preceding
the bankruptcy petition date of Bill's Dollar Stores, Inc. The Company had
originally reserved the entire potential loss of $660,055, however as a result
of a settlement in the amount of $25,000 approximately $635,000 has been removed
as a liability on the Company's financial statements and the related expense
originally recorded as a bad debt expense has been reduced.
In addition to the specific legal action mentioned above, the nature of the our
business routinely results in litigation, primarily involving claims for
personal injuries and property damage incurred in the transportation of freight.
We believe that all such routine 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 our financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of our security holders during the fourth
quarter ended December 31, 2004.
-9-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ National Market under the symbol PTSI.
The following table sets forth, for the quarters indicated, the range of the
high and low bid prices per share for our common stock as reported on the NASDAQ
National Market. Such quotations reflect inter-dealer prices, without retail
markups, markdowns or commissions and, therefore, may not necessarily represent
actual transactions.
Calendar Year Ended December 31, 2004
HIGH LOW
---- ---
First Quarter $22.31 $15.97
Second Quarter 19.30 16.43
Third Quarter 19.42 16.72
Fourth Quarter 21.01 17.51
Calendar Year Ended December 31, 2003
HIGH LOW
---- ---
First Quarter $28.17 $20.25
Second Quarter 26.55 21.00
Third Quarter 22.99 19.80
Fourth Quarter 22.31 18.10
As of March 8, 2005, there were approximately 202 holders of record of our
common stock. We have not declared or paid any cash dividends on our common
stock for the two most recent fiscal years. The policy of our board of
directors is to retain earnings for the expansion and development of our
business and the repayment of our debt service obligations. 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 our earnings,
financial condition and other factors deemed relevant by the board.
On October 24, 2003, the Company announced the approval by the Board of
Directors of a stock repurchase program in which the Company was authorized to
purchase 300,000 shares of its common stock at prevailing market prices over a
twelve month period. The stock repurchase program expired during the fourth
quarter of 2004 with no purchases by the Company during the authorized twelve
month period.
See Part III, Item 12, "Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters" of this Annual Report for a
presentation of compensation plans under which equity securities of the Company
are authorized for issuance.
-10-
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial and operating data should be read in
conjunction with the Consolidated Financial Statements and notes thereto
included elsewhere in this Report.
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
(in thousands, except earnings per share amounts)
Statement of operations data:
Operating revenues:
Operating revenues, before fuel surcharge $309,475 $293,547 $264,012 $225,794 $205,245
Fuel surcharge 15,591 7,491 2,042 5,608 6,362
-------- -------- -------- -------- --------
Total operating revenues 325,066 301,038 266,054 231,402 211,607
-------- -------- -------- -------- --------
Operating expenses:
Salaries, wages and benefits 119,519 119,350 115,432 100,359 90,680
Operating supplies (1) 77,363 63,241 53,203 48,897 44,090
Rent and purchased transportation 38,938 35,287 9,780 10,526 12,542
Depreciation and amortization 30,016 26,601 24,715 20,300 18,806
Operating taxes and licenses 15,488 14,710 13,467 11,936 11,140
Insurance and claims 15,820 13,500 12,786 10,202 8,674
Communications and utilities 2,690 2,540 2,284 2,320 2,234
Other 5,131 4,755 4,620 4,707 3,756
(Gain) loss on sale or disposal of property 915 368 127 886 285
-------- -------- -------- -------- --------
Total operating expenses 305,880 280,352 236,414 210,133 192,207
-------- -------- -------- -------- --------
Operating income 19,186 20,686 29,640 21,269 19,400
Non-operating income 464 276 - - -
Interest expense (1,758) (1,667) (1,985) (4,477) (5,048)
-------- -------- -------- -------- -------
Income before income taxes 17,892 19,295 27,655 16,792 14,352
Income taxes 7,304 7,805 11,062 6,721 5,694
-------- -------- -------- -------- --------
Net income $ 10,588 $ 11,490 $ 16,593 $ 10,071 $ 8,658
======== ======== ======== ======== ========
Earnings per common share:
Basic $ .94 $ 1.02 $ 1.56 $ 1.18 $ 1.02
======== ======== ======== ======== ========
Diluted $ .94 $ 1.01 $ 1.55 $ 1.18 $ 1.02
======== ======== ======== ======== ========
Average common shares outstanding- Basic 11,298 11,291 10,669 8,522 8,455
======== ======== ======== ======== ========
Average common shares outstanding- Diluted (2) 11,324 11,326 10,715 8,550 8,518
======== ======== ======== ======== ========
- --------------------------------------------------------------------------------
(1) In order to conform to industry practice, during 2004 the Company began to
classify fuel surcharges charged to customers as revenue rather than as a
reduction of operating supplies expense. This reclassification has no effect on
net operating income, net income or earnings per share. The Company has made
corresponding reclassifications to comparative periods shown.
(2) Diluted income per share for 2004, 2003, 2002, 2001 and 2000 assumes the
exercise of stock options to purchase an aggregate of 62,224, 77,758, 87,984,
107,369 and 208,602 shares of common stock, respectively.
AT DECEMBER 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Balance Sheet Data: (in thousands)
Total Assets $285,349 $264,849 $228,320 $182,516 $164,518
Long-term debt, excluding current portion 23,225 26,740 20,175 47,023 42,073
Stockholders' equity 168,543 156,875 144,452 72,597 62,210
-11-
YEAR ENDED DECEMBER 31,
2004 2003 2002 2001 2000
---- ---- ---- ---- ----
Operating Data:
Operating ratio (1) 93.8% 92.9% 88.7% 90.6% 90.5%
Average number of truckloads per week 7,278 7,105 6,463 5,399 5,169
Average miles per trip 664 701 755 769 713
Total miles traveled (in thousands) 235,894 242,890 238,256 204,303 183,476
Average miles per tractor 127,124 131,934 136,772 131,554 128,936
Average revenue, before fuel surcharge
per tractor per day $684 $653 $621 $591 $579
Average revenue, before fuel surcharge
per loaded mile $1.19 $1.13 $1.15 $1.17 $1.18
Empty mile factor 4.7% 4.5% 4.0% 5.5% 5.6%
At end of period:
Total company-owned/leased tractors 1,857(2) 1,913(3) 1,781(4) 1,660(5) 1,413(6)
Average age of all tractors (in years) 1.70 1.94 2.12 1.81 1.72
Total trailers 4,257 4,175 3,973 3,932 3,759
Average age of trailers (in years) 4.69 5.15 5.74 5.31 4.66
Number of employees 2,736 2,765 2,538 2,424 2,154
- -------------------------------------------------------------------------------
(1) Total operating expenses, net of fuel surcharge as a percentage of operating
revenues, before fuel surcharge.
(2) Includes 85 owner operator tractors.
(3) Includes 103 owner operator tractors.
(4) Includes 130 owner operator tractors.
(5) Includes 135 owner operator tractors.
(6) Includes 117 owner operator tractors.
The Company has not declared or paid any cash dividends during any of the
periods presented above.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
BUSINESS OVERVIEW
The Company's administrative headquarters are in Tontitown, Arkansas. From this
location we manage operations conducted through wholly owned subsidiaries based
in various locations around the United States and Canada. The operations of
these subsidiaries can generally be classified into either truckload services or
brokerage and logistics services. Truckload services include those
transportation services in which we utilize company owned tractors or
owner-operator owned tractors. Brokerage and logistics services consist of
services such as transportation scheduling, routing, mode selection,
transloading and other value added services related to the transportation of
freight which may or may not involve the usage of company owned or
owner-operator owned equipment. Both our truckload operations and our
brokerage/logistics operations have similar economic characteristics and are
impacted by virtually the same economic factors as discussed elsewhere in this
Report. All of the Company's operations are in the motor carrier segment.
For both operations, substantially all of our revenue is generated by
transporting freight for customers and is predominantly affected by the rates
per mile received from our customers, equipment utilization, and our percentage
of non-compensated miles. These aspects of our business are carefully managed
and efforts are continuously underway to achieve favorable results. Truckload
services revenues, excluding fuel surcharges, represented 86.4%, 86.7%, and
96.0% of total revenues, excluding fuel surcharges for the twelve months ended
December 31, 2004, 2003, and 2002, respectively.
The main factors that impact our profitability on the expense side are costs
incurred in transporting freight for our customers. Currently our most
challenging costs include fuel, driver recruitment, training, wage and benefit
costs, independent broker costs (which we record as purchased transportation),
insurance, and maintenance and capital equipment costs.
In discussing our results of operations we use revenue, before fuel surcharge,
(and fuel expense, net of surcharge), because management believes that
eliminating the impact of this sometimes volatile source of revenue allows a
more consistent basis for comparing our results of operations from period
-12-
to period. During 2004, 2003 and 2002, approximately $15.6 million, $7.5
million and $2.0 million of the Company's total revenue was generated from fuel
surcharges. We also discuss certain changes in our expenses as a percentage of
revenue, before fuel surcharge, rather than absolute dollar changes. We do this
because we believe the high variable cost nature of certain expenses makes a
comparison of changes in expenses as a percentage of revenue more meaningful
than absolute dollar changes.
RESULTS OF OPERATIONS - TRUCKLOAD SERVICES
The following table sets forth, for truckload services, the percentage
relationship of expense items to operating revenues, before fuel surcharges, for
the periods indicated. Operating supplies expense, which includes fuel costs,
are shown net of fuel surcharges.
YEARS ENDED DECEMBER 31,
2004 2003 2002
----- ----- -----
Operating revenues, before fuel surcharge 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits 43.8 46.2 45.2
Operating supplies, net of fuel surcharge 23.3 22.0 20.2
Rent and purchased transportation 0.6 0.3 0.2
Depreciation and amortization 11.2 10.4 9.7
Operating taxes and licenses 5.8 5.8 5.3
Insurance and claims 5.9 5.3 5.0
Communications and utilities 0.9 0.9 0.9
Other 1.7 1.6 1.8
Loss on sale or disposal of property 0.3 0.1 0.0
----- ----- -----
Total operating expenses 93.5 92.6 88.3
----- ----- -----
Operating income 6.5 7.4 11.7
Non-operating income 0.2 0.1 0.0
Interest expense (0.5) (0.5) (0.8)
----- ----- -----
Income before income taxes 6.2% 7.0% 10.9%
----- ----- -----
2004 COMPARED TO 2003
For the year ended December 31, 2004, truckload services revenue, before fuel
surcharges, increased 5.1% to $267.5 million as compared to $254.6 million for
the year ended December 31, 2003. Approximately $3.6 million of the $12.9
million increase was attributable to the McNeill Trucking, Inc. asset
acquisition which closed on April 3, 2003 and therefore had no comparable
revenue for the first three months of 2003. The remaining increase was due to
an increase in the average rate per total mile charged to customers from $1.08
during 2003 to $1.13 during 2004.
Salaries, wages and benefits decreased from 46.2% of revenues, before fuel
surcharges, in 2003 to 43.8% of revenues, before fuel surcharges, in 2004. The
decrease relates to the effect of a higher average rate per mile charged to
customers without a corresponding increase in salaries and wages. However,
effective October 1, 2004 a driver pay increase of approximately $.03 per mile
was implemented which began to partially offset the benefit of recent rate
increases charged to customers. Driver lease expense which is a component of
salaries, wages and benefits, also decreased during 2004 as the average number
of owner operators under contract decreased from 118 during 2003 to 93 during
2004. This decrease in driver lease expense was partially offset by an increase
in amounts paid to the corresponding company driver replacement, and in other
costs normally absorbed by the owner operator such as repairs and fuel. Also
contributing to the decrease in salaries, wages and benefits was the continued
benefit of the restructuring of workers compensation plans which resulted in a
decrease in amounts expensed for workers compensation coverage.
-13-
Operating supplies and expenses increased from 22.0% of revenues, before fuel
surcharges, in 2003 to 23.3% of revenues, before fuel surcharges, in 2004.
The increase was primarily due to higher fuel costs resulting from a 20.9%
increase in the average price per gallon paid by the Company during 2004 as
compared to 2003. During periods of rising fuel prices the Company is often
able to recoup at least a portion of the increase through fuel surcharges
passed along to its customers. Fuel costs, net of fuel surcharges, increased to
$40.7 million in 2004 from $35.6 million in 2003. The Company collected
approximately $15.6 million in fuel surcharges during 2004 and $7.3 million
during 2003. Fuel costs were also affected by the replacement of owner operators
with Company drivers as discussed above. Also contributing to the increase in
operating supplies and expenses were increased costs associated with our student
training program as the number of students increased during 2004 as compared to
2003.
Rent and purchased transportation increased from 0.3% of revenues, before fuel
surcharges, in 2003 to 0.6% of revenues, before fuel surcharges, in 2004. The
increase relates primarily to rental and mileage fees incurred on equipment used
past scheduled trade-in dates due to manufacturers' delays in providing
replacement equipment.
Depreciation and amortization increased from 10.4% of revenues, before fuel
surcharges, in 2003 to 11.2% of revenues, before fuel surcharges, in 2004.
The increase was primarily due to the combined effect of higher tractor
purchase prices and lower tractor guaranteed residual values offered by
manufacturers.
