PAM TRANSPORTATION SERVICES INC - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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ý
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Annual Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the Fiscal Year Ended December 31, 2007
or
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o
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Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
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Commission
File No. 0-15057
P.A.M. TRANSPORTATION
SERVICES, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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71-0633135
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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
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(Address
of principal executive offices) (Zip
Code)
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(479)
361-9111
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Registrant's
telephone number, including area
code
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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
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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.
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Yes
þ
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No
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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. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company (as
defined in Rule 12b-2 of the Exchange Act):
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Large
accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting company 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
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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 $88,311,474. 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 10,
2008: 9,709,607
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 2008 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.
FORM
10-K
For
the fiscal year ended December 31, 2007
TABLE
OF CONTENTS
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PART
I
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Page
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1
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8
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11
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11
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11
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11
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PART
II
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12
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14
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15
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26
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28
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55
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55
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56
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PART
III
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57
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57
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57
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58
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58
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PART
IV
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58
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61
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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 certain Canadian provinces. 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
truck 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 trucks or owner-operator owned trucks 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 90.4%,
87.8%, and 88.0% of total operating revenues for the years ended December 31,
2007, 2006, and 2005, respectively. The remaining operating revenues, before
fuel surcharge for the same periods were generated by brokerage and logistics
services, representing 9.6%, 12.2%, and 12.0%, respectively. Approximately 99%
of the Company's revenues are generated by operations conducted in the United
States and all of the Company's assets are located or based in the United
States.
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
truck 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:
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maintain
more consistent equipment capacity;
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provide
a high level of service to our customers, including time-sensitive
delivery schedules;
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attract
and retain drivers; and
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maintain
a sound safety record as drivers travel familiar
routes.
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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
trucks 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
According
to the American Trucking Association’s “American Trucking Trends 2007-2008”
report, the trucking industry transported approximately 70% of the total volume
of freight transported in the United States during 2006, which equates to an
all-time high carrying load of 10.7 billion tons, and $645.6 billion in revenue,
representing 83.8% of the nation’s freight bill. 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 uncertain. 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:
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Price
increases by truck and trailer equipment manufacturers, rising fuel costs,
and intense competition for
drivers.
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In
the last few years, many less profitable or undercapitalized carriers have
been forced to consolidate or to exit the
industry.
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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 12 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 56%, 59% and 57% of our total
revenues in 2007, 2006 and 2005, respectively. General Motors Corporation
accounted for approximately 38%, 41% and 39% of our revenues in 2007,
2006 and 2005, respectively.
We also
provide transportation services to other manufacturers who are suppliers for
automobile manufacturers. Approximately 49%, 52% and 52% of our revenues were
derived from transportation services provided to the automobile industry during
2007, 2006 and 2005, respectively. This portion of our business, however, is
spread over 18 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, 2007, we operated a fleet of 2,055 trucks and 4,882 trailers. We
operate late-model, well-maintained premium trucks 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 trucks 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 truck fleet. Owner-operators provide their own trucks 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, 2007 the Company's truck fleet
included 55 owner-operator trucks.
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 (Phase I) 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,
2007, the majority 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 trucks with these new
engines.
In the
second phase (Phase II), 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 $0.04 to $0.05 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.
A majority of the Company’s current truck fleet can be fueled with either ULSD
or low-sulfur diesel (“LSD”) but additional future purchases of trucks 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. As of December 31, 2007, 163 trucks in our
Company-owned truck fleet consisted of trucks with engines that comply with the
Phase II emission standards and require the use of ULSD. During 2008, the
Company expects to take delivery of 550 new trucks, all of which will contain
engines compliant with the Phase II emission standards requiring the use of
ULSD. As compared to our current Company-owned truck fleet which contain
primarily Phase I diesel engines, trucks powered by the Phase II compliant
diesel engines have a higher purchase price and as a result, we expect that
depreciation expense will increase as we continue to replace older trucks with
trucks powered by the Phase II 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 (Phase III), 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 trucks
powered by the Phase III 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 trucks. 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 truck-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 tethered TrailerTracs units, which were
unable to transmit data unless connected to Qualcomm-equipped trucks, with more
advanced untethered TrailerTracs units which are able to operate and transmit
data independent of a truck connection. At December 31, 2007, substantially all
of the Company’s trailer fleet has been fitted with these new untethered
devices.
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 trucks
and trailers. Inspections and various levels of preventive maintenance are
performed at set mileage intervals on both trucks and trailers. A maintenance
and safety inspection is performed on all vehicles each time they return to a
terminal.
Our
trucks carry full warranty coverage for at least three years or 350,000 miles.
Extended warranties are negotiated with the truck 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, 2007, we employed 3,181 persons, of whom 2,667 were drivers, 178
were maintenance personnel, 178 were employed in operations, 17 were employed in
marketing, 71 were employed in safety and personnel, and 70 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, 2007, we utilized 2,667 company drivers in our operations. We also
had 55 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, 2007,
we employed 71 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:
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Name
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Age
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Position
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Years
of service
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Robert
W. Weaver
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58
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President
and Chief Executive Officer
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25
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W.
Clif Lawson
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54
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Executive
Vice President and Chief Operating Officer
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23
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Larry
J. Goddard
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49
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Vice
President - Finance, Chief Financial Officer, Secretary and
Treasurer
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20
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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.
The
Federal Motor Carrier Safety Administration (“FMCSA”), a separate administration
within the DOT charged with regulating motor carrier safety, issued a final rule
on April 24, 2003 (“2003 rule”) 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 (the “Court”) rejected
these new hours of service rules for truck drivers that had been in place since
January 2004 because it agreed that the FMCSA had failed to address the impact
of the rules on the health of drivers as required by Congress. In addition, the
Court’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. However, to avoid industry disruption
and burden on the state enforcement, Congress enacted section 7(f) of the
Surface Transportation Extension Act of 2004. This section provided that the
2003 rule would remain in effect until a new rule addressed the Court’s issues
or until September 30, 2005, whichever occurred 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 made no other 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. On August 25, 2005, the FMCSA published a final HOS rule (“2005
rule”) that retained most of the provisions of the 2003 rule with the most
significant exception being that of 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 the 2003 rule, 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.
The 2005
rule was later challenged in court on several grounds and in July 2007 the Court
vacated the 11-hour driving time and 34-hour restart provisions stating that the
FMCSA methodologies, used in the studies regarding how the 2003 rules affected
driver health, were not disclosed in time for public comment and that the
explanation for some of its critical elements were not provided. In an order
filed on September 28, 2007, the Court granted a 90-day stay of the mandate and
directed that issuance of the mandate be withheld until December 27, 2007. In an
effort to prevent disruption to enforcement and compliance with HOS rules when
the stay expires, as well as possible effects on timely delivery of essential
goods and services, the FMCSA issued an interim final rule (“IFR”) effective
December 27, 2007 which allows commercial motor vehicle drivers up to 11 hours
of driving time within a 14-hour, non-extendable window from the start of the
workday, following 10 consecutive hours off duty (11-hour limit). This IFR also
allows motor carriers and drivers to restart calculations of the weekly on-duty
time limits after the driver has at least 34 consecutive hours off duty (34-hour
restart provision). The FMCSA expects to issue a final rule in
2008.
In
general, more restrictive sleeper berth provisions 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.
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 truck engine design requirements implemented
by the EPA. See "Revenue Equipment" above.
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
beyond 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
2007, our top five customers, based on revenue, accounted for approximately 56%
of our revenue, and our largest customer, General Motors Corporation, accounted
for approximately 38% 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 49% of our revenues for 2007
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 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 storm-water. 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. In part to offset the
costs of compliance with the new EPA engine design requirements, some
manufacturers have 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, which may result in an 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. Although we have not experienced any significant reliability
issues with these engines to date, the expenses associated with the trucks
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. As of December 31, 2007, 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
|
No
|
No
|
No
|
|
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.
During
2007, the Company experienced an adverse settlement and was found partly liable
for an environmental remediation claim dating back to 1986 and was ordered to
pay approximately $300,000 in damages.
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, 2007.
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, 2007
|
High
|
Low
|
|
|
First
Quarter
|
$25.19
|
$19.29
|
|
Second
Quarter
|
22.48
|
16.98
|
|
Third
Quarter
|
19.31
|
17.43
|
|
Fourth
Quarter
|
18.69
|
13.80
|
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
|
As of
February 29, 2008, there were approximately 166 holders of record of our common
stock.
Dividends
We have
never declared or paid any cash dividends on our common stock. The policy of our
Board of Directors is to retain earnings for the expansion and development of
our business 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 April
11, 2005, the Company announced that its 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.
On May
30, 2007, the Company announced that its Board of Directors had authorized the
Company to repurchase up to 600,000 shares of its common stock during the twelve
month period following the announcement. Subsequent to the date of the
announcement and through the remainder of 2007, the Company repurchased 471,500
shares of its common stock, with 422,700 shares being repurchased during the
fourth quarter of 2007.
The
following table summarizes the Company's common stock repurchases during the
fourth quarter of 2007. No shares were purchased during the quarter other than
through this program, and all purchases were made by or on behalf of the Company
and not by any “affiliated purchaser”.
