PAM TRANSPORTATION SERVICES INC - Annual Report: 2006 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ý Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For
the Fiscal Year Ended December 31, 2006
or
o 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
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71-0633135
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|
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(State
or other jurisdiction of
incorporation
or organization)
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(I.R.S.
Employer
Identification
No.)
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297
West Henri De Tonti Blvd, Tontitown, Arkansas 72770
(Address
of principal executive offices) (Zip Code)
(479)
361-9111
Registrant's
telephone number, including area code
Securities
registered pursuant to section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which registered
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Common
Stock, $.01 par value
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The
NASDAQ Stock Market, LLC
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Securities
registered pursuant to section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act.
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Yes
o
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No
þ
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Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act.
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Yes
o
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No
þ
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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
þ
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No
o
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and
will not be contained, to the best of the registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this
Form 10-K or any amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
|
Large
accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
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Yes
o
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No
þ
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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 $130,771,476.
Solely for the purposes of this response, executive officers, directors and
beneficial owners of more than five percent of the registrant’s common stock are
considered the affiliates of the registrant at that date.
The
number of shares outstanding of the issuer’s common stock, as of March 5,
2007: 10,307,607
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 2007 are incorporated by reference in answer to
Part
III of this report, with the exception of information regarding executive
officers required under Item 10 of Part III, which information is included
in
Part I, Item 1.
FORWARD-LOOKING
STATEMENTS
This
Report contains forward-looking statements, including statements about our
operating and growth strategies, our expected financial position and operating
results, industry trends, our capital expenditure and financing plans and
similar matters. Such forward-looking statements are found throughout this
Report, including under Item 1, Business, Item 1A, Risk Factors, 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 “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.
P.A.M.
TRANSPORTATION SERVICES, INC.
FORM
10-K
For
the fiscal year ended December 31, 2006
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PART
I
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PART
II
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PART
III
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PART
IV
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62
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PART
I
Unless
the context otherwise requires, all references in this Annual Report on Form
10-K to “P.A.M.,” the “Company,” “we,” “our,” or “us” mean P.A.M. Transportation
Services, Inc. and its subsidiaries.
We
are a
truckload dry van carrier transporting general commodities throughout the
continental United States, as well as in the Canadian provinces of Ontario
and
Quebec. We also provide transportation services in Mexico under agreements
with
Mexican carriers. Our freight consists primarily of automotive parts, consumer
goods, such as general retail store merchandise, and manufactured goods,
such as
heating and air conditioning units.
P.A.M.
Transportation Services, Inc. is a holding company organized under the laws
of
the State of Delaware in June 1986 which conducts operations through the
following wholly owned subsidiaries: P.A.M. Transport, Inc., T.T.X., Inc.,
P.A.M. Dedicated Services, Inc., P.A.M. Logistics Services, Inc., Choctaw
Express, Inc., Choctaw Brokerage, Inc., Transcend Logistics, Inc., Allen
Freight
Services, Inc., Decker Transport Co., Inc., East Coast Transport and Logistics,
LLC, S & L Logistics, Inc., P.A.M. International, Inc., P.A.M. Canada, Inc.
and McNeill Express, Inc. Our operating authorities are held by P.A.M.
Transport, Inc., P.A.M. Dedicated Services, Inc., Choctaw Express, Inc.,
Choctaw
Brokerage, Inc., Allen Freight Services, Inc., T.T.X., Inc., Decker Transport
Co., Inc., East Coast Transport and Logistics, LLC, and McNeill Express,
Inc.
We
are
headquartered and maintain our primary terminal and maintenance facilities
and
our corporate and administrative offices in Tontitown, Arkansas, which is
located in northwest Arkansas, a major center for the trucking industry and
where the support services (including warranty repair services) for most
major
tractor and trailer equipment manufacturers are readily available.
In
order
to conform to industry practice, the Company began to classify fuel surcharges
charged to customers as revenue rather than as a reduction of operating supplies
expense as had been presented in reports prior to the period ended June 30,
2004. During 2006, the Company began to separately display as a line item
“Fuel
expense” for amounts paid for fuel which previously had been aggregated with
other operating supplies and included in the line item “Operating supplies”.
These reclassifications have had no effect on operating income, net income
or
earnings per share. The Company has made corresponding reclassifications
to
comparative periods shown.
Segment
Financial Information
The
Company's operations are all in the motor carrier segment and are aggregated
into a single operating segment in accordance with the aggregation criteria
presented in SFAS 131.
Operations
Our
operations can generally be classified into truckload services or brokerage
and
logistics services. Truckload services include those transportation services
in
which we utilize company owned tractors or owner-operator owned tractors
for the
pickup and delivery of freight. The brokerage and logistics services consists
of
services such as transportation scheduling, routing, mode selection,
transloading and other value added services related to the transportation
of
freight which may or may not involve the usage of company owned or
owner-operator owned equipment. Both our truckload operations and our brokerage
and logistics operations have similar economic characteristics and are impacted
by virtually the same economic factors as discussed elsewhere in this Report.
Truckload services operating revenues, before fuel surcharges represented
87.8%,
88.0%, and 86.4% of total operating revenues for the years ended December
31,
2006, 2005, and 2004, respectively. The remaining operating revenues, before
fuel surcharge for the same periods were generated by brokerage and logistics
services, representing 12.2%, 12.0%, and 13.6%, respectively. Approximately
99%
of the Company's revenues are generated by operations conducted in the United
States and all of the Company's assets are located or based in the United
States.
Business
and Growth Strategy
Our
strategy focuses on the following elements:
Maintaining
Dedicated Fleets in High Density Lanes.
We
strive to maximize utilization and increase revenue per tractor while minimizing
our time and empty miles between loads. In this regard, we seek to provide
dedicated equipment to our customers where possible and to concentrate our
equipment in defined regions and disciplined traffic lanes. Dedicated fleets
in
high density lanes enable us to:
· maintain
more consistent equipment capacity;
· provide
a
high level of service to our customers, including time-sensitive delivery
schedules;
· attract
and retain drivers; and
· maintain
a sound safety record as drivers travel familiar routes.
Providing
Superior and Flexible Customer Service.
Our
wide range of services includes dedicated fleet services, logistics services,
“just-in-time” delivery, two-man driving teams, cross-docking and consolidation
programs, specialized trailers, and Internet-based customer access to delivery
status. These services, combined with a decentralized regional operating
strategy, allow us to quickly and reliably respond to the diverse needs of
our
customers, and provide an advantage in securing new business. We also maintain
ISO 9002 certification to ensure that we operate in accordance with approved
quality assurance standards.
Many
of
our customers depend on us to make delivery on a “just-in-time” basis, meaning
that parts or raw materials are scheduled for delivery as they are needed
on the
manufacturer’s production line. The need for this service is a product of modern
manufacturing and assembly methods that are designed to drastically decrease
inventory levels and handling costs. Such requirements place a premium on
the
freight carrier’s delivery performance and reliability.
Employing
Stringent Cost Controls.
We
focus intently on controlling our costs while not sacrificing customer service.
We maintain this balance by scrutinizing all expenditures, minimizing non-driver
personnel, operating a late-model fleet of tractors and trailers to minimize
maintenance costs, and adopting new technology only when proven and cost
justified.
Making
Strategic Acquisitions.
We
continually evaluate strategic acquisition opportunities, focusing on those
that
complement our existing business or that could profitably expand our business
or
services. Our operational integration strategy is to centralize administrative
functions of acquired businesses at our headquarters, while maintaining the
localized operations of acquired businesses. We believe that allowing acquired
businesses to continue to operate under their pre-acquisition names and in
their
original regions allows such businesses to maintain driver loyalty and customer
relationships.
Industry
The
U.S.
market for truck-based transportation services is estimated to be approximately
$600 billion in annual 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:
· Price
increases by tractor and trailer equipment manufacturers, rising fuel costs,
and
intense competition for drivers.
· In
the
last few years, many less profitable or undercapitalized carriers have been
forced to consolidate or to exit the industry.
Competition
The
trucking industry is highly competitive and includes thousands of carriers,
none
of which dominates the market in which the Company operates. The Company's
market share is less than 1% and we compete primarily with other irregular
route
medium- to long-haul truckload carriers, with private carriage conducted
by our
existing and potential customers, and, to a lesser extent, with the railroads.
Increased competition has resulted from deregulation of the trucking industry.
We compete on the basis of quality of service and delivery performance, as
well
as price. Many of the other irregular route long-haul truckload carriers
have
substantially greater financial resources, own more equipment or carry a
larger
total volume of freight.
Marketing
and Significant Customers
Our
marketing emphasis is directed to that portion of the truckload market which
is
generally service-sensitive, as opposed to being solely price competitive.
We
seek to become a “core carrier” for our customers in order to maintain high
utilization and capitalize on recurring revenue opportunities. Our marketing
efforts are diversified and designed to gain access to dedicated fleet services
(including those in Mexico and Canada), domestic regional freight traffic,
and
cross-docking and consolidation programs.
Our
marketing efforts are conducted by a sales staff of seven employees who are
located in our major markets and supervised from our headquarters. These
individuals work to improve profitability by maintaining an even flow of
freight
traffic (taking into account the balance between originations and destinations
in a given geographical area) and high utilization, and minimizing movement
of
empty equipment.
Our
five
largest customers, for which we provide carrier services covering a number
of
geographic locations, accounted for approximately 59%, 57% and 62% of our
total
revenues in 2006, 2005 and 2004, respectively. General Motors Corporation
accounted for approximately 41%, 39% and 44% of
our
revenues in 2006, 2005 and 2004, respectively.
We
also
provide transportation services to other manufacturers who are suppliers
for
automobile manufacturers. Approximately 52%, 52% and 56% of our revenues
were
derived from transportation services provided to the automobile industry
during
2006, 2005 and 2004, respectively. This portion of our business, however,
is
spread over 19 assembly plants and over 60 suppliers/vendors located throughout
North America, which we believe reduces the risk of a material loss of
business.
Revenue
Equipment
At
December 31, 2006, we operated a fleet of 1,998 tractors and 4,540 trailers.
We
operate late-model, well-maintained premium tractors to help attract and
retain
drivers, promote safe operations, minimize maintenance and repair costs,
and
improve customer service by minimizing service interruptions caused by
breakdowns. We evaluate our equipment decisions based on factors such as
initial
cost, useful life, warranty terms, expected maintenance costs, fuel economy,
driver comfort, customer needs, manufacturer support, and resale value. Our
current policy is to replace most of our tractors at 500,000 miles, which
normally occurs 30 to 48 months after purchase.
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, 2006 the Company's tractor
fleet
included 49 owner-operator tractors.
During
1999, the U.S. Environmental Protection Agency (“EPA”) proposed a three-phase
strategy to reduce engine emissions from heavy-duty vehicles through a
combination of advanced emissions control technologies and diesel fuel with
a
reduced sulfur content. Each phase and its effect on the Company’s operations,
if known, are described below.
The
first
phase mandated new engine emission standards for all model year 2004 heavy-duty
trucks, however, through agreements with heavy-duty diesel engine manufacturers,
the effective date was accelerated to October 1, 2002. Therefore, effective
October 1, 2002, all newly manufactured truck engines had to comply with
the new
engine emission standards. All truck engines manufactured prior to October
1,
2002 were not subject to these new standards. As of December 31, 2006,
substantially all of
our
Company-owned truck fleet consisted of trucks with engines that comply with
these emission standards. The Company has experienced a reduction in fuel
efficiency and increased depreciation expense due to the higher cost of tractors
with these new engines.
In
the
second phase, effective January 1, 2007, the EPA mandated a new set of more
stringent emissions standards for vehicles powered by diesel fuel engines
manufactured in 2007 through 2009. These new engines have been designed for
and
require the use of a more costly type of fuel known as ultra-low-sulfur-diesel
(“ULSD”) which, according to EPA estimates, will cost from $.04 to $.05 more per
gallon due to increased refining costs. The EPA has also mandated that refiners
and importers nationwide must ensure that at least 80% of the volume of the
highway diesel fuel they produce or import is ULSD-compliant by June 1, 2006,
however, the EPA does not require service stations and truck stops to sell
ULSD
fuel. Therefore, it is possible that ULSD fuel might not be available in
a
particular area in which the Company operates. The Company’s current tractor
fleet can be fueled with either ULSD or low-sulfur diesel (“LSD”) but future
purchases of tractors which contain 2007 or later diesel engines will require
the use of ULSD fuel which may result in lower fuel economy as the process
that
removes sulfur can also reduce the energy content of the fuel. During 2007,
the
Company expects to take delivery of its remaining 2006 tractor orders of
approximately 350 tractors which will contain the 2006 diesel engines and
does
not expect to purchase tractors with the 2007 diesel engines until the second
half of 2007. Compared to our current tractor fleet, we expect that tractors
powered by the 2007 diesel engines will have an increased purchase price
of
approximately 10% and as a result, we expect that depreciation expense will
increase as we replace older tractors with tractors powered by the 2007 diesel
engines. We also expect that these engines will result in higher maintenance
costs and be less fuel efficient. To the extent we are unable to offset these
anticipated increased costs with rate increases charged to customers or
offsetting cost savings in other areas, our results of operations would be
adversely affected.
During
the third phase, effective in 2010, final emission standards become effective
and LSD fuel will no longer be available for highway use. The EPA requires
that
by June 1, 2010 all diesel fuel imported or produced must be ULSD-compliant
as
it phases out low-sulfur-diesel fuel availability by December 1, 2010 when
all
highway diesel fuel must be ULSD fuel. We are unable at this time to determine
the increase in acquisition and operating costs of the final 2010 EPA-compliant
engines but we expect that the engines produced under the final standards
will
be less fuel-efficient and have higher acquisition and maintenance costs
than
either the 2002 or 2007 engines.
Technology
We
have
installed Qualcomm Omnitracs™ display units in all of our tractors. The
Omnitracs system is a satellite-based global positioning and communications
system that allows fleet managers to communicate directly with drivers. Drivers
can provide location status and updates directly to our computer which increases
productivity and convenience. The Omnitracs system provides us with accurate
estimated time of arrival information, which optimizes load selection and
service levels to our customers. In order to optimize our tractor-to-trailer
ratio, we have also installed Qualcomm TrailerTracs™ tracking units in all of
our trailers. The TrailerTracs system is a trailer tracking product that
enables
us to more efficiently track the location of trailers in our inventory. During
2006, the Company began replacing its current tethered TrailerTracs units,
which
were unable to transmit data unless connected to Qualcomm-equipped tractors,
with more advanced untethered TrailerTracs units which are able to operate
and
transmit data independent of a tractor connection. At December 31, 2006,
approximately one-half of the Company’s trailer fleet has been fitted with these
new untethered devices and the Company intends to install these new devices
on
its remaining trailer fleet during 2007.
Our
computer system manages the information provided by the Qualcomm devices
to
provide us real-time information regarding the location, status and load
assignment of all of our equipment, which permits us to better meet delivery
schedules, respond to customer inquiries and match equipment with the next
available load. Our system also provides electronically to our customers
real-time information regarding the status of freight shipments and anticipated
arrival times. This system provides our customers flexibility and convenience
by
extending supply chain visibility through electronic data interchange, the
Internet and e-mail.
Maintenance
We
have a
strictly enforced comprehensive preventive maintenance program for our tractors
and trailers. Inspections and various levels of preventive maintenance are
performed at set mileage intervals on both tractors and trailers. A maintenance
and safety inspection is performed on all vehicles each time they return
to a
terminal.
Our
tractors carry full warranty coverage for at least three years or 350,000
miles.
Extended warranties are negotiated with the tractor manufacturer and
manufacturers of major components, such as engine, transmission and differential
manufacturers, for up to four years or 500,000 miles. Trailers carry full
warranties by the manufacturer and major component manufacturers for up to
five
years.
Employees
At
December 31, 2006, we employed 3,062 persons, of whom 2,550 were drivers,
136
were maintenance personnel, 224 were employed in operations, 17 were employed
in
marketing, 66 were employed in safety and personnel, and 69 were employed
in
general administration and accounting. None of our employees are represented
by
a collective bargaining unit and we believe that our employee relations are
good.
Drivers
At
December 31, 2006, we utilized 2,550 company drivers in our operations. We
also
had 49 owner-operators under contract compensated on a per mile basis. Our
drivers are compensated on the basis of miles driven, loading and unloading,
extra stops and layovers in transit. Drivers can earn bonuses by recruiting
other qualified drivers who become employed by us and both cash and non-cash
prizes are awarded for consecutive periods of safe, accident-free driving.
All
of our drivers are recruited, screened, drug tested and trained and are subject
to the control and supervision of our operations and safety departments.
Our
driver training program stresses the importance of safety and reliable, on-time
delivery. Drivers are required to report to their driver managers daily and
at
the earliest possible moment when any condition en route occurs that might
delay
their scheduled delivery time.
In
addition to strict application screening and drug testing, before being
permitted to operate a vehicle our drivers must undergo classroom instruction
on
our policies and procedures, safety techniques as taught by the Smith System
of
Defensive Driving, the proper operation of equipment, and must pass both
written
and road tests. Instruction in defensive driving and safety techniques continues
after hiring, with seminars at several of our terminals. At December 31,
2006,
we employed 66 persons on a full-time basis in our driver recruiting, training
and safety instruction programs.
Intense
competition in the trucking industry for qualified drivers over the last
several
years, along with difficulties and added expense in recruiting and retaining
qualified drivers, has had a negative impact on the industry. Our operations
have also been impacted and from time to time we have experienced
under-utilization and increased expenses due to a shortage of qualified drivers.
We place a high priority on the recruitment and retention of an adequate
supply
of qualified drivers.
Executive
Officers of the Registrant
Our
executive officers are as follows:
|
Name
|
Age
|
Position
with Company
|
Years
of Service
With
P.A.M.
|
|
Robert
W. Weaver
|
57
|
President
and Chief Executive Officer
|
24
|
|
W.
Clif Lawson
|
53
|
Executive
Vice President and Chief Operating Officer
|
22
|
|
Larry
J. Goddard
|
48
|
Vice
President - Finance, Chief Financial Officer, Secretary and
Treasurer
|
19
|
Each
of
our executive officers has held his present position with the Company for
at
least the last five years. The Company has entered into an employment agreement
with Robert W. Weaver that expires on July 10, 2009. The Company has the
option
to extend the employment agreement for two consecutive years following the
July
10, 2009 expiration date for an additional one year at a time. The Company
has
also entered into employment agreements with both W. Clif Lawson and Larry
J.
Goddard which each expire on June 1, 2010. The Company has the option to
extend
these employment agreements for one additional year following the June 1,
2010
expiration date.
Internet
Web Site
The
Company maintains a web site where additional information concerning its
business can be found. The address of that web site is www.pamt.com. The
Company
makes available free of charge on its Internet web site its Annual Report
on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a)
or
15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as
reasonably practicable after it electronically files or furnishes such materials
to the Securities and Exchange Commission.
Seasonality
Our
revenues do not exhibit a significant seasonal pattern due primarily to our
varied customer mix. Operating expenses can be somewhat higher in the winter
months primarily due to decreased fuel efficiency and increased maintenance
costs associated with inclement weather. In addition, the automobile plants
for
which we transport a large amount of freight typically utilize scheduled
shutdowns of two weeks in July and one week in December and the volume of
freight we ship is reduced during such scheduled plant shutdowns.
Regulation
We
are a
common and contract motor carrier regulated by various federal and state
agencies. We are subject to safety requirements prescribed by the U.S.
Department of Transportation (“DOT”). Such matters as weight and dimension of
equipment are also subject to federal and state regulations. All of our drivers
are required to obtain national driver’s licenses pursuant to the regulations
promulgated by the DOT. Also, DOT regulations impose mandatory drug and alcohol
testing of drivers. We believe that we are in compliance in all material
respects with applicable regulatory requirements relating to our trucking
business and operate with a “satisfactory” rating (the highest of three grading
categories) from the DOT.
Our
motor
carrier operations are also subject to environmental laws and regulations,
including laws and regulations dealing with underground fuel storage tanks,
the
transportation of hazardous materials and other environmental matters, and
our
operations involve certain inherent environmental risks. We maintain four
bulk
fuel storage and fuel islands. Our operations involve the risks of fuel spillage
or seepage, environmental damage, and hazardous waste disposal, among others.
We
have instituted programs to monitor and control environmental risks and assure
compliance with applicable environmental laws. As part of our safety and
risk
management program, we periodically perform internal environmental reviews
so
that we can achieve environmental compliance and avoid environmental risk.
We
transport a minimum amount of environmentally hazardous substances and, to
date,
have experienced no significant claims for hazardous materials shipments.
If we
should fail to comply with applicable regulations, we could be subject to
substantial fines or penalties and to civil and criminal liability.
Company
operations conducted in industrial areas, where truck terminals and other
industrial activities are conducted, and where groundwater or other forms
of
environmental contamination have occurred, potentially expose us to claims
that
we contributed to the environmental contamination.
