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, 2002
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 0-15057
P.A.M. TRANSPORTATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 71-0633135
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Highway 412 West
P.O. Box 188
Tontitown, Arkansas 72770
(479) 361-9111
(Address of principal executive offices, including zip code,
and telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock, $.01
par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange 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 $158,673,196. 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 February
28, 2003: 11,288,207 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 2003 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.
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 "Business - Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," 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.
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.
PART I
ITEM 1. BUSINESS.
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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 currently conducts operations
through the following wholly owned subsidiaries: P.A.M. Transport, Inc. ("P.A.M.
Transport"), P.A.M. Special Services, Inc., T.T.X., Inc., P.A.M. Dedicated
Services, Inc., P.A.M. Logistics Services, Inc., Choctaw Express, Inc., Choctaw
Brokerage, Inc., Transcend Logistics, Inc., Allen Freight Services, Inc. and
Decker Transport Co., 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. and East Coast Transport and Logistics, LLC.
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.
OPERATIONS
Our business strategy focuses on the following elements:
Maintaining Dedicated Fleets and 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. During 2002, approximately 83% of our operating
revenues were generated through dedicated equipment and we maintained an empty
mile factor of 4.0%. Dedicated fleets and high density lanes enable us to:
- - maintain 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, 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, which is
required by many of our larger customers to ensure that their truckload carriers
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.
Approximately 83% of our deliveries to customers during 2002 were made on a
just-in-time basis.
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 business 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 approximates $500
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. 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:
- - Freight rates have remained relatively stable despite the slowing economy,
and the low level of truck orders may keep equipment capacity at a
favorable position.
- - Rising unemployment has benefited the trucking industry by making it
easier to recruit new drivers.
- - Price increases by insurance companies, rising fuel costs, and erosion of
equipment values in the used truck market offset these positive industry
trends.
- - In the last two years, many less profitable or undercapitalized carriers
have been forced to consolidate or to exit the industry.
COMPETITION
The trucking industry is highly competitive. 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 and has generally exerted downward pressure on prices. 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 MAJOR CUSTOMERS
Our marketing emphasis is directed to that segment 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 six employees who are
located in our major markets and supervised from our headquarters. These
individuals emphasize 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 55%, 59% and 74% of
our total revenues in 2000, 2001 and 2002, respectively. General Motors
Corporation accounted for approximately 33%, 40% and 56% of our revenues in
2000, 2001 and 2002, respectively.
We also provide transportation services to other manufacturers who are suppliers
for automobile manufacturers. Approximately 50%, 55% and 68% of our revenues
were derived from transportation services provided to the automobile industry
during 2000, 2001 and 2002, respectively. This portion of our business,
however, is spread over 16 assembly plants and 50 supplier/vendors located
throughout North America, which we believe reduces the risk of a material loss
of business.
REVENUE EQUIPMENT
At December 31, 2002, we operated a fleet of 1,781 tractors and 3,973 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 within 500,000 miles,
which normally occurs 30 to 48 months after purchase. At December 31, 2002,
1,646 of our 1,781 tractors had guaranteed residual buy-back or trade-in values.
The following table provides information regarding our tractor and trailer
turnover and the age of our fleet over the past three years:
2000 2001 2002
---- ---- ----
Tractors
- --------
Additions 304 505 430
Deletions 359 258 309
End of year total 1,413 1,660 1,781
Average age at end of year (in years) 1.7 1.8 2.1
Trailers
- --------
Additions 51 228 127
Deletions 138 55 86
End of year total 3,759 3,932 3,973
Average age at end of year (in years) 4.7 5.3 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, 2002 the Company's tractor
fleet included 130 owner-operator tractors.
TECHNOLOGY
We have installed Qualcomm Omnitracs(TM)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, saving
telephone usage cost and increasing 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(TM) 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.
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. Although
a significant portion of maintenance is performed at our primary maintenance
facility in Tontitown, Arkansas, we have additional maintenance facilities in
West Memphis, Arkansas; Jacksonville, Florida; Effingham, Illinois; Columbia,
Mississippi; Springfield, Missouri; Riverdale, New Jersey; Warren and Willard,
Ohio; Oklahoma City, Oklahoma; and El Paso, Irving and Laredo, Texas. These
facilities enhance our preventive and routine maintenance operations and are
strategically located on major transportation routes where a majority of our
freight originates and terminates. 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, for up to four years or 500,000 miles. Trailers are warranted by
the manufacturer and major component manufacturers for up to five years.
DRIVERS
At December 31, 2002, we utilized 2,090 company drivers in our operations. We
also had 130 owner-operators under contract compensated on a per mile basis.
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, and 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 our terminals in Tontitown, Arkansas;
Jacksonville, Florida; Riverdale, New Jersey; Warren, Ohio; Oklahoma City,
Oklahoma; and Irving, Texas. At December 31, 2002, we employed 62 persons on a
full-time basis in our driver recruiting, training and safety instruction
programs.
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.
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.
FACILITIES
We are headquartered and maintain our primary terminal, maintenance facilities
and corporate and administrative offices in Tontitown, Arkansas, which is
located in northwest Arkansas, a major center for the trucking industry and
where support services, including warranty repair services, for most major
tractor and trailer equipment manufacturers are readily available. We also
maintain dispatch offices at our headquarters in Tontitown, Arkansas, as well as
at our offices in Jacksonville, Florida; Breese, Illinois; Columbia,
Mississippi; Warren and Willard, Ohio; Oklahoma City, Oklahoma; Riverdale and
Paulsboro, New Jersey; and Irving and Laredo, Texas. These regional dispatch
offices facilitate communications with both our customers and drivers.
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 Exchange Act as soon as reasonably practicable after it
electronically files or furnishes such materials to the SEC.
EMPLOYEES
At December 31, 2002, we employed 2,538 persons, of whom 2,090 were drivers, 143
were maintenance personnel, 148 were employed in operations, 29 were employed in
marketing, 62 were employed in safety and personnel, and 66 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.
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.
The trucking industry is subject to possible regulatory and legislative changes
(such as increasingly stringent environmental, safety and security regulations
and limits on vehicle weight and size) that may affect the economics of the
industry by requiring changes in operating practices or by changing the demand
for common or contract carrier services or the cost of providing truckload
services. These types of future regulations could unfavorably affect our
operations.
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 53 President and Chief Executive 20
Officer
W. Clif Lawson 49 Executive Vice President and 18
Chief Operating Officer
Larry J. Goddard 44 Vice President - Finance, 15
Chief Financial Officer,
Secretary and Treasurer
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 extending through 2004.
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.
Our business is dependent upon a number of factors that may have a material
adverse effect on the results of our operations, many of which are beyond our
control. 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. It is not possible to predict the medium- or long-term
effects of the September 11, 2001 terrorist attacks and subsequent events on the
economy or on customer confidence in the United States, or the impact, if any,
on our future results of operations.
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
- - 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
2002, our top five customers, based on revenue, accounted for approximately 74%
of our revenue, and our largest customer, General Motors Corporation, accounted
for approximately 56% 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 68% of our revenues
for 2002 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.
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 adjust our driver compensation package or
let trucks sit idle, which could adversely affect our growth and profitability.
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.
Increased prices for new revenue equipment and decreases in the value of used
revenue equipment may adversely affect our earnings and cash flows.
In the past, we have acquired new tractors and trailers at favorable prices and
traded or disposed of them at prices significantly higher than current market
values. There is currently a large supply of used tractors and trailers on the
market, which has depressed the market value of used equipment to levels
significantly below the values we historically received. In addition, some
manufacturers have communicated their intention to raise the prices of new
equipment. If either or both of these events occur, we may increase our
depreciation expense or recognize less gain (or a loss) on the disposition of
our tractors and trailers. This could adversely affect our earnings and cash
flows.
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 three 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.
ITEM 2. PROPERTIES.
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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 79,193 square feet of office space and maintenance and storage
facilities. We are currently in the process of expanding this facility.