|
Period
|
Total
number of shares
purchased
|
Average
price paid per share
|
Total
number of shares purchased as part of publicly announced
plans or programs
|
Maximum
number of shares that may yet be purchased under the plans or programs
|
|
|
October
1-31, 2007
|
3,300
|
$16.47
|
3,300
|
547,900
|
|
|
November
1-30, 2007
|
308,100
|
15.07
|
308,100
|
239,800
|
|
|
December
1-31, 2007
|
111,300
|
15.46
|
111,300
|
128,500
|
|
|
Total
|
422,700
|
$15.18
|
422,700
|
128,500
|
Securities
Authorized for Issuance Under Equity Compensation Plans
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, 2002 and ending December
31, 2007. The graph assumes that the value of the investment in our common stock
and in each index was $100 on December 31, 2002 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,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
(in
thousands, except earnings per share amounts)
|
||||||||||||||||||||
|
Statement
of Operations Data:
|
||||||||||||||||||||
|
Operating
revenues:
|
||||||||||||||||||||
|
Operating
revenues, before fuel surcharge
|
$ | 351,701 | $ | 351,373 | $ | 326,353 | $ | 309,475 | $ | 293,547 | ||||||||||
|
Fuel
surcharge (1)
|
57,140 | 48,896 | 34,527 | 15,591 | 7,491 | |||||||||||||||
|
Total
operating revenues
|
408,841 | 400,269 | 360,880 | 325,066 | 301,038 | |||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Salaries,
wages and benefits
|
135,606 | 127,539 | 122,005 | 119,519 | 119,350 | |||||||||||||||
|
Fuel
expense (2)
|
114,242 | 97,286 | 81,017 | 55,645 | 42,883 | |||||||||||||||
|
Rent
and purchased transportation
|
38,718 | 43,844 | 39,074 | 38,938 | 35,287 | |||||||||||||||
|
Depreciation
and amortization
|
38,759 | 33,929 | 31,376 | 30,016 | 26,601 | |||||||||||||||
|
Operating
supplies (1)(2)
|
30,845 | 25,682 | 23,114 | 21,718 | 20,358 | |||||||||||||||
|
Operating
taxes and licenses
|
17,520 | 16,421 | 15,776 | 15,488 | 14,710 | |||||||||||||||
|
Insurance
and claims
|
17,591 | 16,389 | 15,992 | 15,820 | 13,500 | |||||||||||||||
|
Communications
and utilities
|
3,113 | 2,642 | 2,648 | 2,690 | 2,540 | |||||||||||||||
|
Other
|
7,130 | 5,426 | 6,205 | 5,131 | 4,755 | |||||||||||||||
|
(Gain)
loss on sale or disposal of property
|
(48 | ) | 47 | 147 | 915 | 368 | ||||||||||||||
|
Total
operating expenses
|
403,476 | 369,205 | 337,354 | 305,880 | 280,352 | |||||||||||||||
|
Operating
income
|
5,365 | 31,064 | 23,526 | 19,186 | 20,686 | |||||||||||||||
|
Non-operating
income
|
1,707 | 448 | 477 | 464 | 276 | |||||||||||||||
|
Interest
expense
|
(2,453 | ) | (1,475 | ) | (1,881 | ) | (1,758 | ) | (1,667 | ) | ||||||||||
|
Income
before income taxes
|
4,619 | 30,037 | 22,122 | 17,892 | 19,295 | |||||||||||||||
|
Income
taxes
|
1,966 | 12,073 | 8,983 | 7,304 | 7,805 | |||||||||||||||
|
Net
income
|
$ | 2,653 | $ | 17,964 | $ | 13,139 | $ | 10,588 | $ | 11,490 | ||||||||||
|
Earnings
per common share:
|
||||||||||||||||||||
|
Basic
|
$ | 0.26 | $ | 1.74 | $ | 1.20 | $ | 0.94 | $ | 1.02 | ||||||||||
|
Diluted
|
$ | 0.26 | $ | 1.74 | $ | 1.20 | $ | 0.94 | $ | 1.01 | ||||||||||
|
Average
common shares outstanding – Basic
|
10,238 | 10,296 | 10,966 | 11,298 | 11,291 | |||||||||||||||
|
Average
common shares outstanding – Diluted(3)
|
10,239 | 10,302 | 10,976 | 11,324 | 11,326 | |||||||||||||||
__________
|
(1)
|
In
order to conform to industry practice, during 2004 the Company began to
classify fuel surcharges charged to customers as revenue rather than as a
reduction of operating supplies expense. This reclassification has no
effect on net operating income, net income or earnings per share. The
Company has made corresponding reclassifications to comparative periods
shown.
|
|
(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 2007, 2006, 2005, 2004 and 2003 assumes the exercise
of stock options to purchase an aggregate of 19,213, 55,738, 22,297,
62,224 and 77,758 shares of common stock,
respectively.
|
|
At
December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Balance
Sheet Data:
|
(in
thousands)
|
|||||||||||||||||||
|
Total
assets
|
$ | 319,904 | $ | 314,246 | $ | 293,441 | $ | 285,349 | $ | 264,849 | ||||||||||
|
Long-term
debt, excluding current portion
|
44,172 | 21,205 | 39,693 | 23,225 | 26,740 | |||||||||||||||
|
Stockholders'
equity
|
179,377 | 185,028 | 164,762 | 168,543 | 156,875 | |||||||||||||||
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Operating
Data:
|
||||||||||||||||||||
|
Operating
ratio (1)
|
98.5 | % | 91.2 | % | 92.8 | % | 93.8 | % | 92.9 | % | ||||||||||
|
Average
number of truckloads per week
|
7,849 | 7,200 | 6,946 | 7,278 | 7,105 | |||||||||||||||
|
Average
miles per trip
|
647 | 659 | 680 | 664 | 701 | |||||||||||||||
|
Total
miles traveled (in thousands)
|
246,801 | 229,810 | 228,624 | 235,894 | 242,890 | |||||||||||||||
|
Average
miles per truck
|
118,483 | 123,156 | 125,479 | 127,124 | 131,934 | |||||||||||||||
|
Average
revenue, before fuel surcharge per truck per day
|
$ | 695 | $ | 778 | $ | 740 | $ | 684 | $ | 653 | ||||||||||
|
Average
revenue, before fuel surcharge per loaded mile
|
$ | 1.38 | $ | 1.43 | $ | 1.33 | $ | 1.19 | $ | 1.13 | ||||||||||
|
Empty
mile factor
|
6.5 | % | 5.9 | % | 5.5 | % | 4.7 | % | 4.5 | % | ||||||||||
|
At
end of period:
|
||||||||||||||||||||
|
Total
company-owned/leased trucks
|
2,055 | (2) | 1,998 | (3) | 1,792 | (4) | 1,857 | (5) | 1,913 | (6) | ||||||||||
|
Average
age of trucks (in years)
|
1.75 | 1.55 | 1.43 | 1.70 | 1.94 | |||||||||||||||
|
Total
trailers
|
4,882 | 4,540 | 4,406 | 4,257 | 4,175 | |||||||||||||||
|
Average
age of trailers (in years)
|
4.44 | 4.16 | 3.92 | 4.69 | 5.15 | |||||||||||||||
|
Number
of employees
|
3,181 | 3,062 | 3,035 | 2,736 | 2,765 | |||||||||||||||
__________
(1) Total
operating expenses, net of fuel surcharge as a percentage of operating revenues,
before fuel surcharge.
(2)
Includes 55 owner operator trucks; (3) Includes 49 owner operator trucks; (4)
Includes 50 owner operator trucks.
(5)
Includes 85 owner operator trucks; (6) Includes 103 owner operator
trucks.
The
Company has not declared or paid any cash dividends during any of the periods
presented above.
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
Business
Overview
The
Company's administrative headquarters are in Tontitown, Arkansas. From this
location we manage operations conducted through wholly owned subsidiaries based
in various locations around the United States and Canada. The operations of
these subsidiaries can generally be classified into either truckload services or
brokerage and logistics services. Truckload services include those
transportation services in which we utilize company owned trucks or
owner-operator owned trucks. 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 90.4%, 87.8%, and
88.0% of total revenues, excluding fuel surcharges for the twelve months ended
December 31, 2007, 2006, and 2005, 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
2007, 2006 and 2005, approximately $57.1 million, $48.9 million and $34.5
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,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Operating
revenues, before fuel surcharge
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Operating
expenses:
|
||||||||||||
|
Salaries,
wages and
benefits
|
42.0 | 40.6 | 41.8 | |||||||||
|
Fuel
expense, net of fuel
surcharge
|
18.2 | 16.0 | 16.6 | |||||||||
|
Rent
and purchased
transportation
|
2.5 | 1.7 | 1.2 | |||||||||
|
Depreciation
and
amortization
|
12.2 | 11.0 | 10.9 | |||||||||
|
Operating
supplies
|
9.7 | 8.3 | 8.0 | |||||||||
|
Operating
taxes and
licenses
|
5.5 | 5.3 | 5.5 | |||||||||
|
Insurance
and
claims
|
5.5 | 5.3 | 5.5 | |||||||||
|
Communications
and
utilities
|
0.9 | 0.8 | 0.9 | |||||||||
|
Other
|
2.0 | 1.6 | 1.8 | |||||||||
|
Loss
on sale or disposal of
property
|
0.0 | 0.0 | 0.1 | |||||||||
|
Total
operating
expenses
|
98.5 | 90.6 | 92.3 | |||||||||
|
Operating
income
|
1.5 | 9.4 | 7.7 | |||||||||
|
Non-operating
income
|
0.5 | 0.1 | 0.1 | |||||||||
|
Interest
expense
|
(0.7 | ) | (0.4 | ) | (0.5 | ) | ||||||
|
Income
before income
taxes
|
1.3 | % | 9.1 | % | 7.3 | % | ||||||
2007
Compared to 2006
For the
year ended December 31, 2007, truckload services revenue, before fuel
surcharges, increased 3.0% to $317.9 million as compared to $308.7 million for
the year ended December 31, 2006. The increase was primarily due to an 11.6%
increase in the average size of the Company’s truck fleet from 1,866 units in
2006 to 2,083 units in 2007. However, a 4.1% decrease in the average rate per
total mile charged to customers from approximately $1.34 during 2006 to
approximately $1.29 during 2007 and a decrease in the average daily miles
traveled per unit from 509 miles in 2006 to 488 miles in 2007 partially offset
revenue growth attributable to fleet growth.
Salaries,
wages and benefits increased from 40.6% of revenues, before fuel surcharges, in
2006 to 42.0% of revenues, before fuel surcharges, in 2007 which represents an
increase from $125.4 million in 2006 to $133.5 million in 2007. The increase
relates primarily to an increase in driver wages as the number of company driver
compensated miles increased from 229.8 million miles in 2006 to 246.8 million
miles in 2007. Also contributing to the increase was an increase in driver lease
expense and amounts recorded for employee health insurance expense. Driver lease
expense, which is a component of salaries, wages and benefits, increased from
$6.2 million in 2006 to $7.8 million in 2007, as the average number of owner
operators under contract increased from 45 during 2006 to 57 during 2007.
Employee health insurance expense increased from $4.3 million in 2006 to $6.3
million in 2007 as a result of healthcare cost increases, in general, and to an
increase in the number and severity of health claims reported during 2007 as
compared to 2006. Partially offsetting the increases discussed above was a
decrease in amounts accrued for employee bonus plans during 2007 as compared to
2006.
Fuel
expense increased from 16.0% of revenues, before fuel surcharges, in 2006 to
18.2% of revenues, before fuel surcharges, in 2007 which represents an increase
from $49.4 million during 2006 to $57.8 million during 2007. The increase was
primarily due to higher fuel prices as the average price paid per gallon of
diesel fuel increased from $2.55 per gallon during 2006 to $2.76 per gallon
during 2007. During periods of rising fuel prices the Company is often able to
partially offset fuel cost increases through the use of fuel surcharges charged
to customers. The Company collected fuel surcharges of approximately $47.8
million during 2006 compared to fuel surcharge collections of $56.4 million
during 2007.
Rent and
purchased transportation increased from 1.7% of revenues, before fuel
surcharges, in 2006 to 2.5% of revenues, before fuel surcharges, in 2007. The
increase relates primarily to an increase in amounts paid to third party
transportation service providers for intermodal services.
Depreciation
and amortization increased from 11.0% of revenues, before fuel surcharges, in
2006 to 12.2% of revenues, before fuel surcharges, in 2007 representing an
increase from $33.9 million during 2006 to $38.7 million during 2007.
Depreciation expense increased primarily due to an increase in the average size
of the Company-owned truck fleet from 1,820 trucks during 2006 to 2,027 trucks
during 2007. To a lesser extent, a larger trailer fleet and higher new trailer
prices also contributed to the increase.