We
believe we are currently in material compliance with applicable laws and
regulations and that the cost of compliance has not materially affected results
of operations.
In
addition to environmental regulations directly affecting our business, we
are
also subject to the effects of new tractor engine design requirements
implemented by the EPA. See "Revenue Equipment", above.
The
Federal Motor Carrier Safety Administration ("FMCSA") issued a final rule
on
April 24, 2003 that made several changes to the regulations that govern truck
drivers' hours of service ("HOS"). These new federal regulations became
effective on January 4, 2004. On July 16, 2004, the U.S. Circuit Court of
Appeals for the District of Columbia rejected these new hours of service
rules
for truck drivers that had been in place since January 2004 because it said
the
FMCSA had failed to address the impact of the rules on the health of drivers
as
required by Congress. In addition, the judge's ruling noted other areas of
concern including the increase in driving hours from 10 hours to 11 hours,
the
exception that allows drivers in trucks with sleeper berths to split their
required rest periods, the new rule allowing drivers to reset their 70-hour
clock to 0 hours after 34 consecutive hours off duty, and the decision by
the
FMCSA not to require the use of electronic onboard recorders to monitor driver
compliance. On September 30, 2004, the extension of the Federal highway bill
signed into law by the President of the United States extended the current
hours
of service rules for one year or until the FMCSA developed a new set of
regulations, whichever came first. On January 24, 2005, the FMCSA re-proposed
its April 2003 HOS rules, adding references to how the rules would affect
driver
health,
but making no changes to the regulations. The FMCSA sought public comments
by
March 10, 2005 on what changes to the rule, if any, were necessary to respond
to
the concerns raised by the court, and to provide data or studies that would
support changes to, or continued use of, the 2003 rule. Effective October
1,
2005, the April 2003 HOS rules became effective with the most significant
change
requiring drivers that utilize the sleeper berth provision to take at least
eight consecutive hours in the sleeper berth during their ten hours off-duty.
Under previous regulations, drivers were allowed to split their ten hour
off-duty time in the sleeper berth into two periods, provided neither period
was
less than two hours. This more restrictive sleeper berth provision may impact
multiple-stop shipments and those shipments incurring delays in loading or
unloading. Improper planning on such shipments could result in delivery delays
and equipment utilization inefficiencies.
Set
forth
below and elsewhere in this Report and in other documents we file with the
SEC
are risks and uncertainties that could cause our actual results to differ
materially from the results contemplated by the forward-looking statements
contained in this Report.
Our
business is subject to general economic and business factors that are largely
out of our control, any of which could have a material adverse effect on
our
operating results.
These
factors include significant increases or rapid fluctuations in fuel prices,
excess capacity in the trucking industry, surpluses in the market for used
equipment, interest rates, fuel taxes, license and registration fees, insurance
premiums, self-insurance levels, and difficulty in attracting and retaining
qualified drivers and independent contractors.
We
are
also affected by recessionary economic cycles and downturns in customers’
business cycles, particularly in market segments and industries, such as
the
automotive industry, where we have a significant concentration of customers.
Economic conditions may adversely affect our customers and their ability
to pay
for our services.
We
operate in a highly competitive and fragmented industry, and our business
may
suffer if we are unable to adequately address downward pricing pressures
and
other factors that may adversely affect our ability to compete with other
carriers.
Numerous
competitive factors could impair our ability to maintain our current
profitability. These factors include, but are not limited to, 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
2006, our top five customers, based on revenue, accounted for approximately
59%
of our revenue, and our largest customer, General Motors Corporation, accounted
for approximately 41% 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 52% of our revenues for
2006
were derived from transportation services provided to the automobile
industry.
Generally,
we do not have long-term contractual relationships with our major customers,
and
we cannot assure that our customer relationships will continue as presently
in
effect. A reduction in or termination of our services by our major customers
could have a material adverse effect on our business and operating
results.
Ongoing
insurance and claims expenses could significantly reduce our
earnings.
Our
future insurance and claims expenses might exceed historical levels, which
could
reduce our earnings. The Company is self insured for health and workers
compensation insurance coverage up to certain limits. If medical costs continue
to increase, or if the severity or number of claims increase, and if we are
unable to offset the resulting increases in expenses with higher freight
rates,
our earnings could be materially and adversely affected.
We
may be unable to successfully integrate businesses we acquire into our
operations.
Integrating
businesses we acquire may involve unanticipated delays, costs or other
operational or financial problems. Successful integration of the businesses
we
acquire depends on a number of factors, including our ability to transition
acquired companies to our management information systems. In integrating
businesses we acquire, we may not achieve expected economies of scale or
profitability or realize sufficient revenues to justify our investment. We
also
face the risk that an unexpected problem at one of the companies we acquire
will
require substantial time and attention from senior management, diverting
management’s attention from other aspects of our business. We cannot be certain
that our management and operational controls will be able to support us as
we
grow.
Difficulty
in attracting drivers could affect our profitability and ability to
grow.
Periodically,
the transportation industry experiences difficulty in attracting and retaining
qualified drivers, including independent contractors, resulting in intense
competition for drivers. We have from time to time experienced under-utilization
and increased expenses due to a shortage of qualified drivers. If we are
unable
to continue to attract drivers and contract with independent contractors,
we
could be required to further adjust our driver compensation package or let
trucks sit idle, which could adversely affect our growth and
profitability.
If
we
are unable to retain our key employees, our business, financial condition
and
results of operations could be harmed.
We
are
highly dependent upon the services of the following key employees: Robert
W.
Weaver, our President and Chief Executive Officer; W. Clif Lawson, our Executive
Vice President and Chief Operating Officer; and Larry J. Goddard, our Vice
President and Chief Financial Officer. We do not maintain key-man life insurance
on any of these executives. The loss of any of their services could have
a
material adverse effect on our operations and future profitability. We must
continue to develop and retain a core group of managers if we are to realize
our
goal of expanding our operations and continuing our growth. We cannot assure
that we will be able to do so.
We
have significant ongoing capital requirements that could affect our
profitability if we are unable to generate sufficient cash from
operations.
The
trucking industry is very capital intensive. If we are unable to generate
sufficient cash from operations in the future, we may have to limit our growth,
enter into financing arrangements, or operate our revenue equipment for longer
periods, any of which could have a material adverse affect on our
profitability.
Our
operations are subject to various environmental laws and regulations, the
violation of which could result in substantial fines or
penalties.
We
are
subject to various environmental laws and regulations dealing with the handling
of hazardous materials, underground fuel storage tanks, and discharge and
retention of stormwater. We operate in industrial areas, where truck terminals
and other industrial activities are located, and where groundwater or other
forms of environmental contamination could occur. We also maintain bulk fuel
storage and fuel islands at four of our facilities. Our operations involve
the
risks of fuel spillage or seepage, environmental damage, and hazardous waste
disposal, among others. If we are involved in a spill or other accident
involving hazardous substances, or if we are found to be in violation of
applicable laws or regulations, it could have a materially adverse effect
on our
business and operating results. If we should fail to comply with applicable
environmental regulations, we could be subject to substantial fines or penalties
and to civil and criminal liability.
We
operate in a highly regulated industry and increased costs of compliance
with,
or liability for violation of, existing or future regulations could have
a
material adverse effect on our business.
The
U.S.
Department of Transportation and various state agencies exercise broad powers
over our business, generally governing such activities as authorization to
engage in motor carrier operations, safety, and financial reporting. We may
also
become subject to new or more restrictive regulations relating to fuel
emissions, drivers’ hours in service, and ergonomics. Compliance with such
regulations could substantially impair equipment productivity and increase
our
operating expenses.
The
EPA
adopted new emissions control regulations, which require progressive reductions
in exhaust emissions from diesel engines through 2010, for engines manufactured
in October 2002 and thereafter. In part to offset the costs of compliance
with
the new EPA engine design requirements, some manufacturers have significantly
increased new equipment prices and eliminated or sharply reduced the price
of
repurchase or trade-in commitments. If new equipment prices were to increase,
or
if the price of repurchase commitments by equipment manufacturers were to
decrease, more than anticipated, we may be required to increase our depreciation
and financing costs and/or retain some of our equipment longer, with a resulting
increase in maintenance expenses. To the extent we are unable to offset any
such
increases in expenses with rate increases or cost savings, our results of
operations would be adversely affected. If our fuel or maintenance expenses
were
to increase as a result of our use of the new, EPA-compliant engines, and
we are
unable to offset such increases with fuel surcharges or higher freight rates,
our results of operations would be adversely affected. Further, our business
and
operations could be adversely impacted if we experience problems with the
reliability of the new engines. We began operating tractors with engines
meeting
the EPA guidelines during 2003. Although we have not experienced any significant
reliability issues with these engines to date, the expenses associated with
the
tractors containing these engines have been slightly elevated, primarily
as a
result of lower fuel efficiency and higher depreciation.
None.
Our
executive offices and primary terminal facilities, which we own, are located
in
Tontitown, Arkansas. These facilities are located on approximately 49.3 acres
and consist of 114,403 square feet of office space and maintenance and storage
facilities.
Our
subsidiaries lease facilities in Jacksonville, Florida; Breese and Effingham,
Illinois; Parsippany and Paulsboro, New Jersey; North Jackson, Ohio; Oklahoma
City, Oklahoma; and Laredo and El Paso, Texas. Our terminal facilities in
Columbia, Mississippi; Irving, Texas; North Little Rock, Arkansas; and Willard,
Ohio are owned. The leased facilities are leased primarily on contractual
terms
ranging from one to five years. The following provides a summary of the
ownership and types of activities conducted at each location:
|
Location
|
Own/
Lease
|
Dispatch
Office
|
Maintenance
Facility
|
Safety
Training
|
|
Tontitown,
Arkansas
|
Own
|
Yes
|
Yes
|
Yes
|
|
North
Little Rock, Arkansas
|
Own
|
Yes
|
Yes
|
No
|
|
Jacksonville,
Florida
|
Lease
|
Yes
|
Yes
|
Yes
|
|
Breese,
Illinois
|
Lease
|
Yes
|
No
|
No
|
|
Effingham,
Illinois
|
Lease
|
No
|
Yes
|
No
|
|
Columbia,
Mississippi
|
Own
|
No
|
No
|
No
|
|
Parsippany,
New Jersey
|
Lease
|
Yes
|
Yes
|
Yes
|
|
Paulsboro,
New Jersey
|
Lease
|
Yes
|
No
|
No
|
|
North
Jackson, Ohio
|
Lease
|
Yes
|
Yes
|
Yes
|
|
Willard,
Ohio
|
Own
|
Yes
|
Yes
|
Yes
|
|
Oklahoma
City, Oklahoma
|
Lease
|
Yes
|
Yes
|
Yes
|
|
El
Paso, Texas
|
Lease
|
Yes
|
Yes
|
No
|
|
Irving,
Texas
|
Own
|
Yes
|
Yes
|
Yes
|
|
Laredo,
Texas
|
Lease
|
Yes
|
Yes
|
No
|
We
also
have access to trailer drop and relay stations in various other locations
across
the country. We lease certain of these facilities on a month-to-month basis
from
an affiliate of our largest shareholder.
We
believe that all of the properties that we own or lease are suitable for
their
purposes and adequate to meet our needs.
The
nature of 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.
No
matters were submitted to a vote of our security holders during the fourth
quarter ended December 31, 2006.
PART
II
Our
common stock is traded on the NASDAQ Global Market under the symbol PTSI.
The
following table sets forth, for the quarters indicated, the range of the
high
and low sales prices per share for our common stock as reported on the NASDAQ
Global Market.
Calendar
Year Ended December 31, 2006
|
High
|
Low
|
||||||
|
First
Quarter
|
$
|
25.18
|
$
|
17.51
|
|||
|
Second
Quarter
|
28.96
|
23.24
|
|||||
|
Third
Quarter
|
31.50
|
23.78
|
|||||
|
Fourth
Quarter
|
26.68
|
20.90
|
|||||
Calendar
Year Ended December 31, 2005
|
High
|
Low
|
||||||
|
First
Quarter
|
$
|
19.49
|
$
|
16.47
|
|||
|
Second
Quarter
|
17.35
|
13.43
|
|||||
|
Third
Quarter
|
17.90
|
15.71
|
|||||
|
Fourth
Quarter
|
18.85
|
15.16
|
|||||
As
of
March 5, 2007, there were approximately 178 holders of record of our common
stock.
Dividends
We
have
not declared or paid any cash dividends on our common stock for the two most
recent fiscal years. The policy of our Board of Directors is to retain earnings
for the expansion and development of our business and the payment of our
debt
service obligations. Future dividend policy and the payment of dividends,
if
any, will be determined by the Board of Directors in light of circumstances
then
existing, including our earnings, financial condition and other factors deemed
relevant by the Board of Directors.
Repurchases
of Common Stock
On
October 24, 2003, the Company announced the approval by the Board of Directors
of a stock repurchase program in which the Company was authorized to purchase
300,000 shares of its common stock at prevailing market prices over a twelve
month period. The stock repurchase program expired during the fourth quarter
of
2004 with no purchases by the Company during the authorized twelve month
period.
On
April
11, 2005, the Company announced that the Board of Directors had authorized
the
Company to repurchase up to 600,000 shares of its common stock during the
six
month period ending October 11, 2005. These 600,000 shares were all repurchased
by September 30, 2005. On September 6, 2005, the Company announced that its
Board of Directors had authorized the Company to extend the stock repurchase
program until September 6, 2006 and to include up to an additional 900,000
shares of its common stock. The Company repurchased 458,600 shares of these
additional shares prior to the September 6, 2006 program expiration date.
There
were no repurchases during the fourth quarter of 2006.
See
Part
III, Item 12, “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters” of this Annual Report for a presentation of
compensation plans under which equity securities of the Company are authorized
for issuance.
Performance
Graph
Set
forth
below is a line graph comparing the yearly percentage change in the cumulative
total stockholder return on our common stock against the cumulative total
return
of the CRSP Total Return Index for the Nasdaq Stock Market (U.S. companies)
and
the CRSP Total Return Index for the Nasdaq Trucking and Transportation Stocks
for the period of five years commencing December 31, 2001 and ending December
31, 2006. The graph assumes that the value of the investment in our common
stock
and in each index was $100 on December 31, 2001 and that all dividends were
reinvested.
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,
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
(in
thousands, except earnings per share amounts)
|
||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||
|
Operating
revenues:
|
||||||||||||||||
|
Operating
revenues, before fuel surcharge
|
$
|
351,373
|
$
|
326,353
|
$
|
309,475
|
$
|
293,547
|
$
|
264,012
|
||||||
|
Fuel
surcharge (1)
|
48,896
|
34,527
|
15,591
|
7,491
|
2,042
|
|||||||||||
|
Total
operating revenues
|
400,269
|
360,880
|
325,066
|
301,038
|
266,054
|
|||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Salaries,
wages and benefits
|
127,539
|
122,005
|
119,519
|
119,350
|
115,432
|
|||||||||||
|
Fuel
expense (2)
|
97,286
|
81,017
|
55,645
|
42,883
|
35,103
|
|||||||||||
|
Rent
and purchased transportation
|
43,844
|
39,074
|
38,938
|
35,287
|
9,780
|
|||||||||||
|
Depreciation
and amortization
|
33,929
|
31,376
|
30,016
|
26,601
|
24,715
|
|||||||||||
|
Operating
supplies (1)(2)
|
25,682
|
23,114
|
21,718
|
20,358
|
18,100
|
|||||||||||
|
Operating
taxes and licenses
|
16,421
|
15,776
|
15,488
|
14,710
|
13,467
|
|||||||||||
|
Insurance
and claims
|
16,389
|
15,992
|
15,820
|
13,500
|
12,786
|
|||||||||||
|
Communications
and utilities
|
2,642
|
2,648
|
2,690
|
2,540
|
2,284
|
|||||||||||
|
Other
|
5,426
|
6,205
|
5,131
|
4,755
|
4,620
|
|||||||||||
|
Loss
on sale or disposal of property
|
47
|
147
|
915
|
368
|
127
|
|||||||||||
|
Total
operating expenses
|
369,205
|
337,354
|
305,880
|
280,352
|
236,414
|
|||||||||||
|
Operating
income
|
31,064
|
23,526
|
19,186
|
20,686
|
29,640
|
|||||||||||
|
Non-operating
income
|
448
|
477
|
464
|
276
|
-
|
|||||||||||
|
Interest
expense
|
(1,475
|
)
|
(1,881
|
)
|
(1,758
|
)
|
(1,667
|
)
|
(1,985
|
)
|
||||||
|
Income
before income taxes
|
30,037
|
22,122
|
17,892
|
19,295
|
27,655
|
|||||||||||
|
Income
taxes
|
12,073
|
8,983
|
7,304
|
7,805
|
11,062
|
|||||||||||
|
Net
income
|
$
|
17,964
|
$
|
13,139
|
$
|
10,588
|
$
|
11,490
|
$
|
16,593
|
||||||
|
Earnings
per common share:
|
||||||||||||||||
|
Basic
|
$
|
1.74
|
$
|
1.20
|
$
|
0.94
|
$
|
1.02
|
$
|
1.56
|
||||||
|
Diluted
|
$
|
1.74
|
$
|
1.20
|
$
|
0.94
|
$
|
1.01
|
$
|
1.55
|
||||||
|
Average
common shares outstanding - Basic
|
10,296
|
10,966
|
11,298
|
11,291
|
10,669
|
|||||||||||
|
Average
common shares outstanding - Diluted(3)
|
10,302
|
10,976
|
11,324
|
11,326
|
10,715
|
|||||||||||
__________
| (1) |
In
order to conform to industry practice, during 2004 the Company began
to
classify fuel surcharges charged to customers as revenue rather than
as a
reduction of operating supplies expense. This reclassification has
no
effect on net operating income, net income or earnings per share.
The
Company has made corresponding reclassifications to comparative periods
shown.
|
| (2) |
Because
of the increased impact of fuel costs on the Company’s results of
operations in recent years, during 2006 the Company began to separately
display as a line item “Fuel expense” for amounts paid for fuel which had
previously been aggregated with other operating supplies and included
in
the line item “Operating supplies”. This reclassification has no effect on
net operating income, net income or earnings per share. The Company
has
made corresponding reclassifications to comparative periods
shown.
|
| (3) |
Diluted
income per share for 2006, 2005, 2004, 2003 and 2002 assumes the
exercise
of stock options to purchase an aggregate of 55,738, 22,297, 62,224,
77,758 and 87,984 shares of common stock,
respectively.
|
|
At
December 31,
|
||||||||||||||||
|
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
|
Balance
Sheet Data:
|
(in
thousands)
|
|||||||||||||||
|
Total
assets
|
$
|
314,246
|
$
|
293,441
|
$
|
285,349
|
$
|
264,849
|
$
|
228,320
|
||||||
|
Long-term
debt, excluding current portion
|
21,205
|
39,693
|
23,225
|
26,740
|
20,175
|
|||||||||||
|
Stockholders'
equity
|
185,028
|
164,762
|
168,543
|
156,875
|
144,452
|
|||||||||||
|
Year
Ended December 31,
|
||||||||||||||||
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
|
||
|
Operating
Data:
|
||||||||||||||||
|
Operating
ratio (1)
|
91.2
|
%
|
92.8
|
%
|
93.8
|
%
|
92.9
|
%
|
88.7
|
%
|
||||||
|
Average
number of truckloads per week
|
7,200
|
6,946
|
7,278
|
7,105
|
6,463
|
|||||||||||
|
Average
miles per trip
|
659
|
680
|
664
|
701
|
755
|
|||||||||||
|
Total
miles traveled (in thousands)
|
229,810
|
228,624
|
235,894
|
242,890
|
238,256
|
|||||||||||
|
Average
miles per tractor
|
123,156
|
125,479
|
127,124
|
131,934
|
136,772
|
|||||||||||
|
Average
revenue, before fuel surcharge per tractor per day
|
$
|
778
|
$
|
740
|
$
|
684
|
$
|
653
|
$
|
621
|
||||||
|
Average
revenue, before fuel surcharge per loaded mile
|
$
|
1.43
|
$
|
1.33
|
$
|
1.19
|
$
|
1.13
|
$
|
1.15
|
||||||
|
Empty
mile factor
|
5.9
|
%
|
5.5
|
%
|
4.7
|
%
|
4.5
|
%
|
4.0
|
%
|
||||||
|
At
end of period:
|
||||||||||||||||
|
Total
company-owned/leased tractors
|
1,998(2
|
)
|
1,792(3
|
)
|
1,857(4
|
)
|
1,913(5
|
)
|
1,781(6
|
)
|
||||||
|
Average
age of tractors (in years)
|
1.55
|
1.43
|
1.70
|
1.94
|
2.12
|
|||||||||||
|
Total
trailers
|
4,540
|
4,406
|
4,257
|
4,175
|
3,973
|
|||||||||||
|
Average
age of trailers (in years)
|
4.16
|
3.92
|
4.69
|
5.15
|
5.74
|
|||||||||||
|
Number
of employees
|
3,062
|
3,035
|
2,736
|
2,765
|
2,538
|
|||||||||||
__________
(1)
Total
operating expenses, net of fuel surcharge as a percentage of operating revenues,
before fuel surcharge.