Insurance and claims expense increased from 5.3% of revenues, before fuel
surcharges, in 2003 to 5.9% of revenues, before fuel surcharges, in 2004. The
increase in expense relates to the purchase of additional auto liability
coverage which was not in place during 2003 and to an increase in the amount of
auto liability claims incurred by the Company.
Other expenses increased from 1.6% of revenues, before fuel surcharges, in
2003 to 1.7% of revenues, before fuel surcharges, in 2004. The increase relates
to an increase in amounts paid for both driver recruitment advertising and fees
paid to the Company's external auditors both of which were partially offset by
the settlement of a lawsuit which allowed the Company to recapture approximately
$635,000 of previously reported expense. The recapture contributed
approximately $.03 to both diluted and basic earnings per share.
The truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before fuel
surcharges, increased to 93.5% for 2004 from 92.6% for 2003.
2003 COMPARED TO 2002
For the year ended December 31, 2003, truckload services revenue, before fuel
surcharges, increased to $254.6 million from $253.5 million for the year ended
December 31, 2002. During 2003 the Company completed the asset acquisition of
McNeill Trucking, Inc. which provided additional truckload services revenue of
approximately $10.2 as compared to 2002, however decreases in equipment
utilization during 2003 partially offset the additional revenue generated as a
result of the acquisition. This decrease in equipment utilization resulted in a
4.9% decrease in average truckload revenue, before fuel surcharges, generated
per tractor each work day from $596 in 2002 to $567 in 2003.
Salaries, wages and benefits increased from 45.2% of revenues, before fuel
surcharges, in 2003 to 46.2% of revenues, before fuel surcharges, in 2004. The
increase was primarily due to higher costs associated with the Company's health
insurance and workers compensation benefit plans. The costs associated with
these benefit plans increased from $6.0 million during 2002 to $9.0 million
during 2003. Also during 2003, amounts accrued for incentive bonus plans were
decreased as compared to 2002 which helped to partially offset the increase in
health insurance and workers compensation expense.
-14-
Operating supplies and expenses increased from 20.2% of revenues, before fuel
surcharges, in 2002 to 22.0% of revenues, before fuel surcharges, in 2003.
The increase was primarily due to higher fuel costs resulting from a 12.6%
increase in the average price per gallon paid by the Company during 2003 as
compared to 2002. During periods of rising fuel prices the Company is often
able to recoup at least a portion of the increase through fuel surcharges
passed along to its customers. Fuel costs, net of fuel surcharges, increased to
$35.6 million in 2003 from $33.1 million in 2002. The Company collected
approximately $7.3 million in fuel surcharges during 2003 and $2.0 million
during 2002. Also contributing to the increase in operating supplies and
expenses were increased equipment maintenance costs associated with trade units
in order to meet equipment condition trade terms as specified by the equipment
manufacturer.
Depreciation and amortization increased from 9.7% of revenues, before fuel
surcharges, in 2002 to 10.4% of revenues, before fuel surcharges, in 2003.
The increase was primarily due to the combined effect of higher tractor
purchase prices and lower tractor guaranteed residual values offered by
manufacturers.
RESULTS OF OPERATIONS - LOGISTICS AND BROKERAGE SERVICES
The following table sets forth, for logistics and brokerage services, the
percentage relationship of expense items to operating revenues, before fuel
surcharges, for the periods indicated. Brokerage service operations occur
specifically in certain divisions; however, brokerage operations occur
throughout the Company in similar operations having substantially similar
economic characteristics. Rent and purchased transportation, which includes
costs paid to third party carriers, are shown net of fuel surcharges.
YEARS ENDED DECEMBER 31,
2004 2003 2002
----- ----- -----
Operating revenues, before fuel surcharge 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits 5.5 4.7 8.1
Operating supplies, net of fuel surcharge 0.0 0.0 0.0
Rent and purchased transportation 87.8 88.2 89.4
Depreciation and amortization 0.3 0.3 0.0
Operating taxes and licenses 0.0 0.0 0.0
Insurance and claims 0.1 0.1 0.5
Communications and utilities 0.4 0.4 0.9
Other 1.6 1.8 1.5
Loss on sale or disposal of property 0.0 0.0 0.0
----- ----- -----
Total operating expenses 95.7 95.5 100.4
----- ----- -----
Operating income 4.3 4.5 (0.4)
Non-operating income 0.0 0.0 0.0
Interest expense (0.6) (1.0) (0.0)
----- ----- -----
Income before income taxes 3.7% 3.5% (0.4)%
----- ----- -----
2004 COMPARED TO 2003
Logistics and brokerage services revenues, before fuel surcharges, increased
7.7% to $42.0 million for the year ended December 31, 2004 as compared to $39.0
million for the year ended December 31, 2003. Approximately $2.6 million of the
increase was attributable to the additional one month revenues, before fuel
surcharges, for 2004, generated by East Coast Transport, Inc. which was acquired
January 31, 2003.
-15-
Salaries, wages and benefits increased from 4.7% of revenues, before fuel
surcharges, in 2003 to 5.5% of revenues, before fuel surcharges, in 2004. The
increase relates to the hiring of an administrative staff at East Coast
Transport, LLC for functions which had previously been outsourced to a third
party and to an increase in corporate general and administrative salaries being
allocated to the division.
Rent and purchased transportation decreased from 88.2% of revenues, before fuel
surcharges, in 2003 to 87.8% of revenues, before fuel surcharges, in 2004. The
decrease reflects the change attributable to higher rates collected from
customers without a corresponding increase in cost.
Other expenses decreased from 1.8% of revenues, before fuel surcharges, in
2003 to 1.6% of revenues, before fuel surcharges, in 2004. The decrease relates
to a decrease in amounts paid for professional services due to the hiring of an
administrative staff at East Coast Transport, LLC for functions which had
previously been outsourced.
The logistics and brokerage services division operating ratio, which measures
the ratio of operating expenses, net of fuel surcharges, to operating
revenues, before fuel surcharges, increased to 95.7% for 2004 from 95.5% for
2003.
2003 COMPARED TO 2002
Logistics and brokerage services revenues, before fuel surcharges, increased to
$39.0 million for the year ended December 31, 2003 as compared to $10.5 million
for the year ended December 31, 2002. The increase was attributable to the
additional revenues, before fuel surcharges, generated by East Coast Transport,
Inc., which was acquired January 31, 2003 and therefore had no corresponding
2002 revenues.
Salaries, wages and benefits decreased from 8.1% of revenues, before fuel
surcharges, in 2002 to 4.7% of revenues in 2003. The decrease relates to the
effect of additional revenues generated by the East Coast Transport, Inc.
purchase on fixed costs as a percentage of revenue, before fuel surcharge.
Rent and purchased transportation decreased from 89.4% of revenues, before fuel
surcharges, in 2002 to 88.2% of revenues, before fuel surcharges, in 2003. The
decrease reflects increased fuel surcharges collected from customers which are
netted against outside purchased transportation costs. Also contributing to the
decrease was a lower average rate paid to outside transportation companies by
East Coast Transport, Inc. than had been paid by the Company prior to the
acquisition of East Coast Transport, Inc.
Communications and utilities expenses decreased from .9% of revenues, before
fuel surcharges, in 2002 to .4% of revenues, before fuel surcharges, in 2003.
The expenses represented by this category generally have fixed cost
characteristics. The significant increase in logistics and brokerage services
revenues resulting from the East Coast Transport, Inc. asset acquisition during
2003 reduced the percentage relationship of the fixed cost components to
revenues as greater economies of scale were achieved.
Other expenses increased from 1.5% of revenues, before fuel surcharges, in
2002 to 1.8% of revenues, before fuel surcharges, in 2003. The increase relates
to due diligence costs and non-compete payments associated with the East Coast
Transport, Inc. asset acquisition.
The logistics and brokerage services division operating ratio, which measures
the ratio of operating expenses, net of fuel surcharges, to operating
revenues, before fuel surcharges, decreased to 95.5% for 2003 from 100.4% for
2002.
-16-
RESULTS OF OPERATIONS - COMBINED SERVICES
2004 COMPARED TO 2003
Our effective tax rate increased from 40.4% during 2003 to 40.8% during 2004 due
to an increase in state income taxes. The decrease in income from operations
also resulted in a decrease in the provision for income taxes from $7.8 million
in 2003 to $7.3 million in 2004.
Net income decreased to $10.6 million, or 3.4% of revenues, in 2004 from $11.5
million, or 3.9% of revenues in 2003, representing a decrease in diluted net
income per share to $.94 in 2004 from $1.01 in 2003.
2003 COMPARED TO 2002
Our effective tax rate increased from 40.0% during 2002 to 40.4% during 2003 due
to an increase in partially non-deductible per-diem payments to drivers. The
decrease in income from operations also resulted in a decrease in the provision
for income taxes from $11.1 million in 2002 to $7.8 million in 2003.
Net income decreased to $11.5 million, or 3.9% of revenues, in 2003 from $16.6
million, or 6.3% of revenues in 2002, representing a decrease in diluted net
income per share to $1.01 in 2003 from $1.55 in 2002.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected consolidated financial information for
each of our last eight fiscal quarters through December 31, 2004. The
information has been derived from unaudited consolidated financial statements
that, in the opinion of management, reflect all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the quarterly
information.
QUARTER ENDED
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
2004 2004 2004 2004 2003 2003 2003 2003
---- ---- ---- ---- ---- ---- ---- ----
(unaudited)
(in thousands, except earnings per share data)
Operating revenues (1) $80,120 $82,284 $79,080 $83,582 $72,442 $77,137 $75,515 $75,944
Total operating expenses (1) 76,322 75,734 73,491 80,333 67,488 70,077 70,198 72,589
Operating income 3,798 6,550 5,589 3,249 4,954 7,060 5,317 3,355
Net income 2,031 3,647 3,148 1,762 2,818 4,047 2,965 1,660
Earnings per common share:
Basic $ 0.18 $ 0.32 $ 0.28 $ 0.16 $ 0.25 $ 0.36 $ 0.26 $ 0.15
======= ======= ======= ======= ======= ======= ======= =======
Diluted $ 0.18 $ 0.32 $ 0.28 $ 0.16 $ 0.25 $ 0.36 $ 0.26 $ 0.14
======= ======= ======= ======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
(1) In order to conform to industry practice, during 2004 the Company began to
classify fuel surcharges charged to customers as revenue rather than as a
reduction of operating supplies expense. This reclassification has no effect on
net operating income, net income or earnings per share. The Company has made
corresponding reclassifications to comparative periods shown.
LIQUIDITY AND CAPITAL RESOURCES
The growth of our business has required, and will continue to require, a
significant investment in new revenue equipment. Our primary sources of
liquidity have been funds provided by operations, proceeds from the sales of
revenue equipment, issuances of equity securities, and borrowings under our line
of credit.
During 2004, we generated $44.7 million in cash from operating activities
compared to $37.9 million and $48.9 million in 2003 and 2002, respectively.
Investing activities used $24.7 million in cash during 2004 compared to $68.4
million and $30.4 million in 2003 and 2002, respectively. The cash used in all
three years related primarily to the purchase of revenue equipment (tractors and
trailers) used in our operations. Financing activities used $3.4 million in
cash during 2004 compared to cash generated by financing activities of $2.8
million in 2003 and $11.4 million in 2002. See Cash Flows Statement.
-17-
Our primary use of funds is for the purchase of revenue equipment. We typically
use our existing lines of credit on an interim basis, in addition to cash flows
from operations, to finance capital expenditures and repay long-term debt.
During 2004 and 2003, we utilized cash on hand and our lines of credit to
finance revenue equipment purchases for an aggregate of $52.7 million and $69.6
million, respectively.
Occasionally we finance the acquisition of revenue equipment through installment
notes with fixed interest rates and terms ranging from 36 to 48 months, however
as of December 31, 2004 and 2003, we had no outstanding indebtedness under such
installment notes.
In order to maintain our tractor and trailer fleet count it is often necessary
to purchase replacement units and place them in service before trade units are
removed from service. The timing difference created during this process often
requires the Company to pay for new units without any reduction in price for
trade units. In this situation, the Company later receives payment for the
trade units as they are delivered to the equipment vendor and have passed vendor
inspection. During the twelve months ended December 31, 2004 and 2003, the
Company received approximately $24.3 million and $19.5, respectively, for units
delivered for trade.
We maintain a $20.0 million revolving line of credit and a $30.0 million
revolving line of credit (Line A and Line B, respectively) with separate
financial institutions. Amounts outstanding under Line A bear interest at LIBOR
(determined as of the first day of each month) plus 1.40%, are secured by our
accounts receivable and mature on May 31, 2006. At December 31, 2004
outstanding advances on line A were approximately $1.4 million, consisting
entirely of letters of credit, with availability to borrow $18.6 million.
Amounts outstanding under Line B bear interest at LIBOR (determined on the last
day of the previous month) plus 1.15%, are secured by revenue equipment and
mature on June 30, 2006. At December 31, 2004, $27.3 million, including $7.3
million in letters of credit were outstanding under Line B with availability to
borrow $2.7 million. In an effort to reduce interest rate risk associated with
these floating rate facilities, we have entered into interest rate swap
agreements in an aggregate notional amount of $20.0 million. For additional
information regarding the interest rate swap agreements, see Item 7A of this
Report.