Operating
supplies and expenses increased from 8.3% of revenues, before fuel surcharges,
in 2006 to 9.7% of revenues, before fuel surcharges, in 2007. The increase
relates primarily to an increase in amounts paid to third party driver training
schools, driver layover pay, and for truck repairs expense.
Operating
taxes and licenses increased from 5.3% of revenues, before fuel surcharges, in
2006 to 5.5% of revenues, before fuel surcharges, in 2007. Operating taxes and
licenses, which consists primarily of fuel taxes, increased from $16.4 million
during 2006 to $17.5 million during 2007. Fuel tax expense is primarily affected
by the number of gallons of diesel fuel purchased which is primarily a factor of
the number of miles traveled and the miles-per-gallon (“mpg”) achieved. During
2007, a decrease in the average mpg to 5.91 from an average mpg of 5.94 during
2006 combined with an increase in the number of miles traveled to 246.8 million
in 2007 from 229.8 million miles in 2006, resulted in an increase in the number
of diesel fuel gallons purchased.
Insurance
and claims expense increased from 5.3% of revenues, before fuel surcharges, in
2006 to 5.5% of revenues, before fuel surcharges, in 2007. The increase
represents an increase from $16.4 million during 2006 to $17.6 million during
2007. The increase relates primarily to an increase in auto liability insurance
premiums which are determined based on a negotiated rate-per-mile (“NRPM”) with
the Company’s insurance carrier. During 2007, the number of miles used to
calculate the premiums increased to 246.8 million miles from 229.8 million miles
which translated into increased auto liability insurance expense. During October
2007 the Company’s auto liability insurance policy was renewed at a rate which
represented a 5.5% reduction in the NRPM and since that time this lower
rate-per-mile has helped to partially offset the increase in auto liability
insurance expense associated with the increase in miles traveled during 2007 as
compared to 2006.
Other
expenses increased from 1.6% of revenues, before fuel surcharges, in 2006 to
2.0% of revenues, before fuel surcharges, in 2007. The increase relates
primarily to an increase in amounts paid for outsourcing shop employees at the
Company’s terminals during 2007 as compared to 2006. Also contributing to the
increase was a one-time expense accrual of approximately $300,000 during
December 2007 to settle a 1986 environmental remediation claim in which the
Company was found partly liable for remediation.
The
truckload services division operating ratio, which measures the ratio of
operating expenses, net of fuel surcharges, to operating revenues, before fuel
surcharges, increased to 98.6% for 2007 from 90.6% for 2006.
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 average size of the
Company’s truck 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 truck fleet from 1,742
trucks in service at the end of 2005 to 1,949 trucks 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 truck repairs expense. Truck 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
trucks with new trucks 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.
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,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Operating
revenues, before fuel surcharge
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Operating
expenses:
|
||||||||||||
|
Salaries,
wages and
benefits
|
6.3 | 5.0 | 5.1 | |||||||||
|
Fuel
expense
|
0.0 | 0.0 | 0.0 | |||||||||
|
Rent
and purchased transportation, net of fuel surcharge
|
88.9 | 88.3 | 88.0 | |||||||||
|
Depreciation
and
amortization
|
0.0 | 0.0 | 0.2 | |||||||||
|
Operating
supplies
|
0.0 | 0.0 | 0.0 | |||||||||
|
Operating
taxes and
licenses
|
0.0 | 0.0 | 0.0 | |||||||||
|
Insurance
and
claims
|
0.1 | 0.0 | 0.1 | |||||||||
|
Communications
and
utilities
|
0.3 | 0.3 | 0.4 | |||||||||
|
Other
|
2.1 | 1.4 | 2.5 | |||||||||
|
Loss
on sale or disposal of
property
|
0.0 | 0.0 | 0.0 | |||||||||
|
Total
operating
expenses
|
97.7 | 95.0 | 96.3 | |||||||||
|
Operating
income
|
2.3 | 5.0 | 3.7 | |||||||||
|
Non-operating
income
|
0.0 | 0.0 | 0.0 | |||||||||
|
Interest
expense
|
(0.4 | ) | (0.4 | ) | (0.6 | ) | ||||||
|
Income
before income
taxes
|
1.9 | % | 4.6 | % | 3.1 | % | ||||||
2007
Compared to 2006
For the
year ended December 31, 2007, logistics and brokerage services revenues, before
fuel surcharges, decreased 20.9% to $33.8 million as compared to $42.7 million
for the year ended December 31, 2006. The decrease was primarily the result of a
22.2% decrease in the number of loads brokered during 2007 as compared to
2006.
Rent and
purchased transportation increased from 88.3% of revenues, before fuel
surcharges, in 2006 to 88.9% of revenues, before fuel surcharges, in 2007. 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 increased from 1.4% of revenues, before fuel surcharges, in 2006 to
2.1% of revenues, before fuel surcharges, in 2007. The increase relates
primarily to an increase in amounts considered as uncollectible revenue during
2007 as compared to 2006.
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 97.7% for 2007 from 95.0% for
2006.
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.
Results
of Operations - Combined Services
2007
Compared to 2006
Income
tax expense was approximately $2.0 million in 2007 resulting in an effective
rate of 42.6% as compared to income tax expense of approximately $12.1 million
in 2006 which resulted in an effective rate of 40.2%. The effective tax rate
differs from the statutory rate primarily due to the existence of partially
non-deductible meal and incidental expense per-diem payments to company drivers.
These per-diem payments may cause a significant difference in the Company’s
effective tax rate from period-to-period as the proportion of non-deductible
expenses to pre-tax net income increases or decreases.
We have
determined, based on significant judgment, that a valuation allowance against
our deferred tax assets has not been necessary. Management evaluates the
realizability of its deferred tax assets based upon negative and positive
evidence available and based on the evidence available at this time, management
concludes that it is "more likely than not" that we will be able to realize the
benefit of our deferred tax assets in the near future.
The
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation 48, Accounting
for Uncertainty in Income Taxes-an interpretation of FASB Statement No.
109 (“FIN 48”), on January 1, 2007. FIN 48 addressed the determination of
how tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, the Company may recognize
the tax benefit from an uncertain tax position only if it is more likely than
not that the position will be sustained on examination by taxing authorities,
based on the technical merits of the position. Upon adoption and as of December
31, 2007, there were no unrecognized tax benefits and an adjustment to the
Company’s consolidated financial statements for uncertain tax positions was not
required as management believes that the Company’s significant tax positions
taken in income tax returns filed or to be filed are supported by clear and
unambiguous income tax laws.
The
Company and its subsidiaries are subject to U.S. and Canadian federal income tax
laws as well as the income tax laws of multiple state jurisdictions. The major
tax jurisdictions in which we operate generally provide for a deficiency
assessment statute of limitation period of three years and as a result, the
Company’s tax years 2004 through 2006 remain open to examination in those
jurisdictions. During 2007, the Company has not recognized or accrued any
interest or penalties related to uncertain income tax positions and does not
believe it is reasonably possible that our unrecognized tax benefits will
significantly change within the next twelve months.
Net
income for all divisions was $2.7 million, or 0.8% of revenues, before fuel
surcharge for 2007 as compared to $18.0 million or 5.1% of revenues, before fuel
surcharge for 2006. The decrease in net income combined with the effect of
treasury stock repurchases resulted in a decrease in diluted earnings per share
to $0.26 for 2007 compared to $1.74 for 2006.
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.
Quarterly
Results of Operations
The
following table presents selected consolidated financial information for each of
our last eight fiscal quarters through December 31, 2007. 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,
2007
|
June
30,
2007
|
Sept.
30,
2007
|
Dec.
31,
2007
|
Mar.
31,
2006
|
June
30,
2006
|
Sept.
30,
2006
|
Dec.
31,
2006
|
|||||||||||||||||||||||||
|
(unaudited)
|
||||||||||||||||||||||||||||||||
|
(in
thousands, except earnings per share data)
|
||||||||||||||||||||||||||||||||
|
Operating
revenues
|
$ | 98,809 | $ | 106,700 | $ | 101,171 | $ | 102,162 | $ | 100,525 | $ | 103,365 | $ | 99,874 | $ | 96,505 | ||||||||||||||||
|
Total
operating expenses
|
96,475 | 102,528 | 100,688 | 103,785 | 91,473 | 94,375 | 94,202 | 89,154 | ||||||||||||||||||||||||
|
Operating
income (loss)
|
2,334 | 4,172 | 483 | (1,623 | ) | 9,052 | 8,990 | 5,672 | 7,351 | |||||||||||||||||||||||
|
Net
income (loss)
|
1,265 | 2,192 | 36 | (840 | ) | 5,183 | 5,241 | 3,268 | 4,272 | |||||||||||||||||||||||
|
Earnings
(loss) per common share:
|
||||||||||||||||||||||||||||||||
|
Basic
|
$ | 0.12 | $ | 0.21 | $ | 0.00 | $ | (0.08 | ) | $ | 0.50 | $ | 0.51 | $ | 0.32 | $ | 0.41 | |||||||||||||||
|
Diluted
|
$ | 0.12 | $ | 0.21 | $ | 0.00 | $ | (0.08 | ) | $ | 0.50 | $ | 0.51 | $ | 0.32 | $ | 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
2007, we generated $45.2 million in cash from operating activities compared to
$60.7 million and $23.7 million in 2006 and 2005, respectively. Investing
activities used $61.7 million in cash during 2007 compared to $42.7 million and
$41.0 million in 2006 and 2005, respectively. The cash used in all three years
related primarily to the purchase of revenue equipment (trucks and trailers)
used in our operations. Financing activities provided $15.9 million in cash
during 2007 compared to financing activities in 2006 and 2005 which used $18.1
million and $1.2 million, 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
2007 and 2006, we utilized cash on hand and our lines of credit to finance
revenue equipment purchases for an aggregate of $72.6 million and $50.7 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, 2007 and 2006, we had no outstanding indebtedness under such
installment notes.
In order
to maintain our truck 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, 2007 and 2006, the Company received
approximately $5.9 million and $9.9 million, respectively, for units delivered
for trade.
We
maintain two separate $30.0 million revolving lines 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% (6.48% at December 31, 2007), are secured by our accounts receivable
and mature on May 31, 2009. At December 31, 2007 outstanding advances on line A
were approximately $28.5 million, including $300,000 in letters of credit, with
availability to borrow $1.5 million. Amounts outstanding under Line B bear
interest at LIBOR (determined on the last day of the previous month) plus 1.15%
(6.39% at December 31, 2007), are secured by revenue equipment and mature on
June 30, 2008, however the Company has the intent and ability to extend the
terms of this line of credit for an additional one year period until June 30,
2009. At December 31, 2007, $17.5 million, including $2.5 million in letters of
credit were outstanding under Line B with availability to borrow $12.5 million.
In an effort to reduce interest rate risk associated with these floating rate
facilities, we entered into interest rate swap agreements in an aggregate
notional amount of $20.0 million that terminated in 2006. For additional
information regarding the interest rate swap agreements, see Item 7A of this
Report.