(2)
Includes 49 owner operator tractors; (3) Includes 50 owner operator tractors;
(4) Includes 85 owner operator tractors.
(5)
Includes 103 owner operator tractors; (6) Includes 130 owner operator tractors.
During
2002, the Company received approximately $54.8 million from a public offering
of
2,621,250 shares of its common stock and used approximately $43.0 million
of the
proceeds to repay long-term debt obligations with the remaining proceeds
used to
fund capital expenditures and finance general working capital needs. As a
result, the Company experienced an increase in total assets, a decrease in
long-term debt, and an increase in stockholders’ equity as of December 31, 2002
when compared to December 31, 2001.
During
2003, the Company acquired a freight brokerage company and a truckload motor
carrier which when combined, contributed approximately $40.7 million in
additional revenues and $.07 in diluted earnings per share for the year ended
December 31, 2003 when compared to revenues and diluted earnings per share
for
the year ended December 31, 2002. The acquisition of the truckload motor
carrier
also resulted in an increase in our fleet size of 122 tractors and 221 trailers
during 2003 as compared to 2002.
The
Company has not declared or paid any cash dividends during any of the periods
presented above.
Business
Overview
The
Company's administrative headquarters are in Tontitown, Arkansas. From this
location we manage operations conducted through wholly owned subsidiaries
based
in various locations around the United States and Canada. The operations
of
these subsidiaries can generally be classified into either truckload services
or
brokerage and logistics services. Truckload services include those
transportation services in which we utilize company owned tractors or
owner-operator owned tractors. Brokerage and logistics services consist of
services such as transportation scheduling, routing, mode selection,
transloading and other value added services related to the transportation
of
freight which may or may not involve the usage of company owned or
owner-operator owned equipment. Both our truckload operations and our
brokerage/logistics operations have similar economic characteristics and
are
impacted by virtually the same economic factors as discussed elsewhere in
this
Report. All of the Company's operations are in the motor carrier
segment.
For
both
operations, substantially all of our revenue is generated by transporting
freight for customers and is predominantly affected by the rates per mile
received from our customers, equipment utilization, and our percentage of
non-compensated miles. These aspects of our business are carefully managed
and
efforts are continuously underway to achieve favorable results. Truckload
services revenues, excluding fuel surcharges, represented 87.8%, 88.0%, and
86.4% of total revenues, excluding fuel surcharges for the twelve months
ended
December 31, 2006, 2005, and 2004, respectively.
The
main
factors that impact our profitability on the expense side are costs incurred
in
transporting freight for our customers. Currently our most challenging costs
include fuel, driver recruitment, training, wage and benefit costs, independent
broker costs (which we record as purchased transportation), insurance, and
maintenance and capital equipment costs.
In
discussing our results of operations we use revenue, before fuel surcharge,
(and
fuel expense, net of surcharge), because management believes that eliminating
the impact of this sometimes volatile source of revenue allows a more consistent
basis for comparing our results of operations from period to period. During
2006, 2005 and 2004, approximately $48.9 million, $34.5 million and $15.6
million, respectively, of the Company's total revenue was generated from
fuel
surcharges. We also discuss certain changes in our expenses as a percentage
of
revenue, before fuel surcharge, rather than absolute dollar changes. We do
this
because we believe the high variable cost nature of certain expenses makes
a
comparison of changes in expenses as a percentage of revenue more meaningful
than absolute dollar changes.
Results
of Operations - Truckload Services
The
following table sets forth, for truckload services, the percentage relationship
of expense items to operating revenues, before fuel surcharges, for the periods
indicated. Fuel costs are shown net of fuel surcharges.
|
Years
Ended December 31,
|
||||||||||
|
|
2006
|
2005
|
2004
|
|||||||
|
Operating
revenues, before fuel surcharge
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Operating
expenses:
|
||||||||||
|
Salaries,
wages and benefits
|
40.6
|
41.8
|
43.8
|
|||||||
|
Fuel
expense, net of fuel surcharge
|
16.0
|
16.6
|
15.2
|
|||||||
|
Rent
and purchased transportation
|
1.7
|
1.2
|
0.6
|
|||||||
|
Depreciation
and amortization
|
11.0
|
10.9
|
11.2
|
|||||||
|
Operating
supplies
|
8.3
|
8.0
|
8.1
|
|||||||
|
Operating
taxes and licenses
|
5.3
|
5.5
|
5.8
|
|||||||
|
Insurance
and claims
|
5.3
|
5.5
|
5.9
|
|||||||
|
Communications
and utilities
|
0.8
|
0.9
|
0.9
|
|||||||
|
Other
|
1.6
|
1.8
|
1.7
|
|||||||
|
Loss
on sale or disposal of property
|
0.0
|
0.1
|
0.3
|
|||||||
|
Total
operating expenses
|
90.6
|
92.3
|
93.5
|
|||||||
|
Operating
income
|
9.4
|
7.7
|
6.5
|
|||||||
|
Non-operating
income
|
0.1
|
0.1
|
0.2
|
|||||||
|
Interest
expense
|
(0.4
|
)
|
(0.5
|
)
|
(0.5
|
)
|
||||
|
Income
before income taxes
|
9.1
|
%
|
7.3
|
%
|
6.2
|
%
|
||||
2006
Compared to 2005
For
the
year ended December 31, 2006, truckload services revenue, before fuel
surcharges, increased 7.5% to $308.7 million as compared to $287.1 million
for
the year ended December 31, 2005. The increase was primarily due to a 6.9%
increase in the average rate per total mile charged to customers from
approximately $1.26 during 2005 to approximately $1.34 during 2006. Also
contributing to the increase was a slight increase in the size of the Company’s
tractor fleet from 1,822 units in 2005 to 1,866 units in 2006, however, a
decrease in the average daily miles traveled per unit from 519 miles in 2005
to
509 miles in 2006 partially offset revenue growth attributable to our fleet
growth.
Salaries,
wages and benefits decreased from 41.8% of revenues, before fuel surcharges,
in
2005 to 40.6% of revenues, before fuel surcharges, in 2006. The decrease
relates
primarily to a decrease in driver lease expense, which is a component of
salaries, wages and benefits, as the average number of owner operators under
contract decreased from 66 during 2005 to 45 during 2006. The decrease
associated with driver lease expense was partially offset by an increase
in
amounts paid to the corresponding company driver replacement, and in other
costs
normally absorbed by the owner operator such as repairs and fuel. The settlement
of claims for amounts less than the estimated reserve under the Company’s
self-insured workers’ compensation plan also contributed to the decrease.
Although to a lesser degree, the effect of higher revenues without a
corresponding increase in those wages with fixed cost characteristics, such
as
general and administrative wages, also contributed to the decrease in salaries,
wages and benefits as a percentage of revenues, before fuel surcharges.
Partially offsetting the decreases discussed above was an increase in amounts
accrued for employee bonus plans and an increase in driver pay as a result
of
the modified driver pay plans implemented in January 2006. Management
anticipates that salaries, wages and benefits will increase to the extent
the
Company is unable to pass the additional costs to customers in the form of
rate
increases.
Fuel
expense decreased from 16.6% of revenues, before fuel surcharges, in 2005
to
16.0% of revenues, before fuel surcharges, in 2006. Fuel costs, net of fuel
surcharges, increased from $47.6 million during 2005 to $49.4 million during
2006 primarily due to higher fuel prices. During periods of rising fuel prices
the Company is often able to recoup a portion of the increase through fuel
surcharges passed along to its customers. The Company collected approximately
$34.5 million in fuel surcharges during 2005 and $48.9 million during 2006.
Fuel
costs were also affected by the replacement of owner operators with Company
drivers as discussed above.
Rent
and
purchased transportation increased from 1.2% of revenues, before fuel
surcharges, in 2005 to 1.7% of revenues, before fuel surcharges, in 2006.
The
increase relates primarily to an increase in amounts paid to third party
transportation service providers for intermodal services.
Depreciation
and amortization increased from 10.9% of revenues, before fuel surcharges,
in
2005 to 11.0% of revenues, before fuel surcharges, in 2006. Depreciation
expense
increased from $31.3 million during 2005 to $33.9 million during 2006 primarily
due to an increase in the size of the Company-owned tractor fleet from 1,742
tractors in service at the end of 2005 to 1,949 tractors in service at the
end
of 2006. To a lesser extent, a larger trailer fleet and higher new trailer
prices also contributed to the increase.
Operating
supplies and expenses increased from 8.0% of revenues, before fuel surcharges,
in 2005 to 8.3% of revenues, before fuel surcharges, in 2006. The increase
relates to an increase in amounts paid to third party driver training schools
and for tractor repairs expense. Tractor repairs expense increased in part
as a
result of the replacement of owner operators with Company drivers as discussed
above.
Operating
taxes and licenses decreased from 5.5% of revenues, before fuel surcharges,
in
2005 to 5.3% of revenues, before fuel surcharges, in 2006. Operating taxes
and
licenses, which consists primarily of fuel taxes, increased slightly from
$15.8
million during 2005 to $16.4 million during 2006. Fuel tax expense is primarily
affected by both the number of miles traveled and the miles-per-gallon (mpg)
achieved. During 2006 the Company experienced a lower mpg of 5.94 as compared
to
a mpg of 6.11 during 2005 as the Company continued the replacement of older
tractors with new tractors containing the less efficient EPA-compliant engines
originally mandated for all engines produced after October 1, 2002. Also
contributing to the increase was an increase in the number of miles traveled
from 228.6 million in 2005 to 229.8 million in 2006.
Insurance
and claims expense decreased from 5.5% of revenues, before fuel surcharges,
in
2005 to 5.3% of revenues, before fuel surcharges, in 2006. During the third
quarter of 2005 the Company and one of its insurance providers renegotiated
the
method used in determining the Company’s auto liability insurance premiums which
were previously based on a specified rate per one hundred dollars of revenue.
This method had the unintended consequence of penalizing the Company with
increased insurance costs solely from passing higher costs along to its
customers in the form of rate increases. As a result of these renegotiations,
the method of determining the Company’s auto liability
insurance
premium was amended to use the number of miles traveled instead of revenue
generated which allowed the Company to recognize a credit of approximately
$600,000 against insurance expense during the third quarter of 2005. Excluding
the effect of this credit, insurance and claims expense decreased from 5.8%
of
revenues, before fuel surcharges, during 2005 to 5.3% of revenues, before
fuel
surcharges, during 2006. This decrease, as a percentage of revenue, was due
to
the effect of an increase in Company revenues due to rate increases which
dilutes the impact of mileage based expenses. During the third quarter of
2006
the Company’s auto liability insurance policy renewal negotiations resulted in a
rate increase of approximately 4.4% and management expects insurance expense
to
increase to the extent the Company is unable to pass the additional insurance
costs to customers in the form of rate increases.
Other
expenses decreased from 1.8% of revenues, before fuel surcharges, in 2005
to
1.6% of revenues, before fuel surcharges, in 2006. The decrease relates
primarily to a decrease in amounts considered as uncollectible revenue during
2006 as compared to 2005. This decrease was partially offset by an increase
in
amounts paid for advertising expense during 2006 as compared to
2005.
The
truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before fuel
surcharges, decreased to 90.6% for 2006 from 92.3% for 2005.
2005
Compared to 2004
For
the
year ended December 31, 2005, truckload services revenue, before fuel
surcharges, increased 7.3% to $287.1 million as compared to $267.5 million
for
the year ended December 31, 2004. The increase was due to a 10.8% increase
in
the average rate per total mile charged to customers from $1.13 during 2004
to
$1.26 during 2005. The revenue growth attributable to the increase in the
average rate per total mile was partially offset by a 3.1% reduction in total
miles traveled from 235.9 million during 2004 to 228.6 million during
2005.
Salaries,
wages and benefits decreased from 43.8% of revenues, before fuel surcharges,
in
2004 to 41.8% of revenues, before fuel surcharges, in 2005. The decrease
relates
primarily to a decrease in driver lease expense, which is a component of
salaries, wages and benefits, as the average number of owner operators under
contract decreased from 93 during 2004 to 66 during 2005. The decrease
associated with driver lease expense was partially offset by an increase
in
amounts paid to the corresponding company driver replacement, and in other
costs
normally absorbed by the owner operator such as repairs and fuel. Although
to a
lesser degree, the effect of higher revenues without a corresponding increase
in
those wages with fixed cost characteristics, such as general and administrative
wages, also contributed to the decrease in salaries, wages and benefits as
a
percentage of revenues, before fuel surcharges. During January 2006 the Company
implemented a driver pay increase ranging from $.01 to $.03 per mile depending
on individual driver qualifications and expect salaries, wages and benefits
to
increase as a result.
Fuel
expense increased from 15.2% of revenues, before fuel surcharges, in 2004
to
16.6% of revenues, before fuel surcharges, in 2005. The increase was primarily
due to higher fuel costs resulting from a 34.4% increase in the average price
per gallon paid by the Company during 2005 as compared to 2004. During periods
of rising fuel prices the Company is often able to recoup at least a portion
of
the increase through fuel surcharges passed along to its customers. Fuel
costs,
net of fuel surcharges, increased to $47.6 million in 2005 from $40.7 million
in
2004. The Company collected approximately $34.5 million in fuel surcharges
during 2005 and $15.6 million during 2004. Fuel costs were also affected
by the
replacement of owner operators with Company drivers as discussed
above.
Rent
and
purchased transportation increased from 0.6% of revenues, before fuel
surcharges, in 2004 to 1.2% of revenues, before fuel surcharges, in 2005.
The
increase relates primarily to an increase in amounts paid to third party
transportation service providers for intermodal services.
Depreciation
and amortization decreased from 11.2% of revenues, before fuel surcharges,
in
2004 to 10.9% of revenues, before fuel surcharges, in 2005. Depreciation
expense
increased from $29.9 million during 2004 to $31.3 million during 2005 primarily
due to higher new tractor and trailer prices coupled with decreased residual
trade-in values guaranteed by the manufacturer, however as a percentage of
revenues, before fuel surcharges, a decrease results from the interaction
of
increased revenues from an increased rate per mile charged to customers and
the
fixed cost nature of depreciation expense.
Operating
taxes and licenses decreased from 5.8% of revenues, before fuel surcharges,
in
2004 to 5.5% of revenues, before fuel surcharges, in 2005. Operating taxes
and
licenses which consist primarily of fuel taxes and tractor and trailer
registration fees increased slightly from $15.5 million during 2004 to $15.8
million during 2005. Fuel tax expense is primarily affected by both the number
of miles traveled and the miles-per-gallon (mpg) achieved. During 2005 the
Company experienced a lower mpg of 6.11 as compared to a mpg of 6.31 during
2004, resulting primarily from the replacement of older tractors with new
tractors containing engines which comply with the EPA mandated lower emissions
standards. The increased costs associated with a lower mpg were offset by
a
decrease in the number of miles traveled during 2005 to 228.6 million from
235.9
million during 2004. Tractor and trailer registration fees, the majority
of
which are fixed on a per unit basis, did not change significantly as the
number
of units remained relatively the same, however the fixed cost nature of these
expenses did decrease as a percentage of revenues, before fuel surcharges
due to
higher revenues during 2005 as compared to 2004.
Insurance
and claims expense decreased from 5.9% of revenues, before fuel surcharges,
in
2004 to 5.5% of revenues, before fuel surcharges, in 2005. The decrease was
the
result of renegotiations with one of the Company’s insurance providers to change
the method of determining the Company’s auto liability insurance premiums.
Previously, the Company’s auto liability premiums were determined using a
specified rate per one hundred dollars of revenue. This method had the
unintended consequence of penalizing the Company with increased insurance
costs
solely from passing higher costs along to its customers in the form of rate
increases. The method of determining the Company’s auto liability premium is now
based on the number of miles traveled instead of revenue generated.
Other
expenses increased from 1.7% of revenues, before fuel surcharges, in 2004
to
1.8% of revenues, before fuel surcharges, in 2005. The increase relates to
the
combined net effect of an increase in current amounts written off as
uncollectible truckload services revenues and a decrease in recoveries of
prior
year uncollectible truckload services revenue during 2005 as compared to
2004.
During 2005 the Company expensed an additional $1.0 million of truckload
services accounts receivable as uncollectible without any significant recoveries
related to prior years. During 2004 $100,000 was expensed as uncollectible
truckload services accounts receivable, however this amount was completely
offset by the recovery of $635,000 during 2004 related to the settlement
of a
lawsuit which allowed the Company to recapture approximately $635,000 of
previously reported expense. The increase in other expenses was partially
offset
by a decrease in amounts paid for advertising expense during 2005 as compared
to
2004.
The
truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before
fuel
surcharges, decreased to 92.3% for 2005 from 93.5% for 2004.
Results
of Operations - Logistics and Brokerage Services
The
following table sets forth, for logistics and brokerage services, the percentage
relationship of expense items to operating revenues, before fuel surcharges,
for
the periods indicated. Brokerage service operations occur specifically in
certain divisions; however, brokerage operations occur throughout the Company
in
similar operations having substantially similar economic characteristics.
Rent
and purchased transportation, which includes costs paid to third party carriers,
are shown net of fuel surcharges.
|
Years
Ended December 31,
|
||||||||||
|
|
2006
|
2005
|
2004
|
|||||||
|
Operating
revenues, before fuel surcharge
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
|
Operating
expenses:
|
||||||||||
|
Salaries,
wages and benefits
|
5.0
|
5.1
|
5.5
|
|||||||
|
Fuel
expense
|
0.0
|
0.0
|
0.0
|
|||||||
|
Rent
and purchased transportation, net of fuel surcharge
|
88.3
|
88.0
|
87.8
|
|||||||
|
Depreciation
and amortization
|
0.0
|
0.2
|
0.3
|
|||||||
|
Operating
supplies
|
0.0
|
0.0
|
0.0
|
|||||||
|
Operating
taxes and licenses
|
0.0
|
0.0
|
0.0
|
|||||||
|
Insurance
and claims
|
0.0
|
0.1
|
0.1
|
|||||||
|
Communications
and utilities
|
0.3
|
0.4
|
0.4
|
|||||||
|
Other
|
1.4
|
2.5
|
1.6
|
|||||||
|
Loss
on sale or disposal of property
|
0.0
|
0.0
|
0.0
|
|||||||
|
Total
operating expenses
|
95.0
|
96.3
|
95.7
|
|||||||
|
Operating
income
|
5.0
|
3.7
|
4.3
|
|||||||
|
Non-operating
income
|
0.0
|
0.0
|
0.0
|
|||||||
|
Interest
expense
|
(0.4
|
)
|
(0.6
|
)
|
(0.6
|
)
|
||||
|
Income
before income taxes
|
4.6
|
%
|
3.1
|
%
|
3.7
|
%
|
||||
2006
Compared to 2005
Logistics
and brokerage services revenues, before fuel surcharges, increased 8.9% to
$42.7
million for the year ended December 31, 2006 as compared to $39.2 million
for
the year ended December 31, 2005. The increase was primarily the result of
rate
increases charged to customers to recover increases in amounts charged by
third
party logistics and brokerage service providers, and to a lesser extent,
an
increase in the number of loads brokered.
Rent
and
purchased transportation increased from 88.0% of revenues, before fuel
surcharges, in 2005 to 88.3% of revenues, before fuel surcharges, in 2006.
The
increase relates to an increase in amounts charged by third party logistics
and
brokerage service providers primarily as a result of higher fuel
costs.
Other
expenses decreased from 2.5% of revenues, before fuel surcharges, in 2005
to
1.4% of revenues, before fuel surcharges, in 2006. The decrease relates
primarily to a decrease in amounts considered as uncollectible revenue during
2006 as compared to 2005.
The
logistics and brokerage services division operating ratio, which measures
the
ratio of operating expenses, net of fuel surcharges, to operating revenues,
before fuel surcharges, decreased to 95.0% for 2006 from 96.3% for
2005.
2005
Compared to 2004
Logistics
and brokerage services revenues, before fuel surcharges, decreased 6.6% to
$39.2
million for the year ended December 31, 2005 as compared to $42.0 million
for
the year ended December 31, 2004. The decrease was primarily due to a 17.2%
decrease in the number of loads serviced by the Company during 2005 as compared
to 2004. This decrease was partially offset by an increase in the average
revenue collected per load resulting from increased fees charged by the
Company.
Salaries,
wages and benefits decreased from 5.5% of revenues, before fuel surcharges,
in
2004 to 5.1% of revenues, before fuel surcharges, in 2005. The decrease relates
to a decrease in the number of employees employed by the logistics and brokerage
services division.
Other
expenses increased from 1.6% of revenues, before fuel surcharges, in 2004
to
2.5% of revenues, before fuel surcharges, in 2005. The increase relates to
an
increase in amounts written off as uncollectible logistics and brokerage
services revenues during 2005 as compared to 2004.