During March and April 2002, the Company received net proceeds of approximately
$54.5 million from a public offering of 2,621,250 shares of its common stock.
The Company repaid approximately $43.0 million of long-term debt obligations
with the proceeds and used the remaining proceeds to fund its capital
expenditures and to finance general working capital needs.
Cash and cash equivalents at December 31, 2004 increased approximately $16.6
million as compared to December 31, 2003. Approximately $9.7 million of the
increase is related to the difference in amounts reclassified to accounts
payable as bank drafts outstanding in excess of bank balance. See accounts
payable discussion below and Cash Flow Statement for more information.
Prepaid expenses and deposits at December 31, 2004 increased approximately $8.0
million as compared to December 31, 2003. The increase relates to an increase
in amounts prepaid for tractor and trailer license fees as well as prepayments
of auto liability insurance premiums. During December 2004 the Company prepaid
tractor and trailer license fees for the calendar year ending December 31, 2005
in the amount of approximately $3.0 million. In past years the Company did not
pay these fees until January of the new coverage year. The Company also prepaid
approximately $5.0 million in additional auto liability insurance premiums as
compared to premiums prepaid during 2003.
Marketable equity securities available for sale at December 31, 2004 increased
approximately $3.3 million as compared to December 31, 2003. During the year
ended December 31, 2004, the Company purchased approximately $2.4 million of
equity securities with excess cash. These securities, combined with equity
securities purchased in prior periods, have an original cost of approximately
-18-
$6.3 million and a combined fair market value of $8.8 million. The Company has
developed a strategy to invest in securities from which it expects to receive
dividends that qualify for favorable tax treatment, as well as, appreciate in
value. The Company anticipates that increases in the market value of the
investments combined with dividend payments will exceed interest rates paid on
borrowings for the same period. During 2004 the Company had unrealized pre-tax
gains of approximately $877,000 and received dividends of approximately
$300,000. The holding term of these securities depends largely on the general
economic environment, the equity markets, borrowing rates and the Company's cash
requirements.
Accounts payable at December 31, 2004 increased approximately $6.4 million as
compared to December 31, 2003. The increase is primarily related to an increase
in the amount of bank drafts outstanding in excess of bank balance as compared
to bank drafts outstanding at December 31, 2003. As of December 31, 2004 bank
drafts of approximately $16.5 million were reclassified to accounts payable as
compared to approximately $6.8 million reclassified as of December 31, 2003.
The net increase also reflects the decrease of approximately $2.1 million in
amounts accrued for the payment of purchased transportation costs provided by
outside transportation companies and a decrease of approximately $1.6 million in
amounts accrued for third party equipment repair costs.
For 2005, we expect to purchase approximately 375 new tractors and approximately
350 trailers while continuing to sell or trade older equipment, which we expect
to result in net capital expenditures of approximately $25.8 million.
Management believes we will be able to finance our near term needs for working
capital over the next twelve months, as well as acquisitions of revenue
equipment during such period, with cash balances, cash flows from operations,
and borrowings believed to be available from financing sources. We will
continue to have significant capital requirements over the long-term, which may
require us to incur debt or seek additional equity capital. The availability of
additional capital will depend upon prevailing market conditions, the market
price of our common stock and several other factors over which we have limited
control, as well as our financial condition and results of operations.
Nevertheless, based on our recent operating results, current cash position,
anticipated future cash flows, and sources of financing that we expect will be
available to us, we do not expect that we will experience any significant
liquidity constraints in the foreseeable future.
On January 31, 2003, the Company closed the purchase of substantially all of the
assets of East Coast Transport and Logistics, Inc., a freight brokerage
operation based in New Jersey. In connection with this acquisition, the Company
issued to the seller an installment note in the amount of approximately $5.0
million at an interest rate of 6% and paid cash of approximately $1.9 million
utilizing existing cash.
On April 3, 2003, the Company closed the purchase of substantially all of the
assets of McNeill Trucking, Inc., a truckload carrier based in North Little
Rock, Arkansas. In connection with this acquisition, the Company paid cash of
approximately $8.8 million and assumed liabilities of approximately $70,000.
-19-
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table sets forth the Company's contractual obligations and
commercial commitments, as defined in Regulation S-K 303 (a)(5)(ii) issued by
the Securities and Exchange Commission, as of December 31, 2004:
Payments due by period
----------------------
(in thousands)
Less than 1 to 3 4 to 5 More than
Total 1 year Years Years 5 Years
------- ------- ------- ------- -------
Long-term debt $25,305 $ 2,080 $21,457 $ 1,623 $ 145
Operating leases (1) 1,320 466 573 281 -
Purchase obligations (2) 38,826 38,826 - - -
------- ------- ------- ------- -------
Total $65,451 $41,372 $22,030 $ 1,904 $ 145
======= ======= ======= ======= =======
(1) Represents building, facilities, and drop yard operating leases.
(2) Represents tractor and trailer purchase obligations which are
cancelable by us contingent upon advance notice.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements as defined in Regulation S-K
303(a)(4)(ii) issued by the Securities and Exchange Commission.
INSURANCE
With respect to physical damage for tractors, cargo loss and auto liability, the
Company maintains insurance coverage to protect it from certain business risks.
These policies are with various carriers and have per occurrence deductibles of
$2,500, $10,000 and $2,500 respectively. Since 2002, the Company has elected to
self insure for physical damage to trailers. During 2003, and continuing
through 2004, the Company changed its workers' compensation coverage in
Arkansas, Oklahoma, Mississippi and Florida from a fully insured policy with a
$350,000 per occurrence deductible to become self insured with a $500,000 per
occurrence excess policy. The Company continues to be self insured for workers'
compensation in the State of Ohio with a $500,000 self insured retention with
excess insurance. The Company has elected to opt out of workers' compensation
coverage in Texas and is providing coverage through the P.A.M. Texas Injury
Plan. The Company has reserved for estimated losses to pay such claims as well
as claims incurred but not yet reported. The Company has not experienced any
adverse trends involving differences in claims experienced versus claims
estimates for workers' compensation claims. Letters of credit aggregating
$4,279,000 are held by a bank as security for workers' compensation claims. The
Company self insures for employee health claims with a stop loss of $150,000 per
covered employee per year and estimates its liability for claims incurred but
not reported.
-20-
RISK FACTORS
Set forth below and elsewhere in this Report and in other documents we file with
the SEC are risks and uncertainties that could cause our actual results to
differ materially from the results contemplated by the forward-looking
statements contained in this Report.
Our business is subject to general economic and business factors that are
largely out of our control, any of which could have a material adverse effect on
our operating results.
These factors include significant increases or rapid fluctuations in fuel
prices, excess capacity in the trucking industry, surpluses in the market for
used equipment, interest rates, fuel taxes, license and registration fees,
insurance premiums, self-insurance levels, and difficulty in attracting and
retaining qualified drivers and independent contractors.
We are also affected by recessionary economic cycles and downturns in customers'
business cycles, particularly in market segments and industries, such as the
automotive industry, where we have a significant concentration of customers.
Economic conditions may adversely affect our customers and their ability to pay
for our services.
We operate in a highly competitive and fragmented industry, and our business may
suffer if we are unable to adequately address downward pricing pressures and
other factors that may adversely affect our ability to compete with other
carriers.
Numerous competitive factors could impair our ability to maintain our current
profitability. These factors include the following:
- - we compete with many other truckload carriers of varying sizes and, to a
lesser extent, with less-than-truckload carriers and railroads, some of
which have more equipment and greater capital resources than we do;
- - some of our competitors periodically reduce their freight rates to gain
business, especially during times of reduced growth rates in the economy,
which may limit our ability to maintain or increase freight rates, maintain
our margins or maintain significant growth in our business;
- - many customers reduce the number of carriers they use by selecting
so-called "core carriers" as approved service providers, and in some
instances we may not be selected;
- - many customers periodically accept bids from multiple carriers for their
shipping needs, and this process may depress freight rates or result in the
loss of some of our business to competitors;
- - the trend toward consolidation in the trucking industry may create other
large carriers with greater financial resources and other competitive
advantages relating to their size and with whom we may have difficulty
competing;
- - advances in technology require increased investments to remain competitive,
and our customers may not be willing to accept higher freight rates to
cover the cost of these investments;
- - competition from Internet-based and other logistics and freight brokerage
companies may adversely affect our customer relationships and freight
rates; and
-21-
- - economies of scale that may be passed on to smaller carriers by procurement
aggregation providers may improve their ability to compete with us.
We are highly dependent on our major customers, the loss of one or more of which
could have a material adverse effect on our business.
A significant portion of our revenue is generated from our major customers. For
2004, our top five customers, based on revenue, accounted for approximately 62%
of our revenue, and our largest customer, General Motors Corporation, accounted
for approximately 44% of our revenue. We also provide transportation services
to other manufacturers who are suppliers for automobile manufacturers. As a
result, concentration of our business within the automobile industry is greater
than the concentration in a single customer. Approximately 56% of our revenues
for 2004 were derived from transportation services provided to the automobile
industry.
Generally, we do not have long-term contractual relationships with our major
customers, and we cannot assure that our customer relationships will continue as
presently in effect. A reduction in or termination of our services by our major
customers could have a material adverse effect on our business and operating
results.
Ongoing insurance and claims expenses could significantly reduce our earnings.
Our future insurance and claims expenses might exceed historical levels, which
could reduce our earnings. The Company is self insured for health and workers
compensation insurance coverage up to certain limits. If medical costs continue
to increase, or if the severity or number of claims increase, and if we are
unable to offset the resulting increases in expenses with higher freight rates,
our earnings could be materially and adversely affected.
We may be unable to successfully integrate businesses we acquire into our
operations.
Integrating businesses we acquire may involve unanticipated delays, costs or
other operational or financial problems. Successful integration of the
businesses we acquire depends on a number of factors, including our ability to
transition acquired companies to our management information systems. In
integrating businesses we acquire, we may not achieve expected economies of
scale or profitability or realize sufficient revenues to justify our investment.
We also face the risk that an unexpected problem at one of the companies we
acquire will require substantial time and attention from senior management,
diverting management's attention from other aspects of our business. We cannot
be certain that our management and operational controls will be able to support
us as we grow.
Difficulty in attracting drivers could affect our profitability and ability to
grow.
Periodically, the transportation industry experiences difficulty in attracting
and retaining qualified drivers, including independent contractors, resulting in
intense competition for drivers. We have from time to time experienced
under-utilization and increased expenses due to a shortage of qualified drivers.
If we are unable to continue to attract drivers and contract with independent
contractors, we could be required to further adjust our driver compensation
package or let trucks sit idle, which could adversely affect our growth and
profitability.
-22-
If we are unable to retain our key employees, our business, financial condition
and results of operations could be harmed.
We are highly dependent upon the services of the following key employees: Robert
W. Weaver, our President and Chief Executive Officer; W. Clif Lawson, our
Executive Vice President and Chief Operating Officer; and Larry J. Goddard, our
Vice President and Chief Financial Officer. We do not maintain key-man life
insurance on any of these executives. The loss of any of their services could
have a material adverse effect on our operations and future profitability. We
must continue to develop and retain a core group of managers if we are to
realize our goal of expanding our operations and continuing our growth. We
cannot assure that we will be able to do so.
We have significant ongoing capital requirements that could affect our
profitability if we are unable to generate sufficient cash from operations.
The trucking industry is very capital intensive. If we are unable to generate
sufficient cash from operations in the future, we may have to limit our growth,
enter into financing arrangements, or operate our revenue equipment for longer
periods, any of which could have a material adverse affect on our profitability.
Our operations are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or penalties.
We are subject to various environmental laws and regulations dealing with the
handling of hazardous materials, underground fuel storage tanks, and discharge
and retention of stormwater. We operate in industrial areas, where truck
terminals and other industrial activities are located, and where groundwater or
other forms of environmental contamination could occur. We also maintain bulk
fuel storage and fuel islands at five of our facilities. Our operations involve
the risks of fuel spillage or seepage, environmental damage, and hazardous waste
disposal, among others. If we are involved in a spill or other accident
involving hazardous substances, or if we are found to be in violation of
applicable laws or regulations, it could have a materially adverse effect on our
business and operating results. If we should fail to comply with applicable
environmental regulations, we could be subject to substantial fines or penalties
and to civil and criminal liability.
We operate in a highly regulated industry and increased costs of compliance
with, or liability for violation of, existing or future regulations could have a
material adverse effect on our business.
The U.S. Department of Transportation and various state agencies exercise broad
powers over our business, generally governing such activities as authorization
to engage in motor carrier operations, safety, and financial reporting. We may
also become subject to new or more restrictive regulations relating to fuel
emissions, drivers' hours in service, and ergonomics. Compliance with such
regulations could substantially impair equipment productivity and increase our
operating expenses.