Marketable
equity securities available for sale at December 31, 2007 increased
approximately $2.8 million as compared to December 31, 2006. During the year
ended December 31, 2007, the Company purchased approximately $5.4 million of
equity securities with the remaining increase or decrease attributable to
changes 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 $13.9 million and a combined fair market value of approximately
$17.3 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 2007 the Company
had net unrealized pre-tax losses of approximately $1.9 million and received
dividends of approximately $655,000. The holding term of these securities
depends largely on the general economic environment, the equity markets,
borrowing rates and the Company's cash requirements.
Accounts
receivable-other at December 31, 2007 increased approximately $4.0 million as
compared to December 31, 2006. During 2007, the Company contracted with a
third-party qualified intermediary in order to implement a like-kind exchange
tax program. Under the program, dispositions of eligible trucks or trailers and
acquisitions of replacement trucks or trailers are made in a form whereby any
associated tax gains related to the disposal are deferred. To qualify for
like-kind exchange treatment, we exchange, through our qualified intermediary,
eligible trucks or trailers being disposed with trucks or trailers being
acquired. At December 31, 2007 approximately $4.1 million of tractor and trailer
sales proceeds were being held by the third-party qualified intermediary. The
Company intends to use these $4.1 million in sales proceeds during 2008 to
purchase qualified replacement tractors or trailers.
Revenue
equipment, which generally consists of trucks, trailers, and revenue equipment
accessories such as Qualcomm™ satellite tracking units, increased approximately
$5.2 million as compared to December 31, 2006. The increase is primarily related
to the net effect of purchasing approximately 610 trucks and 530 trailers during
2007 while only disposing of approximately 590 trucks and 340 trailers during
2007. Also contributing to the increase was an increase in the cost of new truck
and trailer units as compared to the units they replaced and to the acquisition
of additional Qualcomm™ satellite tracking units. At December 31, 2007,
approximately 70 trucks included in revenue equipment had been placed in
inactive status as they were prepared for sale or trade. The sale or trade of
these trucks in 2008 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, 2007 decreased approximately $13.2 million as compared
to December 31, 2006. The decrease is primarily related to $14.3 million in
truck and trailer purchases made during December 2006 for which payment was made
in January 2007 as the Company increased its December 2006 truck purchases in an
effort to delay purchasing trucks with the 2007 model diesel engines. The 2007
model diesel engines are designed to meet stricter EPA emission standards and
were discussed in this report above in “Part I, Item 1, Revenue
Equipment”.
Long-term
debt at December 31, 2007 increased approximately $23.0 million as compared to
December 31, 2006. The increase relates primarily to borrowings against the
Company’s two lines of credit in order to finance the purchase of replacement
trucks and trailers. During 2007, purchases of revenue equipment, net of sales
or trade proceeds received for retired revenue equipment, required the use of
cash or borrowings against the lines of credit of approximately $50.4 million.
Also, approximately $12.7 million of cash provided by operating activities,
which would have been available to purchase revenue equipment, was used to
purchase approximately $7.3 million of treasury stock and $5.4 million of
marketable investments.
Treasury
stock at December 31, 2007 increased approximately $7.3 million as the Company
purchased 471,500 shares of its common stock at various times throughout 2007 as
part of a stock repurchase plan approved by the Company’s Board of Directors
during May 2007. The stock repurchase plan authorizes the purchase of up to
600,000 shares of the Company’s common stock and expires in May
2008.
For 2008,
we expect to purchase approximately 550 new trucks and approximately 730
trailers while continuing to sell or trade older equipment, which we expect to
result in net capital expenditures of approximately $45.1 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
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, 2007:
|
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
|
$ | 46,237 | $ | 2,065 | $ | 44,172 | $ | - | $ | - | ||||||||||
|
Operating
leases (1)
|
1,741 | 520 | 762 | 379 | 80 | |||||||||||||||
|
Total
|
$ | 47,978 | $ | 2,585 | $ | 44,934 | $ | 379 | $ | 80 | ||||||||||
(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 trucks, 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. 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 and certificates of
deposit totaling $200,000 are held by banks 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 trucks 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. 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.
Effective
January 1, 2007, the Company adopted the provisions of FIN 48. FIN 48 contains a
two-step approach to recognizing and measuring uncertain tax positions accounted
for in accordance with SFAS No. 109. The first step is to evaluate the tax
position for recognition by determining if the weight of available evidence
indicates it is more likely than not that the position will be sustained on
audit, including resolution of related appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount which is
more than 50% likely of being realized upon ultimate settlement. We
consider many factors when evaluating and estimating our tax positions and tax
benefits, which may require periodic adjustments and which may not accurately
anticipate actual outcomes.
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, 2007 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.”
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk.
Our
primary market risk exposures include equity price risk, interest rate risk, and
commodity price risk (the price paid to obtain diesel fuel for our trucks). 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 $17.3 million at December 31, 2007 from $14.4 million at December
31, 2006. The increase includes additional purchases, net of sales or
write-downs, of approximately $4.8 million during 2007 and a decrease in the
fair market value of approximately $1.9 million during 2007. 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 $1.7
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 $40.0 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 $400,000 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 2007 fuel
consumption, a 10% increase in the average annual price per gallon of diesel
fuel would increase our annual fuel expenses by $11.4 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.
Item 8. Financial Statements and Supplementary Data.
The
following statements are filed with this report:
Board of
Directors and Shareholders
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, 2007 and 2006, and the related consolidated
statements of income, stockholders' equity and other comprehensive income, and
cash flows for each of the three years in the period ended December 31,
2007. These
financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our
opinion, 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, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2007 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), P.A.M. Transportation
Services, Inc. and subsidiaries’ internal control over financial reporting as of
December 31, 2007, 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, 2008 expressed an unqualified opinion thereon.
/s/ GRANT
THORNTON LLP
Tulsa,
Oklahoma
March
12, 2008
|
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
(in
thousands, except share and per share data)
|
||||||||
|
ASSETS
|
2007
|
2006
|
||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 407 | $ | 1,040 | ||||
|
Accounts
receivable—net:
|
||||||||
|
Trade
|
58,397 | 61,469 | ||||||
|
Other
|
5,349 | 1,361 | ||||||
|
Inventories
|
905 | 819 | ||||||
|
Prepaid
expenses and deposits
|
14,978 | 14,928 | ||||||
|
Marketable
equity securities
|
17,269 | 14,437 | ||||||
|
Income
taxes refundable
|
2,199 | 498 | ||||||
|
Total
current assets
|
99,504 | 94,552 | ||||||
|
PROPERTY
AND EQUIPMENT:
|
||||||||
|
Land
|
2,674 | 2,674 | ||||||
|
Structures
and improvements
|
9,795 | 9,383 | ||||||
|
Revenue
equipment
|
292,133 | 286,933 | ||||||
|
Office
furniture and equipment
|
7,482 | 6,890 | ||||||
|
Total
property and equipment
|
312,084 | 305,880 | ||||||
|
Accumulated
depreciation
|
(107,841 | ) | (102,566 | ) | ||||
|
Net
property and equipment
|
204,243 | 203,314 | ||||||
|
OTHER
ASSETS:
|
||||||||
|
Goodwill
|
15,413 | 15,413 | ||||||
|
Non-compete
agreements, net
|
17 | 217 | ||||||
|
Other
|
727 | 750 | ||||||
|
Total
other assets
|
16,157 | 16,380 | ||||||
|
TOTAL
ASSETS
|
$ | 319,904 | $ | 314,246 | ||||
|
(Continued)
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
(in
thousands, except share and per share data)
|
||||||||
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
2007
|
2006
|
||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable
|
$ | 25,346 | $ | 38,510 | ||||
|
Accrued
expenses and other liabilities
|
10,323 | 9,994 | ||||||
|
Current
maturities of long-term debt
|
2,065 | 1,915 | ||||||
|
Deferred
income taxes—current
|
5,117 | 5,658 | ||||||
|
Total
current liabilities
|
42,851 | 56,077 | ||||||
|
Long-term
debt—less current portion
|
44,172 | 21,205 | ||||||
|
Deferred
income taxes—less current portion
|
53,504 | 51,902 | ||||||
|
Other
|
- | 34 | ||||||
|
Total
liabilities
|
140,527 | 129,218 | ||||||
|
COMMITMENTS
AND CONTINGENCIES (Note 15)
|
||||||||
|
SHAREHOLDERS'
EQUITY
|
||||||||
|
Preferred
stock, $.01 par value, 10,000,000 shares
authorized;
none issued
|
- | - | ||||||
|
Common
stock, $.01 par value, 40,000,000 shares
authorized;
11,368,207 and 11,362,207 shares issued;
9,838,107
and 10,303,607 shares outstanding at
December
31, 2007 and December 31, 2006, respectively
|
114 | 114 | ||||||
|
Additional
paid-in capital
|
77,557 | 77,309 | ||||||
|
Accumulated
other comprehensive income
|
1,921 | 3,142 | ||||||
|
Treasury
stock, at cost; 1,530,100 and 1,058,600
shares,
respectively
|
(25,200 | ) | (17,869 | ) | ||||
|
Retained
earnings
|
124,985 | 122,332 | ||||||
|
Total
shareholders’ equity
|
179,377 | 185,028 | ||||||
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$ | 319,904 | $ | 314,246 | ||||
|
(Concluded)
|
||||||||
|
See
notes to consolidated financial statements.