The
logistics and brokerage services division operating ratio, which measures
the
ratio of operating expenses, net of fuel surcharges, to operating revenues,
before fuel surcharges, increased to 96.3% for 2005 from 95.7% for
2004.
Results
of Operations - Combined Services
2006
Compared to 2005
Net
income for all divisions was $18.0 million, or 5.1% of revenues, before fuel
surcharge for 2006 as compared to $13.1 million or 4.0% of revenues, before
fuel
surcharge for 2005. The increase in net income combined with the effect of
treasury stock repurchases resulted in an increase in diluted earnings per
share
to $1.74 for 2006 compared to $1.20 for 2005.
2005
Compared to 2004
Net
income for all divisions was $13.1 million, or 4.0% of revenues, before fuel
surcharge for 2005 as compared to $10.6 million or 3.4% of revenues, before
fuel
surcharge for 2004. The increase in net income combined with the effect of
treasury stock repurchases resulted in an increase in diluted earnings per
share
to $1.20 for 2005 compared to $0.94 for 2004.
Quarterly
Results of Operations
The
following table presents selected consolidated financial information for
each of
our last eight fiscal quarters through December 31, 2006. 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,
2006
|
June
30,
2006
|
Sept.
30,
2006
|
Dec.
31,
2006
|
Mar.
31,
2005
|
June
30,
2005
|
Sept.
30,
2005
|
Dec.
31,
2005
|
||||||||||||||||||
|
(unaudited)
|
|||||||||||||||||||||||||
|
(in
thousands, except earnings per share data)
|
|||||||||||||||||||||||||
|
Operating
revenues
|
$
|
100,525
|
$
|
103,365
|
$
|
99,874
|
$
|
96,505
|
$
|
86,192
|
$
|
91,027
|
$
|
88,484
|
$
|
95,177
|
|||||||||
|
Total
operating expenses
|
91,473
|
94,375
|
94,202
|
89,154
|
81,034
|
84,479
|
84,471
|
87,370
|
|||||||||||||||||
|
Operating
income
|
9,052
|
8,990
|
5,672
|
7,351
|
5,158
|
6,548
|
4,013
|
7,807
|
|||||||||||||||||
|
Net
income
|
5,183
|
5,241
|
3,268
|
4,272
|
2,903
|
3,680
|
2,213
|
4,343
|
|||||||||||||||||
|
Earnings
per common share:
|
|||||||||||||||||||||||||
|
Basic
|
$
|
0.50
|
$
|
0.51
|
$
|
0.32
|
$
|
0.41
|
$
|
0.26
|
$
|
0.33
|
$
|
0.20
|
$
|
0.41
|
|||||||||
|
Diluted
|
$
|
0.50
|
$
|
0.51
|
$
|
0.32
|
$
|
0.41
|
$
|
0.26
|
$
|
0.33
|
$
|
0.20
|
$
|
0.41
|
|||||||||
Liquidity
and Capital Resources
The
growth of our business has required, and will continue to require, a significant
investment in new revenue equipment. Our primary sources of liquidity have
been
funds provided by operations, proceeds from the sales of revenue equipment,
issuances of equity securities, and borrowings under our lines of
credit.
During
2006, we generated $60.7 million in cash from operating activities compared
to
$23.7 million and $44.7 million in 2005 and 2004, respectively. Investing
activities used $42.7 million in cash during 2006 compared to $41.0 million
and
$24.7 million in 2005 and 2004, respectively. The cash used in all three
years
related primarily to the purchase of revenue equipment (tractors and trailers)
used in our operations. Financing activities used $18.1 million in cash during
2006 compared to $1.2 million and $3.4 million in 2005 and 2004, respectively.
See Consolidated Statements of Cash Flows.
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
2006 and 2005, we utilized cash on hand and our lines of credit to finance
revenue equipment purchases for an aggregate of $50.7 million and $60.8 million,
respectively.
Occasionally
we finance the acquisition of revenue equipment through installment notes
with
fixed interest rates and terms ranging from 36 to 48 months, however as of
December 31, 2006 and 2005, we had no outstanding indebtedness under such
installment notes.
In
order
to maintain our tractor and trailer fleet count it is often necessary to
purchase replacement units and place them in service before trade units are
removed from service. The timing difference created during this process often
requires the Company to pay for new units without any reduction in price
for
trade units. In this situation, the Company later receives payment for the
trade
units as they are delivered to the equipment vendor and have passed vendor
inspection. During the twelve months ended December 31, 2006 and 2005, the
Company received approximately $9.9 million and $17.4 million, respectively,
for
units delivered for trade.
We
maintain a $20.0 million revolving line of credit and a $30.0 million revolving
line of credit (Line A and Line B, respectively) with separate financial
institutions. Amounts outstanding under Line A bear interest at LIBOR
(determined as of the first day of each month) plus 1.25% (6.60% at December
31,
2006), are secured by our accounts receivable and mature on May 31, 2007,
however the Company has the intent and ability to extend the terms of this
line
of credit for an additional one year period until May 31, 2008. At December
31,
2006 outstanding advances on line A were approximately $14.7 million, including
$310,000 in letters of credit, with availability to borrow $5.3 million.
Amounts
outstanding under Line B bear interest at LIBOR (determined on the last day
of
the previous month) plus 1.15% (6.50% at December 31, 2006), are secured
by
revenue equipment and mature on June 30, 2008. At December 31, 2006, $8.2
million, including $3.2 million in letters of credit were outstanding under
Line
B with availability to borrow $21.8 million. In an effort to reduce interest
rate risk associated with these floating rate facilities, we had 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.
Marketable
equity securities available for sale at December 31, 2006 increased
approximately $3.4 million as compared to December 31, 2005. During the year
ended December 31, 2006, the Company purchased approximately $1.3 million
of
equity securities with excess cash with the remaining increase attributable
to
an increase in the market value of the investments, net of sales and
other-than-temporary write-downs. These securities, combined with equity
securities purchased in prior periods, have a combined cost basis of
approximately $9.2 million and a combined fair market value of approximately
$14.4 million. The Company has developed a strategy to invest in securities
from
which it expects to receive dividends that qualify for favorable tax treatment,
as well as, appreciate in value. The Company anticipates that increases in
the
market value of the investments combined with dividend payments will exceed
interest rates paid on borrowings for the same period. During 2006 the Company
had net unrealized pre-tax gains of approximately $2.3 million and received
dividends of approximately $495,000. The holding term of these securities
depends largely on the general economic environment, the equity markets,
borrowing rates and the Company's cash requirements.
Revenue
equipment, which generally consists of tractors, trailers, and revenue equipment
accessories such as Qualcomm™ satellite tracking units, increased approximately
$36.3 million as compared to December 31, 2005. Approximately $30.5 million
of
the increase is related to the net effect of purchasing approximately 620
tractors and 430 trailers during 2006 while only disposing of approximately
315
tractors and 290 trailers during 2006. Also contributing to the increase
was an
increase in the cost of new tractor and trailer units as compared to the
units
they replaced and to the acquisition of additional Qualcomm™ satellite tracking
units. At December 31, 2006, approximately 100 tractors included in revenue
equipment had been placed in inactive status as they were prepared for sale
or
trade. The sale or trade of these tractors in 2007 will reduce the carrying
amount of the Company’s revenue equipment and accumulated depreciation at the
time of sale or trade.
Accounts
payable at December 31, 2006 increased approximately $16.5 million as compared
to December 31, 2005. The increase is primarily related to $14.3 million
in
tractor and trailer purchases made during December 2006 for which payment
is not
due until January 2007. The Company increased its December tractor purchases
in
order to delay purchasing tractors with the 2007 model diesel engines which
are
required to meet the stricter EPA emission standards discussed in this report
above in “Part I, Item 1, Revenue Equipment”. The net increase also reflects the
increase of approximately $2.4 million in amounts accrued for employee
bonuses.
Long-term
debt at December 31, 2006 decreased approximately $18.5 million as compared
to
December 31, 2005. The decrease is related to the repayments in excess of
borrowings on both of the Company’s lines of credit using excess operating cash
flows.
For
2007,
we expect to purchase approximately 775 new tractors and approximately 855
trailers while continuing to sell or trade older equipment, which we expect
to
result in net capital expenditures of approximately $64.2 million. Management
believes we will be able to finance our near term needs for working capital
over
the next twelve months, as well as acquisitions of revenue equipment during
such
period, with cash balances, cash flows from operations, and borrowings believed
to be available from financing sources. We will continue to have significant
capital requirements over the long-term, which may require us to incur debt
or
seek additional equity capital. The availability of additional capital will
depend upon prevailing market conditions, the market price of our common
stock
and several other factors over which we have limited control, as well as
our
financial condition and results of operations. Nevertheless, based on our
recent
operating results, current cash position, anticipated future cash flows,
and
sources of financing that we expect will be available to us, we do not expect
that we will experience any significant liquidity constraints in the foreseeable
future.
Contractual
Obligations and Commercial Commitments
The
following table sets forth the Company's contractual obligations and commercial
commitments as of December 31, 2006:
|
Payments
due by period
(in
thousands)
|
||||||||||||||||
|
Total
|
Less
than
1
year
|
1
to 3
Years
|
4
to 5
Years
|
More
than
5
Years
|
||||||||||||
|
Long-term
debt
|
$
|
23,120
|
$
|
1,915
|
$
|
21,061
|
$
|
144
|
$
|
-
|
||||||
|
Operating
leases (1)
|
1,358
|
560
|
633
|
165
|
-
|
|||||||||||
|
Total
|
$
|
24,478
|
$
|
2,475
|
$
|
21,694
|
$
|
309
|
$
|
-
|
||||||
(1)
Represents building, facilities, and drop yard operating leases.
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements as defined in Regulation S-K
303
(a)(4)(ii) issued by the Securities and Exchange Commission.
Insurance
With
respect to physical damage for tractors, cargo loss and auto liability, the
Company maintains insurance coverage to protect it from certain business
risks.
These policies are with various carriers and have per occurrence deductibles
of
$2,500, $10,000 and $2,500 respectively. Since 2002, the Company has elected
to
self insure for physical damage to trailers. The Company maintains workers’
compensation coverage in Arkansas, Ohio, Oklahoma, Mississippi, and Florida
with
a $500,000 self-insured retention and a $500,000 per occurrence excess policy.
The Company has elected to opt out of workers' compensation coverage in Texas
and is providing coverage through the P.A.M. Texas Injury Plan. The Company
has
reserved for estimated losses to pay such claims as well as claims incurred
but
not yet reported. The Company has not experienced any adverse trends involving
differences in claims experienced versus claims estimates for workers’
compensation claims. Letters of credit aggregating $400,000 are held by a
bank
as security for workers’ compensation claims. The Company self insures for
employee health claims with a stop loss of $200,000 per covered employee
per
year and estimates its liability for claims incurred but not
reported.
Inflation
Inflation
has an impact on most of our operating costs. Recently, the effect of inflation
has been minimal.
Competition
for drivers has increased in recent years, leading to increased labor costs.
While increases in fuel and driver costs affect our operating costs, we do
not
believe that the effects of such increases are greater for us than for other
trucking concerns.
Adoption
of Accounting Policies
See
“Item
8. Financial Statements and Supplementary Data, Note 1 to the Consolidated
Financial Statements - Recent Accounting Pronouncements.”
Critical
Accounting Policies
The
Company's significant accounting policies are described in Note 1 to the
Consolidated Financial Statements. The policies described below represent
those
that are broadly applicable to the Company's operations and involve additional
management judgment due to the sensitivity of the methods, assumptions and
estimates necessary in determining the related amounts.
Accounts
Receivable.
We
continuously monitor collections and payments from our customers, third parties
and vendors and maintain a provision for estimated credit losses based upon
our
historical experience and any specific collection issues that we have
identified. While such credit losses have historically been within our
expectations and the provisions established, we cannot guarantee that we
will
continue to experience the same credit loss rates that we have in the
past.
Property
and equipment.
Management must use its judgment in the selection of estimated useful lives
and
salvage values for purposes of depreciating tractors and trailers which in
some
cases do not have guaranteed residual values. Estimates of salvage value
at the
expected date of trade-in or sale are based on the expected market values
of
equipment at the time of disposal which, in many cases include guaranteed
residual values by the manufacturers.
Self
Insurance.
The
Company is self-insured for health and workers' compensation benefits up
to
certain stop-loss limits. Such costs are accrued based on known claims and
an
estimate of incurred, but not reported (IBNR) claims. IBNR claims are estimated
using historical lag information and other data either provided by outside
claims administrators or developed internally. This estimation process is
subjective, and to the extent that future actual results differ from original
estimates, adjustments to recorded accruals may be necessary.
Revenue
Recognition.
Revenue
is recognized in full upon completion of delivery to the receiver's location.
For freight in transit at the end of a reporting period, the Company recognizes
revenue prorata based on relative transit miles completed as a portion of
the
estimated total transit miles. Expenses are recognized as incurred.
Prepaid
Tires.
Tires
purchased with revenue equipment are capitalized as a cost of the related
equipment. Replacement tires are included in prepaid expenses and deposits
and
are amortized over a 24-month period. Costs related to tire recapping are
expensed when incurred.
Income
Taxes.
Significant management judgment is required to determine the provision for
income taxes and to determine whether deferred income tax assets will be
realized in full or in part. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. When it is more likely that all or some portion of specific deferred
income tax assets will not be realized, a valuation allowance must be
established for the amount of deferred income tax assets that are determined
not
to be realizable. A valuation allowance for deferred income tax assets has
not
been deemed to be necessary due to the Company's profitable operations.
Accordingly, if the facts or financial circumstances were to change, thereby
impacting the likelihood of realizing the deferred income tax assets, judgment
would need to be applied to determine the amount of valuation allowance required
in any given period.
Business
Combinations and Goodwill.
Upon
acquisition of an entity, the cost of the acquired entity must be allocated
to
assets and liabilities acquired. Identification of intangible assets, if
any,
that meet certain recognition criteria is necessary. This identification
and
subsequent valuation requires significant judgments. The carrying value of
goodwill is tested annually and as of December 31, 2006 the Company determined
that there was no impairment. The impairment testing requires an estimate
of the
value of the Company as a whole, as the Company has determined it only has
one
reporting unit as defined in Statement of Financial Accounting Standards
No.
142, “Goodwill and Other Intangible Assets.”
Our
primary market risk exposures include equity price risk, interest rate risk,
and
commodity price risk (the price paid to obtain diesel fuel for our tractors).
The potential adverse impact of these risks and the general strategies we
employ
to manage such risks are discussed below.
The
following sensitivity analyses do not consider the effects that an adverse
change may have on the overall economy nor do they consider additional actions
we may take to mitigate our exposure to such changes. Actual results of changes
in prices or rates may differ materially from the hypothetical results described
below.
Equity
Price Risk
We
hold
certain actively traded marketable equity securities which subjects the Company
to fluctuations in the fair market value of its investment portfolio based
on
current market price. The recorded value of marketable equity securities
increased to $14.4 million at December 31, 2006 from $11.0 million at December
31, 2005. The increase includes additional purchases, net of sales or
write-downs, of approximately $1.1 million during 2006 and an increase in
the
fair market value of approximately $2.3 million during 2006. A 10% decrease
in
the market price of our marketable equity securities would cause a corresponding
10% decrease in the carrying amounts of these securities, or approximately
$1.4
million. For additional information with respect to the marketable equity
securities, see Note 3 to our consolidated financial statements.
Interest
Rate Risk
Our
two
lines of credit each bear interest at a floating rate equal to LIBOR plus
a
fixed percentage. Accordingly, changes in LIBOR, which are effected by changes
in interest rates, will affect the interest rate on, and therefore our costs
under, the lines of credit. In an effort to manage the risks associated with
changing interest rates, we entered into interest rate swap agreements effective
February 28, 2001 and May 31, 2001, on notional amounts of $15,000,000 and
$5,000,000, respectively. The “pay fixed rates” under the $15,000,000 and
$5,000,000 swap agreements were 5.08% and 4.83%, respectively. The “receive
floating rate” for both swap agreements was “1-month” LIBOR. These interest rate
swap agreements terminated on March 2, 2006 and June 2, 2006, respectively.
Assuming $20.0 million of variable rate debt was outstanding under Line “A” and
not covered by a hedge agreement for a full fiscal year, a hypothetical 100
basis point increase in LIBOR would result in approximately $200,000 of
additional interest expense. For additional information with respect to the
interest rate swap agreements, see Note 17 to our consolidated financial
statements.
Commodity
Price Risk
Prices
and availability of all petroleum products are subject to political, economic
and market factors that are generally outside of our control. Accordingly,
the
price and availability of diesel fuel, as well as other petroleum products,
can
be unpredictable. Because our operations are dependent upon diesel fuel,
significant increases in diesel fuel costs could materially and adversely
affect
our results of operations and financial condition. Based upon our 2006 fuel
consumption, a 10% increase in the average annual price per gallon of diesel
fuel would increase our annual fuel expenses by $9.7 million.
In
July
2001, we entered into an agreement to obtain price protection and reduce
a
portion of our exposure to fuel price fluctuations. Under this agreement,
we
were obligated to purchase minimum amounts of diesel fuel per month, with
a
price protection component, for the six-month period ended February 28, 2002.
The agreement also provided that if during the twelve-month period commencing
January 2005, the price of heating oil on the New York Mercantile Exchange
(“NY
MX HO”) fell below $.58 per gallon, we would have been obligated to pay the
contract holder the difference between $.58 per gallon and the NY MX HO average
price, multiplied by 1,000,000 gallons. Accordingly, in any month in which
the
holder exercised such right, we would have been obligated to pay the holder
$10,000 for each cent by which $.58 exceeded the average NY MX HO price for
that
month. For example, if the NY MX HO average price during March 2005 was
approximately $.54, and if the holder were to exercise its payment right,
we
would have been obligated to pay the holder approximately $40,000. During
the
twelve-month period commencing January 2005 the average NY MX HO price remained
well above the $.58 per gallon threshold and as of December 31, 2005 the
agreement expired without any further obligation of either party. For the
twelve-month period ended December 31, 2005 an adjustment of $500,000 was
made
to reflect the decline in fair value of the agreement which had the effect
of
reducing operating supplies expense and other current liabilities each by
$500,000 in the accompanying consolidated financial statements. For the
twelve-month period ended December 31, 2004 an adjustment of $250,000 was
made
to reflect the decline in fair value of the agreement which had the effect
of
reducing operating supplies expense and other current liabilities each by
$250,000 in the accompanying consolidated financial statements, see Note
17 to
our consolidated financial statements.
The
following statements are filed with this report:
Report
of
Independent Registered Public Accounting Firm - Grant Thornton LLP
Report
of
Independent Registered Public Accounting Firm - Deloitte & Touche
LLP
Consolidated
Balance Sheets - December 31, 2006 and 2005
Consolidated
Statements of Income - Years ended December 31, 2006, 2005 and 2004
Consolidated Statements of Shareholders’ Equity - Years ended December 31, 2006,
2005 and 2004
Consolidated
Statements of Cash Flows - Years ended December 31, 2006, 2005 and
2004
Notes
to
Consolidated Financial Statements
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and
Shareholders
of P.A.M. Transportation Services, Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheets of P.A.M. Transportation
Services, Inc. (a Delaware Corporation) and subsidiaries, (collectively,
the
Company) as of December 31, 2006 and 2005, and the related consolidated
statements of income, stockholders’ equity and other comprehensive income, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinions.
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, 2006 and 2005 and the
results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the P.A.M. Transportation
Services, Inc.’s internal control over financial reporting as of December 31,
2006, based on criteria established in Internal
Control-Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated March 12, 2007 expressed unqualified opinions on the
effectiveness of internal control over financial reporting and management’s
evaluation thereof.
GRANT
THORNTON LLP
Tulsa,
Oklahoma
March
12,
2007
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of
Directors and Stockholders
P.A.M.
Transportation Services, Inc. and Subsidiaries
We
have
audited the accompanying consolidated statements of income, stockholders’ equity
and other comprehensive income, and cash flows of P.A.M. Transportation
Services, Inc. and subsidiaries (the “Company”) for the year ended December 31,
2004. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, such consolidated financial statements present fairly, in all
material
respects, the results of operations and cash flows of P.A.M. Transportation
Services, Inc. and subsidiaries for the year ended December 31, 2004, in
conformity with accounting principles generally accepted in the United
States of
America.
DELOITTE
& TOUCHE LLP
Little
Rock, Arkansas
March
8,
2005
|
P.A.M.
TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2006 AND 2005
(in
thousands, except share and per share data)
|
|||||||
|
ASSETS
|
2006
|
|
|
2005
|
|||
|
CURRENT
ASSETS:
|
|||||||
|
Cash
and cash equivalents
|
$
|
1,040
|
$
|
1,129
|
|||
|
Accounts
receivable—net:
|
|||||||
|
Trade
|
61,469
|
65,433
|
|||||
|
Other
|
1,361
|
1,392
|
|||||
|
Inventories
|
819
|
749
|
|||||
|
Prepaid
expenses and deposits
|
14,928
|
15,095
|
|||||
|
Marketable
equity securities available-for-sale
|
14,437
|
10,999
|
|||||
|
Income
taxes refundable
|
498
|
225
|
|||||
|
Total
current assets
|
94,552
|
95,022
|
|||||
|
PROPERTY
AND EQUIPMENT:
|
|||||||
|
Land
|
2,674
|
2,674
|
|||||
|
Structures
and improvements
|
9,383
|
9,319
|
|||||
|
Revenue
equipment
|
286,933
|
250,664
|
|||||
|
Office
furniture and equipment
|
6,890
|
6,692
|
|||||
|
Total
property and equipment
|
305,880
|
269,349
|
|||||
|
Accumulated
depreciation
|
(102,566
|
)
|
(87,854
|
)
|
|||
|
Net
property and equipment
|
203,314
|
181,495
|
|||||
|
OTHER
ASSETS:
|
|||||||
|
Goodwill
|
15,413
|
15,413
|
|||||
|
Non-compete
agreements, net
|
217
|
417
|
|||||
|
Other
|
750
|
1,094
|
|||||
|
Total
other assets
|
16,380
|
16,924
|
|||||
|
TOTAL
ASSETS
|
$
|
314,246
|
$
|
293,441
|
|||
|
(Continued)
|
|||||||
|
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2006 AND 2005
(in
thousands, except share and per share data)
|
|||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
2006
|
|
|
2005
|
|
||
|
CURRENT
LIABILITIES:
|
|||||||
|
Accounts
payable
|
$
|
38,510
|
$
|
22,055
|
|||
|
Accrued
expenses and other liabilities
|
9,994
|
10,507
|
|||||
|
Current
maturities of long-term debt
|
1,915
|
1,859
|
|||||
|
Deferred
income taxes—current
|
5,658
|
7,134
|
|||||
|
Total
current liabilities
|
56,077
|
41,555
|
|||||
|
Long-term
debt—less
current portion
|
21,205
|
39,693
|
|||||
|
Deferred
income taxes—less
current portion
|
51,902
|
47,197
|
|||||
|
Other
|
34
|
234
|
|||||
|
Total
liabilities
|
129,218
|
128,679
|
|||||
|
COMMITMENTS
AND CONTINGENCIES
|
|||||||
|
SHAREHOLDERS'
EQUITY
|
|||||||
|
Preferred
stock, $.01 par value, 10,000,000 shares
authorized;
none issued
|
-
|
-
|
|||||
|
Common
stock, $.01 par value, 40,000,000 shares
authorized;
11,362,207 and 11,344,207 shares issued;
10,303,607
and 10,285,607 shares outstanding at
December
31, 2006 and December 31, 2005, respectively
|
114
|
113
|
|||||
|
Additional
paid-in capital
|
77,309
|
76,429
|
|||||
|
Accumulated
other comprehensive income
|
3,142
|
1,721
|
|||||
|
Treasury
stock, at cost; 1,058,600 shares
|
(17,869
|
)
|
(17,869
|
)
|
|||
|
Retained
earnings
|
122,332
|
104,368
|
|||||
|
Total
shareholders’ equity
|
185,028
|
164,762
|
|||||
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
314,246
|
$
|
293,441
|
|||
|
|
(Concluded)
|
||||||
|
See
notes to consolidated financial
statements.
|
|||||||
|
P.A.M.
TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
YEARS
ENDED DECEMBER 31, 2006, 2005 AND 2004
(in
thousands, except per share data)
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
OPERATING
REVENUES:
|
||||||||||
|
Revenue,
before fuel surcharge
|
$
|
351,373
|
$
|
326,353
|
$
|
309,475
|
||||
|
Fuel
surcharge
|
48,896
|
34,527
|
15,591
|
|||||||
|
Total
operating revenues
|
400,269
|
360,880
|
325,066
|
|||||||
|
OPERATING
EXPENSES AND COSTS:
|
||||||||||
|
Salaries,
wages and benefits
|
127,539
|
122,005
|
119,519
|
|||||||
|
Fuel
expense
|
97,286
|
81,017
|
55,645
|
|||||||
|
Rents
and purchased transportation
|
43,844
|
39,074
|
38,938
|
|||||||
|
Depreciation
and amortization
|
33,929
|
31,376
|
30,016
|
|||||||
|
Operating
supplies and expenses
|
25,682
|
23,114
|
21,718
|
|||||||
|
Operating
taxes and licenses
|
16,421
|
15,776
|
15,488
|
|||||||
|
Insurance
and claims
|
16,389
|
15,992
|
15,820
|
|||||||
|
Communications
and utilities
|
2,642
|
2,648
|
2,690
|
|||||||
|
Other
|
5,426
|
6,205
|
5,131
|
|||||||
|
Loss
on sale or disposal of equipment
|
47
|
147
|
915
|
|||||||
|
Total
operating expenses and costs
|
369,205
|
337,354
|
305,880
|
|||||||
|
OPERATING
INCOME
|
31,064
|
23,526
|
19,186
|
|||||||
|
NON-OPERATING
INCOME
|
448
|
477
|
464
|
|||||||
|
INTEREST
EXPENSE
|
(1,475
|
)
|
(1,881
|
)
|
(1,758
|
)
|
||||
|
INCOME
BEFORE INCOME TAXES
|
30,037
|
22,122
|
17,892
|
|||||||
|
FEDERAL
AND STATE INCOME TAXES:
|
||||||||||
|
Current
|
9,768
|
7,572
|
479
|
|||||||
|
Deferred
|
2,305
|
1,411
|
6,825
|
|||||||
|
Total
federal and state income taxes
|
12,073
|
8,983
|
7,304
|
|||||||
|
NET
INCOME
|
$
|
17,964
|
$
|
13,139
|
$
|
10,588
|
||||
|
EARNINGS
PER COMMON SHARE:
|
||||||||||
|
Basic
|
$
|
1.74
|
$
|
1.20
|
$
|
0.94
|
||||
|
Diluted
|
$
|
1.74
|
$
|
1.20
|
$
|
0.94
|
||||
|
AVERAGE
COMMON SHARES OUTSTANDING:
|
||||||||||
|
Basic
|
10,296
|
10,966
|
11,298
|
|||||||
|
Diluted
|
10,302
|
10,976
|
11,324
|
|||||||
|
See
notes to consolidated financial
statements.
|
||||||||||
|
P.A.M.
TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE
INCOME
YEARS
ENDED DECEMBER 31, 2006, 2005 AND 2004
(in
thousands)
|
|||||||||||||||||||||||||
|
Common
Stock
Shares
/ Amount
|
Additional
Paid-In Capital
|
Other
Comprehensive Income
|
Accumulated
Other Comprehensive Income
|
Treasury
Stock
|
Retained
Earnings
|
Total
|
|||||||||||||||||||
|
BALANCE—
January 1, 2004
|
11,294
|
$
|
113
|
$
|
75,957
|
$
|
164
|
$
|
-
|
$
|
80,641
|
$
|
156,875
|
||||||||||||
|
Components
of comprehensive income:
|
|||||||||||||||||||||||||
|
Net
earnings
|
$
|
10,588
|
10,588
|
10,588
|
|||||||||||||||||||||
|
Other
comprehensive gain:
|
|||||||||||||||||||||||||
|
Unrealized
gain on hedge,
|
|||||||||||||||||||||||||
|
net
of tax of $314
|
481
|
481
|
481
|
||||||||||||||||||||||
|
Unrealized
gain on marketable
|
|||||||||||||||||||||||||
|
securities,
net of tax of $371
|
506
|
506
|
506
|
||||||||||||||||||||||
|
Total
comprehensive income
|
$
|
11,575
|
|||||||||||||||||||||||
|
Exercise
of stock options-shares
|
|||||||||||||||||||||||||
|
issued
including tax benefits
|
9
|
93
|
93
|
||||||||||||||||||||||
|
BALANCE—
December 31, 2004
|
11,303
|
113
|
76,050
|
1,151
|
-
|
91,229
|
168,543
|
||||||||||||||||||
|
Components
of comprehensive income:
|
|||||||||||||||||||||||||
|
Net
earnings
|
$
|
13,139
|
13,139
|
13,139
|
|||||||||||||||||||||
|
Other
comprehensive gain:
|
|||||||||||||||||||||||||
|
Unrealized
gain on hedge,
|
|||||||||||||||||||||||||
|
net
of tax of $195
|
282
|
282
|
282
|
||||||||||||||||||||||
|
Unrealized
gain on marketable
|
|||||||||||||||||||||||||
|
securities,
net of tax of $189
|
288
|
288
|
288
|
||||||||||||||||||||||
|
Total
comprehensive income
|
$
|
13,709
|
|||||||||||||||||||||||
|
Treasury
stock repurchases
|
(1,059
|
)
|
(17,869
|
)
|
(17,869
|
)
|
|||||||||||||||||||
|
Exercise
of stock options-shares
|
|||||||||||||||||||||||||
|
issued
including tax benefits
|
41
|
379
|
379
|
||||||||||||||||||||||
|
BALANCE—
December 31, 2005
|
10,285
|
113
|
76,429
|
1,721
|
(17,869
|
)
|
104,368
|
164,762
|
|||||||||||||||||
|
Components
of comprehensive income:
|
|||||||||||||||||||||||||
|
Net
earnings
|
$
|
17,964
|
17,964
|
17,964
|
|||||||||||||||||||||
|
Other
comprehensive gain:
|
|||||||||||||||||||||||||
|
Unrealized
gain on hedge,
|
|||||||||||||||||||||||||
|
net
of tax of $13
|
19
|
19
|
19
|
||||||||||||||||||||||
|
Unrealized
gain on marketable
|
|||||||||||||||||||||||||
|
securities,
net of tax of $923
|
1,402
|
1,402
|
1,402
|
||||||||||||||||||||||
|
Total
comprehensive income
|
$
|
19,385
|
|||||||||||||||||||||||
|
Exercise
of stock options-shares
|
|||||||||||||||||||||||||
|
issued
including tax benefits
|
18
|
1
|
369
|
370
|
|||||||||||||||||||||
|
Share-based
compensation
|
511
|
511
|
|||||||||||||||||||||||
|
BALANCE—
December 31, 2006
|
10,303
|
$
|
114
|
$
|
77,309
|
$
|
3,142
|
$
|
(17,869
|
)
|
$
|
122,332
|
$
|
185,028
|
|||||||||||
|
See
notes to consolidated financial
statements.
|
|||||||||||||||||||||||||
-33-
|
P.A.M.
TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2006, 2005 AND 2004
(in
thousands)
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
OPERATING
ACTIVITIES:
|
||||||||||
|
Net
income
|
$
|
17,964
|
$
|
13,139
|
$
|
10,588
|
||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
|
Depreciation
and amortization
|
33,929
|
31,376
|
30,016
|
|||||||
|
Bad
debt expense (recovery)
|
310
|
1,428
|
(410
|
)
|
||||||
|
Stock
compensation—net
of excess tax benefits
|
441
|
-
|
-
|
|||||||
|
Non-compete
agreement amortization—net
of payments
|
-
|
37
|
88
|
|||||||
|
Provision
for deferred income taxes
|
2,305
|
1,411
|
6,825
|
|||||||
|
Reclassification
of unrealized loss on marketable equity securities
|
120
|
153
|
-
|
|||||||
|
Gain
on sale of marketable equity securities
|
(30
|
)
|
-
|
-
|
||||||
|
Loss
on sale or disposal of equipment
|
47
|
147
|
915
|
|||||||
|
Changes
in operating assets and liabilities:
|
||||||||||
|
Accounts
receivable
|
3,685
|
(19,236
|
)
|
(1,393
|
)
|
|||||
|
Prepaid
expenses, inventories, and other assets
|
440
|
(40
|
)
|
(8,279
|
)
|
|||||
|
Income
taxes refundable
|
(202
|
)
|
528
|
502
|
||||||
|
Trade
accounts payable
|
2,219
|
(5,881
|
)
|
7,202
|
||||||
|
Accrued
expenses
|
(525
|
)
|
679
|
(1,339
|
)
|
|||||
|
Net
cash provided by operating activities
|
60,703
|
23,741
|
44,715
|
|||||||
|
INVESTING
ACTIVITIES:
|
||||||||||
|
Purchases
of property and equipment
|
(53,514
|
)
|
(62,013
|
)
|
(53,703
|
)
|
||||
|
Proceeds
from sale or disposal of equipment
|
11,987
|
22,850
|
31,360
|
|||||||
|
Net
purchases of marketable equity securities
|
(1,203
|
)
|
(1,884
|
)
|
(2,423
|
)
|
||||
|
Other
|
-
|
20
|
36
|
|||||||
|
Net
cash used in investing activities
|
(42,730
|
)
|
(41,027
|
)
|
(24,730
|
)
|
||||
|
FINANCING
ACTIVITIES:
|
||||||||||
|
Borrowings
under line of credit
|
446,221
|
422,460
|
350,787
|
|||||||
|
Repayments
under line of credit
|
(463,967
|
)
|
(405,277
|
)
|
(353,656
|
)
|
||||
|
Borrowings
of long-term debt
|
1,996
|
1,977
|
4,404
|
|||||||
|
Repayments
of long-term debt
|
(2,682
|
)
|
(2,913
|
)
|
(5,010
|
)
|
||||
|
Repurchases
of common stock
|
-
|
(17,869
|
)
|
-
|
||||||
|
Stock
compensation excess tax benefits
|
70
|
-
|
-
|
|||||||
|
Exercise
of stock options
|
300
|
378
|
85
|
|||||||
|
Net
cash used in financing activities
|
(18,062
|
)
|
(1,244
|
)
|
(3,390
|
)
|
||||
|
NET
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(89
|
)
|
(18,530
|
)
|
16,595
|
|||||
|
CASH
AND CASH EQUIVALENTS—Beginning
of year
|
1,129
|
19,659
|
3,064
|
|||||||
|
CASH
AND CASH EQUIVALENTS—End
of year
|
$
|
1,040
|
$
|
1,129
|
$
|
19,659
|
||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION—
|
||||||||||
|
Cash
paid during the period for:
|
||||||||||
|
Interest
|
$
|
1,481
|
$
|
1,928
|
$
|
1,774
|
||||
|
Income
taxes
|
$
|
10,061
|
$
|
7,190
|
$
|
515
|
||||
|
NONCASH
INVESTING AND FINANCING ACTIVITIES—
|
||||||||||
|
Purchases
of revenue equipment included in accounts payable
|
$
|
14,276
|
$
|
-
|
$
|
-
|
||||
|
See
notes to consolidated financial statements.
|
||||||||||
-34-
P.A.M.
TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2006, 2005, AND 2004
|
1.
|
ACCOUNTING
POLICIES
|
Description
of Business and Principles of Consolidation-P.A.M.
Transportation Services, Inc. (the “Company”), through its subsidiaries,
operates as a truckload transportation and logistics company.
The
consolidated financial statements include the accounts of the Company and
its
wholly owned operating subsidiaries: P.A.M. Transport, Inc., P.A.M. Dedicated
Services, Inc., Choctaw Express, Inc., Allen Freight Services, Inc., Decker
Transport Co., Inc., McNeill Express, Inc., T.T.X., Inc., Transcend Logistics,
Inc., and East Coast Transport and Logistics, LLC. The following subsidiaries
were inactive during all periods presented: P.A.M. International, Inc., P.A.M.
Logistics Services, Inc., Choctaw Brokerage, Inc., P.A.M. Canada, Inc. and
S
& L Logistics, Inc. All significant intercompany accounts and transactions
have been eliminated.
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 reported amounts of assets and
liabilities, disclosure of any contingent assets and liabilities at the
financial statement date and reported amounts of revenue and expenses during
the
reporting period. The Company periodically reviews these estimates and
assumptions. The Company's estimates were based on its historical experience
and
various other assumptions that the Company believes to be reasonable under
the
circumstances. Actual results could differ from those estimates.
Cash
and Cash Equivalents-The
Company considers all highly liquid investments with a maturity of three
months
or less when purchased to be cash equivalents.
Bank
Overdrafts-The
Company classifies bank overdrafts in current liabilities as an accounts
payable
and does not offset other positive bank account balances located at the same
or
other financial institutions. Bank overdrafts generally represent checks
written
that have not yet cleared the Company’s bank accounts. The majority of the
Company’s bank accounts are zero balance accounts that are funded at the point
items clear against the account by drawings against a line of credit, therefore
the outstanding checks represent bank overdrafts. Because the recipients
of
these checks have generally not yet received payment, the Company continues
to
classify bank overdrafts as accounts payable. Bank overdrafts are classified
as
changes in accounts payable in the cash flows from operating activities section
of the Company’s Consolidated Statement of Cash Flows. Bank overdrafts as of
December 31, 2006, 2005, and 2004 were approximately $8,230,000, $7,455,000,
and
$16,451,000, respectively.
Accounts
Receivable Other-The
components of accounts receivable other consist primarily of company driver
advances, owner operator advances and equipment manufacturer warranties.
Advances receivable from company drivers as of December 31, 2006 and 2005,
were
approximately $503,000 and $484,000, respectively.
Accounts
Receivable Allowance-An
allowance is provided for accounts receivable based on historical collection
experience. Additionally, management considers any accounts individually
known
to exhibit characteristics indicating a collection problem.
Marketable
Equity Securities-Marketable
equity securities, which are classified by the Company as available for sale,
are carried at market value with unrealized gains and losses recognized in
accumulated other comprehensive income in the statements of stockholders’
equity. Realized gains and losses are computed utilizing the specific
identification method.
Impairment
of Long-Lived Assets-The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of a long-lived asset
may not
be recoverable. An impairment loss would be recognized if the carrying amount
of
the long-lived asset is not recoverable, and it exceeds its fair value. For
long-lived assets classified as held and used, if the carrying value of the
long-lived asset exceeds the sum of the future net cash flows, it is not
recoverable. The Company does not separately identify assets by subsidiary,
as
tractors and trailers are routinely transferred from one division to another.
As
a result, none of the Company's long-lived assets have identifiable cash
flows
from use that are largely independent of the cash flows of other assets and
liabilities. Thus, the asset group used to assess impairment would include
all
assets and liabilities of the Company.
Property
and Equipment-Property
and equipment is recorded at cost, less accumulated depreciation. For financial
reporting purposes, the cost of such property is depreciated principally
by the
straight-line method. For tax reporting purposes, accelerated depreciation
or
applicable cost recovery methods are used. Depreciation is recognized over
the
estimated asset life, considering the estimated salvage value of the asset.
Such
salvage values are based on estimates using expected market values for used
equipment and the estimated time of disposal which, in many cases include
guaranteed residual values by the manufacturers. Gains and losses are reflected
in the year of disposal. The following is a table reflecting estimated ranges
of
asset useful lives by major class of depreciable assets:
|
Asset
Class
|
Estimated
Asset Life
|
|
Service
vehicles
|
3-5
years
|
|
Office
furniture and equipment
|
3-7
years
|
|
Revenue
equipment
|
3-10
years
|
|
Structure
and improvements
|
5-30
years
|
Prepaid
Tires-Tires
purchased with revenue equipment are capitalized as a cost of the related
equipment. Replacement tires are included in prepaid expenses and deposits
and
are amortized over a 24-month period. Amounts paid for the recapping of tires
are expensed when incurred.
Reclassifications-In
order
to conform to industry practice, the Company began to classify fuel surcharges
charged to customers as revenue rather than as a reduction of operating supplies
expense as had been presented in reports prior to the period ended June 30,
2004. During 2006, the Company began to separately display as a line item
“Fuel
expense” for amounts paid for fuel which previously had been aggregated with
other operating supplies and included in the line item “Operating supplies”.
These reclassifications have had no effect on operating income, net income
or
earnings per share. The Company has made corresponding reclassifications
to
comparative periods shown.
Advertising
Expense-Advertising
costs are expensed as incurred and totaled approximately $550,000, $350,000
and
$1,100,000 for the years ended December 31, 2006, 2005, and 2004,
respectively.
Repairs
and Maintenance-Repairs
and maintenance costs are expensed as incurred.
Goodwill-The
Company follows the provisions of Statement of Financial Accounting Standards
No. 142, Goodwill
and Other Intangible Assets,
(“SFAS
No. 142”), which requires the Company to assess acquired goodwill for impairment
at least annually in the absence of an indicator of possible impairment,
and
immediately upon an indicator of possible impairment. The Company has selected
December 31 for its annual impairment testing and determined as of December
31,
2006 there was no impairment.
Self
Insurance Liability—A
liability is recognized for known health, workers’ compensation, cargo damage,
property damage and auto liability damage. An estimate of the incurred but
not
reported claims for each type of liability is made based on historical claims
made, estimated frequency of occurrence, and considering changing factors
that
contribute to the overall cost of insurance.