The EPA recently adopted new emissions control regulations, which require
progressive reductions in exhaust emissions from diesel engines through 2007,
for engines manufactured in October 2002 and thereafter. In part to offset the
costs of compliance with the new EPA engine design requirements, some
manufacturers have significantly increased new equipment prices and eliminated
or sharply reduced the price of repurchase or trade-in commitments. If new
equipment prices were to increase, or if the price of repurchase commitments by
equipment manufacturers were to decrease, more than anticipated, we may be
required to increase our depreciation and financing costs and/or retain some of
our equipment longer, with a resulting increase in maintenance expenses. To the
extent we are unable to offset any such increases in expenses with rate
increases or cost savings, our results of operations could be adversely
affected. If our fuel or maintenance expenses were to increase as a result of
our use of the new, EPA-compliant engines, and we are unable to offset such
increases with fuel surcharges or higher freight rates, our results of
-23-
operations could be adversely affected. Further, our business and operations
could be adversely impacted if we experience problems with the reliability of
the new engines. We began operating tractors with engines meeting the EPA
guidelines during 2003. Although we have not experienced any significant
reliability issues with these engines to date, the expenses associated with the
tractors containing these engines have been slightly elevated, primarily as a
result lower fuel efficiency and slightly higher depreciation.
INFLATION
Inflation has an impact on most of our 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 our operating
costs, we do not believe that the effects of such increases are greater for us
than for other trucking concerns.
ADOPTION OF ACCOUNTING POLICIES
See "Item 8. Financial Statements and Supplementary Data, Note 1 to the
Consolidated Financial Statements - Recent Accounting Pronouncements."
CRITICAL ACCOUNTING POLICIES
The Company's significant accounting policies are described in Note 1 to the
Consolidated Financial Statements. The policies described below represent those
that are broadly applicable to the Company's operations and involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related amounts.
Accounts Receivable. We continuously monitor collections and payments from our
customers, third parties and vendors and maintain a provision for estimated
credit losses based upon our historical experience and any specific collection
issues that we have identified. While such credit losses have historically been
within our expectations and the provisions established, we cannot guarantee that
we will continue to experience the same credit loss rates that we have in the
past.
Property and equipment. Management must use its judgment in the selection of
estimated useful lives and salvage values for purposes of depreciating tractors
and trailers which in some cases do not have guaranteed residual values.
Estimates of salvage value at the expected date of trade-in or sale are based on
the expected market values of equipment at the time of disposal which, in many
cases include guaranteed residual values by the manufacturers.
Self Insurance. The Company is self-insured for health and workers'
compensation benefits up to certain stop-loss limits. Such costs are accrued
based on known claims and an estimate of incurred, but not reported (IBNR)
claims. IBNR claims are estimated using historical lag information and other
data either provided by outside claims administrators or developed internally.
This estimation process is subjective, and to the extent that future actual
results differ from original estimates, adjustments to recorded accruals may be
necessary.
Revenue Recognition. Revenue is recognized in full upon completion of delivery
to the receiver's location. For freight in transit at the end of a reporting
period, the Company recognizes revenue prorata based on relative transit miles
completed as a portion of the estimated total transit miles with estimated
expenses recognized upon recognition of the related revenue.
-24-
Prepaid Tires. Tires purchased with revenue equipment are capitalized as a cost
of the related equipment. Replacement tires are included in prepaid expenses and
deposits and are amortized over a 24-month period. Costs related to tire
recapping are expensed when incurred.
Income Taxes. Significant management judgment is required to determine the
provision for income taxes and to determine whether deferred income taxes
will be realized in full or in part. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to
be recovered or settled. When it is more likely that all or some portion
of specific deferred income tax assets will not be realized, a valuation
allowance must be established for the amount of deferred income tax assets
that are determined not to be realizable. A valuation allowance for
deferred income tax assets has not been deemed to be necessary due to the
Company's profitable operations. Accordingly, if the facts or financial
circumstances were to change, thereby impacting the likelihood of realizing
the deferred income tax assets, judgment would need to be applied to
determine the amount of valuation allowance required in any given period.
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 from its customers. The Company maintains
reserves for potential credit losses. In view of the concentration of the
Company's revenues and accounts receivable among a limited number of customers
within the automobile industry, the financial health of this industry is a
factor in the Company's overall evaluation of accounts receivable. At December
31, 2004, one customer's accounts receivable balance represented 54.8% of the
Company's total accounts receivable.
Business Combinations and Goodwill. Upon acquisition of an entity, the cost of
the acquired entity must be allocated to assets and liabilities acquired.
Identification of intangible assets, if any, that meet certain recognition
criteria is necessary. This identification and subsequent valuation requires
significant judgments. The carrying value of goodwill was tested for impairment
on December 31, 2004. The impairment testing requires an estimate of the value
of the Company as a whole, as the Company has determined it only has one
reporting unit as defined in Statement of Financial Accounting Standards No.
142.
-25-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Our primary market risk exposures include equity price risk, interest rate risk,
and commodity price risk (the price paid to obtain diesel fuel for our
tractors). The potential adverse impact of these risks and the general
strategies we employ to manage such risks are discussed below.
The following sensitivity analyses do not consider the effects that an adverse
change may have on the overall economy nor do they consider additional actions
we may take to mitigate our exposure to such changes. Actual results of changes
in prices or rates may differ materially from the hypothetical results described
below.
EQUITY PRICE RISK
We hold certain actively traded marketable equity securities which subjects the
Company to fluctuations in the fair market value of its investment portfolio
based on current market price. The recorded value of marketable equity
securities increased to $8.8 million at December 31, 2004 from $5.5 million at
December 31, 2003. The increase reflects additional purchases of approximately
$2.4 million during 2004 and an increase in the fair market value of
approximately $.9 million during 2004. A 10% decrease in the market price of
our marketable equity securities would cause a corresponding 10% decrease in the
carrying amounts of these securities, or approximately $880,000. For additional
information with respect to the marketable equity securities, see Note 3 to our
consolidated financial statements.
INTEREST RATE RISK
Our two lines of credit each bear interest at a floating rate equal to LIBOR
plus a fixed percentage. Accordingly, changes in LIBOR, which are effected by
changes in interest rates, will affect the interest rate on, and therefore our
costs under, the lines of credit. In an effort to manage the risks associated
with changing interest rates, we entered into interest rate swap agreements
effective February 28, 2001 and May 31, 2001, on notional amounts of $15,000,000
and $5,000,000, respectively. The "pay fixed rates" under the $15,000,000 and
$5,000,000 swap agreements are 5.08% and 4.83%, respectively. The "receive
floating rate" for both swap agreements is "1-month" LIBOR. These interest rate
swap agreements terminate on March 2, 2006 and June 2, 2006, respectively.
Assuming $20.0 million of variable rate debt was outstanding under Line "A" and
not covered by the hedge agreement for a full fiscal year, a hypothetical 100
basis point increase in LIBOR would result in approximately $200,000 of
additional interest expense, net of the effect of the swap agreements. For
additional information with respect to the interest rate swap agreements, see
Note 16 to our consolidated financial statements.
COMMODITY PRICE RISK
Prices and availability of all petroleum products are subject to political,
economic and market factors that are generally outside of our control.
Accordingly, the price and availability of diesel fuel, as well as other
petroleum products, can be unpredictable. Because our operations are dependent
upon diesel fuel, significant increases in diesel fuel costs could materially
and adversely affect our results of operations and financial condition. Based
upon our 2004 fuel consumption, a 10% increase in the average annual price per
gallon of diesel fuel would increase our annual fuel expenses by $5.6 million.
In August 2000 and July 2001, we entered into agreements to obtain price
protection and reduce a portion of our exposure to fuel price fluctuations.
Under these agreements, we were obligated to purchase minimum amounts of diesel
fuel per month, with a price protection component, for the six-month periods
ended March 31, 2001 and February 28, 2002. The agreements also provide that if
during the 48 months commencing April 2001, the price of heating oil on the New
York Mercantile Exchange ("NY MX HO") falls below $.58 per gallon, we are
-26-
obligated to pay, for a maximum of twelve different months selected by the
contract holder during such 48-month period, the difference between $.58 per
gallon and NY MX HO average price, multiplied by 900,000 gallons. Accordingly,
in any month in which the holder exercises such right, we would be obligated to
pay the holder $9,000 for each cent by which $.58 exceeds the average NY MX HO
price for that month. For example, the NY MX HO average price during February
2002 was approximately $.54, and if the holder were to exercise its payment
right, we would be obligated to pay the holder approximately $36,000. In
addition, if during any month in the twelve-month period commencing January
2005, the average NY MX HO is below $.58 per gallon, we will be obligated to pay
the contract holder the difference between $.58 and the average NY MX HO price
for such month, multiplied by 1,000,000 gallons. During December 2004, the
average NY MX HO price was $1.28. The estimated fair value of the agreements are
periodically adjusted and as of December 31, 2004 the estimated fair value of
$500,000 is included in accrued liabilities in the accompanying consolidated
financial statements. For the twelve-month period ended December 31, 2004 an
adjustment of $250,000 was made to reflect the decline in fair value of the
agreements which had the effect of reducing operating supplies expense and other
current liabilities each by $250,000 in the accompanying consolidated financial
statements. For the twelve-month period ended December 31, 2003 an adjustment
was not necessary and the carrying value in accrued liabilities was $750,000.
For additional information with respect to this agreement, see Note 16 to our
consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following statements are filed with this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets- December 31, 2004 and 2003
Consolidated Statements of Income- Years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Shareholders' Equity- Years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows- Years ended
December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
-27-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
P.A.M. Transportation Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of P.A.M.
Transportation Services, Inc. (a Delaware corporation) and subsidiaries (the
"Company") as of December 31, 2004 and 2003, and the related consolidated
statements of income, stockholders' equity and other comprehensive income, and
cash flows for each of the three years in the period ended December 31, 2004.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of P.A.M. Transportation Services,
Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2004, in conformity with accounting principles generally accepted
in the United States of America.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004, based on the
criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated March 8, 2005 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial reporting
and an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Little Rock, Arkansas
March 8, 2005
-28-
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(in thousands, except share data)
- ---------------------------------------------------------------------------------------
2004 2003
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 19,659 $ 3,064
Accounts receivable-net:
Trade 47,926 46,120
Other 1,110 1,150
Inventories 913 844
Prepaid expenses and deposits 14,862 6,771
Marketable equity securities available-for-sale 8,792 5,492
Income taxes refundable 754 1,256
-------- --------
Total current assets 94,016 64,697
PROPERTY AND EQUIPMENT:
Land 2,674 2,674
Structures and improvements 9,299 9,258
Revenue equipment 238,750 249,713
Service vehicles 878 911
Office furniture and equipment 5,571 6,863
-------- --------
Total property and equipment 257,172 269,419
Accumulated depreciation (83,029) (86,689)
-------- --------
Net property and equipment 174,143 182,730
OTHER ASSETS:
Goodwill 15,413 15,413
Non-compete agreements 654 1,004
Other 1,123 1,005
-------- --------
Total other assets 17,190 17,422
-------- --------
TOTAL ASSETS $285,349 $264,849
======== ========
(Continued)
-29-
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
(in thousands, except share data)
- ---------------------------------------------------------------------------------------
2004 2003
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 28,702 $ 22,295
Accrued expenses and other liabilities 9,828 11,167
Current maturities of long-term debt 2,080 2,039
Deferred income taxes-current 7,162 1,330
-------- --------
Total current liabilities 47,772 36,831
Long-term debt-less current portion 23,225 26,740
Deferred income taxes-less current portion 45,375 43,708
Other 434 695
-------- --------
Total liabilities 116,806 107,974
-------- --------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value:
Authorized shares-10,000,000
Issued and outstanding
shares: 0 at December 31, 2004 and 2003
Common stock, $.01 par value:
Authorized shares-40,000,000
Issued and outstanding shares: 11,303,207 and 11,294,207
at December 31, 2004 and 2003, respectively 113 113
Additional paid-in capital 76,050 75,957
Accumulated other comprehensive income 1,151 164
Retained earnings 91,229 80,641
-------- --------
Total shareholders' equity 168,543 156,875
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $285,349 $264,849
======== ========
(Concluded)
See notes to consolidated financial statements.
-30-
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(in thousands, except per share data)
- ---------------------------------------------------------------------------------------
2004 2003 2002
OPERATING REVENUES:
Revenue, before fuel surcharge $309,475 $293,547 $264,012
Fuel surcharge 15,591 7,491 2,042
-------- -------- --------
Total operating revenues 325,066 301,038 266,054
-------- -------- --------
OPERATING EXPENSES AND COSTS:
Salaries, wages, and benefits 119,519 119,350 115,432
Operating supplies and expenses 77,363 63,241 53,203
Rents and purchased transportation 38,938 35,287 9,780
Depreciation and amortization 30,016 26,601 24,715
Operating taxes and licenses 15,488 14,710 13,467
Insurance and claims 15,820 13,500 12,786
Communications and utilities 2,690 2,540 2,284
Other 5,131 4,755 4,620
Loss on sale or disposal of equipment 915 368 127
-------- -------- --------
Total operating expenses and costs 305,880 280,352 236,414
-------- -------- --------
NET OPERATING INCOME 19,186 20,686 29,640
NON-OPERATING INCOME 464 276
INTEREST EXPENSE (1,758) (1,667) (1,985)
-------- -------- --------
NET INCOME BEFORE INCOME TAXES 17,892 19,295 27,655
FEDERAL AND STATE INCOME TAXES:
Current 479 630 1,718
Deferred 6,825 7,175 9,344
-------- -------- --------
Total federal and state income taxes 7,304 7,805 11,062
-------- -------- --------
NET INCOME $ 10,588 $ 11,490 $ 16,593
======== ======== ========
EARNINGS PER COMMON SHARE:
Basic $ 0.94 $ 1.02 $ 1.56
======== ======== ========
Diluted $ 0.94 $ 1.01 $ 1.55
======== ======== ========
AVERAGE COMMON SHARES OUTSTANDING:
Basic 11,298 11,291 10,669
======== ======== ========
Diluted 11,324 11,326 10,715
======== ======== ========
See notes to consolidated financial statements.