|
||||||||
|
CONSOLIDATED
STATEMENTS OF INCOME
YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005
(in
thousands, except per share data)
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
OPERATING
REVENUES:
|
||||||||||||
|
Revenue,
before fuel surcharge
|
$ | 351,701 | $ | 351,373 | $ | 326,353 | ||||||
|
Fuel
surcharge
|
57,140 | 48,896 | 34,527 | |||||||||
|
Total
operating revenues
|
408,841 | 400,269 | 360,880 | |||||||||
|
OPERATING
EXPENSES AND COSTS:
|
||||||||||||
|
Salaries,
wages and benefits
|
135,606 | 127,539 | 122,005 | |||||||||
|
Fuel
expense
|
114,242 | 97,286 | 81,017 | |||||||||
|
Rents
and purchased transportation
|
38,718 | 43,844 | 39,074 | |||||||||
|
Depreciation
and amortization
|
38,759 | 33,929 | 31,376 | |||||||||
|
Operating
supplies and expenses
|
30,845 | 25,682 | 23,114 | |||||||||
|
Operating
taxes and licenses
|
17,520 | 16,421 | 15,776 | |||||||||
|
Insurance
and claims
|
17,591 | 16,389 | 15,992 | |||||||||
|
Communications
and utilities
|
3,113 | 2,642 | 2,648 | |||||||||
|
Other
|
7,130 | 5,426 | 6,205 | |||||||||
|
(Gain)
loss on sale or disposal of equipment
|
(48 | ) | 47 | 147 | ||||||||
|
Total
operating expenses and costs
|
403,476 | 369,205 | 337,354 | |||||||||
|
OPERATING
INCOME
|
5,365 | 31,064 | 23,526 | |||||||||
|
NON-OPERATING
INCOME
|
1,707 | 448 | 477 | |||||||||
|
INTEREST
EXPENSE
|
(2,453 | ) | (1,475 | ) | (1,881 | ) | ||||||
|
INCOME
BEFORE INCOME TAXES
|
4,619 | 30,037 | 22,122 | |||||||||
|
FEDERAL
AND STATE INCOME TAXES:
|
||||||||||||
|
Current
|
217 | 9,768 | 7,572 | |||||||||
|
Deferred
|
1,749 | 2,305 | 1,411 | |||||||||
|
Total
federal and state income taxes
|
1,966 | 12,073 | 8,983 | |||||||||
|
NET
INCOME
|
$ | 2,653 | $ | 17,964 | $ | 13,139 | ||||||
|
EARNINGS
PER COMMON SHARE:
|
||||||||||||
|
Basic
|
$ | 0.26 | $ | 1.74 | $ | 1.20 | ||||||
|
Diluted
|
$ | 0.26 | $ | 1.74 | $ | 1.20 | ||||||
|
AVERAGE
COMMON SHARES OUTSTANDING:
|
||||||||||||
|
Basic
|
10,238 | 10,296 | 10,966 | |||||||||
|
Diluted
|
10,239 | 10,302 | 10,976 | |||||||||
|
See
notes to consolidated financial statements.
|
||||||||||||
|
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE
INCOME
YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005
(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, 2005
|
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 | ||||||||||||||||||||||||
|
Components
of comprehensive income:
|
||||||||||||||||||||||||||||||||
|
Net
earnings
|
$ | 2,653 | 2,653 | 2,653 | ||||||||||||||||||||||||||||
|
Other
comprehensive gain:
|
||||||||||||||||||||||||||||||||
|
Realized
gain on marketable
|
||||||||||||||||||||||||||||||||
|
securities,
net of tax of $241
|
(359 | ) | (359 | ) | (359 | ) | ||||||||||||||||||||||||||
|
Unrealized
loss on marketable
|
||||||||||||||||||||||||||||||||
|
securities,
net of tax of $(448)
|
(862 | ) | (862 | ) | (862 | ) | ||||||||||||||||||||||||||
|
Total
comprehensive income
|
$ | 1,432 | ||||||||||||||||||||||||||||||
|
Treasury
stock repurchases
|
(471 | ) | (7,331 | ) | (7,331 | ) | ||||||||||||||||||||||||||
|
Exercise
of stock options-shares
|
||||||||||||||||||||||||||||||||
|
issued
including tax benefits
|
6 | 125 | 125 | |||||||||||||||||||||||||||||
|
Share-based
compensation
|
123 | 123 | ||||||||||||||||||||||||||||||
|
BALANCE—
December 31, 2007
|
9,838 | $ | 114 | $ | 77,557 | $ | 1,921 | $ | (25,200 | ) | $ | 124,985 | $ | 179,377 | ||||||||||||||||||
|
See
notes to consolidated financial statements.
|
||||||||||||||||||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER 31, 2007, 2006 AND 2005
(in
thousands)
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
OPERATING
ACTIVITIES:
|
||||||||||||
|
Net
income
|
$ | 2,653 | $ | 17,964 | $ | 13,139 | ||||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
|
Depreciation
and amortization
|
38,759 | 33,929 | 31,376 | |||||||||
|
Bad
debt expense
|
573 | 310 | 1,428 | |||||||||
|
Stock
compensation—net of excess tax benefits
|
118 | 441 | - | |||||||||
|
Non-compete
agreement amortization—net of payments
|
- | - | 37 | |||||||||
|
Provision
for deferred income taxes
|
1,749 | 2,305 | 1,411 | |||||||||
|
Reclassification
of unrealized loss on marketable equity securities
|
95 | 120 | 153 | |||||||||
|
Gain
on sale of marketable equity securities
|
(1,071 | ) | (30 | ) | - | |||||||
|
(Gain)
loss on sale or disposal of equipment
|
(48 | ) | 47 | 147 | ||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
2,585 | 3,685 | (19,236 | ) | ||||||||
|
Prepaid
expenses, inventories, and other assets
|
(113 | ) | 440 | (40 | ) | |||||||
|
Income
taxes refundable
|
(1,696 | ) | (202 | ) | 528 | |||||||
|
Trade
accounts payable
|
1,089 | 2,219 | (5,881 | ) | ||||||||
|
Accrued
expenses
|
496 | (525 | ) | 679 | ||||||||
|
Net
cash provided by operating activities
|
45,189 | 60,703 | 23,741 | |||||||||
|
INVESTING
ACTIVITIES:
|
||||||||||||
|
Purchases
of property and equipment
|
(76,166 | ) | (53,514 | ) | (62,013 | ) | ||||||
|
Proceeds
from sale or disposal of equipment
|
22,273 | 11,987 | 22,850 | |||||||||
|
Changes
in restricted cash
|
(4,073 | ) | - | - | ||||||||
|
Sales
of marketable equity securities
|
1,622 | 85 | - | |||||||||
|
Purchases
of marketable equity securities
|
(5,389 | ) | (1,288 | ) | (1,884 | ) | ||||||
|
Other
|
- | - | 20 | |||||||||
|
Net
cash used in investing activities
|
(61,733 | ) | (42,730 | ) | (41,027 | ) | ||||||
|
FINANCING
ACTIVITIES:
|
||||||||||||
|
Borrowings
under line of credit
|
508,076 | 446,221 | 422,460 | |||||||||
|
Repayments
under line of credit
|
(484,322 | ) | (463,967 | ) | (405,277 | ) | ||||||
|
Borrowings
of long-term debt
|
2,067 | 1,996 | 1,977 | |||||||||
|
Repayments
of long-term debt
|
(2,704 | ) | (2,682 | ) | (2,913 | ) | ||||||
|
Repurchases
of common stock
|
(7,331 | ) | - | (17,869 | ) | |||||||
|
Stock
compensation excess tax benefits
|
5 | 70 | - | |||||||||
|
Exercise
of stock options
|
120 | 300 | 378 | |||||||||
|
Net
cash provided by (used in) financing activities
|
15,911 | (18,062 | ) | (1,244 | ) | |||||||
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(633 | ) | (89 | ) | (18,530 | ) | ||||||
|
CASH
AND CASH EQUIVALENTS—Beginning of year
|
1,040 | 1,129 | 19,659 | |||||||||
|
CASH
AND CASH EQUIVALENTS—End of year
|
$ | 407 | $ | 1,040 | $ | 1,129 | ||||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION—
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Interest
|
$ | 2,410 | $ | 1,481 | $ | 1,928 | ||||||
|
Income
taxes
|
$ | 1,976 | $ | 10,061 | $ | 7,190 | ||||||
|
NONCASH
INVESTING AND FINANCING ACTIVITIES—
|
||||||||||||
|
Purchases
of revenue equipment included in accounts payable
|
$ | - | $ | 14,276 | $ | - | ||||||
|
See
notes to consolidated financial statements.
|
||||||||||||
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS
ENDED DECEMBER 31, 2007, 2006, AND 2005
|
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.
Restricted
Cash– Restricted cash consists of cash proceeds from the sale of
trucks and trailers under our like-kind exchange (“LKE”) tax program. See
Note 11, “Federal and State Income Taxes,” for a discussion of the
Company’s LKE tax program. We classify restricted cash as a current asset within
“Accounts receivable-other” as the exchange process must be completed within 180
days in order to qualify for income tax deferral treatment. The changes in
restricted cash balances are reflected as an investing activity in our
Consolidated Statements of Cash Flows as they relate to the sales and purchases
of revenue equipment.
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, 2007 and 2006 were approximately
$11,088,000 and $8,230,000, respectively.
Accounts
Receivable Other–The components of accounts receivable other consist
primarily of amounts held by a third-party qualified intermediary that the
Company uses to effectuate deferral of income taxes on gains from sales of
trucks and trailers under the Company’s LKE tax program. Also included are
amounts representing company driver advances, owner operator advances and
equipment manufacturer warranties. Advances receivable from company drivers as
of December 31, 2007 and 2006, were approximately $598,000 and $503,000,
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 are classified by the Company as
either available for sale or trading. Securities classified 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. Securities classified as trading are carried at market value with
unrealized gains and losses recognized in the statements of income. 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 trucks 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.
Advertising
Expense–Advertising costs are expensed as incurred and totaled
approximately $605,000, $550,000 and $350,000 for the years ended December 31,
2007, 2006, and 2005, 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, 2007 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. In June
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
48, Accounting for Uncertainty
in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”),
which became effective for the Company on January 1, 2007. FIN 48 addressed the
determination of how tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, the Company
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the position will be sustained on examination by taxing
authorities, based on the technical merits of the position. The application of
income tax law to multi-jurisdictional operations such as those performed by the
Company, are inherently complex. Laws and regulations in this area are
voluminous and often ambiguous. As such, we may be required to make subjective
assumptions and judgments regarding our income tax exposures. Interpretations of
and guidance surrounding income tax laws and regulations may change over time
which could cause changes in our assumptions and judgments that could materially
affect amounts recognized in the consolidated financial statements.
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 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 90.4%, 87.8%, and
88.0% of total revenues, excluding fuel surcharges, for the twelve months ended
December 31, 2007, 2006, and 2005, 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 December 2007, the FASB issued Statement of
Financial Accounting Standards No. 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS No. 160”). SFAS No. 160
re-characterizes minority interests in consolidated subsidiaries as
non-controlling interests and requires the classification of minority interests
as a component of equity. Under SFAS No. 160, a change in control will be
measured at fair value, with any gain or loss recognized in earnings. The
effective date for SFAS No. 160 is for annual periods beginning on or after
December 15, 2008. Early adoption and retroactive application of SFAS No.
160 to fiscal years preceding the effective date are not permitted. Management
does not expect the adoption of SFAS No. 160 to have a material impact on
the Company’s consolidated financial statements.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141(R), Business
Combinations (“SFAS No. 141(R)”). SFAS No. 141(R) expands the
definition of transactions and events that qualify as business combinations;
requires that the acquired assets and liabilities, including contingencies, be
recorded at the fair value determined on the acquisition date and changes
thereafter reflected in earnings, not goodwill; changes the recognition timing
for restructuring costs; and requires acquisition costs to be expensed as
incurred. Adoption of SFAS No. 141(R) is required for combinations
occurring in fiscal years beginning after December 15, 2008. Early adoption
and retroactive application of SFAS 141(R) to fiscal years preceding the
effective date are not permitted. Beginning on January 1, 2009, adoption of SFAS
No. 141(R) will impact our accounting for business combinations completed
on or after that date.