Income
Taxes-The
Company applies the provisions of Statement of Financial Accounting Standards
No. 109, Accounting
for Income Taxes
(“SFAS
No. 109”). Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial reporting basis and the tax
reporting basis of assets and liabilities using enacted tax rates.
Revenue
Recognition Policy-Revenue
is recognized in full upon completion of delivery to the receiver’s location.
For freight in transit at the end of a reporting period, the Company recognizes
revenue pro rata based on relative transit miles completed as a portion of
the
estimated total transit miles. Expenses are recognized as incurred.
Share-Based
Compensation-The
Company adopted Statement of Financial Accounting Standards No. 123(R),
Share-Based
Payments,
effective January 1, 2006, utilizing the “modified prospective” method as
described in the standard. Under the “modified prospective” method, compensation
cost is recognized for all share-based payments granted after the effective
date
and for all unvested awards granted prior to the effective date. Prior to
adoption, the Company accounted for share-based payments under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
Accounting
for Stock Issued to Employees,
and
related interpretations. The Company uses historical volatility when estimating
the expected volatility of its share price. For additional information with
respect to share-based compensation, see Note 12 to our consolidated financial
statements.
Earnings
Per Share-The
Company computes and presents earnings per share (“EPS”) in accordance with
Statement of Financial Accounting Standards No. 128, Earnings
per Share (“SFAS
No. 128”). The difference between the Company's weighted-average shares
outstanding and diluted shares outstanding is due to the dilutive effect
of
stock options for all periods presented. See Note 13 for computation of diluted
EPS.
Business
Segment and Concentrations of Credit Risk-The
Company operates in one business segment, motor carrier operations. The Company
provides truckload transportation services as well as brokerage and logistics
services to customers throughout the United States and portions of Canada
and
Mexico. Truckload transportation services revenues, excluding fuel surcharges,
represented 87.8%, 88.0%, and 86.4% of total revenues, excluding fuel
surcharges, for the twelve months ended December 31, 2006, 2005, and 2004,
respectively. Remaining revenues, excluding fuel surcharges, for each respective
year were generated by brokerage and logistics services. The Company performs
ongoing credit evaluations and generally does not require collateral from
its
customers. The Company maintains reserves for potential credit losses. In
view
of the concentration of the Company’s revenues and accounts receivable among a
limited number of customers within the automobile industry, the financial
health
of this industry is a factor in the Company’s overall evaluation of accounts
receivable.
Recent
Accounting Pronouncements-In
September 2006, the Financial Accounting Standards Board
(“FASB”) issued Statement of Financial Accounting Standards No. 158,
Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans — an
amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS
No. 158”). SFAS No. 158 requires recognition of a net liability or asset to
report the funded status of defined benefit pension and other postretirement
plans on the balance sheet and recognition (as a component of other
comprehensive income) of changes in the funded status in the year in which
the
changes occur. Additionally, SFAS No. 158 requires measurement of a plan’s
assets and obligations as of the balance sheet date and additional annual
disclosures in the notes to the financial statements. The recognition and
disclosure provisions of SFAS No. 158 are effective for fiscal years ending
after December 15, 2006, while the requirement to measure a plan’s assets
and obligations as of the balance sheet date is effective for fiscal years
ending after December 15, 2008. Adoption of this statement did not have a
material effect on the Company's consolidated financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, Fair
Value Measurements
(“SFAS
No. 157”). SFAS No. 157 provides enhanced guidance for using fair value to
measure assets and liabilities, establishes a common definition of fair value,
provides a framework for measuring fair value under United States Generally
Accepted Accounting Principles (“GAAP”) and expands disclosure requirements
about fair value measurements. SFAS No. 157 is effective for financial
statements issued in fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. Management is currently evaluating
the impact that adoption of SFAS No. 157 might have on the Company’s
consolidated financial statements.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108, Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (“SAB
108”). Due to diversity in practice among registrants, SAB 108 expresses SEC
staff views regarding the process by which misstatements in financial statements
are evaluated for purposes of determining whether financial statement
restatement is necessary. SAB 108 is effective for fiscal years ending after
November 15, 2006, and early application is encouraged. The application of
SAB 108 did not have a material effect on the Company’s consolidated
financial statements.
In
June
2006, the FASB issued Interpretation No. 48, Accounting
for Uncertainty in Income Taxes
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes.
FIN 48
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected
to be
taken in a tax return. In addition, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure, and transition and is effective for fiscal years beginning after
December 15, 2006. Management is currently evaluating the impact that adoption
of FIN 48 might have on the Company’s consolidated financial
statements.
In
May
2005, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 154, Accounting
Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB
Statement No. 3
(“SFAS
No. 154”). SFAS No. 154 requires retrospective application to prior periods'
financial statements for changes in accounting principle, unless it is
impracticable to determine either the period-specific effects or the cumulative
effect of the change. This Statement applies to all voluntary changes in
accounting principle as well as to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. SFAS No. 154 further requires a change in
depreciation, amortization or depletion method for long-lived, non-financial
assets to be accounted for as a change in accounting estimate effected by
a
change in accounting principle. Corrections of errors in the application
of
accounting principles will continue to be reported by retroactively restating
the affected financial statements. The provisions of this statement are
effective for accounting changes and correction of errors made in fiscal
years
beginning after December 15, 2005. Adoption of this statement did not have
a
material effect on the Company's consolidated financial statements.
In
December 2004, the FASB issued Statement of Financial Accounting Standards
No.
123(R), Share-Based
Payment,
(“SFAS
No. 123(R)”) which replaces SFAS No. 123, Accounting
for Stock-Based Compensation,
and
supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees.
SFAS
No. 123(R) requires compensation costs relating to share-based payment
transactions be recognized in financial statements. The pro forma disclosure
previously permitted under SFAS No. 123 will no longer be an acceptable
alternative to recognition of expenses in the financial statements. SFAS
No.
123(R) was originally to be effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005, with early adoption
encouraged. In April 2005, the Securities and Exchange Commission announced
the
adoption of a new rule that amends the effective date of SFAS No. 123(R).
The
Company adopted this standard on January 1, 2006 and now reports in its
financial statements the share-based compensation expense for reporting periods
beginning in 2006. See note 12 for additional information.
|
2.
|
TRADE
ACCOUNTS RECEIVABLE
|
The
Company's receivables result primarily from the sale of transportation and
logistics services. The Company performs ongoing credit evaluations of its
customers and generally does not require collateral for accounts receivable.
Accounts receivable which consist of both billed and unbilled receivables
are
recorded at their invoiced amount and are presented net of an allowance for
doubtful accounts. Accounts outstanding longer than contractual payment terms
are considered past due and are reviewed individually for collectibility.
Accounts receivable balances consist of the following components as of December
31, 2006 and 2005:
|
2006
|
2005
|
||||||
|
(in
thousands)
|
|||||||
|
|
|
||||||
|
Billed
|
$
|
55,132
|
$
|
56,953
|
|||
|
Unbilled
|
7,794
|
10,510
|
|||||
|
Allowance
for doubtful accounts
|
(1,457
|
)
|
(2,030
|
)
|
|||
|
Total
accounts receivable—net
|
$
|
61,469
|
$
|
65,433
|
|||
An
analysis of changes in the allowance for doubtful accounts for the years
ended
December 31, 2006, 2005, and 2004 follows:
|
2006
|
2005
|
2004
|
||||||||
|
(in
thousands)
|
||||||||||
|
|
|
|||||||||
|
Balance—beginning
of year
|
$
|
2,030
|
$
|
768
|
$
|
834
|
||||
|
Provision
for bad debts
|
354
|
1,490
|
430
|
|||||||
|
Charge-offs
|
(960
|
)
|
(228
|
)
|
(701
|
)
|
||||
|
Recoveries
|
33
|
-
|
205
|
|||||||
|
Balance—end
of year
|
$
|
1,457
|
$
|
2,030
|
$
|
768
|
||||
The
December 31, 2004 charge-offs include $205,000 that was written off in prior
periods and recovered during 2004. However, the December 31, 2004 charge-offs
and recoveries do not include an amount representing an approximate $635,000
reduction in liability and bad debt expense resulting from the settlement
of a
lawsuit (see Note 15).
|
3.
|
MARKETABLE
EQUITY SECURITIES
|
The
Company accounts for its marketable securities in accordance with Statement
of
Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (“SFAS
No. 115”). SFAS No. 115 requires companies to classify their investments as
either trading, available-for-sale or held-to-maturity. The Company’s
investments in marketable securities are classified as available-for-sale
and
consist of equity securities. Management determines the appropriate
classification of these securities at the time of purchase and re-evaluates
such
designation as of each balance sheet date. During 2006, the Company received
proceeds of approximately $85,000 for the sale of marketable equity securities
with a combined cost of approximately $55,000, resulting in a realized gain
of
approximately $30,000. During 2006 and 2005, there were no reclassifications
of
marketable securities. Marketable equity securities are carried at fair value,
with the unrealized gains and losses, net of tax, included as a component
of
accumulated other comprehensive income in shareholders’ equity. The cost of
securities sold is based on the specific identification method. Interest
and
dividends on securities classified as available-for-sale are included in
non-operating income. Realized gains and losses, and declines in value judged
to
be other-than-temporary on available-for-sale securities, if any, are included
in the determination of net income as gains (losses) on the sale of
securities.
As
of
December 31, 2006, these equity securities had a combined cost basis of
approximately $9,189,000 and a combined fair market value of approximately
$14,437,000. For the year ended December 31, 2006, the Company had net
unrealized gains in market value of approximately $1,402,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately
$5,260,000 and gross unrealized losses of approximately $12,000. As of December
31, 2006, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately
$3,142,000.
As
of
December 31, 2005, the Company’s equity securities had a combined original cost
of approximately $8,291,000 and a combined fair market value of approximately
$10,999,000. For the year ended December 31, 2005, the Company had net
unrealized gains in market value of approximately $288,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately
$3,150,000 and gross unrealized losses of approximately $219,000. As of December
31, 2005, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $1,740,000.
The
following table shows the Company’s investments’ approximate gross unrealized
losses and fair value at December 31, 2006 and 2005. These investments are
all
classified as available-for-sale and consist of equity securities. As of
December 31, 2006 and 2005 there were no investments that had been in a
continuous unrealized loss position for twelve months or longer.
|
2006
|
2005
|
||||||||||||
|
(in
thousands)
|
|||||||||||||
|
Unrealized
|
Unrealized
|
||||||||||||
|
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
|||||||||
|
Equity
securities
|
$
|
417
|
$
|
12
|
$
|
1,283
|
$
|
219
|
|||||
|
Totals
|
$
|
417
|
$
|
12
|
$
|
1,283
|
$
|
219
|
|||||
|
4.
|
INTANGIBLE
ASSETS
|
The
Company applies 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 annual assessment
of
impairment was completed on December 31, 2006 and the Company determined
there
was no impairment as of that date. Goodwill at December 31 is summarized
as
follows:
|
2006
|
2005
|
2004
|
||||||||
|
(in
thousands)
|
||||||||||
|
Goodwill,
beginning of year
|
$
|
15,413
|
$
|
15,413
|
$
|
15,413
|
||||
|
Goodwill
acquired
|
-
|
-
|
-
|
|||||||
|
Goodwill
impairment
|
-
|
-
|
-
|
|||||||
|
Goodwill—end
of year
|
$
|
15,413
|
$
|
15,413
|
$
|
15,413
|
||||
Non-compete
agreements are amortized on a straight-line basis over the contractual term
of
the related agreement. Amortization expense associated with non-compete
agreements was approximately $200,000, $237,000 and $350,000, for the years
ending December 31, 2006, 2005 and 2004. The Company's non-compete agreements
at
December 31 are summarized as follows:
|
2006
|
2005
|
||||||
|
(in
thousands)
|
|||||||
|
Non-compete
agreements, original cost
|
$
|
1,000
|
$
|
1,300
|
|||
|
Accumulated
amortization
|
(783
|
)
|
(883
|
)
|
|||
|
Non-compete
agreements—net
|
$
|
217
|
$
|
417
|
|||
Over
the
remaining life of the non-compete agreement currently held by the Company,
approximately $200,000 of amortization expense will be recognized during
2007
and $17,000 will be recognized in 2008.
|
5.
|
ACCRUED
EXPENSES AND OTHER
LIABILITIES
|
Accrued
expenses and other liabilities at December 31 are summarized as
follows:
|
2006
|
2005
|
||||||
|
(in
thousands)
|
|||||||
|
Payroll
|
$
|
1,779
|
$
|
1,521
|
|||
|
Accrued
vacation
|
1,827
|
1,632
|
|||||
|
Taxes—other
than income
|
2,591
|
2,337
|
|||||
|
Interest
|
80
|
86
|
|||||
|
Driver
escrows
|
939
|
873
|
|||||
|
Self-insurance
claims reserves
|
2,778
|
4,058
|
|||||
|
Total
accrued expenses and other liabilities
|
$
|
9,994
|
$
|
10,507
|
|||
|
6.
|
CLAIMS
LIABILITIES
|
With
respect to physical damage for tractors, cargo loss and auto liability, the
Company maintains insurance coverage to protect it from certain business
risks.
These policies are with various carriers and have per occurrence deductibles
of
$2,500, $10,000 and $2,500 respectively. Since 2002, the Company has elected
to
self insure itself for physical damage to trailers. The Company maintains
workers’ compensation coverage in Arkansas, Ohio, Oklahoma, Mississippi, and
Florida with a $500,000 self-insured retention and a $500,000 per occurrence
excess policy. The Company has elected to opt out of workers' compensation
coverage in Texas and is providing coverage through the P.A.M. Texas Injury
Plan. The Company has reserved for estimated losses to pay such claims as
well
as claims incurred but not yet reported. The Company has not experienced
any
adverse trends involving differences in claims experienced versus claims
estimates for workers’ compensation claims. Letters of credit aggregating
$400,000 are held by a bank as security for workers’ compensation claims. The
Company self insures for employee health claims with a stop loss of $200,000
per
covered employee per year and estimates its liability for claims incurred
but
not reported.
|
7.
|
LONG-TERM
DEBT
|
Long-term
debt at December 31, consists of the following:
|
2006
|
2005
|
||||||
|
(in
thousands)
|
|||||||
|
Line
of credit with a bank—due May 31, 2007, and
|
|||||||
|
collateralized
by accounts receivable (1)
|
$
|
14,437
|
$
|
17,183
|
|||
|
Line
of credit with a bank—due June 30, 2008, and
|
|||||||
|
collateralized
by revenue equipment (2)
|
5,000
|
20,000
|
|||||
|
Note
payable (3)
|
2,510
|
3,208
|
|||||
|
Other
(4)
|
1,173
|
1,161
|
|||||
|
Total
long-term debt
|
$
|
23,120
|
41,552
|
||||
|
Less
current maturities
|
(1,915
|
)
|
(1,859
|
)
|
|||
|
Long-term
debt—net of current maturities
|
$
|
21,205
|
$
|
39,693
|
|||
| (1) |
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
1.25% (6.60% at December 31, 2006). Monthly payments of interest are
required under this agreement. Also, under the terms of the agreement
the
Company must have (a) positive net income, (b) a debt to equity ratio
of
no more than 4:1, (c) a debt service coverage ratio of at least 1:1,
and
(d) maintain a tangible net worth of at least $40 million. The Company
was
in compliance with all provisions of the agreement at December 31,
2006.
The Company has the intent and ability to extend the terms of this
agreement for an additional one year period until May 31, 2008 and
accordingly has classified the debt as long-term.
|
| (2) |
Line
of credit agreement with a bank provides for maximum borrowings of
$30.0
million and contains certain restrictive covenants that must be maintained
by the Company on a consolidated basis. Borrowings on the line of
credit
are at an interest rate of LIBOR as of the last day of the previous
month
plus 1.15% (6.50% at December 31, 2006). Monthly payments of interest
are
required under this agreement. Also, under the terms of the agreement
the
Company must have (a) positive net income, (b) a funded debt to EBITDA
ratio of less than 3:1, (c) a leverage ratio of less than 3:1, and
(d)
maintain a tangible net worth of at least $42 million increased by
(1) 50%
of cumulative quarterly net income and (2) proceeds of any public
stock
offering. The Company was in compliance with all provisions of the
agreement at December 31, 2006.
|
| (3) |
6.0%
note to the former owner of an acquired entity with an original face
amount of $4,974,612, payable in monthly installments of $72,672
through
March 2010.
|
| (4) |
6.0%
note to insurance premium finance company at December 31, 2006 with
an
original face amount of $1,995,916, payable in monthly installments
of
$170,927 through August 2007.
|
The
Company has provided letters of credit to third parties totaling approximately
$3,504,000 at December 31, 2006. The letters are held by these third parties
to
assist such parties in collection of any amounts due by the Company should
the
Company default in its commitments to the parties.
Scheduled
annual maturities on long-term debt outstanding at December 31, 2006,
are:
|
(in
thousands)
|
||||
|
2007
|
$
|
1,915
|
||
|
2008
|
20,225
|
|||
|
2009
|
836
|
|||
|
2010
|
144
|
|||
|
2011
|
-
|
|||
|
Total
|
$
|
23,120
|
||
|
8.
|
CAPITAL
STOCK
|
The
Company's authorized capital stock consists of 40,000,000 shares of common
stock, par value $.01 per share, and 10,000,000 shares of preferred stock,
par
value $.01 per share. At December 31, 2006, there were 11,362,207 shares
of our
common stock issued and 10,303,607 shares outstanding. No shares of our
preferred stock were issued or outstanding at December 31, 2006.
Common
Stock
The
holders of our common stock, subject to such rights as may be granted to
any
preferred stockholders, elect all directors and are entitled to one vote
per
share. All shares of common stock participate equally in dividends when and
as
declared by the Board of Directors and in net assets on liquidation. The
shares
of common stock have no preference, conversion, exchange, preemptive or
cumulative voting rights.
Preferred
Stock
Preferred
stock may be issued from time to time by our Board of Directors, without
stockholder approval, in such series and with such preferences, conversion
or
other rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board of Directors
in
the resolution authorizing their issuance. The issuance of preferred stock
by
the Board of Directors could adversely affect the rights of holders of shares
of
common stock; for example, the issuance of preferred stock could result in
a
class of securities outstanding that would have certain preferences with
respect
to dividends and in liquidation over the common stock, and that could result
in
a dilution of the voting rights, net income per share and net book value
of the
common stock. As of December 31, 2006, we have no agreements or understandings
for the issuance of any shares of preferred stock.
Treasury
Stock
During
April 2005 our Board of Directors authorized the repurchase of up to 600,000
shares of our common stock during the six month period ending October 11,
2005.
These 600,000 shares were all repurchased by September 30, 2005. On September
6,
2005 our Board of Directors authorized an extension of the stock repurchase
program until September 2006 and the repurchase of up to an additional 900,000
shares of our common stock. The Company repurchased 458,600 of these additional
shares prior to December 31, 2005 and made no additional purchases during
2006.
The
company accounts for Treasury stock using the cost method and as of December
31,
2006, 1,058,600 shares were held in the treasury at an aggregate cost of
approximately $17,869,000.
|
9.
|
COMPREHENSIVE
INCOME
|
Comprehensive
income was comprised of net income plus or minus market value adjustments
related to fuel hedges, interest rate swap agreements and marketable securities.
The components of comprehensive income were as follows:
|
2006
|
2005
|
2004
|
||||||||
|
(in
thousands)
|
||||||||||
|
Net
income
|
$
|
17,964
|
$
|
13,139
|
$
|
10,588
|
||||
|
Other
comprehensive income (loss):
|
||||||||||
|
Reclassification
adjustment for losses on
|
||||||||||
|
derivative
instruments included in net income
|
||||||||||
|
accounted
for as hedges, net of income taxes
|
18
|
227
|
444
|
|||||||
|
Reclassification
adjustment for unrealized
|
||||||||||
|
losses
on marketable securities, included in
|
||||||||||
|
net
income, net of income taxes
|
53
|
91
|
-
|
|||||||
|
Change
in fair value of interest rate
|
||||||||||
|
swap
agreements, net of income taxes
|
1
|
55
|
37
|
|||||||
|
Change
in fair value of marketable
|
||||||||||
|
securities,
net of income taxes
|
1,349
|
197
|
506
|
|||||||
|
Total
comprehensive income
|
$
|
19,385
|
$
|
13,709
|
$
|
11,575
|
||||
|
10.
|
SIGNIFICANT
CUSTOMERS AND INDUSTRY
CONCENTRATION
|
In
2006,
2005, and 2004, one customer, who is in the automobile manufacturing industry,
accounted for 41%, 39%, and 44% 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 2006, 2005, and 2004,
52%, 52%, and 56%, respectively, were derived from transportation services
provided to the automobile manufacturing industry. Accounts receivable from
the
largest customer totaled approximately $30,042,830 and $36,075,000 at December
31, 2006 and 2005, respectively.
|
11.
|
FEDERAL
AND STATE INCOME TAXES
|
Under
SFAS No. 109, deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and for income tax reporting purposes.