-31-
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND OTHER COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER OTHER
COMMON STOCK PAID-IN COMPREHENSIVE COMPREHENSIVE RETAINED
SHARES AMOUNT CAPITAL INCOME INCOME (LOSS) EARNINGS TOTAL
BALANCE-January 1, 2002 8,612 $ 86 $20,461 $ (508) $52,558 $ 72,597
Components of comprehensive income:
Net earnings $16,593 16,593 16,593
Other comprehensive loss-Unrealized
loss on hedge, net of tax of $331 (497) (497) (497)
-------
Total comprehensive income $16,096
=======
Stock options-deferred stock
compensation 39 478 478
Issuance of common stock 2,621 26 54,732 54,758
Exercise of stock options-shares issued
including tax benefits 10 1 522 523
------ ---- ------- ------ ------- --------
BALANCE-December 31, 2002 11,282 113 76,193 (1,005) 69,151 144,452
Components of comprehensive income:
Net earnings $11,490 11,490 11,490
Other comprehensive gain:
Unrealized gain on hedge, net of
tax of $148 223 223 223
Unrealized gain on marketable
securities, net of tax of $631 946 946 946
-------
Total comprehensive income $12,659
=======
Stock options-deferred stock
compensation (398) (398)
Exercise of stock options-shares issued
including tax benefits 12 162 162
------ ---- ------- ------ ------- --------
BALANCE-December 31, 2003 11,294 113 75,957 164 80,641 156,875
Components of comprehensive income:
Net earnings $10,588 10,588 10,588
Other comprehensive gain:
Unrealized gain on hedge, net of
tax of $314 481 481 481
Unrealized gain on marketable
securities, net of tax of $371 506 506 506
-------
Total comprehensive income $11,575
=======
Exercise of stock options-shares issued
including tax benefits 9 93 93
------ ---- ------- ------ ------- --------
BALANCE-December 31, 2004 11,303 $113 $76,050 $1,151 $91,229 $168,543
====== ==== ======= ====== ======= ========
See notes to consolidated financial statements.
-32-
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002
(in thousands)
- --------------------------------------------------------------------------------------------------------------------------------
2004 2003 2002
OPERATING ACTIVITIES:
Net income $ 10,588 $ 11,490 $ 16,593
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 30,016 26,601 24,715
Bad debt expense (recovery) (410) 110 1,028
Non-competition agreement amortization-net of payments 88 42
Provision for deferred income taxes 6,825 7,175 9,344
Gain on sale of marketable equity securities (47)
Loss on sale or disposal of equipment 915 368 127
Changes in operating assets and liabilities-net of acquisition:
Accounts receivable (1,393) (11,983) (11,516)
Prepaid expenses, inventories, and other assets (8,279) (3,170) (349)
Income taxes refundable 502 (975) (357)
Trade accounts payable 7,202 7,156 7,925
Accrued expenses (1,339) 1,168 1,357
--------- --------- ---------
Net cash provided by operating activities 44,715 37,935 48,867
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (53,703) (74,238) (42,067)
Proceeds from sale or disposal of equipment 31,360 20,393 11,565
Purchase of marketable equity securities (2,423) (4,020)
Acquisition of business-net of cash acquired (10,752)
Other 36 207 107
--------- --------- ---------
Net cash used in investing activities (24,730) (68,410) (30,395)
FINANCING ACTIVITIES:
Borrowings under line of credit 350,787 353,899 362,148
Repayments under line of credit (353,656) (351,030) (371,224)
Borrowings of long-term debt 4,404 1,666 1,459
Repayments of long-term debt (5,010) (1,922) (35,907)
Proceeds from issuance of common stock 54,538
Other 85 160 384
--------- --------- ---------
Net cash (used in) provided by financing activities (3,390) 2,773 11,398
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,595 (27,702) 29,870
CASH AND CASH EQUIVALENTS-Beginning of year 3,064 30,766 896
--------- --------- ---------
CASH AND CASH EQUIVALENTS-End of year $ 19,659 $ 3,064 $ 30,766
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
Cash paid during the year for:
Interest $ 1,774 $ 1,591 $ 2,100
======== ======== ========
Income taxes $ 515 $ 1,119 $ 1,500
======== ======== ========
See notes to consolidated financial statements
-33-
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND PRINCIPLES OF CONSOLIDATION-P.A.M. Transportation
Services, Inc. (the "Company"), through its subsidiaries, operates as a
truckload transportation and logistics company.
The consolidated financial statements include the accounts of the Company and
its wholly owned operating subsidiaries: P.A.M. Transport, Inc., P.A.M.
Dedicated Services, Choctaw Express, Inc., Allen Freight Services, Inc., Decker
Transport, Inc., McNeill Express, Inc., T.T.X., Inc., Transcend Logistics, Inc.,
and East Coast Transport and Logistics, LLC. The following subsidiaries were
inactive during all periods presented: P.A.M. International, Inc., P.A.M.
Logistics, Inc., Choctaw Brokerage, Inc., P.A.M. Canada, Inc and S & L
Transportation, Inc. All significant intercompany accounts and transactions
have been eliminated.
USE OF ESTIMATES-The preparation of financial statements in conformity with
United States generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of any contingent assets and liabilities at the
financial statement date and reported amounts of revenue and expenses during the
reporting period. The Company periodically reviews these estimates and
assumptions. The Company's estimates were based on its historical experience
and various other assumptions that the Company believes to be reasonable under
the circumstances. Actual results could differ from those estimates.
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.
ACCOUNTS RECEIVABLE OTHER-The components of accounts receivable other consist
primarily of company driver advances, owner operator advances and equipment
manufacturer warranties. Advances receivable from company drivers as of
December 31, 2004 and 2003, were approximately $426,000 and $489,000,
respectively.
ACCOUNTS RECEIVABLE ALLOWANCE-An allowance is provided for accounts receivable
based on historical collection rates applied to accounts receivable in the
aggregate considering the number of days the receivables have been outstanding.
Additionally, management considers any accounts individually known to exhibit
characteristics indicating a collection problem.
MARKETABLE EQUITY SECURITIES-Marketable equity securities, which are classified
by the Company as available for sale, are carried at market value with
unrealized gains and losses recognized in accumulated other comprehensive
income in the statements of stockholders' equity. Realized gains and losses are
computed utilizing the specific identification method.
IMPAIRMENT OF LONG-LIVED ASSETS-The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of a long-lived asset may not be recoverable. An impairment
loss would be recognized if the carrying amount of the long-lived asset is not
recoverable, and it exceeds its fair value. For long-lived assets classified as
held and used, if the carrying value of the long-lived asset exceeds the sum of
the future net cash flows, it is not recoverable. The Company does not
separately identify assets by subsidiary, as tractors and trailers are
-34-
routinely transferred from one division to another. As a result, none of the
Company's long-lived assets have identifiable cash flows from use that are
largely independent of the cash flows of other assets and liabilities. Thus,
the asset group used to assess impairment would include all assets and
liabilities of the Company.
PROPERTY AND EQUIPMENT-Property and equipment is recorded at cost, less
accumulated depreciation. 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. Depreciation is recognized over the estimated asset life, considering
the estimated salvage value of the asset. Such salvage values are based on
estimates using expected market values for used equipment and the estimated time
of disposal which, in many cases include guaranteed residual values by the
manufacturers. Gains and losses are reflected in the year of disposal. The
following is a table reflecting estimated ranges of asset useful lives by major
class of depreciable assets:
ASSET CLASS ESTIMATED ASSET LIFE
Service vehicles 3-5 years
Office furniture and equipment 3-7 years
Revenue equipment 3-10 years
Structures and improvements 5-30 years
PREPAID TIRES-Tires purchased with revenue equipment are capitalized as a cost
of the related equipment. Replacement tires are included in prepaid expenses and
deposits and are amortized over a 24-month period. Amounts paid for the
recapping of tires are expensed when incurred.
ADVERTISING EXPENSE-Advertising costs are expensed as incurred and totaled
approximately $1.1 million, $.68 million and $.56 million for the years ended
December 31, 2004, 2003, and 2002, respectively.
REPAIRS AND MAINTENANCE-Repairs and maintenance costs are expensed as incurred.
GOODWILL-Goodwill was being amortized on a straight-line basis over 25 years for
years prior to 2002. Effective January 1, 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, ("SFAS No. 142"), which requires the Company to assess
acquired goodwill for impairment at least annually in the absence of an
indicator of possible impairment, and immediately upon an indicator of possible
impairment. The Company has selected December 31 for its annual impairment
testing and determined as of December 31, 2004 there was no impairment.
SELF INSURANCE LIABILITY-A liability is recognized for known health, workers'
compensation, cargo damage and property damage. An estimate of the incurred but
not reported claims for each type of liability is made based on historical
claims made, estimated frequency of occurrence, and considering changing factors
that contribute to the overall cost of insurance.
INCOME TAXES-The Company applies the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial reporting basis and the tax reporting basis
of assets and liabilities using enacted tax rates.
-35-
REVENUE RECOGNITION POLICY-Revenue is recognized in full upon completion of
delivery to the receiver's location. For freight in transit at the end of a
reporting period, the Company recognizes revenue pro rata based on relative
transit miles completed as a portion of the estimated total transit miles with
estimated expenses recognized upon recognition of the related revenue.
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 ("APB Opinion No. 25"), and
related interpretations in accounting for those plans. Stock-based compensation
expense has been recognized for variable stock options in accordance with
Interpretation 28 to APB Opinion No. 25. Stock-based compensation expense is
not reflected in net income for non-variable stock options as all options
granted under those plans had an exercise price equal to the market value of the
underlying common stock on the date of the grant. During 2002, the Company
adopted the disclosure provisions of Statement of Financial Accounting Standards
No. 148, Accounting for Stock-Based Compensation--Transition and Disclosure, an
Amendment of FASB Statement No. 123 ("SFAS No. 148") as described below and in
Note 11.
The Company adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of SFAS
No. 123 to stock-based employee compensation:
2004 2003 2002
(in thousands, except per share data)
Net income-as reported $ 10,588 $ 11,490 $ 16,593
Add: Stock-based employee compensation included in
reported net income-net of related tax effects (28) 76
Deduct total stock-based employee compensation
expense determined under fair value based
method for all awards-net of related tax effects (292) (322) (445)
--------- --------- ---------
Pro forma net income $ 10,296 $ 11,140 $ 16,224
========= ========= =========
Earnings per share:
Basic-as reported $ 0.94 $ 1.02 $ 1.56
Basic-pro forma $ 0.91 $ 0.99 $ 1.52
Diluted-as reported $ 0.94 $ 1.01 $ 1.55
Diluted-pro forma $ 0.91 $ 0.98 $ 1.51
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 used during the periods above:
2004 2003 2002
Dividend yield 0% 0% 0%
Volatility range 35.37%-38.54% 37.34%-61.27% 35.00%-61.27%
Risk-free rate range 2.70%-4.38% 3.02%-4.38% 3.97%-6.01%
Expected life 5 years 5 years 5 years
Fair value of options $6.62-$9.45 $9.33-$9.45 $1.20-$9.45
-36-
EARNINGS PER SHARE-The Company computes and presents earnings per share
("EPS") in accordance with Statement of Financial Accounting Standards No.
128, Earnings per Share ("SFAS No. 128"). The difference between the
Company's weighted-average shares outstanding and diluted shares outstanding
is due to the dilutive effect of stock options for all periods presented. See
Note 12 for computation of diluted EPS.
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 from its customers. The Company maintains reserves for
potential credit losses. In view of the concentration of the Company's revenues
and accounts receivable among a limited number of customers within the
automobile industry, the financial health of this industry is a factor in the
Company's overall evaluation of accounts receivable.
RECENT ACCOUNTING PRONOUNCEMENTS-In December 2003, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities, an interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements ("FIN 46R"), which
replaced FIN 46. FIN 46R clarifies the application of Accounting Research
Bulletin No. 51 to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support. The Company was required to adopt the provisions
of FIN 46R by the beginning of the first reporting period beginning after March
15, 2004. The Company does not believe that it has an interest in an entity that
is subject to FIN 46R, therefore, the adoption of FIN 46R did not have a
material effect on the Company's consolidated financial statements.
In March 2004, the FASB issued EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments ("EITF 03-1"). EITF 03-1
provides new guidance for assessing impairment losses on investments.
Additionally, EITF 03-1 includes new disclosure requirements for investments
that are deemed to be other than temporarily impaired. The consensus by the
Emerging Issues Task Force ("EITF") is effective for periods beginning after
June 15, 2004; however, FASB Staff Position ("FSP") EITF Issue 3-1-1 has delayed
the effective date of paragraphs 10 through 20 until implementation guidance
within proposed FSP EITF Issue 03-1-a has been finalized. Management has
determined that the impact of EITF 03-1 is not material at December 31, 2004,
but is continuing to evaluate the possible future impact on the Company's
financial position and results of operations.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123(R) , Share-Based Payment, ("SFAS No. 123(R)") which replaces SFAS No.