In
February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities—Including an
Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS No. 159
permits an entity the option to measure many financial instruments and certain
other items at fair value on specified election dates. Unrealized gains and
losses on items for which the fair value option has been elected will be
recognized in earnings at each subsequent reporting date. The fair value option:
(a) may be applied instrument by instrument, with few exceptions, such as
investments otherwise accounted for by the equity method; (b) is irrevocable
(unless a new election date occurs); and (c) is applied only to entire
instruments and not to portions of instruments. Most of the provisions in SFAS
No. 159 are elective; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities. SFAS No. 159 is effective as of the
beginning of an entity’s first fiscal year that begins after November 15, 2007.
Early adoption is permitted as of the beginning of the previous fiscal year
provided that the entity adopts SFAS No. 159 in the first 120 days of that
fiscal year and also elects to apply the provisions of SFAS No. 157, Fair Value Measurements. The
Company did not early-adopt SFAS No. 159 and management does not expect adoption
of this statement to have a significant impact 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. On
February 6, 2008, the FASB deferred the effective date of SFAS No. 157 for one
year for all non-financial assets and non-financial liabilities, except for
those items that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). Management is currently
evaluating the impact that adoption of SFAS No. 157 might have on the
Company’s consolidated financial statements.
In June
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 (“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. Adoption of this statement did not have a material
effect on the Company's consolidated financial statements.
|
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, 2007 and 2006:
|
2007
|
2006
|
|||||||
|
(in
thousands)
|
||||||||
|
Billed
|
$ | 53,439 | $ | 55,132 | ||||
|
Unbilled
|
6,849 | 7,794 | ||||||
|
Allowance
for doubtful accounts
|
(1,891 | ) | (1,457 | ) | ||||
|
Total
accounts receivable—net
|
$ | 58,397 | $ | 61,469 | ||||
An
analysis of changes in the allowance for doubtful accounts for the years ended
December 31, 2007, 2006, and 2005 follows:
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Balance—beginning
of year
|
$ | 1,457 | $ | 2,030 | $ | 768 | ||||||
|
Provision
for bad debts
|
607 | 354 | 1,490 | |||||||||
|
Charge-offs
|
(361 | ) | (960 | ) | (228 | ) | ||||||
|
Recoveries
|
188 | 33 | - | |||||||||
|
Balance—end
of year
|
$ | 1,891 | $ | 1,457 | $ | 2,030 | ||||||
|
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 either trading or 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 2007, the Company received proceeds of approximately
$1,622,000 for the sale of marketable equity securities with a combined cost of
approximately $550,000, resulting in a realized gain of approximately
$1,071,000. During 2007, two securities were transferred from available-for-sale
to trading. These securities were transferred because, historically, they have
significantly underperformed in relation to their benchmarks. The resulting gain
recognized was not material. During 2006, there were no reclassifications of
marketable securities. Marketable equity securities classified as
available-for-sale 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 marketable securities
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, 2007, equity securities classified as available-for-sale and equity
securities classified as trading had a cost basis of approximately $13,272,000
and $661,000, respectively and fair market values of approximately $16,608,000
and $661,000, respectively. For the year ended December 31, 2007, the Company
had net unrealized losses in market value on securities classified as
available-for-sale of approximately $1,221,000, net of deferred income taxes.
These securities had gross unrealized gains of approximately $4,916,000 and
gross unrealized losses of approximately $1,572,000. As of December 31, 2007,
the total unrealized gain, net of deferred income taxes, in accumulated other
comprehensive income was approximately $1,921,000.
As of
December 31, 2006, the Company’s equity securities were all classified as
available-for-sale and 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.
The
following table shows the Company’s investments’ approximate gross unrealized
losses and fair value at December 31, 2007 and 2006. These investments consist
of equity securities. As of December 31, 2007 and 2006 there were no investments
that had been in a continuous unrealized loss position for twelve months or
longer.
|
2007
|
2006
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Unrealized
|
Unrealized
|
|||||||||||||||
|
Fair
Value
|
Losses
|
Fair
Value
|
Losses
|
|||||||||||||
|
Equity
securities – Available for sale
|
$ | 5,308 | $ | 1,541 | $ | 417 | $ | 12 | ||||||||
|
Equity
securities – Trading
|
409 | 31 | - | - | ||||||||||||
|
Totals
|
$ | 5,717 | $ | 1,572 | $ | 417 | $ | 12 | ||||||||
|
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,
2007 and the Company determined there was no impairment as of that date.
Goodwill at December 31 is summarized as follows:
|
2007
|
2006
|
2005
|
||||||||||
|
(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, $200,000 and $237,000, for the years
ending December 31, 2007, 2006 and 2005. The Company's non-compete agreements at
December 31 are summarized as follows:
|
2007
|
2006
|
|||||||
|
(in
thousands)
|
||||||||
|
Non-compete
agreements, original cost
|
$ | 1,000 | $ | 1,000 | ||||
|
Accumulated
amortization
|
(983 | ) | (783 | ) | ||||
|
Non-compete
agreements—net
|
$ | 17 | $ | 217 | ||||
Over the
remaining life of the non-compete agreement currently held by the Company,
approximately $17,000 of amortization expense will be recognized during
2008.
|
5.
|
ACCRUED
EXPENSES AND OTHER LIABILITIES
|
Accrued
expenses and other liabilities at December 31 are summarized as
follows:
|
2007
|
2006
|
|||||||
|
(in
thousands)
|
||||||||
|
Payroll
|
$ | 1,818 | $ | 1,779 | ||||
|
Accrued
vacation
|
1,966 | 1,827 | ||||||
|
Taxes—other
than income
|
2,598 | 2,591 | ||||||
|
Interest
|
123 | 80 | ||||||
|
Driver
escrows
|
1,023 | 939 | ||||||
|
Self-insurance
claims reserves
|
2,795 | 2,778 | ||||||
|
Total
accrued expenses and other liabilities
|
$ | 10,323 | $ | 9,994 | ||||
|
6.
|
CLAIMS
LIABILITIES
|
With
respect to physical damage for trucks, 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 and certificates of deposit totaling $200,000 are held by banks 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:
|
2007
|
2006
|
|||||||
|
(in
thousands)
|
||||||||
|
Line
of credit with a bank—due May 31, 2009, and
|
||||||||
|
collateralized
by accounts receivable (1)
|
$ | 28,192 | $ | 14,437 | ||||
|
Line
of credit with a bank—due June 30, 2008, and
|
||||||||
|
collateralized
by revenue equipment (2)
|
15,000 | 5,000 | ||||||
|
Note
payable (3)
|
1,767 | 2,510 | ||||||
|
Other
(4)
|
1,124 | 1,173 | ||||||
|
Other
(5)
|
154 | - | ||||||
|
Total
long-term debt
|
$ | 46,237 | $ | 23,120 | ||||
|
Less
current maturities
|
(2,065 | ) | (1,915 | ) | ||||
|
Long-term
debt—net of current maturities
|
$ | 44,172 | $ | 21,205 | ||||
|
(1)
|
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 first day of the month plus
1.25% (6.48% at December 31, 2007). Monthly payments of interest are
required under this agreement. Also, under the terms of the agreement the
Company must have (a) a debt to equity ratio of no more than 2:1, and (b)
maintain a tangible net worth of at least $125 million. The Company was in
compliance with all provisions of the agreement at December 31,
2007.
|
|
(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% (6.39% at December 31, 2007). 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, 2007. The Company has the intent and ability to
extend the terms of this agreement for an additional one year period until
June 30, 2009 and accordingly has classified the debt as
long-term.
|
|
(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)
|
5.75%
note to insurance premium finance company at December 31, 2007 with an
original face amount of $1,912,934, payable in monthly installments of
$163,636 through August 2008.
|
|
(5)
|
5.23%
note to insurance premium finance company at December 31, 2007 with an
original face amount of $154,023, payable in monthly installments of
$19,547 through August 2008.
|
The
Company has provided letters of credit to third parties totaling approximately
$2,389,000 at December 31, 2007. 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, 2007,
are:
|
(in
thousands)
|
||||
|
2008
|
$ | 2,065 | ||
|
2009
|
44,028 | |||
|
2010
|
144 | |||
|
2011
|
- | |||
|
2012
|
- | |||
|
Total
|
$ | 46,237 | ||
|
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, 2007, there were 11,368,207 shares of our
common stock issued and 9,838,107 shares outstanding. No shares of our preferred
stock were issued or outstanding at December 31, 2007.
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, 2007, we have no agreements or understandings
for the issuance of any shares of preferred stock.
Treasury
Stock
In 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.
In May
2007, our Board of Directors authorized the repurchase of up to 600,000 shares
of our common stock during the twelve month period following the announcement.
Subsequent to the date of the announcement and through the remainder of 2007,
the Company repurchased 471,500 shares of its common stock.
The
Company accounts for Treasury stock using the cost method and as of December 31,
2007, 1,530,100 shares were held in the treasury at an aggregate cost of
approximately $25,200,000.
|
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:
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Net
income
|
$ | 2,653 | $ | 17,964 | $ | 13,139 | ||||||
|
Other
comprehensive income (loss):
|
||||||||||||
|
Reclassification
adjustment for realized gains
|
||||||||||||
|
on
marketable securities, included in
|
||||||||||||
|
net
income, net of income taxes
|
(359 | ) | - | - | ||||||||
|
Reclassification
adjustment for losses on
|
||||||||||||
|
derivative
instruments included in net income
|
||||||||||||
|
accounted
for as hedges, net of income taxes
|
- | 18 | 227 | |||||||||
|
Reclassification
adjustment for unrealized
|
||||||||||||
|
losses
on marketable securities, included in
|
||||||||||||
|
net
income, net of income taxes
|
55 | 53 | 91 | |||||||||
|
Change
in fair value of interest rate
|
||||||||||||
|
swap
agreements, net of income taxes
|
- | 1 | 55 | |||||||||
|
Change
in fair value of marketable
|
||||||||||||
|
securities,
net of income taxes
|
(917 | ) | 1,349 | 197 | ||||||||
|
Total
comprehensive income
|
$ | 1,432 | $ | 19,385 | $ | 13,709 | ||||||
|
10.