Our subsidiaries lease terminal facilities in West Memphis, Arkansas;
Jacksonville, Florida; Springfield, Missouri; Riverdale and Paulsboro, New
Jersey; Warren, Ohio; Oklahoma City, Oklahoma; and Laredo, and El Paso, Texas;
our terminal facilities in Columbia, Mississippi; Irving, Texas; and Willard,
Ohio are owned. The leased facilities are leased primarily on a month-to-month
basis, and provide on-the-road maintenance and trailer drop and relay stations.
We also have access to trailer drop and relay stations in various 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.
ITEM 3. LEGAL PROCEEDINGS.
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On October 10, 2002, a suit was filed against one of the Company's subsidiaries
and is entitled "The Official Committee of Unsecured Creditors of Bill's Dollar
Stores, Inc. v. Allen Freight Services Co." The suit, which has been filed in
the United States Bankruptcy Court for the District of Delaware, alleges
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 suit is currently in pretrial proceedings.
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, 2002.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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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. The bid prices in the tables below do not include retail
mark-up, mark-down or commission.
Calendar Year Ended December 31, 2002
HIGH LOW
----- ----
First Quarter $26.00 $12.68
Second Quarter 27.55 22.25
Third Quarter 26.23 18.89
Fourth Quarter 26.30 18.15
Calendar Year Ended December 31, 2001
HIGH LOW
----- ----
First Quarter $9.84 $7.00
Second Quarter 10.00 5.88
Third Quarter 12.00 9.10
Fourth Quarter 12.85 8.60
As of February 28, 2003, there were approximately 220 holders of record of our
common stock. We have not declared or paid any cash dividends on our common
stock. The policy of our board of directors is to retain earnings for the
expansion and development of our business. Future dividend policy and the
payment of dividends, if any, will be determined by the board of directors in
light of circumstances then existing, including our earnings, financial
condition and other factors deemed relevant by the board.
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,
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
(in thousands, except per share amounts)
Statement of operations data:
Operating revenues $ 264,012 $ 225,794 $ 205,245 $ 207,381 $ 143,164
--------- --------- --------- --------- ---------
Operating expenses:
Salaries, wages and benefits 115,432 100,359 90,680 90,248 65,169
Operating supplies 51,161 43,289 37,728 35,246 26,511
Rent and purchased transportation 9,780 10,526 12,542 13,309 1,082
Depreciation and amortization 24,715 20,300 18,806 18,392 14,003
Operating taxes and licenses 13,467 11,936 11,140 11,334 8,388
Insurance and claims 12,786 10,202 8,674 7,945 6,069
Communications and utilities 2,284 2,320 2,234 2,365 1,583
Other 4,620 4,707 3,756 4,388 3,131
(Gain) loss on sale or
disposal of property 127 886 285 (301) 168
--------- --------- --------- --------- ---------
Total operating expenses 234,372 204,525 185,845 182,926 126,104
--------- --------- --------- --------- ---------
Operating income 29,640 21,269 19,400 24,455 17,060
Interest expense (1,985) (4,477) (5,048) (5,650) (3,830)
Other - - - - 1
--------- --------- --------- --------- ---------
Income before income taxes 27,655 16,792 14,352 18,805 13,231
Income taxes 11,062 6,721 5,694 7,536 5,158
--------- --------- --------- --------- ---------
Net income $ 16,593 $ 10,071 $ 8,658 $ 11,269 $ 8,073
========= ========= ========= ========= =========
Earnings per common share:
Basic $ 1.56 $ 1.18 $ 1.02 $ 1.34 $ 0.97
======= ======= ======= ======= =======
Diluted $ 1.55 $ 1.18 $ 1.02 $ 1.33 $ 0.96
======= ======= ======= ======= =======
Average common shares outstanding-Basic 10,669 8,522 8,455 8,393 8,306
======= ======= ======= ======= =======
Average common shares outstanding-Diluted(1) 10,715 8,550 8,518 8,488 8,444
======= ======= ======= ======= =======
- --------------------------------------------------------------------------------
(1) Diluted income per share for 2002, 2001, 2000, 1999 and 1998 assumes the
exercise of stock options to purchase an aggregate of 86,324, 107,369, 208,602,
262,097 and 317,040 shares of common stock, respectively.
AT DECEMBER 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Balance Sheet Data: (in thousands)
Total Assets $228,078 $182,516 $164,518 $168,961 $126,471
Long-term debt 20,175 47,023 42,073 55,617 44,816
Stockholders' equity 144,452 72,597 62,210 53,365 41,457
YEAR ENDED DECEMBER 31,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Operating Data:
Operating ratio (1) 88.8% 90.6% 90.5% 88.2% 88.1%
Average number of truckloads per week 6,463 5,399 5,169 4,885 3,425
Average miles per trip 755 769 713 734 767
Total miles traveled (in thousands) 238,256 204,303 183,476 186,355 131,847
Average miles per tractor 136,772 131,554 128,936 128,966 125,569
Average revenue per tractor per day $ 621 $ 591 $ 579 $ 570 $ 543
Average revenue per loaded mile $ 1.15 $ 1.17 $ 1.18 $ 1.18 $ 1.15
Empty mile factor 4.0% 5.5% 5.6% 5.4% 5.5%
At end of period:
Total company-owned/leased tractors 1,781(2) 1,660(3) 1,413(4) 1,468(5) 1,127(6)
Average age of all tractors (in years) 2.12 1.81 1.72 1.64 1.74
Total trailers 3,973 3,932 3,759 3,846(7) 2,784(8)
Average age of trailers (in years) 5.74 5.31 4.66 3.97 3.31
Number of employees 2,538 2,424 2,154 1,899 1,656
- -------------------------------------------------------------------------------
(1) Total operating expenses as a percentage of total operating revenues.
(2) Includes 130 owner operator tractors.
(3) Includes 135 owner operator tractors.
(4) Includes 117 owner operator tractors.
(5) Includes 148 owner operator tractors.
(6) Includes 94 owner operator tractors.
(7) Includes 21 trailers leased from an affiliate of our majority shareholder.
(8) Includes 46 trailers leased from an affiliate of our majority shareholder.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS.
--------------
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 its 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 party and vendor receivables 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, plant 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 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.
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 provided by claims administrators. 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 receivers 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.
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. Substantially all tires are
recapped with the cost of recapping expensed when incurred.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship of revenue and
expense items to operating revenues for the periods indicated.
YEARS ENDED DECEMBER 31,
2002 2001 2000
---- ---- ----
Operating revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Salaries, wages and benefits 43.7 44.4 44.2
Operating supplies 19.4 19.2 18.4
Rent and purchased transportation 3.7 4.7 6.1
Depreciation and amortization 9.4 9.0 9.2
Operating taxes and licenses 5.1 5.3 5.4
Insurance and claims 4.8 4.5 4.2
Communications and utilities 0.9 1.0 1.1
Other 1.7 2.1 1.8
(Gain) loss on sale or disposal of property 0.0 0.4 0.1
----- ----- -----
Total operating expenses 88.7 90.6 90.5
----- ----- -----
Operating income 11.3 9.4 9.5
Interest expense (0.8) (2.0) (2.5)
----- ----- -----
Income before income taxes 10.5 7.4 7.0
Federal and state income taxes 4.2 3.0 2.8
----- ----- -----
Net income 6.3% 4.4% 4.2%
===== ===== =====
2002 COMPARED TO 2001
For the year ended December 31, 2002, our revenues were $264.0 million as
compared to $225.8 million for the year ended December 31, 2001. The increase
was due to improved utilization of existing revenue equipment and an increase in
the average number of tractors from 1,553 in 2001 to 1,742 in 2002. Improved
utilization of existing revenue equipment resulted in a 5.1% increase in average
revenue generated per tractor each work day from $591 in 2001 to $621 in 2002.
Salaries, wages and benefits decreased from 44.4% of revenues in 2001 to 43.7%
of revenues in 2002. While total salaries and wages costs did increase during
2002, the increase in revenues caused these costs to continue at approximately
the same percentage of revenue. The decrease, as a percent of revenues, relates
to a decrease in the amount reserved for employee health claims incurred but not
reported.