Significant
components of the Company’s deferred tax liabilities and assets at December 31
are as follows:
|
2006
|
2005
|
||||||||||||
|
(in
thousands)
|
|||||||||||||
|
Current
|
Long-Term
|
Current
|
Long-Term
|
||||||||||
|
Deferred
tax liabilities:
|
|||||||||||||
|
Property
and equipment
|
$
|
-
|
$
|
49,731
|
$
|
-
|
$
|
47,735
|
|||||
|
Unrealized
gains on securities
|
2,113
|
-
|
1,190
|
-
|
|||||||||
|
Prepaid
expenses and other
|
5,665
|
2,920
|
8,089
|
30
|
|||||||||
|
Total
deferred tax liabilities
|
7,778
|
52,651
|
9,279
|
47,765
|
|||||||||
|
Deferred
tax assets:
|
|||||||||||||
|
Allowance
for doubtful accounts
|
553
|
-
|
520
|
-
|
|||||||||
|
Compensated
absences
|
564
|
-
|
496
|
-
|
|||||||||
|
Self-insurance
allowances
|
664
|
-
|
1,022
|
-
|
|||||||||
|
Hedging
derivative
|
-
|
-
|
13
|
-
|
|||||||||
|
Share-based
compensation
|
-
|
242
|
-
|
48
|
|||||||||
|
Bonus
compensation
|
235
|
-
|
70
|
-
|
|||||||||
|
Non-competition
agreement
|
-
|
507
|
-
|
520
|
|||||||||
|
Other
|
104
|
-
|
24
|
-
|
|||||||||
|
Total
deferred tax assets
|
2,120
|
749
|
2,145
|
568
|
|||||||||
|
Net
deferred tax liability
|
$
|
5,658
|
$
|
51,902
|
$
|
7,134
|
$
|
47,197
|
|||||
The
reconciliation between the effective income tax rate and the statutory Federal
income tax rate for the years ended December 31, 2006, 2005 and 2004 is
presented in the following table:
|
2006
|
2005
|
2004
|
|||||||||||||||||
|
(in
thousands)
|
|||||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
||||||||||||||
|
Income
tax at the
|
|||||||||||||||||||
|
statutory
federal rate
|
$
|
10,513
|
35.0
|
$
|
7,743
|
35.0
|
$
|
6,083
|
34.0
|
||||||||||
|
Nondeductible
expense
|
378
|
1.3
|
450
|
2.0
|
484
|
2.7
|
|||||||||||||
|
State
income taxes—net
|
|||||||||||||||||||
|
of
federal benefit
|
1,182
|
3.9
|
790
|
3.6
|
737
|
4.1
|
|||||||||||||
|
Total
income taxes
|
$
|
12,073
|
40.2
|
$
|
8,983
|
40.6
|
$
|
7,304
|
40.8
|
||||||||||
The
provision for income taxes consisted of the following:
|
2006
|
2005
|
2004
|
||||||||
|
(in
thousands)
|
||||||||||
|
Current:
|
||||||||||
|
Federal
|
$
|
8,397
|
$
|
6,422
|
$
|
-
|
||||
|
State
|
1,371
|
1,150
|
479
|
|||||||
|
9,768
|
7,572
|
479
|
||||||||
|
Deferred:
|
||||||||||
|
Federal
|
1,768
|
876
|
6,076
|
|||||||
|
State
|
537
|
535
|
749
|
|||||||
|
2,305
|
1,411
|
6,825
|
||||||||
|
Total
income tax expense
|
$
|
12,073
|
$
|
8,983
|
$
|
7,304
|
||||
|
12.
|
SHARE-BASED
COMPENSATION
|
The
Company maintains a stock option plan under which incentive stock options
and
nonqualified stock options may be granted. On March 2, 2006, the Company’s Board
of Director’s adopted, and shareholders later approved, the 2006 Stock Option
Plan (the “2006 Plan”). The 2006 Plan replaces the expired 1995 Stock Option
Plan which had 263,500 options remaining which were never issued. Under the
2006
Plan 750,000 shares are reserved for the issuance of stock options to directors,
officers, key employees and others. The option exercise price under the 2006
Plan is the fair market value of the stock on the date the option is granted.
The fair market value is determined by the average of the highest and lowest
sales prices for a share of the Company’s common stock, on its primary exchange,
on the same date that the option is granted. During 2006, 16,000 options
were
issued under the 2006 Plan at an option exercise price of $26.73 and at December
31, 2006, 734,000 shares were available for granting future
options.
Outstanding
incentive stock options at December 31, 2006, 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, 2006, must be exercised within
five
to ten years from the date of grant.
In
August
2002, the Company granted performance-based variable stock options for 300,000
shares to certain key executives. The exercise price for these awards was
fixed
at the grant date and was equal to the fair market value of the stock on
that
date. On the date of grant, options for 60,000 shares vested immediately
and
vesting of the options for the remaining 240,000 shares was scheduled to
occur
on a straight-line basis each year from March 15, 2003 through March 15,
2008
upon meeting performance criteria. In order to meet the performance criteria,
net income for each fiscal year must be at least equal to 1.05 times net
income
for the preceding fiscal year, unless net income for the preceding fiscal
year
was zero or negative, in which case net income for the fiscal year must be
at
least 90% of net income for the most recent year with positive income. The
number of shares for which options vest each fiscal year will not be known
until
the date the performance criteria is measured. As of December 31, 2006, options
for 140,000 shares have vested under this 300,000 share option grant (including
those options which immediately vested upon grant) while options for 80,000
shares have been forfeited as the performance criteria were not met for the
fiscal years 2003 and 2004.
Transactions
in stock options under these plans are summarized as follows:
|
Shares
Under
Option
|
Weighted-
Average
Exercise
Price
|
||||||
|
Outstanding—January
1, 2004:
|
348,500
|
$
|
20.85
|
||||
|
Granted
|
14,000
|
16.99
|
|||||
|
Exercised
|
(9,000
|
)
|
9.39
|
||||
|
Canceled
|
(40,000
|
)
|
23.22
|
||||
|
Outstanding—December
31, 2004:
|
313,500
|
$
|
20.70
|
||||
|
Granted
|
14,000
|
18.27
|
|||||
|
Exercised
|
(41,000
|
)
|
9.21
|
||||
|
Outstanding—December
31, 2005:
|
286,500
|
$
|
22.22
|
||||
|
Granted
|
16,000
|
26.73
|
|||||
|
Exercised
|
(18,000
|
)
|
16.67
|
||||
|
Outstanding—December
31, 2006:
|
284,500
|
$
|
22.83
|
||||
|
Options
exercisable—December 31, 2006:
|
202,000
|
$
|
22.71
|
||||
Effective
January 1, 2006, the Company adopted FASB Statement No. 123(R),
Share-Based
Payment,
(“SFAS
No. 123(R)”) utilizing the “modified prospective” method as described in SFAS
No. 123(R). In the “modified prospective” method, compensation cost is
recognized for all share-based payments granted after the effective date
and for
all unvested awards granted prior to the effective date. In accordance with
SFAS
No. 123(R), prior period amounts were not restated. As of December 31, 2006
all option awards are classified as equity awards.
Prior
to
January 1, 2006, the stock-based compensation plans were accounted for based
on
the intrinsic value method under Accounting Principles Board Opinion
No. 25, Accounting
for Stock Issued to Employees,
(“APB
Opinion No. 25”) and related interpretations. Pro-forma information regarding
the impact of total stock-based compensation on net income and income per
share
for prior periods is required by SFAS No. 123(R). Such pro-forma
information, determined as if the Company had accounted for its employee
stock
options under the fair value method during the years ending December 31,
2005
and 2004, is illustrated in the following table:
|
2005
|
2004
|
||||||
|
(in
thousands, except per share data)
|
|||||||
|
Net
income—as reported
|
$
|
13,139
|
$
|
10,588
|
|||
|
Deduct
total stock-based employee compensation expense
|
|||||||
|
determined
under fair value based method for
|
|||||||
|
all
awards—net of related tax effects
|
(296
|
)
|
(292
|
)
|
|||
|
Pro
forma net income
|
$
|
12,843
|
$
|
10,296
|
|||
|
Earnings
per share:
|
|||||||
|
Basic—as
reported
|
$
|
1.20
|
$
|
0.94
|
|||
|
Basic—pro
forma
|
$
|
1.17
|
$
|
0.91
|
|||
|
Diluted—as
reported
|
$
|
1.20
|
$
|
0.94
|
|||
|
Diluted—pro
forma
|
$
|
1.17
|
$
|
0.91
|
|||
The
fair
value of the Company’s employee stock options was estimated at the date of grant
using a Black-Scholes-Merton (“BSM”) option-pricing model using the following
assumptions:
|
2006
|
2005
|
2004
|
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
|
Volatility
range
|
33.34%—38.54%
|
33.86%—38.54%
|
35.37%—38.54%
|
|
Risk-free
rate range
|
4.38%—5.02%
|
4.08%—4.38%
|
2.70%—4.38%
|
|
Expected
life
|
2.5
years—5 years
|
5
years
|
5
years
|
|
Fair
value of options
|
$6.93—$9.45
|
$6.73—$9.45
|
$6.62—$9.45
|
The
Company has never paid any cash dividends on its common stock and we do not
anticipate paying any cash dividends in the foreseeable future. The estimated
volatility is based on the historical volatility of our stock. The risk free
rate for the periods within the expected life of the option is based on the
U.S.
Treasury yield curve in effect at the time of grant. The expected life of
the
options are calculated using temporary guidance provided by the Securities
and
Exchange Commission which allows companies to elect a “simplified method” where
the expected life is the average of the vesting period and the original
contractual term. This simplified method is not available for share option
grants after December 31, 2007.
Information
related to the Company’s option activity as of December 31, 2006, and changes
during the year then ended is presented below:
|
Number
of Options
|
Weighted-
Average Exercise Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value*
|
||||||||||
|
(in
years)
|
|||||||||||||
|
Outstanding
at January 1, 2006
|
286,500
|
$
|
22.22
|
||||||||||
|
Granted
|
16,000
|
26.73
|
|||||||||||
|
Exercised
|
(18,000
|
)
|
16.67
|
||||||||||
|
Canceled/forfeited/expired
|
-
|
-
|
|||||||||||
|
Outstanding
at December 31, 2006
|
284,500
|
$
|
22.83
|
5.0
|
$
|
116,910
|
|||||||
|
Fully
vested and
exercisable
at December 31, 2006
|
202,000
|
$
|
22.71
|
4.8
|
$
|
111,560
|
|||||||
|
___________________________
|
|||||||||||||
|
*
The intrinsic value of a stock option is the amount by which the
market
value of the underlying stock exceeds the exercise price of the
option.
The per share market value of our common stock, as determined by
the
closing price on December 31, 2006, was
$22.02.
|
|||||||||||||
The
weighted-average grant-date fair value of options granted during the years
2006,
2005, and 2004 was $6.93, $6.73, and $6.62, respectively. The total intrinsic
value of options exercised during the years ended December 31, 2006, 2005,
and
2004, was approximately $175,000, $323,000, and $87,000,
respectively.
A
summary
of the status of the Company’s nonvested options as of December 31, 2006 and
changes during the year ended December 31, 2006, is presented
below:
|
Number
of Options
|
Weighted-
Average Grant Date Fair Value
|
||||||
|
Nonvested
at January 1, 2006
|
125,000
|
$
|
9.43
|
||||
|
Granted
|
16,000
|
6.93
|
|||||
|
Vested
|
(58,500
|
)
|
8.74
|
||||
|
Canceled/forfeited/expired
|
-
|
-
|
|||||
|
Nonvested
at December 31, 2006
|
82,500
|
$
|
9.43
|
||||
The
total
fair value of options vested during 2006, 2005, and 2004 was approximately
$511,000, $494,000, and $493,000, respectively. As of December 31, 2006,
the Company had stock-based compensation plans with total unvested stock-based
compensation expense of approximately $800,000 which is being amortized on
a
straight-line basis over the remaining vesting period. As a result, the Company
expects to recognize approximately $400,000 in additional compensation expense
related to unvested option awards during each of the years 2007 and 2008.
Total
pre-tax stock-based compensation expense, recognized in Salaries, wages and
benefits was approximately $511,000 during 2006 and includes approximately
$111,000 recognized as a result of the annual grant of 2,000 shares to each
non-employee director during the second quarter of 2006. The Company recognized
a total income tax benefit of approximately $197,000 related to stock-based
compensation expense during 2006. The recognition of stock-based compensation
expense decreased diluted and basic earnings per common share by approximately
$0.03 during 2006. No stock-based compensation expense or related tax benefits
were recognized during 2005 or 2004.
The
number, weighted average exercise price and weighted average remaining
contractual life of options outstanding as of December 31, 2006 and the number
and weighted average exercise price of options exercisable as of December
31,
2006 is as follows:
|
Exercise
Price
|
Options
Outstanding
|
Weighted-Average
Remaining Contractual Term
|
Options
Exercisable
|
|||
|
(in
years)
|
||||||
|
$16.99
|
8,000
|
2.2
|
8,000
|
|||
|
$18.27
|
12,000
|
3.2
|
12,000
|
|||
|
$19.88
|
12,500
|
1.8
|
10,000
|
|||
|
$20.79
|
4,000
|
0.2
|
4,000
|
|||
|
$22.68
|
12,000
|
1.2
|
12,000
|
|||
|
$23.22
|
220,000
|
5.7
|
140,000
|
|||
|
$26.73
|
16,000
|
4.5
|
16,000
|
|||
|
284,500
|
5.0
|
202,000
|
Cash
received from option exercises totaled approximately $300,000, $378,000,
and
$85,000 during the years ended December 31, 2006, 2005, and 2004, respectively.
The Company issues new shares upon option exercise.
|
13.
|
EARNINGS
PER SHARE
|
The
Company applies SFAS No. 128 for computing and presenting earnings per share.
Basic earnings per common share were computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted
earnings per common share were calculated as follows:
|
For
the Year Ended December 31,
|
||||||||||
|
2006
|
2005
|
2004
|
||||||||
|
(in
thousands, except per share data)
|
||||||||||
|
Net
income
|
$
|
17,964
|
$
|
13,139
|
$
|
10,588
|
||||
|
Basic
weighted average common shares outstanding
|
10,296
|
10,966
|
11,298
|
|||||||
|
Dilutive
effect of common stock equivalents
|
6
|
10
|
26
|
|||||||
|
Diluted
weighted average common shares outstanding
|
10,302
|
10,976
|
11,324
|
|||||||
|
Basic
earnings per share
|
$
|
1.74
|
$
|
1.20
|
$
|
0.94
|
||||
|
Diluted
earnings per share
|
$
|
1.74
|
$
|
1.20
|
$
|
0.94
|
||||
Options
to purchase 229,337, 280,160, and 254,500 shares of common stock were
outstanding as of December 31, 2006, 2005, and 2004, respectively, but were
not
included in the computation of diluted earnings per share because to do so
would
have an anti-dilutive effect.
|
14.
|
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
and vests at the rate of 20% each year until fully vested after five years.
Total employer matching contributions to the plan totaled approximately
$330,000, $300,000 and $280,000 in 2006, 2005 and 2004,
respectively.
|
15.
|
COMMITMENTS
AND CONTINGENCIES
|
During
2004, a suit which was originally filed on October 10, 2002 against one of
the
Company's subsidiaries was settled in the amount of $25,000. The suit, which
was
filed in the United States Bankruptcy Court for the District of Delaware,
alleged preferential transfers of $660,055 were made to the defendant, Allen
Freight Services Co., within the 90 day period preceding the bankruptcy petition
date of Bill's Dollar Stores, Inc. The Company had originally established
a
liability for the entire potential loss of $660,055; however, as a result
of a
settlement in the amount of $25,000 approximately $635,000 has been removed
as a
liability on the Company's financial statements and the related expense
originally recorded as a bad debt expense has been reduced.
As
to
other matters, the Company is not a party to any pending legal proceedings
which
management believes to be material to the financial position or results of
operations of the Company. The Company maintains liability insurance against
risks arising out of the normal course of its business.
The
Company leases certain premises under noncancelable operating lease agreements.
Future minimum annual lease payments under these leases are as
follows:
|
2007
|
$
|
559,815
|
||
|
2008
|
377,675
|
|||
|
2009
|
255,761
|
|||
|
2010
|
165,000
|
|||
|
2011
|
-
|
|||
|
Total
|
$
|
1,358,251
|
Total
rental expense, net of amounts reimbursed for the years ended December 31,
2006,
2005 and 2004 was approximately $2,369,000, $1,760,000, and $1,304,000,
respectively.
|
16.
|
FAIR
VALUE OF FINANCIAL
INSTRUMENTS
|
Statement
of Financial Accounting Standards No. 107, Disclosure
About Fair Value of Financial Instruments,
(“SFAS
No. 107”) requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it
is
practicable to estimate that value. The estimated fair value amounts have
been
determined by the Company using available market information and appropriate
valuation methodologies. However, considerable judgment is necessarily required
to interpret market data to develop the estimates of fair value. Accordingly,
the estimates presented herein are not necessarily indicative of the amounts
the
Company could realize in a current market exchange. The use of different
market
assumptions and/or estimation methodologies may have a material effect on
the
estimated fair value amounts.
The
following methods and assumptions were used by the Company in estimating
fair
value disclosures for financial instruments:
For
cash
and cash equivalents, accounts receivable, and trade accounts payable, 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.
Marketable equity securities are carried at their fair value.
For
long-term debt other than the lines of credit, the fair values are estimated
using discounted cash flow analyses, based on the Company’s current incremental
borrowing rates for similar types of borrowing arrangements. The carrying
value
of this other long-term debt at December 31, 2006 and 2005, respectively,
is
$3,683,000 and $4,369,000. The fair value of this other long-term debt is
estimated to be $3,661,000 and $4,401,000 at December 31, 2006 and 2005,
respectively.
The
carrying amount for the lines of credit approximates fair value because the
lines of credit interest rates are adjusted frequently.
|
17.
|
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 terminated 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 terminated on June 2,
2006.
The
Company had designated 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. During the term of the interest rate swap
agreements changes in cash flows from the interest rate swaps offset changes
in
interest rate payments on the first $20,000,000 of the Company’s revolving
credit facility. The hedge locked the interest rate at 5.08% or 4.83% plus
the
pricing spread for the notional amounts of $15,000,000 and $5,000,000,
respectively.
These
interest rate swap agreements met the specific hedge accounting criteria.
The
measurement of hedge effectiveness was 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
was
reported as a component of accumulated other comprehensive income in
shareholders’ equity and was reclassified into current earnings during 2006, the
termination year for all swap agreements. The December 31, 2005 balance of
the
net after tax deferred hedging loss in accumulated other comprehensive income
(“AOCI”) related to these swap agreements was approximately $19,000 which was
the amount reclassified into current earnings during 2006. The change in
AOCI
related to these swap agreements during the current year was approximately
$19,000. Ineffectiveness related to these hedges was not
significant.
In
July
2001, the Company entered into an agreement to obtain price protection and
reduce a portion of our exposure to fuel price fluctuations. Under this
agreement, we were obligated to purchase minimum amounts of diesel fuel per
month, with a price protection component, for the six month period ended
February 28, 2002. The agreement also provided that if during the twelve-month
period commencing January 2005, the average NY MX HO was below $.58 per gallon,
we would have been obligated to pay the contract holder the difference between
$.58 and the average NY MX HO price for such month, multiplied by 1,000,000
gallons. During the twelve-month period commencing January 2005, the average
NY
MX HO remained well above the $.58 per gallon threshold and as of December
31,
2005 the agreement expired without any further obligation of either party.
For
the twelve-month period ended December 31, 2005 an adjustment of $500,000
was
made to reflect the decline in fair value of the agreement which had the
effect
of reducing operating supplies expense and other current liabilities each
by
$500,000 in the accompanying consolidated financial statements. For the
twelve-month period ended December 31, 2004 an adjustment of $250,000 was
made
to reflect the decline in fair value of the agreement which had the effect
of
reducing operating supplies expense and other current liabilities each by
$250,000 in the accompanying consolidated financial statements.
|
18.
|
RELATED
PARTY TRANSACTIONS
|
In
the
normal course of business, the Company provides and receives transportation,
repair and other services for and from companies affiliated with a major
stockholder, and recognized $46,576, $111,510, and $269,553 in operating
revenue
and $1,558,371, $1,616,534, and $1,234,267 in operating expenses in 2006,
2005,
and 2004, respectively. In addition the Company purchased physical damage
insurance through an unaffiliated insurance broker which was written by an
insurance company affiliated with a major stockholder. Annual premiums were
$1,816,759, $1,667,928 and $1,686,587 for 2006, 2005 and 2004,
respectively.