|
SIGNIFICANT
CUSTOMERS AND INDUSTRY
CONCENTRATION
|
In 2007,
2006, and 2005, one customer, who is in the automobile manufacturing industry,
accounted for 38%, 41% and 39% 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 2007, 2006, and 2005,
49%, 52%, and 52%, respectively, were derived from transportation services
provided to the automobile manufacturing industry. Accounts receivable from the
largest customer totaled approximately $25,830,000 and $30,040,000 at December
31, 2007 and 2006, 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:
|
2007
|
2006
|
|||||||||||||||
|
(in
thousands)
|
||||||||||||||||
|
Current
|
Long-Term
|
Current
|
Long-Term
|
|||||||||||||
|
Deferred
tax liabilities:
|
||||||||||||||||
|
Property
and equipment
|
$ | - | $ | 52,062 | $ | - | $ | 49,731 | ||||||||
|
Unrealized
gains on securities
|
1,423 | - | 2,113 | - | ||||||||||||
|
Prepaid
expenses and other
|
5,650 | 3,428 | 5,665 | 2,920 | ||||||||||||
|
Total
deferred tax liabilities
|
7,073 | 55,490 | 7,778 | 52,651 | ||||||||||||
|
Deferred
tax assets:
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
718 | - | 553 | - | ||||||||||||
|
Alternative
minimum tax credit
|
- | 481 | - | - | ||||||||||||
|
Compensated
absences
|
630 | - | 564 | - | ||||||||||||
|
Self-insurance
allowances
|
492 | - | 664 | - | ||||||||||||
|
Share-based
compensation
|
- | 289 | - | 242 | ||||||||||||
|
Bonus
compensation
|
- | - | 235 | - | ||||||||||||
|
Net
operating loss carryover
|
- | 722 | - | - | ||||||||||||
|
Non-competition
agreement
|
- | 494 | - | 507 | ||||||||||||
|
Other
|
116 | - | 104 | - | ||||||||||||
|
Total
deferred tax assets
|
1,956 | 1,986 | 2,120 | 749 | ||||||||||||
|
Net
deferred tax liability
|
$ | 5,117 | $ | 53,504 | $ | 5,658 | $ | 51,902 | ||||||||
The
reconciliation between the effective income tax rate and the statutory Federal
income tax rate for the years ended December 31, 2007, 2006 and 2005 is
presented in the following table:
|
2007
|
2006
|
2005
|
||||||||||||||||||||||
|
(in
thousands)
|
||||||||||||||||||||||||
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||
|
Income
tax at the
|
||||||||||||||||||||||||
|
statutory
federal rate
|
$ | 1,571 | 34.0 | $ | 10,513 | 35.0 | $ | 7,743 | 35.0 | |||||||||||||||
|
Nondeductible
expense
|
381 | 8.3 | 378 | 1.3 | 450 | 2.0 | ||||||||||||||||||
|
State
income taxes—net
|
||||||||||||||||||||||||
|
of
federal benefit
|
14 | 0.3 | 1,182 | 3.9 | 790 | 3.6 | ||||||||||||||||||
|
Total
income taxes
|
$ | 1,966 | 42.6 | $ | 12,073 | 40.2 | $ | 8,983 | 40.6 | |||||||||||||||
The
provision for income taxes consisted of the following:
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands)
|
||||||||||||
|
Current:
|
||||||||||||
|
Federal
|
$ | 305 | $ | 8,397 | $ | 6,422 | ||||||
|
State
|
(88 | ) | 1,371 | 1,150 | ||||||||
| 217 | 9,768 | 7,572 | ||||||||||
|
Deferred:
|
||||||||||||
|
Federal
|
1,295 | 1,768 | 876 | |||||||||
|
State
|
454 | 537 | 535 | |||||||||
| 1,749 | 2,305 | 1,411 | ||||||||||
|
Total
income tax expense
|
$ | 1,966 | $ | 12,073 | $ | 8,983 | ||||||
The
Company has alternative minimum tax credits of approximately $480,000 at
December 31, 2007, which have no expiration date under the current federal
income tax laws. The Company also has a net operating loss carryover for federal
income purposes of approximately $1.9 million which will expire after the year
2027.
The
Company adopted the provisions of FASB Interpretation 48, “Accounting for
Uncertainty in Income Taxes-an Interpretation of FASB Statement No. 109” (“FIN
48”), on January 1, 2007. Prior to adoption, the Company’s policy was to
establish reserves that reflected the probable outcome of known tax
contingencies. The effects of final resolution, if any, were recognized as
changes to the effective income tax rate in the period of resolution. FIN 48
requires application of a more likely than not threshold to the recognition and
derecognition of uncertain tax positions. FIN 48 permits the Company to
recognize the amount of tax benefit that has a greater than 50% likelihood of
being ultimately realized upon settlement. It further requires that a change in
judgment related to the expected ultimate resolution of uncertain tax positions
be recognized in earnings in the quarter of such change.
Upon
adoption of FIN 48 on January 1, 2007, the Company recognized no adjustment in
the liability for unrecognized income tax benefits and no corresponding change
in retained earnings. The Company does not have any material accrued interest or
penalties associated with any unrecognized tax benefits. The Company's policy is
to account for interest and penalties related to uncertain tax positions, if
any, in income tax expense. There was no change in total gross unrecognized tax
benefit liabilities for the year ended December 31, 2007.
The
Company and its subsidiaries are subject to U.S. and Canadian federal income tax
laws as well as the income tax laws of multiple state jurisdictions. The major
tax jurisdictions in which the Company operates generally provide for a
deficiency assessment statute of limitation period of three years and as a
result, the Company’s tax years 2004 through 2006 remain open to examination in
those jurisdictions.
During
2007, the Company contracted with a third-party qualified intermediary in order
to implement a like-kind exchange tax program. Under the program, dispositions
of eligible trucks or trailers and acquisitions of replacement trucks or
trailers are made in a form whereby any associated tax gains related to the
disposal are deferred. To qualify for like-kind exchange treatment, we exchange,
through our qualified intermediary, eligible trucks or trailers being disposed
with trucks or trailers being acquired that allows us to generally carryover the
tax basis of the trucks or trailers sold. The program is expected to result in a
significant deferral of federal and state income taxes. Under the program, the
proceeds from the sale of eligible trucks or trailers carry a Company-imposed
restriction for the acquisition of replacement trucks or trailers. These
proceeds may be disqualified under the program at any time and at the Company’s
sole discretion, however income tax deferral would not be available on any sale
for which the Company disqualifies the related proceeds. At December 31,
2007, the Company had $4.1 million of restricted cash held by the
third-party qualified intermediary. There were no cash restrictions for any
periods prior to the program implementation occurring during 2007.
|
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 2007, options for 16,000
shares were issued under the 2006 Plan at an option exercise price of $22.92 per
share and at December 31, 2007, 718,000 shares were available for granting
future options.
Outstanding
incentive stock options at December 31, 2007, 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, 2007, 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, 2007, options
for 180,000 shares have vested under this 300,000 share option grant (including
those options which immediately vested upon grant) while options for 120,000
shares have been forfeited as the performance criteria were not met for the
fiscal years 2003, 2004 and 2007.
Transactions
in stock options under these plans are summarized as follows:
|
Shares
Under
Option
|
Weighted-
Average
Exercise
Price
|
|||||||
|
Outstanding—January
1, 2005:
|
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 | |||||
|
Granted
|
16,000 | 22.92 | ||||||
|
Exercised
|
(6,000 | ) | 19.95 | |||||
|
Canceled
|
(46,000 | ) | 23.34 | |||||
|
Outstanding—December
31, 2007:
|
248,500 | $ | 22.81 | |||||
|
Options
exercisable—December 31, 2007:
|
248,500 | $ | 22.81 | |||||
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, 2007
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 year ending December 31, 2005 is illustrated in the following
table:
|
2005
|
||||
|
(in
thousands, except per share data)
|
||||
|
Net
income—as reported
|
$ | 13,139 | ||
|
Deduct
total stock-based employee compensation expense
|
||||
|
determined
under fair value based method for
|
||||
|
all
awards—net of related tax effects
|
(296 | ) | ||
|
Pro
forma net income
|
$ | 12,843 | ||
|
Earnings
per share:
|
||||
|
Basic—as
reported
|
$ | 1.20 | ||
|
Basic—pro
forma
|
$ | 1.17 | ||
|
Diluted—as
reported
|
$ | 1.20 | ||
|
Diluted—pro
forma
|
$ | 1.17 | ||
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:
|
2007
|
2006
|
2005
|
|
|
Dividend
yield
|
0%
|
0%
|
0%
|
|
Volatility
range
|
37.34%—38.54%
|
33.34%—38.54%
|
33.86%—38.54%
|
|
Risk-free
rate range
|
4.38%—4.48%
|
4.38%—5.02%
|
4.08%—4.38%
|
|
Expected
life
|
2.5
years—5 years
|
2.5
years—5 years
|
5
years
|
|
Fair
value of options (per share)
|
$6.32—$9.45
|
$6.93—$9.45
|
$6.73—$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.
Information
related to the Company’s option activity as of December 31, 2007, and changes
during the year then ended is presented below:
|
Shares
Under Option
|
Weighted-
Average Exercise Price
|
Weighted-
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value*
|
|||||||||||||
|
(per
share)
|
(in
years)
|
|||||||||||||||
|
Outstanding
at January 1, 2007
|
284,500 | $ | 22.83 | |||||||||||||
|
Granted
|
16,000 | 22.92 | ||||||||||||||
|
Exercised
|
(6,000 | ) | 19.95 | |||||||||||||
|
Canceled/forfeited/expired
|
(46,000 | ) | 23.34 | |||||||||||||
|
Outstanding
at December 31, 2007
|
248,500 | $ | 22.81 |
4.0
|
$ | - | ||||||||||
|
Fully
vested and
exercisable
at December 31, 2007
|
248,500 | $ | 22.81 | 4.0 | $ | - | ||||||||||
|
___________________________
|
||||||||||||||||
|
*
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, 2007, was $15.54.
|
||||||||||||||||
The
weighted-average grant-date fair value of options granted during the years 2007,
2006, and 2005 was $6.32, $6.93, and $6.73 per share, respectively. The total
intrinsic value of options exercised during the years ended December 31, 2007,
2006, and 2005, was approximately $11,000, $175,000, and $323,000,
respectively.
A summary
of the status of the Company’s nonvested options as of December 31, 2007 and
changes during the year ended December 31, 2007, is presented
below:
|
Number
of Options
|
Weighted-
Average Grant Date Fair Value
|
|||||||
|
Nonvested
at January 1, 2007
|
82,500 | $ | 9.43 | |||||
|
Granted
|
16,000 | 6.32 | ||||||
|
Vested
|
(58,500 | ) | 8.57 | |||||
|
Canceled/forfeited/expired
|
(40,000 | ) | 9.45 | |||||
|
Nonvested
at December 31, 2007
|
- | $ | - | |||||
The total
fair value of options vested during 2007, 2006, and 2005 was approximately
$501,000, $511,000, and $494,000, respectively. As of December 31, 2007,
the Company had stock-based compensation plans with total unvested stock-based
compensation expense of approximately $22,000 which is being amortized on a
straight-line basis over the remaining vesting period of one year. As a result,
the Company expects to recognize approximately $22,000 in additional
compensation expense related to unvested option awards during 2008. Total
pre-tax stock-based compensation expense, recognized in Salaries, wages and
benefits was approximately $123,000 during 2007 and includes approximately
$101,000 recognized as a result of the annual grant of 2,000 shares to each
non-employee director during the first quarter of 2007. The Company recognized a
total income tax benefit of approximately $43,000 related to stock-based
compensation expense during 2007. The recognition of stock-based compensation
expense decreased diluted and basic earnings per common share by approximately
$0.01 during 2007. Total pre-tax stock-based compensation expense, recognized in
Salaries, wages and benefits during 2006 was approximately $511,000 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 in 2005.