Rent and purchased transportation decreased from 4.7% of revenues in 2001 to
3.7% of revenues in 2002. The decrease relates primarily to a decrease in
amounts paid to other transportation companies in the form of brokerage fees
thereby resulting in a shift of costs for driver wages, fuel and equipment
costs, although to a lesser extent, to the Company's other operating expense
categories.
Depreciation and amortization increased from 9.0% of revenues in 2001 to 9.4% of
revenues in 2002. The increase was primarily due to the combined effect of
higher purchase prices for new equipment and lower guaranteed residual values
offered by the manufacturer.
Insurance and claims increased from 4.5% of revenues in 2001 to 4.8% of revenues
in 2002. The increase relates primarily to an increase in rates for auto
liability insurance coverage.
Other expenses decreased from 2.1% of revenues in 2001 to 1.7% of revenues in
2002. The decrease relates primarily to the expiration of non-compete
agreements with certain employees of a previously acquired company.
Interest expense decreased from 2.0% of revenues in 2001 to 0.8% of revenues in
2002 due to a decrease in interest rates and to the repayment of debt as
discussed in the "Liquidity and Capital Resources" section of this report.
Our effective tax rate remained constant at 40.0% during 2001 and 2002, however,
increased net income resulted in an increase in the provision for income taxes
from $6.7 million in 2001 to $11.1 million in 2002.
Net income increased to $16.6 million, or 6.3% of revenues, in 2002 from $10.1
million, or 4.4% of revenues in 2001, representing an increase in diluted net
income per share to $1.55 in 2002 from $1.18 in 2001.
2001 COMPARED TO 2000
For the year ended December 31, 2001, our revenues were $225.8 million as
compared to $205.2 million for the year ended December 31, 2000. The increase
relates primarily to an increase in the average number of tractors, from 1,423
in 2000 to 1,553 in 2001, and an increase in our utilization (revenue per
tractor per work day), which increased 2.1%, from $579 in 2000 to $591 in 2001.
Operating supplies and expenses increased from 18.4% of revenues in 2000 to
19.2% of revenues in 2001. The increase relates to an increase in fuel costs of
0.3% of revenues, net of a fuel surcharge passed to customers, and an increase
of 0.5% of revenues in equipment repair costs.
Rent and purchased transportation decreased from 6.1% of revenues in 2000 to
4.7% of revenues in 2001. The decrease relates primarily to a decrease in
amounts paid to other transportation companies in the form of brokerage fees.
Insurance and claims increased from 4.2% of revenues in 2000 to 4.5% of revenues
in 2001. The increase relates primarily to an increase in rates for auto
liability insurance coverage.
Loss on sale or disposal of property increased from 0.1% of revenues in 2000 to
0.4% of revenues in 2001. This increase is primarily the result of a one-time
write-down in the amount of $304,810, net of tax, of the value of the tractors
and trailers that we acquired in the Decker Transport Co. Inc. acquisition,
which, unlike the rest of our tractors, do not have guaranteed residual resale
or trade-in values.
Our effective tax rate increased from 39.7% in 2000 to 40.0% in 2001, which,
combined with increased revenues, resulted in an increase in the provision for
income taxes from $5.7 million in 2000 to $6.7 million in 2001.
Net income increased to $10.1 million, or 4.4% of revenues, in 2001 from $8.7
million, or 4.2% of revenues in 2000, representing an increase in diluted net
income per share to $1.18 in 2001 from $1.02 in 2000.
QUARTERLY RESULTS OF OPERATIONS
The following table presents selected consolidated financial information for
each of our last eight fiscal quarters through December 31, 2002. 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,
2001 2001 2001 2001 2002 2002 2002 2002
------ ------- ------- ------- ------- -------- ------- -------
(unaudited)
(in thousands, except earnings per share data)
Operating revenues $58,406 $57,462 $53,662 $56,264 $63,313 $70,841 $65,034 $64,824
Total operating expenses 52,861 51,502 49,192 50,970 56,331 62,082 58,062 57,897
Operating income 5,545 5,960 4,470 5,294 6,982 8,759 6,972 6,927
Net income 2,639 2,885 2,002 2,545 3,606 5,034 3,957 3,996
Earnings per common share:
Basic $0.31 $0.34 $0.23 $0.30 $0.40 $0.45 $0.35 $0.35
===== ===== ===== ===== ===== ===== ===== =====
Diluted $0.31 $0.34 $0.23 $0.30 $0.40 $0.45 $0.35 $0.35
===== ===== ===== ===== ===== ===== ===== =====
LIQUIDITY AND CAPITAL RESOURCES
During 2002, we generated $48.9 million in cash from operating activities
compared to $31.4 million and $32.5 million in 2001 and 2000, respectively.
Investing activities used $30.4 million in cash during 2002 compared to $36.7
million and $17.7 million in 2001 and 2000, 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 generated $11.4 million
in cash during 2002 compared to cash generated by financing activities of $5.7
million in 2001 and cash used in financing activities of $17.9 million in 2000.
In all three years, the cash used in financing activities was primarily for
repayment of long-term borrowings incurred to finance the purchase of revenue
equipment used in our operations. (See Cash Flow Statement on page 30.)
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 2001 and 2002, we utilized cash on hand and our lines of credit to
finance revenue equipment purchases for an aggregate of $39.4 million and $35.9
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. At
December 31, 2002, we had outstanding indebtedness under such installment notes
of $1.1 million. As of February 28, 2003, we had approximately $900,000 in
outstanding indebtedness under such installment notes, with various maturity
dates through February 2004. The weighted average interest rates on these
installment notes were 7.16%, 6.32% and 6.75% for 2002, 2001 and 2000,
respectively.
We maintain two $20.0 million revolving lines of credit (Line A and Line B) 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, 2004. At December 31, 2002,
$1.7 million in letters of credit were outstanding under Line A, with
availability to borrow $18.3 million. Amounts outstanding under Line B bear
interest at LIBOR (on the last day of the previous month) plus 1.15%, are
secured by revenue equipment and mature on November 30, 2004. At December 31,
2002, Line B was fully utilized with $20.0 million outstanding. 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
$54.8 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 intends to use the remaining proceeds to fund its capital
expenditures and to finance general working capital needs.
Our cash flows from operations increased to $48.9 million in 2002 compared to
$31.4 million in 2001. This is due to an increase in cash provided by the
excess of cash revenues over cash expenses and management of accounts payable
offset by an increase in accounts receivable. The purchase of property and
equipment in 2002 required less cash than was required for those purchases in
2001. The proceeds of the issuance of common stock provided $54.5 million which
was used primarily to reduce outstanding debt. Common stock proceeds in excess
of debt reductions was retained at December 31, 2002, for future corporate
purposes.
For 2003, we expect to purchase approximately 500 new tractors and approximately
770 trailers while continuing to sell or trade older equipment, which we expect
to result in net capital expenditures of approximately $36.4 million. We are
also in the process of expanding our corporate headquarters at our main facility
in Tontitown, Arkansas, which we expect to finance from cash on hand.
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 $1.6 million
utilizing existing cash.
On February 19, 2003, the Company entered into a non-binding letter of intent to
purchase for cash certain assets of McNeill Trucking Company, Inc., a truckload
carrier based in Little Rock, Arkansas. Consummation of the transaction is
subject to the satisfactory completion of a due diligence investigation,
negotiation of a definitive agreement and any required regulatory approvals.
Regardless of whether we consummate the proposed acquisition of McNeill Trucking
Company, Inc., we expect that our working capital and available credit under our
credit lines will be sufficient to meet our capital commitments and fund our
operating needs for at least the next twelve months.