123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. SFAS No. 123(R) requires
compensation costs relating to share-based payment transactions be recognized in
financial statements. The pro forma disclosure previously permitted under SFAS
No. 123 will no longer be an acceptable alternative to recognition of expenses
in the financial statements. SFAS No. 123(R) is effective as of the beginning of
the first interim or annual reporting period that begins after June 15, 2005,
with early adoption encouraged. Management is currently evaluating the possible
future impact on the Company's financial position and results of operations.
-37-
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 153 , Exchanges of Nonmonetary Assets-an amendment to APB Opinion No. 29
("SFAS No. 153"). This statement amends Accounting Principles Board Opinion No.
29 ("APB No. 29") to eliminate the exception for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of nonmonetary assets that do not have commercial substance. A nonmonetary
exchange has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS No. 153 is
effective for nonmonetary exchanges occurring in fiscal periods beginning after
June 15, 2005. Adoption of this statement is not expected to have a material
effect on the Company's consolidated financial statements.
RECLASSIFICATIONS-Certain 2003 and 2002 amounts have been reclassified to
conform to the 2004 presentation.
2. ACCOUNTS RECEIVABLE
The Company's receivables result primarily from the sale of transportation and
logistics services. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral for accounts receivable.
Accounts receivable which consist of both billed and unbilled receivables is
presented net of an allowance for doubtful accounts. Accounts receivable
balances consist of the following components as of December 31, 2004 and 2003:
2004 2003
(in thousands)
Billed $ 42,950 $ 37,382
Unbilled 5,744 9,572
Allowance for doubtful accounts (768) (834)
--------- ---------
Total accounts receivable-net $ 47,926 $ 46,120
========= =========
An analysis of changes in the allowance for doubtful accounts for the years
ended December 31, 2004, 2003, and 2002 follows:
2004 2003 2002
(in thousands)
Balance-beginning of year $ 834 $ 716 $ 1,515
Provision for bad debts 430 110 1,028
Charge-offs (701) (1,827)
Recoveries 205 8
------ ------ -------
Balance-end of year $ 768 $ 834 $ 716
====== ====== =======
The December 31, 2004 charge-offs include $205,000 that was written off in prior
periods and recovered during 2004. However, the December 31, 2004 charge-offs
and recoveries do not include an amount representing an approximate $635,000
reduction in liability and bad debt expense resulting from the settlement of a
lawsuit (see Note 14).
-38-
3. MARKETABLE EQUITY SECURITIES
The Company accounts for its marketable securities in accordance with Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities ("SFAS No. 115"). SFAS No. 115 requires companies to
classify their investments as either trading, available-for-sale or
held-to-maturity. The Company's investments in marketable securities are
classified as available-for-sale and consist of equity securities. Management
determines the appropriate classification of these securities at the time of
purchase and re-evaluates such designation as of each balance sheet date.
During 2004 and 2003, there were no sales or reclassifications of marketable
securities. These securities are carried at fair value, with the unrealized
gains and losses, net of tax, included as a component of accumulated other
comprehensive income in shareholders' equity. The cost of securities sold is
based on the specific identification method. Interest and dividends on
securities classified as available-for-sale are included in non-operating
income. Realized gains and losses, and declines in value judged to be
other-than-temporary on available-for-sale securities, if any, are included in
the determination of net income as gains (losses) on the sale of securities.
As of December 31, 2004, these equity securities had a combined original cost of
approximately $6,336,000 and a combined fair market value of approximately
$8,792,000. For the year ended December 31, 2004, the Company had net
unrealized gains in market value of approximately $506,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately
$2,498,000 and gross unrealized losses of approximately $44,000. As of December
31, 2004, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $1,452,000.
As of December 31, 2003, the Company's equity securities had a combined original
cost of approximately $4,020,000 and a combined fair market value of
approximately $5,492,000. For the year ended December 31, 2003, the Company had
net unrealized gains in market value of approximately $946,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately
$1,578,000 and gross unrealized losses of approximately $1,000. As of December
31, 2003, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $946,000.
-39-
4. INTANGIBLE ASSETS
Goodwill was being amortized on a straight-line basis over 25 years for years
prior to 2002. Effective January 1, 2002, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, ("SFAS No. 142"), which requires the Company to assess
acquired goodwill for impairment at least annually in the absence of an
indicator of possible impairment, and immediately upon an indicator of possible
impairment. The Company completed an initial assessment in accordance with the
provisions of the standard in second quarter 2002 using data as of January 1,
2002, and determined there was no impairment as of the date of adoption of SFAS
No. 142. The annual assessment of impairment was completed on December 31, 2004
and the Company determined there was no impairment as of that date. Goodwill at
December 31 is summarized as follows:
2004 2003
(in thousands)
Goodwill, original cost $ 17,477 $ 17,477
Accumulated amortization (2,064) (2,064)
Goodwill impairment
--------- ---------
Goodwill-net $ 15,413 $ 15,413
========= =========
Non-compete agreements are amortized on a straight-line basis over the
contractual term of the related agreement. Amortization expense associated with
non-compete agreements was approximately $350,000, $296,000 and $0, for the
years ending December 31, 2004, 2003 and 2002. The Company's non-compete
agreements at December 31 are summarized as follows:
2004 2003
(in thousands)
Non-compete agreements, original cost $ 1,300 $ 1,300
Accumulated amortization (646) (296)
--------- ---------
Non-compete agreements-net $ 654 $ 1,004
========= =========
Over the remaining life of the non-compete agreements currently held by the
Company, approximately $238,000 of amortization expense will be recognized
during the calendar year of 2005 and approximately $200,000 of amortization
expense will be recognized during each of the calendar years 2006 and 2007.
-40-
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31 are summarized as follows:
2004 2003
(in thousands)
Payroll $ 1,364 $ 2,805
Accrued vacation 1,562 1,629
Taxes-other than income 2,251 1,798
Interest 133 149
Driver escrows 871 835
Self-insurance claims reserves 3,647 3,951
-------- --------
Total accrued expenses and other liabilities $ 9,828 $ 11,167
======== ========
6. CLAIMS LIABILITIES
With respect to physical damage for tractors, cargo loss and auto liability, the
Company maintains insurance coverage to protect it from certain business risks.
These policies are with various carriers and have per occurrence deductibles of
$2,500, $10,000 and $2,500 respectively. Since 2002, the Company has elected to
self insure itself for physical damage to trailers. During 2003, and continuing
through 2004, the Company changed its workers' compensation coverage in
Arkansas, Oklahoma, Mississippi and Florida from a fully insured policy with a
$350,000 per occurrence deductible to become self insured with a $500,000 per
occurrence excess policy. The Company continues to be self insured for workers'
compensation in the State of Ohio with a $500,000 self insured retention with
excess insurance. The Company has elected to opt out of workers' compensation
coverage in Texas and is providing coverage through the P.A.M. Texas Injury
Plan. The Company has reserved for estimated losses to pay such claims as well
as claims incurred but not yet reported. The Company has not experienced any
adverse trends involving differences in claims experienced versus claims
estimates for workers' compensation claims. Letters of credit aggregating
$4,279,000 are held by a bank as security for workers' compensation claims. The
Company self insures for employee health claims with a stop loss of $150,000 per
covered employee per year and estimates its liability for claims incurred but
not reported.
-41-
7. LONG-TERM DEBT
Long-term debt at December 31, consists of the following:
2004 2003
(in thousands)
Equipment financings (1) $ - $ 94
Line of credit with a bank-due May 31, 2006, and
collateralized by accounts receivable (2) - 2,868
Line of credit with a bank-due November 30, 2006, and
collateralized by revenue equipment (3) 20,000 20,000
Note payable (4) 3,866 4,486
Other (5) 1,439 1,331
--------- ---------
Total long-term debt 25,305 28,779
Less current maturities (2,080) (2,039)
--------- ---------
Long-term debt-net of current maturities $ 23,225 $ 26,740
========= =========
(1) Equipment financings consisted of installment obligations for revenue
equipment and service vehicles, payable in various monthly installments of
$47,748 through February 2004.
(2) Line of credit agreement with a bank provides for maximum borrowings of
$20.0 million and contains certain restrictive covenants that must be
maintained by the Company on a consolidated basis. Borrowings on the line
of credit are at an interest rate of LIBOR as of the first day of the month
plus 1.40% (3.48% at December 31, 2004). As of December 31, 2004, there
were no outstanding borrowings under the agreement. Under the terms of the
agreement the Company must have (a) positive net income, (b) a debt to
equity ratio of no more than 4:1, (c) a debt service coverage ratio of at
least 1:1, and (d) maintain a tangible net worth of at least $40 million.
The Company was in compliance with all provisions of the agreement at
December 31, 2004.
(3) Line of credit agreement with a bank provides for maximum borrowings of
$30.0 million and contains certain restrictive covenants that must be
maintained by the Company on a consolidated basis. Borrowings on the line
of credit are at an interest rate of LIBOR as of the last day of the
previous month plus 1.15% (3.69% at December 31, 2004). Under the terms of
the agreement the Company must have (a) positive net income, (b) a funded
debt to EBITDA ratio of less than 3:1, (c) a leverage ratio of less than
3:1, and (d) maintain a tangible net worth of at least $42 million
increased by (1) 50% of cumulative quarterly net income and (2) proceeds of
any public stock offering. The Company was in compliance with all
provisions of the agreement at December 31, 2004.
(4) 6.0% note to the former owner of an acquired entity, payable in monthly
installments of $72,672 through March 2010.
(5) Various notes at December 31, 2004, payable in monthly installments through
December 2007.
The Company has provided letters of credit to third parties totaling
approximately $8,673,000 at December 31, 2004. The letters are held by these
third parties to assist such parties in collection of any amounts due by the
Company should the Company default in its commitments to the parties.
-42-
Scheduled annual maturities on long-term debt outstanding at December 31, 2004,
are:
(in thousands)
2005 $ 2,080
2006 20,707
2007 750
2008 787
2009 and thereafter 981
----------
Total $ 25,305
==========
8. CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of common
stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share. At December 31, 2004, there were 11,303,207 shares of our
common stock and no shares of our preferred stock issued and outstanding.
Common Stock
The holders of our common stock, subject to such rights as may be granted to any
preferred stockholders, elect all directors and are entitled to one vote per
share. All shares of common stock participate equally in dividends when and as
declared by the Board of Directors and in net assets on liquidation. The shares
of common stock have no preference, conversion, exchange, preemptive or
cumulative voting rights.
Preferred Stock
Preferred stock may be issued from time to time by our Board of Directors,
without stockholder approval, in such series and with such preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or other provisions, as may be fixed by the Board of
Directors in the resolution authorizing their issuance. The issuance of
preferred stock by the Board of Directors could adversely affect the rights of
holders of shares of common stock; for example, the issuance of preferred stock
could result in a class of securities outstanding that would have certain
preferences with respect to dividends and in liquidation over the common stock,
and that could result in a dilution of the voting rights, net income per share
and net book value of the common stock. As of December 31, 2004, we have no
agreements or understandings for the issuance of any shares of preferred stock.
9. SIGNIFICANT CUSTOMERS AND INDUSTRY CONCENTRATION
In 2004, 2003, and 2002, one customer, who is in the automobile manufacturing
industry, accounted for 44%, 46%, and 56% of revenues, respectively. The Company
also provides transportation services to other manufacturers who are suppliers
for automobile manufacturers including suppliers for the Company's largest
customer. As a result, concentration of the Company's business within the
automobile industry is significant. Of the Company's revenues for 2004, 2003,
and 2002, 56%, 58%, and 68%, respectively, were derived from transportation
services provided to the automobile manufacturing industry. Accounts receivable
from the largest customer totaled approximately $26,250,000 and $28,100,000 at
December 31, 2004 and 2003, respectively.