Amounts
owed to the Company by these affiliates were $1,315,844 and $788,841 at December
31, 2006 and 2005 respectively. Of the accounts receivable at December 31,
2006,
$904,694 represents revenue resulting from maintenance performed in the
Company’s maintenance facilities and maintenance charges paid by the Company to
third parties on behalf of their affiliate and charged back at the amount
paid,
and $411,150 represents a prepayment of physical damage insurance premiums.
Amounts payable to affiliates at December 31, 2006 and 2005 was $223,420
and
$158,400 respectively.
|
19.
|
QUARTERLY
RESULTS OF OPERATIONS
(UNAUDITED)
|
The
tables below present quarterly financial information for 2006 and
2005:
|
2006
|
|||||||||||||
|
Three
Months Ended
|
|||||||||||||
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||
|
(in
thousands, except per share data)
|
|||||||||||||
|
Operating
revenues
|
$
|
100,525
|
$
|
103,365
|
$
|
99,874
|
$
|
96,505
|
|||||
|
Operating
expenses
|
91,473
|
94,375
|
94,202
|
89,154
|
|||||||||
|
Operating
income
|
9,052
|
8,990
|
5,672
|
7,351
|
|||||||||
|
Non-operating
income
|
57
|
116
|
140
|
135
|
|||||||||
|
Interest
expense
|
465
|
353
|
300
|
357
|
|||||||||
|
Income
taxes
|
3,461
|
3,512
|
2,244
|
2,857
|
|||||||||
|
Net
income
|
$
|
5,183
|
$
|
5,241
|
$
|
3,268
|
$
|
4,272
|
|||||
|
Net
income per common share:
|
|||||||||||||
|
Basic
|
$
|
0.50
|
$
|
0.51
|
$
|
0.32
|
$
|
0.41
|
|||||
|
Diluted
|
$
|
0.50
|
$
|
0.51
|
$
|
0.32
|
$
|
0.41
|
|||||
|
Average
common shares outstanding:
|
|||||||||||||
|
Basic
|
10,288
|
10,293
|
10,301
|
10,303
|
|||||||||
|
Diluted
|
10,288
|
10,301
|
10,309
|
10,308
|
|||||||||
|
2005
|
|||||||||||||
|
Three
Months Ended
|
|||||||||||||
|
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||
|
(in
thousands, except per share data)
|
|||||||||||||
|
Operating
revenues
|
$
|
86,192
|
$
|
91,027
|
$
|
88,484
|
$
|
95,177
|
|||||
|
Operating
expenses
|
81,034
|
84,479
|
84,471
|
87,370
|
|||||||||
|
Operating
income
|
5,158
|
6,548
|
4,013
|
7,807
|
|||||||||
|
Non-operating
income
|
191
|
108
|
155
|
23
|
|||||||||
|
Interest
expense
|
445
|
474
|
422
|
540
|
|||||||||
|
Income
taxes
|
2,001
|
2,502
|
1,533
|
2,947
|
|||||||||
|
Net
income
|
$
|
2,903
|
$
|
3,680
|
$
|
2,213
|
$
|
4,343
|
|||||
|
Net
income per common share:
|
|||||||||||||
|
Basic
|
$
|
0.26
|
$
|
0.33
|
$
|
0.20
|
$
|
0.41
|
|||||
|
Diluted
|
$
|
0.26
|
$
|
0.33
|
$
|
0.20
|
$
|
0.41
|
|||||
|
Average
common shares outstanding:
|
|||||||||||||
|
Basic
|
11,305
|
11,114
|
10,818
|
10,634
|
|||||||||
|
Diluted
|
11,327
|
11,130
|
10,821
|
10,636
|
|||||||||
On
June
16, 2005, the Company dismissed its independent auditors, Deloitte & Touche
LLP, and on the same date engaged Grant Thornton LLP as its independent auditors
for the fiscal year ending December 31, 2005. 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 June 21,
2005.
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under
the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted
an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Exchange Act, as amended. Based
on
this evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures are effective
as
of the end of the period covered by this Annual Report.
Management's
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act
Rules
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer,
we
conducted an evaluation of the effectiveness of the Company's internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control
-
Integrated Framework, our management concluded that our internal control
over
financial reporting is effective as of December 31, 2006.
Our
management's assessment of the effectiveness of our internal control over
financial reporting as of December 31, 2006 has been audited by Grant Thornton
LLP, an independent registered public accounting firm, who has issued an
attestation report on management’s assessment of the Company's internal control
over financial reporting, as stated in their report which is included
below.
Changes
in Internal Control Over Financial Reporting
There
were no changes in the Company's internal controls over financial reporting
that
occurred during the quarter ended December 31, 2006, that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and
Shareholders
of P.A.M. Transportation Services, Inc. and Subsidiaries
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting (management’s assessment),
that P.A.M. Transportation Services, Inc. (a Delaware Corporation) and
subsidiaries, (collectively, the Company) maintained effective internal control
over financial reporting as of December 31, 2006, based on the criteria
established in Internal
Control-Integrated Framework issued
by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
The
Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on
management’s assessment and an opinion on the effectiveness of the Company’s
internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention or
timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may
become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that the Company maintained effective internal
control over financial reporting as of December 31, 2006, is fairly stated,
in
all material respects, based on criteria established in Internal
Control-Integrated Framework
issued
by COSO. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal
Control-Integrated Framework
issued
by COSO.
We
also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of P.A.M.
Transportation Services, Inc. and subsidiaries, as of December 31, 2006 and
2005, and the related consolidated statements of income, stockholders’ equity
and other comprehensive income, and cash flows for the years then ended and
our
report dated March 12, 2007 expressed an unqualified opinion on those financial
statements.
GRANT
THORNTON LLP
Tulsa,
Oklahoma
March
12,
2007
None.
PART
III
Portions
of the information required by Part III of Form 10-K are, pursuant to General
Instruction G (3) of Form 10-K, incorporated by reference from our definitive
proxy statement to be filed pursuant to Regulation 14A for our Annual Meeting
of
Stockholders to be held on May 24, 2007.
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.
Information
concerning our executive officers is set forth in Item 1 of this Form 10-K
under
the caption “Executive Officers of the Registrant.”
The
information presented under the captions “Election of Directors,” “Section 16(a)
Beneficial Ownership Compliance,” “Corporate Governance - Code of Ethics” and
“Corporate Governance-Audit Committee,” in the proxy statement is incorporated
here by reference.
We
have a
separately designated standing audit committee established in accordance
with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of
the
Audit Committee consist of Thomas H. Cooke, Christopher L. Ellis, and Charles
F.
Wilkins.
The
information presented under the captions “Executive Compensation,” “Corporate
Governance-Compensation Committee Interlocks and Insider Participation,” and
“Compensation Committee Report” in the proxy statement is incorporated here by
reference.
The
information presented under the caption “Security Ownership of Certain
Beneficial Owners and Management” in the proxy statement is incorporated here by
reference.
Equity
Compensation Plan Information
The
following table summarizes, as of December 31, 2006, information about
compensation plans under which equity securities of the Company are authorized
for issuance:
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
|||||||
|
Equity
Compensation Plans approved by Security Holders
|
284,500
|
$
|
22.83
|
734,000
|
||||||
|
Equity
Compensation Plans not approved by Security Holders
|
-0-
|
-0-
|
-0-
|
|||||||
|
Total
|
284,500
|
$
|
22.83
|
734,000
|
||||||
The
information presented under the captions (i) “Transactions with Related
Persons,” including the information referenced there that is set forth under the
caption “Corporate Governance - Compensation Committee Interlocks and Insider
Participation” and (ii) “Corporate Governance - Director Independence” in the
proxy statement is incorporated here by reference.
The
information presented under the caption “Independent Public Accountants -
Principal Accountant Fees and Services” in the proxy statement is incorporated
here by reference.
PART
IV
(a) Financial
Statements and Schedules.
(1) Financial
Statements: See Part II, Item 8 hereof.
Report
of
Independent Registered Public Accounting Firm - Grant Thornton LLP
Report
of
Independent Registered Public Accounting Firm - Deloitte & Touche
LLP
Consolidated
Balance Sheets - December 31, 2006 and 2005
Consolidated
Statements of Income - Years ended December 31, 2006, 2005 and 2004
Consolidated
Statements of Shareholders’ Equity - Years ended December 31, 2006, 2005 and
2004
Consolidated
Statements of Cash Flows - Years ended December 31, 2006, 2005 and
2004
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
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 Quarterly Report on Form 10-Q for the quarter ended June
30,
1994 (“6/30/94 10-Q”); (iii) the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 (“6/30/95 10-Q”); (iv) the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (“9/30/96 10-Q”); (v) the Form S-8
Registration Statement filed on June 11, 1999 (“6/11/99 S-8”); (vi) the Annual
Report on Form 10-K for the year ended December 31, 2001 (“2001 10-K”); (vii)
the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(“3/31/02
10-Q”); (viii) the Quarterly Report on Form 10-Q for the quarter ended September
30, 2004 (“9/30/2004 10-Q”); (ix) the Annual Report on Form 10-K for the year
ended December 31, 2004 (“2004 10-K”); (x) the Form 8-K filed on January 25,
2005 (“1/25/2005 8-K”); (xi) Form 8-K filed on March 7, 2005 (“3/07/2005 8-K”);
(xii) Form 8-K filed on May 31, 2006 (“5/31/2006 8-K”); (xiii) Form 8-K filed on
July 28, 2006 (“7/28/2006 8-K”); (xiv) the Form 8-K filed on January 22, 2007
(“1/22/2007 8-K”); (xv) the Annual Report on Form 10-K for the year ended
December 31, 2005 (“2005 10-K”); or (xvi) the Quarterly Report on Form 10-Q for
the quarter ended June 30, 2006 (“6/30/06 10-Q”).
|
Exhibit
#
|
Description
of Exhibit
|
|
|
*3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant
(Exh. 3.1,
3/31/02 10-Q)
|
|
|
*3.2
|
Amended
and Restated By-Laws of the Registrant (Exh. 3.2, 1/22/07
8-K)
|
|
|
*4.1
|
Specimen
Stock Certificate (Exh. 4.1, 1986 S-1)
|
|
|
*4.2
|
Loan
Agreement dated July 26, 1994 among First Tennessee Bank National
Association, Registrant and P.A.M. Transport, Inc. together
with
Promissory Note (Exh. 4.1, 6/30/94 10-Q)
|
|
|
*4.2.1
|
Security
Agreement dated July 26, 1994 between First Tennessee Bank
National
Association and P.A.M. Transport, Inc. (Exh. 4.2, 6/30/94
10-Q)
|
|
*4.3
|
First
Amendment to Loan Agreement 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 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)
|
|
*10.1.1
|
(1)
|
Employment
Agreement between the Registrant and Robert W. Weaver, effective
July 1,
2004 (Exh. 10.1, 1/25/2005 8-K)
|
|
*10.1.2
|
(1)
|
New
Employment Agreement between the Registrant and Robert W. Weaver,
dated
July 10, 2006 (Exh. 10.1, 7/28/2006 8-K)
|
|
*10.2
|
(1)
|
Employment
Agreement between the Registrant and W. Clif Lawson, dated
January 1, 2002
(Exh. 10.2, 2001 10-K)
|
|
*10.2.1
|
(1)
|
Memo
exercising the Company's option to extend W. Clif Lawson's
Employment
Agreement by one year (Exh. 10.2.1, 2004 10-K)
|
|
*10.2.2
|
(1)
|
New
Employment Agreement between the Registrant and W. Clif Lawson,
dated June
1, 2006 (Exh. 10.2, 7/28/2006 8-K)
|
|
*10.3
|
(1)
|
Employment
Agreement between the Registrant and Larry J. Goddard, dated
January 1,
2002 (Exh. 10.3, 2001 10-K)
|
|
*10.3.1
|
(1)
|
Memo
exercising the Company's option to extend Larry J. Goddard's
Employment
Agreement by one year (Exh. 10.3.1, 2004 10-K)
|
|
*10.3.2
|
(1)
|
New
Employment Agreement between the Registrant and Larry J. Goddard,
dated
June 1, 2006 (Exh. 10.3, 7/28/2006 8-K)
|
|
*10.4
|
(1)
|
1995
Stock Option Plan, as Amended and Restated (Exh. 4.1, 6/11/99
S-8)
|
|
*10.4.1
|
(1)
|
Amendment
to 1995 Stock Option Plan (Exh. 10.1, 3/07/2005 8-K)
|
|
*10.4.2
|
(1)
|
2006
Stock Option Plan (Exh. 10.1, 5/31/2006 8-K)
|
|
*10.5
|
Interest
rate swap agreement, dated March 1, 2001 (Exh. 10.5, 2001
10-K)
|
|
|
*10.6
|
Interest
rate swap agreement dated June 1, 2001 (Exh. 10.6, 2001
10-K)
|
|
|
*10.7
|
(1)
|
Employee
Non-Qualified Stock Option Agreement (Exh. 10.1, 9/30/2004
10-Q)
|
|
*10.8
|
(1)
|
Director
Non-Qualified Stock Option Agreement (Exh. 10.2, 9/30/2004
10-Q)
|
|
*10.8.1
|
(1)
|
Form
of Non-Qualified Stock option Agreement for Non-Employee Director
stock
options that are granted under the 2006 Stock Option Plan (Exh.
10.2,
5/31/2006 8-K)
|
|
*10.9
|
(1)
|
Executive
Officers and Certain Other Employees Incentive Compensation
Plan, as
amended (Exh. 10.3, 9/30/2004 10-Q)
|
|
*10.10
|
(1)
|
Extension
of Executive Officers and Certain Other Employees Incentive
Compensation
Plan, as amended (Exh. 10.10, 2005 10-K)
|
|
*10.11
|
(1)
|
Executive
Incentive Plan (Exh. 10.2, 6/30/2006 10-Q)
|
|
21.1
|
||
|
23.1
|
||
|
23.2
|
||
|
31.1
|
||
|
31.2
|
||
|
32.1
|
||
|
32.2
|
||
|
(1)
Management contract or compensatory plan or
arrangement.
|
||
Pursuant
to the requirements of Section 13 of the Securities Exchange Act of 1934,
the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
P.A.M.
TRANSPORTATION SERVICES, INC.
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Robert W. Weaver
|
|
|
ROBERT
W. WEAVER
|
|||
|
President
and Chief Executive Officer
|
|||
|
(principal
executive officer)
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Larry J. Goddard
|
|
|
LARRY
J. GODDARD
|
|||
|
Vice
President-Finance, Chief Financial Officer,
|
|||
|
Secretary
and Treasurer
|
|||
|
(principal
financial and accounting officer)
|
|||
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report
has been signed by the following persons on behalf of the registrant
and
in the capacities and on the dates indicated:
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Frederick P. Calderone
|
|
|
FREDERICK
P. CALDERONE, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Frank L. Conner
|
|
|
FRANK
L. CONNER, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Thomas H. Cooke
|
|
|
THOMAS
H. COOKE, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Christopher L. Ellis
|
|
|
CHRISTOPHER
L. ELLIS, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Manuel J. Moroun
|
|
|
MANUEL
J. MOROUN, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Matthew T. Moroun
|
|
|
MATTHEW
T. MOROUN, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Daniel C. Sullivan
|
|
|
DANIEL
C. SULLIVAN, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Robert W. Weaver
|
|
|
ROBERT
W. WEAVER,
|
|||
|
President
and Chief Executive Officer, Director
|
|||
|
Dated:
March 14, 2007
|
By:
|
/s/
Charles F. Wilkins
|
|
|
CHARLES
F. WILKINS, Director
|
|||
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 Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (“6/30/94 10-Q”); (iii) the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 (“6/30/95 10-Q”); (iv) the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996 (“9/30/96 10-Q”); (v) the Form S-8
Registration Statement filed on June 11, 1999 (“6/11/99 S-8”); (vi) the Annual
Report on Form 10-K for the year ended December 31, 2001 (“2001 10-K”); (vii)
the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002
(“3/31/02
10-Q”); (viii) the Quarterly Report on Form 10-Q for the quarter ended September
30, 2004 (“9/30/2004 10-Q”); (ix) the Annual Report on Form 10-K for the year
ended December 31, 2004 (“2004 10-K”); (x) the Form 8-K filed on January 25,
2005 (“1/25/2005 8-K”); (xi) Form 8-K filed on March 7, 2005 (“3/07/2005 8-K”);
(xii) Form 8-K filed on May 31, 2006 (“5/31/2006 8-K”); (xiii) Form 8-K filed on
July 28, 2006 (“7/28/2006 8-K”); (xiv) the Form 8-K filed on January 22, 2007
(“1/22/2007 8-K”); or (xv) the Annual Report on Form 10-K for the year ended
December 31, 2005 (“2005 10-K”); (xvi) the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2006 (“6/30/06 10-Q”).
|
Exhibit
#
|
Description
of Exhibit
|
|
|
*3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant (Exh.
3.1,
3/31/02 10-Q)
|
|
|
*3.2
|
Amended
and Restated By-Laws of the Registrant (Exh. 3.2, 1/22/07
8-K)
|
|
|
*4.1
|
Specimen
Stock Certificate (Exh. 4.1, 1986 S-1)
|
|
|
*4.2
|
Loan
Agreement dated July 26, 1994 among First Tennessee Bank National
Association, Registrant and P.A.M. Transport, Inc. together with
Promissory Note (Exh. 4.1, 6/30/94 10-Q)
|
|
|
*4.2.1
|
Security
Agreement dated July 26, 1994 between First Tennessee Bank National
Association and P.A.M. Transport, Inc. (Exh. 4.2, 6/30/94
10-Q)
|
|
|
*4.3
|
First
Amendment to Loan Agreement 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 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)
|
|
*10.1.1
|
(1)
|
Employment
Agreement between the Registrant and Robert W. Weaver, effective
July 1,
2004 (Exh. 10.1, 1/25/2005 8-K)
|
|
*10.1.2
|
(1)
|
New
Employment Agreement between the Registrant and Robert W. Weaver,
dated
July 10, 2006 (Exh. 10.1, 7/28/2006 8-K)
|
|
*10.2
|
(1)
|
Employment
Agreement between the Registrant and W. Clif Lawson, dated January
1, 2002
(Exh. 10.2, 2001 10-K)
|
|
*10.2.1
|
(1)
|
Memo
exercising the Company's option to extend W. Clif Lawson's Employment
Agreement by one year (Exh. 10.2.1, 2004 10-K)
|
|
*10.2.2
|
(1)
|
New
Employment Agreement between the Registrant and W. Clif Lawson,
dated June
1, 2006 (Exh. 10.2, 7/28/2006 8-K)
|
|
*10.3
|
(1)
|
Employment
Agreement between the Registrant and Larry J. Goddard, dated
January 1,
2002 (Exh. 10.3, 2001 10-K)
|
|
*10.3.1
|
(1)
|
Memo
exercising the Company's option to extend Larry J. Goddard's
Employment
Agreement by one year (Exh. 10.3.1, 2004 10-K)
|
|
*10.3.2
|
(1)
|
New
Employment Agreement between the Registrant and Larry J. Goddard,
dated
June 1, 2006 (Exh. 10.3, 7/28/2006 8-K)
|
|
*10.4
|
(1)
|
1995
Stock Option Plan, as Amended and Restated (Exh. 4.1, 6/11/99
S-8)
|
|
*10.4.1
|
(1)
|
Amendment
to 1995 Stock Option Plan (Exh. 10.1, 3/07/2005 8-K)
|
|
*10.4.2
|
(1)
|
2006
Stock Option Plan (Exh. 10.1, 5/31/2006 8-K)
|
|
*10.5
|
Interest
rate swap agreement, dated March 1, 2001 (Exh. 10.5, 2001
10-K)
|
|
|
*10.6
|
Interest
rate swap agreement dated June 1, 2001 (Exh. 10.6, 2001
10-K)
|
|
|
*10.7
|
(1)
|
Employee
Non-Qualified Stock Option Agreement (Exh. 10.1, 9/30/2004
10-Q)
|
|
*10.8
|
(1)
|
Director
Non-Qualified Stock Option Agreement (Exh. 10.2, 9/30/2004
10-Q)
|
|
*10.8.1
|
(1)
|
Form
of Non-Qualified Stock option Agreement for Non-Employee Director
stock
options that are granted under the 2006 Stock Option Plan (Exh.
10.2,
5/31/2006 8-K)
|
|
*10.9
|
(1)
|
Executive
Officers and Certain Other Employees Incentive Compensation Plan,
as
amended (Exh. 10.3, 9/30/2004 10-Q)
|
|
*10.10
|
(1)
|
Extension
of Executive Officers and Certain Other Employees Incentive Compensation
Plan, as amended (Exh. 10.10, 2005 10-K)
|
|
*10.11
|
(1)
|
Executive
Incentive Plan (Exh. 10.2, 6/30/2006
10-Q)
|
|
21.1
|
||
|
23.1
|
||
|
23.2
|
||
|
31.1
|
||
|
31.2
|
||
|
32.1
|
||
|
32.2
|
||
|
(1)
Management contract or compensatory plan or
arrangement.
|
||
-64-