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, $5,000 and $2,500 respectively. The Company elected in 2002 to self
insure itself for physical damage to trailers. During 2001, the Company changed
its workers' compensation coverage in Arkansas, Oklahoma, Mississippi and
Florida from a fully insured first dollar policy to a fully insured policy with
a $350,000 per occurrence deductible. The company continues to be self insured
for workers' compensation claims in the State of Ohio with a $350,000 self
insured retention with excess insurance. 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 $1,550,000 are held by a bank as security for workers'
compensation claims and letters of credit aggregating $150,000 are held by a
bank for auto liability 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.
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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
- --------------------------------------------------------------------
Our primary market risk exposures include commodity price risk (the price paid
to obtain diesel fuel for our tractors) and interest rate risk. 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.
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. For
2002 and 2001, fuel expenses represented 15.0% and 15.7%, respectively, of our
total operating expenses. Based upon our 2002 fuel consumption, a 10% increase
in the average annual price per gallon of diesel fuel would increase our annual
fuel expenses by $3.5 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
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. The agreements are stated at
their fair value of $750,000 which is included in accrued liabilities in the
accompanying Consolidated Financial Statements.
INTEREST RATE RISK
Our two $20.0 million 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 generally, 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 each of Line A and Line B 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 10 to our consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- -----------------------------------------------------
The following statements are filed with this report:
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Income - Years ended December 31, 2002, 2001
and 2000
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows - Years ended December 31, 2002,
2001 and 2000
Notes to Consolidated Financial Statements
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
P.A.M. Transportation Services, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of P.A.M.
Transportation Services, Inc. (a Delaware corporation) and subsidiaries (the
"Company") as of December 31, 2002, and the related consolidated statements of
income, shareholders' equity, and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The financial statements of the
Company as of December 31, 2001, and for each of the two years in the period
then ended were audited by other auditors who have ceased operations. Those
auditors expressed an unqualified opinion on those financial statements in their
report dated February 21, 2002.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for goodwill to conform to Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets, as of
January 1, 2002.
/s/ Deloitte & Touche LLP
March 12, 2003
Little Rock, Arkansas
THE FOLLOWING IS A COPY OF A REPORT ISSUED BY ARTHUR ANDERSEN LLP AND INCLUDED
IN THE 2001 FORM 10-K REPORT FILED ON MARCH 1, 2002. THIS REPORT HAS NOT BEEN
REISSUED BY ARTHUR ANDERSEN LLP, AND ARTHUR ANDERSEN LLP HAS NOT CONSENTED TO
ITS USE IN THIS FORM 10-K. SEE ITEM 9 AND EXHIBIT 23.2 FOR MORE INFORMATION.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
P.A.M. Transportation Services, Inc.:
We have audited the accompanying consolidated balance sheets of P.A.M.
Transportation Services, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 2001 and 2000, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of P.A.M.
Transportation Services, Inc. and subsidiaries as of December 31, 2001 and 2000,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Tulsa, Oklahoma
February 21, 2002
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2002 AND 2001 (in thousands)
- -----------------------------------------------------
2002 2001
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,766 $ 896
Accounts receivable, net:
Trade 34,231 24,327
Other 1,221 744
Inventories 411 255
Prepaid expenses and deposits 3,647 3,980
Deferred income taxes 127 342
Income taxes refundable 281 393
-------- --------
Total current assets 70,684 30,937
PROPERTY AND EQUIPMENT:
Land 2,237 2,237
Structures and improvements 7,552 4,336
Revenue equipment 215,509 198,482
Service vehicles 805 595
Office furniture and equipment 7,056 6,252
-------- --------
233,159 211,902
Accumulated depreciation (85,787) (70,190)
-------- --------
147,372 141,712
OTHER ASSETS:
Goodwill, net of amortization of $1,782 8,102 8,102
Other 2,162 1,635
-------- --------
10,264 9,737
-------- --------
Total assets $228,320 $182,386
======== ========
(Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 15,725 $ 7,800
Accrued expenses 9,601 8,722
Current portion of long-term debt 1,017 17,692
-------- --------
Total current liabilities 26,343 34,214
Long-term debt, less current portion 20,175 47,023
Deferred income taxes 37,350 28,552
SHAREHOLDERS EQUITY:
Preferred stock, $.01 par value:
Authorized shares--10,000,000
Issued and outstanding shares: 0 at December 31,
2002 and 2001
Common stock, $.01 par value:
Authorized shares--40,000,000
Issued and outstanding shares: 11,282,207 and 8,611,957
at December 31, 2002 and 2001, respectively 113 86
Additional paid-in capital 76,193 20,461
Accumulated other comprehensive loss (1,005) (508)
Retained earnings 69,151 52,558
-------- --------
Total shareholders equity 144,452 72,597
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $228,320 $182,386
======== ========
See notes to consolidated financial statements. (Concluded)
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (in thousands, except share data)
- -------------------------------------------------------------------------------
2002 2001 2000
-------- -------- --------
Operating revenues $264,012 $225,794 $205,245
Operating expenses and costs:
Salaries, wages, and benefits 115,432 100,359 90,680
Operating supplies and expenses 51,161 43,289 37,728
Rents and purchased transportation 9,780 10,526 12,542
Depreciation and amortization 24,715 20,300 18,806
Operating taxes and licenses 13,467 11,936 11,140
Insurance and claims 12,786 10,202 8,674
Communications and utilities 2,284 2,320 2,234
Other 4,620 4,707 3,756
Loss on sale or disposal of equipment 127 886 285
-------- -------- --------
234,372 204,525 185,845
-------- -------- --------
Operating income 29,640 21,269 19,400
Interest expense (1,985) (4,477) (5,048)
-------- -------- --------
Income before income taxes 27,655 16,792 14,352
Federal and state income taxes:
Current 1,718 1,301 1,056
Deferred 9,344 5,420 4,638
-------- -------- --------
11,062 6,721 5,694
-------- -------- --------
Net income $ 16,593 $ 10,071 $ 8,658
======== ======== ========
Earnings per common share:
Basic $ 1.56 $ 1.18 $ 1.02
======== ======== ========
Diluted $ 1.55 $ 1.18 $ 1.02
======== ======== ========
Average common shares outstanding:
Basic 10,669 8,522 8,455
======== ======== ========
Diluted 10,715 8,550 8,518
======== ======== ========
See notes to consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 (in thousands)
- ------------------------------------------------------------
ADDITIONAL ACCUMULATED OTHER
COMMON PAID-IN COMPREHENSIVE COMPREHENSIVE RETAINED
STOCK CAPITAL INCOME LOSS EARNINGS TOTAL
------ ------- ------------- ------------- -------- -----
BALANCE AT DECEMBER 31, 1999 $ 84 $ 19,452 $ 33,829 $ 53,365
Net income 8,658 8,658
Exercise of stock options-shares
issued 1 186 187
------ -------- -------- ------- --------
BALANCE AT DECEMBER 31, 2000 85 19,638 42,487 62,210
Components of comprehensive income:
Net earnings $ 10,071 10,071 10,071
Other comprehensive loss-
Unrealized loss on hedge,
net of tax of $339 (508) (508) (508)
--------
Total comprehensive income $ 9,563
========
Exercise of stock options-shares
issued 1 823 824
------ -------- -------- ------- --------
BALANCE AT DECEMBER 31, 2001 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 478 478
Issuance of common stock 26 54,732 54,758
Exercise of stock options-
shares issued including tax
benefits 1 522 523
------ -------- -------- -------- --------
BALANCE AT DECEMBER 31, 2002 $ 113 $ 76,193 $ (1,005) $ 69,151 $144,452
====== ======== ======== ======== ========
See notes to consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2002 AND 2001 (in thousands)
- -----------------------------------------------------
2002 2001 2000
-------- -------- --------
OPERATING ACTIVITIES:
Net income $ 16,593 $ 10,071 $ 8,658
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 24,715 20,300 18,806
Bad debt expense 1,028 897 29
Non-competition agreement amortization 131 131
Provision for deferred income taxes 9,344 5,420 4,638
Loss on sale or disposal of equipment 127 886 285
Changes in operating assets and liabilities, net
of acquisition:
Accounts receivable (11,516) (2,453) (271)
Prepaid expenses, inventories, and other assets (349) (763) 592
Income taxes refundable (357) 235 (516)
Trade accounts payable 7,925 (3,927) (295)
Accrued expenses 1,357 648 400
-------- -------- --------
Net cash provided by operating activities 48,867 31,445 32,457
-------- -------- --------
INVESTING ACTIVITIES:
Purchases of property and equipment (42,067) (47,515) (30,732)
Proceeds from sale or disposal of equipment 11,565 10,536 12,842
Lease payments received on direct financing leases 107 232 231
-------- -------- --------
Net cash used in investing activities (30,395) (36,747) (17,659)
FINANCING ACTIVITIES:
Borrowings under line of credit 362,148 278,147 196,472
Repayments under line of credit (371,224) (258,197) (191,295)
Borrowings of long-term debt 1,459 7,943 4,384
Repayments of long-term debt (35,907) (23,004) (27,158)
Proceeds from issuance of common stock 54,538
Other 384 824 (273)
-------- -------- --------
Net cash provided by (used in) financing activities 11,398 5,713 (17,870)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 29,870 411 (3,072)
Cash and cash equivalents at beginning of year 896 485 3,557
-------- -------- --------
Cash and cash equivalents at end of year $ 30,766 $ 896 $ 485
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,100 $ 4,500 $ 5,100
======== ======== ========
Income taxes $ 1,500 $ 1,100 $ 1,100
======== ======== ========
See notes to consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
- -----------------------------------------------------
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 motor carrier.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries: P.A.M. Transport, Inc., P.A.M. Special Services,
Inc. (inactive as of December 31, 2002), P.A.M. Dedicated Services, Inc., P.A.M.