-43-
10. FEDERAL AND STATE 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 for income tax reporting purposes.
Significant components of the Company's deferred tax liabilities and assets at
December 31 are as follows:
2004 2003
------------------------ ------------------------
(in thousands)
CURRENT LONG-TERM CURRENT LONG-TERM
Deferred tax liabilities:
Property and equipment $ - $ 51,152 $ - $ 48,671
Unrealized gains on securities 1,002 631
Prepaid expenses 7,562 25 3,208 19
-------- ---------- -------- ----------
Total deferred tax liabilities 8,564 51,177 3,839 48,690
Deferred tax assets:
Alternative minimum tax credit 1,782 1,783
Allowance for doubtful accounts 292 298
Compensated absences 451 618
Self-insurance allowances 469 1,082
Hedging derivative 190 208 285 521
Accrued compensation 156
Non-competition agreement 518 474
Net operating loss carryovers 3,237 2,156
Other 57 70 48
-------- ---------- -------- ----------
Total deferred tax assets 1,402 5,802 2,509 4,982
-------- ---------- -------- ----------
Net deferred tax asset (liability) $ (7,162) $ (45,375) $ (1,330) $ (43,708)
======== ========== ======== ==========
The reconciliation between the effective income tax rate and the statutory
Federal income tax rate is for year ended December 31, 2004, 2003 and 2002
presented in the following table:
2004 2003 2002
------------------- ------------------- -------------------
(in thousands)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
Income tax at the statutory
Federal rate of 34% $ 6,083 34.0% $ 6,560 34.0% $ 9,403 34.0%
Nondeductible expenses 484 2.7 548 2.8 401 1.5
State income taxes-net of
federal benefit 737 4.1 697 3.6 1,552 5.6
Other - - - - (294) (1.1)
-------- ---- -------- ---- -------- ----
Total income taxes $ 7,304 40.8% $ 7,805 40.4% $ 11,062 40.0%
======== ==== ======== ==== ======== ====
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The provision for income taxes consisted of the following:
2004 2003 2002
(in thousands)
CURRENT:
Federal $ - $ 282 $ 975
State 479 348 743
-------- -------- --------
479 630 1,718
-------- -------- --------
DEFERRED:
Federal 6,076 6,180 8,527
State 749 995 817
-------- -------- --------
6,825 7,175 9,344
-------- -------- --------
$ 7,304 $ 7,805 $ 11,062
======== ======== ========
The Company has alternative minimum tax credits of approximately $1.8 million at
December 31, 2004, which have no expiration date under the current federal
income tax laws. The Company also has a net operating loss carryover for federal
income purposes of approximately $8.5 million which will begin to expire in the
year 2024.
11. STOCK OPTION PLANS
The Company maintains an incentive stock option plan and a nonqualified stock
option plan for the issuance of options to directors, officers, key employees
and others. The option price under these plans is the fair market value of the
stock at the date the options were granted, ranging from $8.25 to $23.22 as of
December 31, 2004. At December 31, 2004, approximately 278,000 shares were
available for granting future options.
Outstanding incentive stock options at December 31, 2004, 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, 2004, must be exercised
within five to eight years. Certain nonqualified options may not be exercised
within one year of the date of grant.
In August 2002, PAM granted performance-based variable stock options to certain
key executives. For these awards, the exercise price was fixed at the grant date
and was equal to the fair market value of the stock on that date. The number of
shares earned will not be known until the date the performance criteria is
measured. Compensation cost is estimated at each reporting date with the final
measurement date on the date each performance criteria is measured. Vesting will
be measured on an accelerated vesting schedule. No compensation expense was
recognized in 2004 or 2003 under these arrangements in that the performance
criteria was not met. Compensation expense of approximately $127,000 was
recognized in 2002 related to these options.
-45-
Transactions in stock options under these plans are summarized as follows:
SHARES WEIGHTED
UNDER AVERAGE
OPTION EXERCISE PRICE
Outstanding-January 1, 2002: 105,000 $ 9.50
Granted 320,500 23.03
Exercised (39,000) 9.84
-------
Outstanding-December 31, 2002: 386,500 $ 20.69
Granted 14,000 22.68
Exercised (12,000) 9.88
Canceled (40,000) 23.22
-------
Outstanding-December 31, 2003: 348,500 $ 20.85
Granted 14,000 16.99
Exercised (9,000) 9.39
Canceled (40,000) 23.22
-------
Outstanding-December 31, 2004 313,500 $ 20.70
=======
Options Exercisable-December 31, 2004 148,500
=======
The following is a summary of stock options outstanding as of December 31, 2004:
WEIGHTED
OPTION AVERAGE
OPTIONS EXERCISE REMAINING OPTIONS
OUTSTANDING PRICE YEARS EXERCISABLE
30,000 $ 9.25 0.5 30,000
3,000 $ 10.25 0.5 3,000
4,000 $ 9.13 1.2 4,000
8,000 $ 8.25 2.2 8,000
8,000 $ 20.79 3.2 8,000
220,000 $ 23.22 7.8 60,000
12,500 $ 19.88 3.8 7,500
14,000 $ 22.68 4.2 14,000
14,000 $ 16.99 5.2 14,000
------- -------
313,500 148,500
======= =======
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12. EARNINGS PER SHARE
The Company applies SFAS No. 128 for computing and presenting earnings per
share. Basic earnings per common share were computed by dividing net income by
the weighted average number of shares outstanding during the period. Diluted
earnings per common share were calculated as follows:
FOR THE YEAR ENDED DECEMBER 31, 2004
(in thousands, except per share date)
------------------------------------
NET PER SHARE
INCOME SHARES AMOUNT
Basic earnings per share data $ 10,588 11,298 $ .94
Effect of dilutive securities-stock options 26
-------- ------ -------
Diluted earnings per share data $ 10,588 11,324 $ .94
======== ====== =======
FOR THE YEAR ENDED DECEMBER 31, 2003
(in thousands, except per share date)
------------------------------------
NET PER SHARE
INCOME SHARES AMOUNT
Basic earnings per share data $ 11,490 11,291 $ 1.02
Effect of dilutive securities-stock options 35
-------- ------ -------
Diluted earnings per share data $ 11,490 11,326 $ 1.01
======== ====== =======
FOR THE YEAR ENDED DECEMBER 31, 2002
(in thousands, except per share date)
------------------------------------
NET PER SHARE
INCOME SHARES AMOUNT
Basic earnings per share data $ 16,593 10,669 $ 1.56
Effect of dilutive securities-stock options 46
-------- ------ -------
Diluted earnings per share data $ 16,593 10,715 $ 1.55
======== ====== =======
Options to purchase 254,500, 274,000, and 300,000 shares of common stock were
outstanding as of December 31, 2004, 2003, and 2002, respectively, but were not
included in the computation of diluted EPS because the option price was greater
than the average market price of the common shares.
13. PROFIT SHARING PLAN
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.
Total employer matching contributions to the plan totaled approximately
$280,000, $270,000 and $250,000 in 2004, 2003 and 2002, respectively.
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14. COMMITMENTS AND CONTINGENCIES
During 2004, a suit which was originally filed on October 10, 2002 against one
of the Company's subsidiaries was settled in the amount of $25,000. The suit,
which was filed in the United States Bankruptcy Court for the District of
Delaware, alleged preferential transfers of $660,055 were made to the defendant,
Allen Freight Services Co., within the 90 day period preceding the bankruptcy
petition date of Bill's Dollar Stores, Inc. The Company had originally
established a liability for the entire potential loss of $660,055; however, as a
result of a settlement in the amount of $25,000 approximately $635,000 has been
removed as a liability on the Company's financial statements and the related
expense originally recorded as a bad debt expense has been reduced.
As to other matters, 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.
Associated with the purchase of East Coast Transport, Inc. (see Note 18), the
Company entered into a five year consulting agreement with the previous owner of
East Coast, whereby such individual will serve as the president of East Coast
and will be compensated based on a percentage of East Coast revenue along with
eligibility for a yearly bonus subject to certain events.
The Company leases certain premises under noncancelable operating lease
agreements. Future minimum annual lease payments under these leases are as
follows:
2005 $ 465,659
2006 283,965
2007 288,965
2008 205,611
2009 and thereafter 75,761
-----------
Total $ 1,319,961
===========
Total rental expense, net of amounts reimbursed for the years ended December 31,
2004, 2003 and 2002 was approximately $1,304,000, $964,000, and $809,000,
respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 , Disclosure About Fair
Value of Financial Instruments, ("SFAS No. 107") requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. The estimated
fair value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
For cash and cash equivalents, accounts receivable, trade accounts payable,
and accrued expenses, the carrying amount is a reasonable estimate of fair
value as the assets are readily redeemable or short-term in nature and the
-48-
liabilities are short-term in nature. Marketable equity securities are
carried at their fair value.
For long-term debt other than the line of credit, the fair values are
estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements. The carrying value of this other long-term debt at December
31, 2004 and 2003, respectively, is $5,304,000 and $5,911,000. The fair
value of long-term debt is estimated to be $5,559,000 and $6,436,000 at
December 31, 2004 and 2003.
The carrying amount for the line of credit approximates fair value because
the line of credit interest rates are adjusted frequently.
The carrying value of all hedging financial instruments approximates their
fair value and is the amount at which the hedges could be settled, based on
estimates determined by dealers. Hedging liabilities total $1,008,000 and
$2,054,000 at December 31, 2004 and 2003, respectively.
16. DERIVATIVES AND HEDGING ACTIVITIES
Effective February 28, 2001, the Company entered into an interest rate swap
agreement on a notional amount of $15,000,000. The pay fixed rate under the swap
is 5.08%, while the receive floating rate is "1-month" LIBOR. This interest rate
swap agreement terminates on March 2, 2006. Effective May 31, 2001, the Company
entered into an interest rate swap agreement on a notional amount of $5,000,000.
The pay fixed rate under the swap is 4.83%, while the receive floating rate is
"1-month" LIBOR. This interest rate swap agreement terminates on June 2, 2006.
The Company designates both of these interest rate swaps as cash flow hedges of
its exposure to variability in future cash flows resulting from interest
payments indexed to "1-month" LIBOR. Changes in future cash flows from the
interest rate swaps will offset changes in interest rate payments on the first
$20,000,000 of the Company's current revolving credit facility or future
"1-month" LIBOR based borrowings that reset on the last London Business Day
prior to the start of the next interest period. The hedge locks the interest
rate at 5.08% or 4.83% plus the pricing spread (currently 1.15%) for the
notional amounts of $15,000,000 and $5,000,000, respectively.
These interest rate swap agreements meet the specific hedge accounting criteria.
The measurement of hedge effectiveness is based upon a comparison of the
floating-rate leg of the swap and the hedged floating-rate cash flows on the
underlying liability. The effective portion of the cumulative gain or loss has
been reported as a component of accumulated other comprehensive income in
shareholders' equity and will be reclassified into current earnings by June 2,
2006, the latest termination date for all current swap agreements. The beginning
balance of the net after tax deferred hedging loss in accumulated other
comprehensive income ("AOCI") related to these swap agreements was approximately
$782,000 and the ending balance as of December 31, 2004 was approximately
$301,000. The change in AOCI related to these swap agreements during the
current year was approximately $481,000. There were no reclassifications into
earnings during 2004. Ineffectiveness related to these hedges was not
significant.
In August 2000 and July 2001, the Company entered into agreements to obtain
price protection and reduce a portion of our exposure to fuel price
fluctuations. Under these agreements, we were obligated to purchase minimum
amounts of diesel fuel per month, with a price protection component, for the six
month periods ended March 31, 2001 and February 28, 2002. The agreements also
provide that if during the 48 months commencing April 2001, the price of heating
oil on the New York Mercantile Exchange ("NY MX HO") falls below $.58 per
gallon, we are obligated to pay, for a maximum of twelve different months
selected by the contract holder during such 48-month period, the difference
between $.58 per gallon and NY MX HO average price, multiplied by 900,000
gallons. Accordingly, in any month in which the holder exercises such right,
-49-
we would be obligated to pay the holder $9,000 for each cent by which $.58
exceeds the average NY MX HO price for that month. For example, the NY MX HO
average price during February 2002 was approximately $.54, and if the holder
were to exercise its payment right, we would be obligated to pay the holder
approximately $36,000. In addition, if during any month in the twelve-month
period commencing January 2005, the average NY MX HO is below $.58 per gallon,
we will be obligated to pay the contract holder the difference between $.58 and
the average NY MX HO price for such month, multiplied by 1,000,000 gallons.
During December 2004, the average NY MX HO price was $1.28. The estimated fair
value of the agreements are periodically adjusted and as of December 31, 2004
the estimated fair value of $500,000 is included in accrued liabilities in the
accompanying consolidated financial statements. For the twelve-month period
ended December 31, 2004 an adjustment of $250,000 was made to reflect the
decline in fair value of the agreements which had the effect of reducing
operating supplies expense and other current liabilities each by $250,000 in the
accompanying consolidated financial statements. For the twelve-month period
ended December 31, 2003 an adjustment was not necessary and the carrying value
in accrued liabilities was $750,000.
17. RELATED PARTY TRANSACTIONS
In the normal course of business, the Company provides and receives
transportation, repair and other services for and from companies affiliated with
a major stockholder, and recognized $269,553, $195,595 and $354,241 in operating
revenue and $1,234,267, $1,194,283 and $1,103,062 in operating expenses in 2004,
2003, and 2002, respectively. In addition the Company purchased auto liability
and physical damage insurance through an unaffiliated insurance broker which was
underwritten by an insurance company affiliated with a major stockholder.
Annual premiums were $11,349,438, $10,316,874 and $8,144,405 for 2004, 2003 and
2002, respectively. At December 31, 2004 $294,610 was owed to the Company from
these affiliates. Of these accounts receivable $286,945 represents revenue
resulting from maintenance performed in the Company's maintenance facilities and
maintenance charges paid by the Company to third parties on behalf of their
affiliate and charged back at the amount paid and $7,665 represents freight
revenue. Amounts payable to affiliates at December 31, 2004 and 2003 was
$179,814 and $1,401,759, respectively.