The
number, weighted average exercise price and weighted average remaining
contractual life of options outstanding as of December 31, 2007 and the number
and weighted average exercise price of options exercisable as of December 31,
2007 is as follows:
|
Exercise
Price
|
Shares
Under Outstanding Options
|
Weighted-Average
Remaining Contractual Term
|
Shares
Under Exercisable Options
|
|||
|
(in
years)
|
||||||
|
$16.99
|
8,000
|
1.2
|
8,000
|
|||
|
$18.27
|
10,000
|
2.2
|
10,000
|
|||
|
$19.88
|
12,500
|
0.7
|
12,500
|
|||
|
$22.68
|
10,000
|
0.2
|
10,000
|
|||
|
$22.92
|
14,000
|
4.2
|
14,000
|
|||
|
$23.22
|
180,000
|
4.7
|
180,000
|
|||
|
$26.73
|
14,000
|
3.5
|
14,000
|
|||
|
248,500
|
4.0
|
248,500
|
Cash
received from option exercises totaled approximately $120,000, $300,000, and
$378,000 during the years ended December 31, 2007, 2006, and 2005, 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,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
(in
thousands, except per share data)
|
||||||||||||
|
Net
income
|
$ | 2,653 | $ | 17,964 | $ | 13,139 | ||||||
|
Basic
weighted average common shares outstanding
|
10,238 | 10,296 | 10,966 | |||||||||
|
Dilutive
effect of common stock equivalents
|
1 | 6 | 10 | |||||||||
|
Diluted
weighted average common shares outstanding
|
10,239 | 10,302 | 10,976 | |||||||||
|
Basic
earnings per share
|
$ | 0.26 | $ | 1.74 | $ | 1.20 | ||||||
|
Diluted
earnings per share
|
$ | 0.26 | $ | 1.74 | $ | 1.20 | ||||||
Options
to purchase 234,456, 229,337, and 280,160 shares of common stock were
outstanding as of December 31, 2007, 2006, and 2005, respectively, but were not
included in the computation of diluted earnings per share because to do so would
have an anti-dilutive effect.
|
14.
|
BENEFIT
PLAN
|
The
Company sponsors a benefit 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
$340,000, $330,000 and $300,000 in 2007, 2006 and 2005,
respectively.
|
15.
|
COMMITMENTS
AND CONTINGENCIES
|
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:
|
2008
|
$ | 519,817 | ||
|
2009
|
394,818 | |||
|
2010
|
367,000 | |||
|
2011
|
187,000 | |||
|
2012
and thereafter
|
272,000 | |||
|
Total
|
$ | 1,740,635 |
Total
rental expense, net of amounts reimbursed for the years ended December 31, 2007,
2006 and 2005 was approximately $3,035,000, $2,369,000, and $1,760,000,
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, 2007 and 2006, respectively, is
$3,046,000 and $3,683,000. The fair value of this other long-term debt is
estimated to be $3,032,000 and $3,661,000 at December 31, 2007 and 2006,
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 was 5.08%,
while the receive floating rate was “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 was 4.83%, while the receive floating rate was
“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.
|
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 $1,861,773, $46,576, and $111,510 in operating
revenue and $1,909,585, $1,558,371, and $1,616,534 in operating expenses in
2007, 2006, and 2005, 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
$1,927,964, $1,816,759 and $1,667,928 for 2007, 2006 and 2005,
respectively.
Amounts
owed to the Company by these affiliates were $1,183,266 and $1,315,844 at
December 31, 2007 and 2006 respectively. Of the accounts receivable at December
31, 2007, $11,970 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,
$522,413 represents freight transportation and $648,883 represents a prepayment
of physical damage insurance premiums. Amounts payable to affiliates at December
31, 2007 and 2006 were $198,416 and $223,420 respectively.
|
19.
|
QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)
|
The
tables below present quarterly financial information for 2007 and
2006:
|
2007
|
||||||||||||||||
|
Three
Months Ended
|
||||||||||||||||
|
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
|
(in
thousands, except per share data)
|
||||||||||||||||
|
Operating
revenues
|
$ | 98,809 | $ | 106,700 | $ | 101,171 | $ | 102,162 | ||||||||
|
Operating
expenses
|
96,475 | 102,528 | 100,688 | 103,785 | ||||||||||||
|
Operating
income
|
2,334 | 4,172 | 483 | (1,623 | ) | |||||||||||
|
Non-operating
income
|
241 | 167 | 199 | 1,099 | ||||||||||||
|
Interest
expense
|
487 | 676 | 620 | 670 | ||||||||||||
|
Income
taxes
|
823 | 1,471 | 26 | (354 | ) | |||||||||||
|
Net
income
|
$ | 1,265 | $ | 2,192 | $ | 36 | $ | (840 | ) | |||||||
|
Net
income per common share:
|
||||||||||||||||
|
Basic
|
$ | 0.12 | $ | 0.21 | $ | 0.00 | $ | (0.08 | ) | |||||||
|
Diluted
|
$ | 0.12 | $ | 0.21 | $ | 0.00 | $ | (0.08 | ) | |||||||
|
Average
common shares outstanding:
|
||||||||||||||||
|
Basic
|
10,305 | 10,306 | 10,265 | 10,077 | ||||||||||||
|
Diluted
|
10,308 | 10,307 | 10,266 | 10,077 | ||||||||||||
|
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 | ||||||||||||
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Exchange Act, as amended. Based on
this evaluation, our principal executive officer and our principal financial
officer concluded that our disclosure controls and procedures are effective as
of the end of the period covered by this Annual Report.
Management's
Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rules
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of the Company's internal control
over financial reporting based on the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on our evaluation under the framework in Internal Control -
Integrated Framework, our management concluded that our internal control over
financial reporting is effective as of December 31, 2007.
Our
internal control over financial reporting as of December 31, 2007 has been
audited by Grant Thornton LLP, an independent registered public accounting firm,
who has issued an attestation report on 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, 2007, 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
P.A.M.
Transportation Services, Inc. and Subsidiaries
We have
audited P.A.M. Transportation Services, Inc. (a Delaware Corporation) and
subsidiaries’ (collectively, the Company) internal control over financial
reporting as of December 31, 2007, based on 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,
included in the accompanying Management’s Report on Internal
Control Over Financial Reporting. Our responsibility is to express an
opinion on 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, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
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 its 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, the Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2007, 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, 2007 and 2006,
and the related consolidated statements of income, stockholders’ equity and
other comprehensive income, and cash flows for each of the three years in the
period ended December 31, 2007, and our report dated March 12,
2008 expressed an unqualified opinion on those consolidated financial
statements.
/s/ GRANT
THORNTON LLP
Tulsa,
Oklahoma
March 12,
2008
Item 9B. Other Information.
|
|
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 29, 2008. We will, within 120 days of the end of
our fiscal year, file with the Securities and Exchange Commission a definitive
proxy statement pursuant to Regulation 14A.
Item 10. Directors, Executive Officers and Corporate
Governance.
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 Frank L. Conner, Christopher L. Ellis, and Charles F.
Wilkins.
Item 11. Executive Compensation.
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.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
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, 2007, 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
|
248,500 | $ | 22.81 | 718,000 | ||||||||
|
Equity
Compensation Plans not approved by Security Holders
|
-0- | -0- | -0- | |||||||||
|
Total
|
248,500 | $ | 22.81 | 718,000 | ||||||||
Item 13. Certain Relationships and Related Transactions, and
Director Independence.
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.
Item 14. Principal Accountant Fees and Services.
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
Item 15. Exhibits, Financial Statement Schedules.
|
(a)
|
Financial
Statements and Schedules.
|
|
(1)
|
Financial
Statements: See Part II, Item 8
hereof.
|
Report of Independent Registered
Public Accounting Firm - Grant Thornton LLP
Consolidated Balance Sheets -
December 31, 2007 and 2006
Consolidated Statements of Income -
Years ended December 31, 2007, 2006 and 2005
Consolidated Statements of
Shareholders’ Equity and Other Comprehensive Income - Years ended
December 31,
2007, 2006 and 2005
Consolidated Statements of Cash Flows
- Years ended December 31, 2007, 2006 and 2005
Notes to Consolidated Financial
Statements
|
(2)
|
Financial
Statement Schedules.
|
All schedules for which provision is
made in the applicable accounting regulations of the SEC areomitted as the
requiredinformation 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) Form 8-K filed on March 7, 2005 (“3/07/2005
8-K”); (x) Form 8-K filed on May 31, 2006 (“5/31/2006 8-K”); (xi) Form 8-K filed
on July 28, 2006 (“7/28/2006 8-K”); (xii) the Form 8-K filed on December 11,
2007 (“12/11/2007 8-K”); or (xiii) 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, 12/11/07
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, 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 June 1, 2006
(Exh. 10.2, 7/28/2006 8-K)
|
|
*10.3
|
(1)
|
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
Incentive Plan (Exh. 10.2, 6/30/2006 10-Q)
|
|
(1)
|
||
|
(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 13, 2008
|
By:
|
/s/
Robert W. Weaver
|
|
|
ROBERT
W. WEAVER
|
|||
|
President
and Chief Executive Officer
|
|||
|
(principal
executive officer)
|
|||
|
Dated:
March 13, 2008
|
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 13, 2008
|
By:
|
/s/
Frederick P. Calderone
|
|
|
FREDERICK
P. CALDERONE, Director
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
Frank L. Conner
|
|
|
FRANK
L. CONNER, Director
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
W. Scott Davis
|
|
|
W.
SCOTT DAVIS, Director
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
Christopher L. Ellis
|
|
|
CHRISTOPHER
L. ELLIS, Director
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
Manuel J. Moroun
|
|
|
MANUEL
J. MOROUN, Director
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
Matthew T. Moroun
|
|
|
MATTHEW
T. MOROUN, Director and Chairman of the Board
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
Daniel C. Sullivan
|
|
|
DANIEL
C. SULLIVAN, Director
|
|||
|
Dated:
March 13, 2008
|
By:
|
/s/
Robert W. Weaver
|
|
|
ROBERT
W. WEAVER,
|
|||
|
President
and Chief Executive Officer, Director
|
|||
|
Dated:
March 13, 2008
|
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) Form 8-K filed on March 7, 2005 (“3/07/2005
8-K”); (x) Form 8-K filed on May 31, 2006 (“5/31/2006 8-K”); (xi) Form 8-K filed
on July 28, 2006 (“7/28/2006 8-K”); (xii) the Form 8-K filed on December 11,
2007 (“12/11/2007 8-K”); or (xiii) 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, 12/11/07
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, 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 June 1, 2006
(Exh. 10.2, 7/28/2006 8-K)
|
|
*10.3
|
(1)
|
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
Incentive Plan (Exh. 10.2, 6/30/2006 10-Q)
|
|
(1)
|
||
|
(1) Management
contract or compensatory plan or
arrangement.
|
||
63