Logistics, Inc. (inactive as of December 31, 2002), Choctaw Express, Inc.,
Choctaw Brokerage, Inc. (inactive as of December 31, 2002), Allen Freight
Services, Inc., T.T.X., Inc., Transcend Logistics, Inc., and Decker Transport
Co., Inc. All significant intercompany accounts and transactions have been
eliminated.
CASH AND CASH EQUIVALENTS-The Company considers all highly liquid investments
with a maturity of three months or less when purchased to be cash equivalents.
TIRE PURCHASES-Tires purchased with revenue equipment are capitalized as a cost
of the related equipment. Replacement tires are included in prepaid expenses and
deposits and are amortized over a 24-month period. Amounts paid for the
recapping of tires are expensed when 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 completed an 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. We completed the annual assessment of impairment in the fourth quarter
of 2002 and determined there was no impairment at that time. Based on the
review for impairment indicators in the second half of 2002, we have determined
that an impairment review is not required prior to our annual review during the
fourth quarter of 2003.
REVENUE RECOGNITION POLICY-Revenue is recognized in full upon completion of
delivery to the receivers 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.
REPAIRS AND MAINTENANCE-Repairs and maintenance costs are expensed as incurred.
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. 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:
ESTIMATED
ASSET CLASS 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
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.
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 and such losses have been within management's
expectations. In view of the concentration of the Company's revenues and
accounts receivable among a limited number of customers within the automobile
manufacturing industry, the financial health of this industry is a factor in the
Company's overall evaluation of accounts receivable.
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, 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 SFAS No. 148 as described below and in Note 5.
RECENT ACCOUNTING PRONOUNCEMENTS-In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, ("SFAS No. 133"),
which was amended by Statement of Financial Accounting Standards No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities -
an Amendment of FASB Statement No. 133 ("SFAS No. 138"). SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Companies must formally document, designate,
and assess the effectiveness of transactions that receive hedge accounting.
SFAS No. 138 amends the accounting and reporting standards for certain
derivative instruments and certain hedging activities, including the normal
purchases and normal sales exception.
On January 1, 2001, the Company adopted SFAS No. 133. The Company had no
transition adjustment as a result of adopting SFAS No. 133 on January 1, 2001.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Business Combinations ("SFAS No. 141"),
and Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, ("SFAS No. 142") and announced the approval for issuance of
Statement of Financial Accounting Standards No. 143, Accounting for Asset
Retirement Obligations ("SFAS No. 143").
SFAS No. 141 requires all business combinations completed after June 30, 2001,
to be accounted for under the purchase method. This standard also establishes
for all business combinations made after June 30, 2001, specific criteria for
the recognition of intangible assets separately from goodwill.
SFAS No. 142 addresses the accounting for goodwill and other intangible assets
after an acquisition. Goodwill and other intangibles that have indefinite lives
will no longer be amortized, but will be subject to annual impairment tests.
All other intangible assets will continue to be amortized over their estimated
useful lives. The Company adopted this statement on January 1, 2002. At that
time, amortization of existing goodwill ceased. The adoption of SFAS No. 142 on
January 1, 2002 did not have a material impact on the Company's financial
position or results of operations.
SFAS No. 143 provides accounting requirements for retirement obligations
associated with tangible long-lived assets, including: (i) the timing of
liability recognition; (ii) initial measurement of the liability; (iii)
allocation of asset retirement cost to expense; (iv) subsequent measurement of
the liability; and (v) financial statement disclosures. SFAS No. 143 requires
that an asset retirement cost be capitalized as part of the cost of the related
long-lived asset and subsequently allocated to expense using a systematic and
rational method. This standard becomes effective for fiscal years beginning
after June 15, 2002. As of December 31, 2002, management believes that SFAS No.
143 will have no significant effect on the financial position or results of
operations of the Company.
In October 2001, the FASB issued Statement of Financial Accounting Standards No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No.
144"). SFAS No. 144 addresses financial accounting and reporting for impairment
or disposal of long-lived assets. This Statement supersedes FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets to be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transaction", for the disposal of a segment of a business. This Statement also
amends ARB No. 51, Consolidated Financial Statements, to eliminate the exception
to consolidation for a subsidiary for which control is likely to be temporary.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001.
The Company adopted SFAS No. 144 on January 1, 2002, and there was no a material
impact on the Company's financial position or results of operations.
In May 2002, the FASB issued SFAS No. 145, Rescission of SFAS Nos. 4, 44 and 64,
Amendment of SFAS No. 13, and Technical Corrections as of April 2002 ("SFAS No.
145"). SFAS No. 145, rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishments of Debt made to Satisfy
Sinking-Fund Requirements. Under the provisions of SFAS No. 145, gains and
losses from extinguishment of debt can only be classified as extraordinary items
if they meet the criteria in APB Opinion No. 30. The provisions of this
Statement related to the rescission of SFAS No. 4 shall be applied in fiscal
years beginning after May 15, 2002. Earlier application is permitted. This
statement also amends SFAS No. 13, Accounting for Leases, to eliminate an
inconsistency between the accounting for sale-leaseback transactions and certain
lease modifications that have economic effects that are similar and is effective
for transactions occurring after May 15, 2002. This Statement also amends other
existing authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed conditions and
are effective for financial statements issued on or after May 15, 2002. As of
December 31, 2002, management believes that SFAS No. 145 will have no
significant effect on the financial position or results of operations of the
Company.
In July of 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 replaces EITF
No. 94-3 Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the date
of a commitment to an exit or disposal plan as was required by EITF No. 94-3.
Examples of costs covered by SFAS No. 146 include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. SFAS
No. 146 is to be applied to exit or disposal activities initiated after December
31, 2002. As of December 31, 2002, management believes that SFAS No. 146 will
have no significant effect on the financial position or results of operations of
the Company.
During December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure, an Amendment of FASB Statement No. 123
("SFAS No. 148"), which provides alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation and requires prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
SFAS No. 148 is effective for fiscal years ending after December 15, 2002.
Management has determined that adoption of the disclosure provisions of this
statement did not have any effect on the financial position or results of
operations of the Company during 2002 and expects no significant effect on
future periods.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN
45") elaborates on the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued.