18. ACQUISITIONS
On January 31, 2003, P.A.M. Transportation Services, Inc. acquired substantially
all of the assets of East Coast Transport, Inc. a freight brokerage operation
based in New Jersey. The results of East Coast Transport, Inc. have been
included in the consolidated financial statements since that date. In accordance
with Statement of Financial Accounting Standards No. 141, Business Combinations,
("SFAS No. 141") the acquisition was accounted for under the purchase method of
accounting. The Company paid cash of approximately $1.9 million, entered into a
seven year installment note in the amount of approximately $5.0 million at an
interest rate of 6%, and entered into a non-compete agreement requiring the
payment of $1.0 million over a five year period. Goodwill resulting from the
transaction totaled approximately $6.9 million.
On April 3, 2003, P.A.M. Transportation Services, Inc. acquired substantially
all of the assets of McNeill Trucking, Inc. a truckload motor carrier. The
results of McNeill Trucking, Inc. have been included in the consolidated
financial statements since that date. In accordance with SFAS No. 141, the
acquisition was accounted for under the purchase method of accounting. The
Company paid cash of approximately $8.8 million and assumed liabilities of
approximately $70,000, and entered into a non-compete agreement requiring the
payment of $300,000 over a two year period. Goodwill resulting from the
transaction totaled approximately $370,000.
-50-
The following unaudited pro forma information is being provided for the business
acquisitions made during the year ended December 31, 2003 as though the Company
made the acquisitions at the beginning of the year ended December 31:
2003 2002
(in thousands, except
earnings per share)
(unaudited)
Operating income $ 20,869 $ 32,160
Income before income taxes 19,444 29,790
Net income 11,578 18,521
Basic earnings per share $ 1.03 $ 1.74
Diluted earnings per share $ 1.02 $ 1.73
19. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present quarterly financial information for 2004 and 2003:
2004
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------
(in thousands, except per share data)
Operating revenues (1) $ 80,120 $ 82,284 $ 79,080 $ 83,582
Operating expenses (1) 76,322 75,734 73,491 80,333
-------- -------- -------- --------
Operating income 3,798 6,550 5,589 3,249
Non-operating income 93 62 161 148
Interest expense 443 411 466 438
Income taxes 1,417 2,554 2,136 1,197
-------- -------- -------- --------
Net income $ 2,031 $ 3,647 $ 3,148 $ 1,762
======== ======== ======== ========
Net income per common share:
Basic $ 0.18 $ 0.32 $ 0.28 $ 0.16
======== ======== ======== ========
Diluted $ 0.18 $ 0.32 $ 0.28 $ 0.16
======== ======== ======== ========
Average common shares outstanding:
Basic 11,295 11,296 11,298 11,301
======== ======== ======== ========
Diluted 11,321 11,322 11,324 11,327
======== ======== ======== ========
(1) In order to conform to industry practice, during 2004 the Company began to
classify fuel surcharges charged to customers as revenue rather than as a
reduction of operating supplies expense. This reclassification has no effect on
net operating income, net income or earnings per share. The Company has made
corresponding reclassifications to comparative periods shown.
-51-
2003
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------
(in thousands, except per share data)
Operating revenues (1) $ 72,442 $ 77,137 $ 75,515 $ 75,944
Operating expenses (1) 67,488 70,077 70,198 72,589
-------- -------- -------- --------
Operating income 4,954 7,060 5,317 3,355
Non-operating income 10 59 70 137
Interest expense 268 485 445 469
Income taxes 1,878 2,587 1,977 1,363
-------- -------- -------- --------
Net income $ 2,818 $ 4,047 $ 2,965 $ 1,660
======== ======== ======== ========
Net income per common share:
Basic $ 0.25 $ 0.36 $ 0.26 $ 0.15
======== ======== ======== ========
Diluted $ 0.25 $ 0.36 $ 0.26 $ 0.14
======== ======== ======== ========
Average common shares outstanding:
Basic 11,287 11,290 11,293 11,291
======== ======== ======== ========
Diluted 11,338 11,332 11,327 11,326
======== ======== ======== ========
(1) In order to conform to industry practice, during 2004 the Company began to
classify fuel surcharges charged to customers as revenue rather than as a
reduction of operating supplies expense. This reclassification has no effect on
net operating income, net income or earnings per share. The Company has made
corresponding reclassifications to comparative periods shown.
-52-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
CONCLUSION REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Exchange Act, as amended. Based on
this evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures are effective as
of the end of the period covered by this Annual Report.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of the Company's internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control
- -Integrated Framework, our management concluded that our internal control over
financial reporting is effective as of December 31, 2004.
Our management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2004 has been audited by Deloitte &
Touche, LLP, an independent registered public accounting firm, who has issued an
attestation report on managements assessment of the Company's internal control
over financial reporting, as stated in their report which is included below.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in the Company's internal controls over financial
reporting that occurred during the quarter ended December 31, 2004, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
P.A.M. Transportation Services, Inc. and Subsidiaries
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that P.A.M.
Transportation Services, Inc. and Subsidiaries (the "Company") maintained
effective internal control over financial reporting as of December 31, 2004,
based on the criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company's management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting. Our responsibility is to express an
opinion on management's assessment and an opinion on the effectiveness of the
Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
-53-
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed by,
or under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial
reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of
the effectiveness of the internal control over financial reporting to future
periods are subject to the risk that the controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
In our opinion, management's assessment that the Company maintained effective
internal control over financial reporting as of December 31, 2004, is fairly
stated, in all material respects, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Also in our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on the criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements as of and for the year ended December 31, 2004 of the Company and our
report dated March 8, 2005 expressed an unqualified opinion on those financial
statements.
/s/ DELOITTE & TOUCHE LLP
Little Rock, Arkansas
March 8, 2005
ITEM 9B. OTHER INFORMATION.
None.
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PART III
Portions of the information required by Part III of Form 10-K are, pursuant to
General Instruction G (3) of Form 10-K, incorporated by reference from our
definitive proxy statement to be filed pursuant to Regulation 14A for our Annual
Meeting of Stockholders to be held on May 26, 2005. We will, within 120 days of
the end of our 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, with the exception of the Audit
Committee and Code of Ethics information presented below, is incorporated by
reference from the sections entitled "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" contained in the proxy statement.
Audit Committee
We have a separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The
members of the Audit Committee consist of Thomas H. Cooke (committee chairman),
Frank L. Conner, and Charles F. Wilkins. The Board of Directors has determined
that Mr. Conner and Mr. Cooke, both members of the Audit Committee, are each
qualified as an audit committee financial expert, as that term is defined in the
rules of the Securities and Exchange Commission. Mr. Conner and Mr. Cooke are
independent, as independence for audit committee members is defined in the
listing standards of the Nasdaq Stock Market and the rules of the Securities and
Exchange Commission.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our directors, officers
and employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, and persons performing
similar functions. The Code of Ethics is posted on our website (www.pamt.com).
We intend to post amendments to or waivers from our Code of Ethics, of the type
referred to in Item 5.05 of Form 8-K, to the extent applicable to our principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions, on our website.
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.
-55-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information responsive to this item, with the exception of the equity
compensation plan information presented below, is incorporated by reference from
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" contained in the proxy statement.
EQUITY COMPENSATION PLAN INFORMATION
The following table summarizes, as of December 31, 2004, information about
compensation plans under which equity securities of the Company are authorized
for issuance:
Number of securities
Number of securities to Weighted-average remaining available
be issued upon exercise exercise price of for future issuance
of outstanding options, outstanding options, under equity
Plan Category warrants and rights warrants and rights compensation plans
- -------------------------------------------------------------------------------------------------------
Equity Compensation Plans
approved by Security Holders 313,500 $20.70 277,500
Equity Compensation Plans
not approved by Security
Holders -0- -0- -0-
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.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The information responsive to this item is incorporated by reference from the
section entitled "Principal Accountant Fees and Services" contained in the proxy
statement.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2004 and 2003
Consolidated Statements of Income - Years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 2004, 2003 and 2002
Consolidated Statements of Cash Flows - Years ended
December 31, 2004, 2003 and 2002
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting
regulations of the SEC are omitted as the required information is
inapplicable, or because the information is presented in the
consolidated financial statements or related notes.
(3) Exhibits.
The Exhibit Index filed with this Report and appearing immediately
following the signatures in this Report is incorporated by reference
in response to this Item.
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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 14, 2005 By: /s/ Robert W. Weaver
--------------------------
ROBERT W. WEAVER
President and Chief Executive Officer
(principal executive officer)
Dated: March 14, 2005 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:
Dated: March 14, 2005 By: /s/ Robert W. Weaver
--------------------------
ROBERT W. WEAVER, President and Chief
Executive Officer, Director
Dated: March 14, 2005 By: /s/ Matthew T. Moroun
--------------------------
MATTHEW T. MOROUN, Director
Dated: March 14, 2005 By: /s/ Daniel C. Sullivan
--------------------------
DANIEL C. SULLIVAN, Director
Dated: March 14, 2005 By: /s/ Charles F. Wilkins
--------------------------
CHARLES F. WILKINS, Director
Dated: March 14, 2005 By: /s/ Frederick P. Calderone
--------------------------
FREDERICK P. CALDERONE, Director
Dated: March 14, 2005 By: /s/ Manuel J. Moroun
--------------------------
MANUEL J. MOROUN, Director
Dated: March 14, 2005 By: /s/ Thomas H. Cooke
--------------------------
THOMAS H. COOKE, Director
Dated: March 14, 2005 By: /s/ Frank L. Conner
--------------------------
FRANK L. CONNER, Director
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EXHIBIT INDEX
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 Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 ("6/30/94 10-Q"); (v) the Quarterly Report on Form
10-Q for the quarter ended June 30, 1995 ("6/30/95 10-Q"); (vi) the Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996 (9/30/96 10-Q);
(vii) the Annual Report on Form 10-K for the year ended December 31, 1996 ("1996
10-K"); (viii) the Quarterly Report on Form 10-Q for the quarter ended June 30,
1998 ("6/30/98 10-Q"); (ix) the Form S-8 Registration Statement filed on June
11, 1999; (x) the Annual Report on Form 10-K for the year ended December 31,
2001 ("2001 10-K"); (xi) the Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002 ("3/31/02 10-Q"); (xii) the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2004 ("9/30/2004 10-Q"); (xiii) the Form 8-K filed
on January 25, 2005 ("01/25/2005 8-K") ; or (xiv) Form 8-K filed on March 7,
2005 ("03/07/2005 8-K").
EXHIBIT# DESCRIPTION OF EXHIBIT
- -------- -----------------------------------------------------------------------------------------------
*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)
*3.1.2 - Amended and Restated Certificate of Incorporation of the Registrant (Exh. 3.1, 3/31/02 10-Q)
*3.2.4 - Amended and Restated By-Laws of the Registrant (Exh. 3.2, 3/31/02 10-Q)
*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 dated June 27, 1995 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 $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)
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*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)
*4.5.1 - Loan Agreement dated as of November 22, 2000 by and between P.A.M. Transport, Inc. and
SunTrust Bank (Exh 4.5.1, 2001 10-K)
*4.5.2 - Revolving Credit Note dated November 22, 2000 (Exh 4.5.2, 2001 10-K)
*4.5.3 - Security Agreement by and between P.A.M. Transport, Inc. and SunTrust Bank (Exh 4.5.3,
2001 10-K)
*4.5.4 - First Amendment to Loan Agreement, Revolving Credit Note and Security Deposit (Exh 4.5.4,
2001 10-K)
*10.1 - Employment Agreement between the Registrant and Robert W. Weaver, effective July 1, 2002
(Exh 10.1.1, 2001 10-K)
*10.1.1 - New Employment Agreement between the Registrant and Robert W. Weaver, effective
July 1, 2004 (Exh 10.1, 01/25/2005 8-K)
*10.2 - Employment Agreement between the Registrant and W. Clif Lawson, dated January 1, 2002
(Exh 10.2, 2001 10-K)
10.2.1 - Memo exercising the Company's option to extend W. Clif Lawson's Employment Agreement by one year
*10.3 - Employment Agreement between the Registrant and Larry J. Goddard, dated January 1, 2002
(Exh 10.3, 2001 10-K)
10.3.1 - Memo exercising the Company's option to extend Larry J. Goddard's Employment Agreement by one year
*10.4 - 1995 Stock Option Plan, as Amended and Restated (Exh. 4.1, 6/11/99 S-8)
*10.4.1 - Amendment to 1995 Stock Option Plan (Exh 10.1, 03/07/2005 8-K)
*10.5 - Interest rate swap agreement, dated March 1, 2001 (Exh 10.5, 2001 10-K)
*10.6 - Interest rate swap agreement dated June 1, 2001 (Exh 10.6, 2001 10-K)
*10.7 - Employee Non-Qualified Stock Option Agreement (Exh 10.1, 9/30/2004 10-Q)
*10.8 - Director Non-Qualified Stock Option Agreement (Exh 10.2, 9/30/2004 10-Q)
*10.9 - Executive Officers and Certain Other Employees Incentive Compensation Plan,
as amended (Exh 10.3, 9/30/2004 10-Q)
21.1 - Subsidiaries of the Registrant
23.1 - Consent of Deloitte & Touche LLP
31.1 - Rule 13a-14(a) Certification of Principal Executive Officer
31.2 - Rule 13a-14(a) Certification of Principal Financial Officer
32.1 - Section 1350 Certification of Chief Executive Officer
32.2 - Section 1350 Certification of Chief Financial Officer
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