It also clarifies that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, irrespective of the guarantor's fiscal
year-end. The disclosure requirements in FIN 45 are effective for financial
statements of annual periods ending after December 15, 2002. Management of the
Company has not determined the effect, if any, of the application of the initial
recognition and initial measurement provisions of FIN 45.
USE OF ESTIMATES-The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
RECLASSIFICATIONS-Certain 2001 and 2000 amounts have been reclassified to
conform to the 2002 presentation.
2. ACCOUNTS RECEIVABLE
- ----------------------
Accounts receivable is presented net of an allowance for doubtful accounts as
shown below. An analysis of changes in the allowance for the years ended
December 31, 2002, 2001 and 2000 follows:
2002 2001 2000
-------- -------- --------
(in thousands)
Balance, beginning of year $ 1,515 $ 656 $ 655
Provision for bad debts 1,028 898 29
Charge-offs (1,827) (39) (28)
-------- -------- --------
Balance, end of year $ 716 $ 1,515 $ 656
======== ======== ========
Both the 2002 provision for bad debt and charge-offs include a provision for a
contingent liability relating to a preferential payment claim lawsuit filed by
the creditors of one of the Company's subsidiaries (See Note 12). In addition,
2002 charge-offs reflect the write-off of items included in the 2001 provision
for bad debts.
3. GOODWILL
- -----------
A reconciliation of previously reported net income and earnings per share to
the amounts adjusted for the exclusion of goodwill amortization net of related
income tax effect follows:
YEAR ENDED DECEMBER 31,
2002 2001 2000
--------- --------- ---------
(in thousands)
Reported net income $ 16,593 $ 10,071 $ 8,658
Goodwill amortization, net of tax 243 243
--------- --------- ---------
Adjusted net income $ 16,593 $ 10,314 $ 8,901
========= ========= =========
Adjusted net income per common share:
Basic $ 1.56 $ 1.21 $ 1.05
========= ========= =========
Diluted $ 1.55 $ 1.21 $ 1.05
========= ========= =========
4. ACCRUED EXPENSES
- -------------------
Accrued expenses at December 31 is summarized as follows:
2002 2001
---------- ----------
(in thousands)
Payroll $ 1,638 $ 1,607
Accrued vacation 1,414 911
Taxes 1,535 1,575
Interest 73 159
Driver escrows 893 803
Self-insurance claims reserves 4,048 3,667
---------- ----------
$ 9,601 $ 8,722
========== ==========
5. 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, $5,000 and $2,500, respectively. The Company elected in 2002 to self
insure itself for physical damage to trailers. During 2001, the Company changed
its workers' compensation coverage in Arkansas, Oklahoma, Mississippi and
Florida from a fully insured first dollar policy to a fully insured policy with
a $350,000 per occurrence deductible. The company continues to be self insured
for workers' compensation claims in the State of Ohio with a $350,000 self
insured retention with excess insurance. 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 $1,550,000 are held by a bank as security for workers'
compensation claims and letters of credit aggregating $150,000 are held by a
bank for auto liability 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.
6. LONG-TERM DEBT
- -----------------
Long-term debt at December 31 consists of the following:
2002 2001
--------- ---------
(in thousands)
Equipment financings (1) $ 1,066 $ 32,883
Line of credit with a bank, due May 31, 2004
and collateralized by accounts receivable (2) 9,076
Line of credit with a bank, due November 30, 2004
and collateralized by revenue equipment (3) 20,000 20,000
Note payable (4) 1,810
Other (5) 126 946
--------- ---------
21,192 64,715
Less current maturities (1,017) (17,692)
--------- ---------
Long-term debt, net of current maturities $ 20,175 $ 47,023
========= =========
(1) Equipment financings consist of installment obligations for revenue and
service equipment purchases, payable in various monthly installments through
February 2004, at a weighted average interest rate of 7.16% and collateralized
by equipment with a net book value of approximately $2.3 million at December 31,
2002.
(2) The 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%. The Company was in compliance with all provisions of the agreement at
December 31, 2002.
(3) The 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 last day of the previous month
plus 1.15% (2.53% at December 31, 2002). The Company was in compliance with all
provisions of the agreement at December 31, 2002.
(4) 6.0% note to the former owner of Decker Transport Company, Inc., payable
in monthly installments of $77,216 was paid in full during March 2002.
(5) Various notes with weighted average interest rates of 0.0% at December
31, 2002, payable in monthly installments through January 2005.
Scheduled annual maturities on long-term debt outstanding at December 31, 2002,
are:
(in thousands)
2003 $ 1,017
2004 20,173
2005 2
---------
$ 21,192
=========
7. SIGNIFICANT CUSTOMERS AND INDUSTRY CONCENTRATION
- ---------------------------------------------------
In 2002, 2001 and 2000, one customer, which is in the automobile manufacturing
industry, accounted for 56%, 40% and 33% 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 2002, 2001
and 2000, 68%, 55% and 50%, respectively, were derived from transportation
services provided to the automobile manufacturing industry. Accounts receivable
from the largest customer totaled approximately $25,000,000 and $11,500,000 at
December 31, 2002 and 2001, respectively.
8. 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:
2002 2001
------------------------ ------------------------
(in thousands)
CURRENT LONG-TERM CURRENT LONG-TERM
---------------------------------------------------------
Deferred tax liabilities:
Property and equipment $ 40,608 $ 32,863
Prepaid expenses $ 2,307 $ 1,975
-------- ---------- -------- ----------
Total deferred tax liabilities 2,307 40,608 1,975 32,863
Deferred tax assets:
Alternative minimum tax credit 2,016 3,345
Allowance for doubtful accounts 267 575
Compensated absences 537 346
Self-insurance allowances 1,402 1,396
Hedging derivative 670 339
Accrued compensation 228
Non-competition agreement 450 505
Other 122 122
-------- ---------- -------- ----------
Total deferred tax assets 2,434 3,258 2,317 4,311
-------- ---------- -------- ----------
Net deferred tax asset (liability) $ 127 $ (37,350) $ 342 $ (28,552)
======== ========== ======== ==========
The reconciliation between the effective income tax rate and the statutory
Federal income tax rate is presented in the following table:
YEAR ENDED DECEMBER 31,
2002 2001 2000
------------------- ------------------- -------------------
(in thousands)
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-----------------------------------------------------------------------
Income tax at the statutory
Federal rate of 34% $ 9,403 34.0% $ 5,709 34.0% $ 4,879 34.0%
Nondeductible expenses 401 1.5 338 2.0 311 2.2
State income taxes, net of
federal benefit 1,552 5.6 804 4.8 840 5.9
Other (294) (1.1) (130) (0.8) (336) (2.4)
-------- ---- -------- ---- -------- ----
Total income taxes $ 11,062 40.0% $ 6,721 40.0% $ 5,694 39.7%
======== ==== ======== ==== ======== ====
The current income tax provision consists of the following:
2002 2001 2000
-------- -------- --------
(in thousands)
Federal $ 975 $ 951 $ 656
State 743 350 400
-------- -------- --------
$ 1,718 $ 1,301 $ 1,056
======== ======== ========
The Company has alternative minimum tax credits of approximately $2.0 million at
December 31, 2002, which have no expiration date under the current federal
income tax laws.
9. SHAREHOLDERS' EQUITY
- -----------------------
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, 2002. At December 31, 2002, approximately 315,000 shares were
available for granting future options.
Outstanding incentive stock options at December 31, 2002, 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, 2002, must be exercised
within five to six years and certain nonqualified options may not be exercised
within one year of the date of grant.
Transactions in stock options under these plans are summarized as follows:
SHARES
UNDER
OPTION PRICE RANGE
--------- -------------
Outstanding at December 31, 1999 265,000 $5.75-$10.63
Granted 10,000 $9.13
Exercised (29,700) $5.75-$6.75
Canceled (5,000) $7.38-$9.13
---------
Outstanding at December 31, 2000 240,300 $5.75-$10.63
Granted 8,000 $8.25
Exercised (142,300) $5.75-$7.38
Canceled (1,000) $7.38
---------
Outstanding at December 31, 2001 105,000 $6.00-$10.63
Granted 308,000 $20.79-$23.22
Exercised (39,000) $6.00-$10.63
---------
Outstanding at December 31, 2002 374,000 $8.25-$23.22
=========
Options exercisable at December 31, 2002 125,000
=========
The following is a summary of stock options outstanding as of December 31, 2002:
WEIGHTED
OPTION AVERAGE
OPTIONS EXERCISE REMAINING OPTIONS
OUTSTANDING PRICE YEARS EXERCISABLE
---------------------------------------------------------------
1,000 $ 10.63 1.2 1,000
30,000 $ 9.25 1.5 30,000
5,000 $ 8.63 2.2 5,000
14,000 $ 10.25 2.6 5,000
8,000 $ 9.13 3.2 8,000
8,000 $ 8.25 4.2 8,000
8,000 $ 20.79 5.3 8,000
300,000 $ 23.22 9.8 60,000
--------- ---------
374,000 125,000
========= =========
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:
2002 2001 2000
------- ------- -------
(in thousands, except per share data)
Net income $16,593 $10,071 $ 8,658
Add: Stock-based employee compensation
included in reported net income, net of
related tax effects 76
Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects (445) (48) (116)
------- ------- -------
Pro forma net income $16,224 $10,023 $ 8,542
======= ======= =======
Earnings per share:
Basic - as reported $ 1.56 $ 1.18 $ 1.02
Basic - pro forma $ 1.52 $ 1.18 $ 1.01
Diluted - as reported $ 1.55 $ 1.18 $ 1.02
Diluted - pro forma $ 1.51 $ 1.18 $ 1.00
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:
2002 2001 2000
-----------------------------------------------------------
Dividend yield 0 % 0 % 0 %
Volatility range 35.00% - 61.27% 31.63% - 76.64% 31.63% - 76.64%
Risk-free rate range 3.97% - 6.01% 4.74% - 7.02% 4.74% - 7.02%
Expected life 5 years 5 years 5 years
10. EARNINGS PER SHARE
- ----------------------
The Company applies Statement of Financial Accounting Standards No. 128,
Earnings Per Share, 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, 2002
(in thousands, except per share date)
------------------------------------
NET PER SHARE
INCOME SHARES AMOUNT
------------------------------------
Basic earnings per share data - $ 16,593 10,669 $ 1.56
Options issued 46
-------- ------ -------
Diluted earnings per share data $ 16,593 10,715 $ 1.55
======== ====== =======
FOR THE YEAR ENDED DECEMBER 31, 2001
(in thousands, except per share date)
------------------------------------
NET PER SHARE
INCOME SHARES AMOUNT
------------------------------------
Basic earnings per share data - $ 10,071 8,522 $ 1.18
Options issued 28
-------- ------ -------
Diluted earnings per share data $ 10,071 8,550 $ 1.18
======== ====== =======
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands, except per share date)
------------------------------------
NET PER SHARE
INCOME SHARES AMOUNT
------------------------------------
Basic earnings per share data - $ 8,658 8,455 $ 1.02
Options issued 63
-------- ------ -------
Diluted earnings per share data $ 8,658 8,518 $ 1.02
======== ====== =======
11. 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
$250,000, $225,000, and $255,000 in 2002, 2001 and 2000, respectively.
12. COMMITMENTS AND CONTINGENCIES
- ---------------------------------
On October 10, 2002, a suit was filed against one of the Company's subsidiaries.
The suit, which has been filed in the United States Bankruptcy Court for the
District of Delaware, alleges preferential transfers of $660,055 were made to
the Company's subsidiary, Allen Freight Services Co., within the 90 day period
preceding the bankruptcy petition date of the plaintiff. The suit is currently
in pretrial proceedings.
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.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
SFAS No. 107, Disclosure About Fair Value of Financial Instruments, 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. Such amounts are not presented in this note due to their required
presentation elsewhere.
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:
For cash and cash equivalents, receivables, 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 liabilities are
short-term in nature.
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 long-term debt at December 31, 2002, is $1,192,000 and the fair value of
long-term debt is estimated to be $1,217,000.
The carrying amount for the line of credit approximates fair value because the
line of credit interest rate is adjusted frequently.
The carrying value of all hedging financial instruments is equal to their fair
value and is the amount at which the hedges could be settled, based on estimates
determined by dealers. Hedging liabilities total $2,425,000 at December 31,
2002.
14. 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 loss in
shareholders' equity and will be reclassified into current earnings by June 2,
2006, the latest termination date for all current swap agreements. At December
31, 2002, the net after tax deferred hedging loss in accumulated other
comprehensive loss was approximately $1,005,000. 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, the Company is 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, the Company 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, the Company 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. The agreements are stated at their fair value
of $750,000 which is included in accrued liabilities in the accompanying
consolidated balance sheet at December 31, 2002.
15. 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 shareholder, and recognized $354,241, $58,030, and $80,377 in
operating revenue and $1,103,062, $905,570, and $495,841 in operating expenses
in 2002, 2001, and 2000, respectively. At December 31, 2002 and 2001, $479,342
and $143,527, respectively, was owed to the Company for these services. At
December 31, 2002 and 2001, $494,454 and $84,006, respectively, was due to these
affiliates for these services. In the opinion of management, related party
transactions are made on substantially the same terms as those prevailing at the
time for comparable transactions with unrelated persons and do not involve more
than the normal risk of collectibility.
16. ACQUISITION (UNAUDITED)
- ---------------------------
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 $1.6 million
utilizing existing cash.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------
The tables below present quarterly financial information for 2002 and 2001:
2002
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------
(in thousands, except per share data)
Operating revenues $ 63,313 $ 70,841 $ 65,034 $ 64,824
Operating expenses 56,331 62,082 58,061 57,898
-------- -------- -------- --------
Operating income 6,982 8,759 6,973 6,926
Interest expense 972 369 377 267
Income taxes 2,404 3,356 2,638 2,664
-------- -------- -------- --------
Net income $ 3,606 $ 5,034 $ 3,958 $ 3,995
======== ======== ======== ========
Net income per common share:
Basic $ 0.40 $ 0.45 $ 0.35 $ 0.36
======== ======== ======== ========
Diluted $ 0.40 $ 0.45 $ 0.35 $ 0.35
======== ======== ======== ========
Average common shares outstanding:
Basic 8,928 11,183 11,263 11,268
======== ======== ======== ========
Diluted 8,974 11,238 11,307 11,308
======== ======== ======== ========
2001
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-----------------------------------------------------
(in thousands, except per share data)
Operating revenues $ 58,406 $ 57,462 $ 53,662 $ 56,264
Operating expenses 52,861 51,502 49,192 50,970
-------- -------- -------- --------
Operating income 5,545 5,960 4,470 5,294
Interest expense 1,147 1,159 1,148 1,023
Income taxes 1,759 1,916 1,320 1,726
-------- -------- -------- --------
Net income $ 2,639 $ 2,885 $ 2,002 $ 2,545
======== ======== ======== ========
Net income per common share:
Basic $ 0.31 $ 0.34 $ 0.23 $ 0.30
======== ======== ======== ========
Diluted $ 0.31 $ 0.34 $ 0.23 $ 0.30
======== ======== ======== ========
Average common shares outstanding:
Basic 8,474 8,484 8,525 8,607
======== ======== ======== ========
Diluted 8,519 8,526 8,537 8,617
======== ======== ======== ========
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
On July 9, 2002, P.A.M. Transportation Services, Inc. (the "Company") dismissed
its independent auditors, Arthur Andersen LLP, and on the same date engaged
Deloitte & Touche LLP as its independent auditors for the fiscal year ending
December 31, 2002. Each of these actions was approved by the Audit Committee of
the Company. Information with respect to this matter is included in the
Company's current report on Form 8-K filed July 12, 2002, which information is
incorporated herein by reference.
PART III
Except as to information with respect to executive officers, which is contained
in a separate heading under Item 1 to this Form 10-K, the information required
by Part III of Form 10-K is, pursuant to General Instruction G (3) of Form 10-K,
incorporated by reference from our definitive proxy statement to be filed
pursuant to Regulation 14A for our Annual Meeting of Stockholders to be held on
May 29, 2003. 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 is incorporated by reference from the
section entitled "Election of Directors" contained in the proxy statement.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
The information responsive to this item is incorporated by reference from the
section entitled "Executive Compensation" contained in the proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 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, 2002, 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 374,000 $20.71 318,000
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. CONTROLS AND PROCEDURES.
- ----------------------------------
We maintain a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by P.A.M. Transportation Services, Inc. in
reports that it files with the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. Within the 90-day period
prior to the filing of this report, an evaluation was carried out under the
supervision and with the participation of our management, including the Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of our disclosure controls and procedures. Based on that
evaluation, the CEO and CFO have concluded that our disclosure controls and
procedures are effective.
CEO AND CFO CERTIFICATES
Immediately following the Signatures section of this report on Form 10-K, there
are two certifications, one each by the CEO and the CFO. They are required under
Section 302 of the Sarbanes-Oxley Act of 2002 (the "Section 302
Certifications"). This Item 14, Controls and Procedures, is referred to in the
Section 302 Certifications and should be read in conjunction with the Section
302 Certifications.
DISCLOSURE CONTROLS
"Disclosure Controls" are procedures that are designed to ensure that
information required to be disclosed in our reports filed under the Securities
Exchange Act of 1934, such as this report on Form 10-K, is recorded, processed,
summarized and reported within the time periods specified in the SEC rules and
forms. Disclosure Controls are also designed to ensure that information required
to be disclosed is accumulated and communicated to our management, including our
CEO and CFO, as appropriate to allow timely decisions regarding disclosure.
INTERNAL CONTROLS
"Internal Controls" are procedures that are designed to provide reasonable
assurance that (1) our transactions are properly authorized, recorded and
reported and (2) our assets are safeguarded against unauthorized or improper
use, so that our financial statements may be prepared in accordance with
generally accepted accounting principles.
LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS
Our management, including the CEO and CFO, do not expect that our Disclosure
Controls and/or our Internal Controls will prevent or detect all error or fraud.
A system of controls is able to provide only reasonable, not complete, assurance
that the control objectives are being met, no matter how extensive those control
systems may be. Also, control systems must be established within the opposing
forces of risk and resources, (i.e., the benefits of a control system must be
considered relative to its costs). Because of these inherent limitations that
exist in all control systems, no evaluation of Disclosure Controls and/or
Internal Controls can provide absolute assurance that all errors or fraud, if
any, have been detected. The inherent limitations in control systems include
various human and system factors that may include errors in judgment or
interpretation regarding events or circumstances or inadvertent error.
Additionally, controls can be circumvented by the acts of a single person, by
collusion on the part of two or more people or by management override of the
control. Over time, controls can also become ineffective as conditions,
circumstances, policies, technologies, level of compliance and people change.
Because of such inherent limitations, in any cost-effective control system over
financial information, misstatements may occur due to error or fraud and may not
be detected.
SCOPE OF EVALUATION OF DISCLOSURE CONTROLS
The evaluation of our Disclosure Controls performed by our CEO and CFO included
obtaining an understanding of the design and objective of the controls, the
implementation of those controls and the results of the controls on this report
on Form 10-K. We have established a Disclosure Committee whose duty is to
perform procedures to evaluate the Disclosure Controls and provide the CEO and
CFO with the results of their evaluation as part of the information considered
by the CEO and CFO in their evaluation of Disclosure Controls. In the course of
the evaluation of Disclosure Controls, we reviewed the controls that are in
place to record, process, summarize and report, on a timely basis, matters that
require disclosure in our reports filed under the Securities Exchange Act of
1934. We also considered the adequacy of the items disclosed in this report on
Form 10-K.
CONCLUSIONS
Based upon the evaluation of Disclosure Controls described above, our CEO and
CFO have concluded that, subject to the limitations described above, our
Disclosure Controls are effective to ensure that material information relating
to P.A.M. Transportation Services, Inc. and its consolidated subsidiaries is
made known to management, including the CEO and CFO, so that required
disclosures have been included in this report on Form 10-K.
We have also reviewed our system of Internal Controls and our CEO and CFO have
concluded that subsequent to the date of their evaluation, there have been no
significant changes in our Internal Controls or in other factors that could
significantly affect Internal Controls.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ----------------------------------------------------------------------------
(a) Financial Statements and Schedules.
(1) Financial Statements: See Part II, Item 8 hereof.
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 2002 and 2001
Consolidated Statements of Income - Years ended December 31, 2002,
2001 and 2000
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 2002, 2001 and 2000
Consolidated Statements of Cash Flows - Years ended December 31,
2002, 2001 and 2000
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 herewith and appearing immediately
following the signatures and certifications in this Report is
incorporated by reference in response to this Item.
(b) Reports on Form 8-K.
A Current Report on Form 8-K was filed on November 6, 2002
regarding a press release issued to announce our third quarter 2002
results. No other reports on Form 8-K were filed during the fourth
quarter ended December 31, 2002.
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 28, 2003 By: /s/ Robert W. Weaver
--------------------------
ROBERT W. WEAVER
President and Chief Executive Officer
(principal executive officer)
Dated: March 28, 2003 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 28, 2003 By: /s/ Robert W. Weaver
--------------------------
ROBERT W. WEAVER, President and Chief
Executive Officer, Director
Dated: March 28, 2003 By: /s/ Matthew T. Moroun
--------------------------
MATTHEW T. MOROUN, Director
Dated: March 28, 2003 By: /s/ Daniel C. Sullivan
--------------------------
DANIEL C. SULLIVAN, Director
Dated: March 28, 2003 By: /s/ Charles F. Wilkins
--------------------------
CHARLES F. WILKINS, Director
Dated: March 28, 2003 By: /s/ Frederick P. Calderone
--------------------------
FREDERICK P. CALDERONE, Director
Dated: March 28, 2003 By: /s/ Manuel J. Moroun
--------------------------
MANUEL J. MOROUN, Director
Dated: March 28, 2003 By: /s/ Thomas H. Cooke
--------------------------
THOMAS H. COOKE, Director
Dated: March 28, 2003 By: /s/ Frank L. Conner
--------------------------
FRANK L. CONNER, Director
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBER W. WEAVER, President and Chief Executive Officer, certify that:
(1) I have reviewed this annual report on Form 10-K of P.A.M. TRANSPORTATION
SERVICES, INC., a Delaware corporation (the "registrant");
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
By: /s/ Robert W. Weaver
------------------------------
Robert W. Weaver
President and Chief Executive Officer
(principal executive officer)
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, LARRY J. GODDARD, Chief Financial Officer, certify that:
(1) I have reviewed this annual report on Form 10-K of P.A.M. TRANSPORTATION
SERVICES, INC., a Delaware corporation (the "registrant");
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
By: /s/ Larry J. Goddard
----------------------------
Larry J. Goddard
Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
(principal accounting and financial officer)
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"); or (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"); or (xi) the Quarterly Report on Form 10-Q for the
quarter ended March 31, 2002 ("3/31/02 10-Q").
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)
*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)
*10.1.1 - Employment Agreement between the Registrant and Robert W. Weaver, effective July 1, 2002
(Exh 10.1.1, 2001 10-K)
*10.2 - Employment Agreement between the Registrant and W. Clif Lawson, dated January 1, 2002
(Exh 10.2, 2001 10-K)
*10.3 - Employment Agreement between the Registrant and Larry J. Goddard, dated January 1, 2002
(Exh 10.3, 2001 10-K)
*10.4 - 1995 Stock Option Plan, as Amended and Restated (Exh. 4.1, 6/11/99 S-8)
*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)
21.1 - Subsidiaries of the Registrant
23.1 - Consent of Deloitte & Touche LLP
23.2 - Notice regarding Consent of Arthur Andersen, LLP
99.1 - Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 - Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002