-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SeipUKbBe5HDpSL+wj2h+9tRUjoqJj4pa6X2aAURh6CBV/NPLqCbCWR9S3jJ252q NmX3kInybzN1Z/55YFSrKw== 0000950144-97-003287.txt : 19970401 0000950144-97-003287.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003287 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAM TRANSPORTATION SERVICES INC CENTRAL INDEX KEY: 0000798287 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 710633135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15057 FILM NUMBER: 97568654 BUSINESS ADDRESS: STREET 1: HIGHWAY 412 WEST CITY: TONTITOWN STATE: AR ZIP: 72770 BUSINESS PHONE: 5013619111 MAIL ADDRESS: STREET 1: HIGHWAY 412 WEST CITY: TONTITOWN STATE: AR ZIP: 72770 10-K 1 P.A.M. TRANSPORTATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NO. 0-15057 P.A.M. TRANSPORTATION SERVICES, INC. (Exact name of registrant as specified in its charter) Delaware 71-0633135 State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) Highway 412 West P.O. Box 188 Tontitown, Arkansas 72770 (501) 361-9111 (Address of principal executive offices, including zip code, and telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: None Securities registered pursuant to section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on March 21, 1997 was $10,730,829. Solely for the purposes of this response, executive officers, directors and beneficial owners of more than five percent of the Company's common stock are considered the affiliates of the Company at that date. The number of shares outstanding of the issuer's common stock, as of March 21, 1997: 8,128,157 shares of $.01 par value common stock. DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive Proxy Statement for its Annual Meeting of Shareholders to be held in 1997 is incorporated by reference in answer to Part III of this report, with the exception of information regarding executive officers required under Item 10 of Part III, which information is included in Part I, Item 1. 2 Certain statements contained in this filing are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements relating to financial results and plans for future business development activities, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, economic conditions, competition and other uncertainties detailed from time to time in the Company's Securities and Exchange Commission filings. PART I ITEM 1. BUSINESS. P.A.M. Transportation Services, Inc. (the "Company"), operating through its wholly-owned subsidiaries, is an irregular route, common and contract motor carrier authorized to transport general commodities throughout the continental United States and the Canadian provinces of Ontario and Quebec, pursuant to operating authorities granted by the former Interstate Commerce Commission ("ICC"), various state regulatory agencies and Canadian regulatory agencies. Under its operating authorities, the Company may transport all types of freight (except household goods, commodities in bulk and certain explosives) intrastate within any state, and from any point in the continental United States, Ontario or Quebec to any other point in the continental United States or in Ontario or Quebec over any route selected by the Company. The Company transports dry freight commodities ("freight") in 48-foot and 53-foot long, high cube conventional and specialized freight vans ("trailers"). The freight consists primarily of automotive parts, consumer goods, such as general retail store merchandise and products from the manufacturing sector, such as heating and air conditioning units, and industrial glass. All freight is transported as truckload quantities. The Company is a holding company organized under the laws of the State of Delaware in June 1986 and conducts its operations through its wholly-owned subsidiaries, P.A.M. Transport, Inc. ("P.A.M. Transport"), P.A.M. Special Services, Inc., T.T.X., Inc., P.A.M. Dedicated Services, Inc., P.A.M. Logistics Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc. and Allen Freight Services, Inc. (see below). The Company's operating authorities are held by P.A.M. Transport, P.A.M. Dedicated Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc. and Allen Freight Services, Inc. Although not organized until June 1986, the Company is, for financial accounting purposes, the successor to P.A.M. Transport, which was organized under the laws of the State of Arkansas in 1980. Unless the context otherwise requires, all references to the Company in this Annual Report on Form 10-K include P.A.M. Transportation Services, Inc. and its subsidiaries. At December 31, 1996, the Company operated a transport fleet consisting of 912 over-the-road tractors ("tractors") and 2,398 trailers. The Company is headquartered and maintains its primary terminal, maintenance facilities and corporate and administrative offices in Tontitown in the northwest corner of Arkansas, a major center for the trucking industry and where the support services (including warranty repair services) of most major tractor and trailer equipment manufacturers are readily available. 1996 ACQUISITION On March 11, 1996, the Company closed the purchase of all of the outstanding capital stock (the "Shares") of Allen Freight Services, Inc., a Missouri corporation ("AFS"). The total purchase price for the Shares was $200,000, which was negotiated by the parties at arms-length. The Company paid the purchase price by utilizing its existing line of credit. 3 AFS is engaged in the truckload common and contract motor carrier business, and is headquartered in Jacksonville, Florida. AFS's operations consist primarily of providing over-the-road trucking services, contract loading services and dedicated regional distribution services, using 53-foot conventional trailer equipment. AFS operated a fleet of 162 tractors and 357 trailers at December 31, 1996. MARKETING/MAJOR CUSTOMERS The Company's marketing emphasis is directed to that segment of the truckload market which is generally service-sensitive, as opposed to being solely price competitive. Since 1990, the Company has diversified its marketing efforts to gain access to non-traditional freight traffic, including international (Mexico and Canada), domestic regional short-haul, dedicated fleet services and intermodal transportation. The Company also participates in various "core carrier" partnerships with its larger customers. The Company estimates that approximately 65% of its deliveries to customers are made on a JIT ("just in time") basis, whereby products and raw materials are scheduled for delivery as they are needed on the retail customer's shelves or in the manufacturing customer's production line. Such requirements place a premium on the freight carrier's delivery performance and reliability. With respect to these JIT deliveries, approximately 50% require the use of two-man driver teams to meet the customer's schedule. The need for this service is a product of modern manufacturing and assembly methods which are designed to drastically decrease inventory levels and handling costs. The Company's marketing efforts are conducted by six outside sales persons domiciled within the Company's major markets. Field personnel are supervised from Company headquarters, emphasizing an even flow of freight traffic (balance between originations and destinations in a given geographical area) and minimization of movement of empty equipment. During 1996, the Company's five largest customers, for which the Company provides carrier services covering a number of geographic locations, accounted for approximately 48% of total revenues. General Motors Corporation accounted for approximately 22% of 1996 revenues and Packard Electric accounted for approximately 12% of 1996 revenues. A total loss of General Motors or Packard Electric business, however unlikely, would have an adverse impact on the Company's operations, at least over the short term. The Company also provides transportation services to other manufacturers who are suppliers for automobile manufacturers including General Motors. As a result, concentration of the Company's business within the automobile industry is greater than the concentration in a single customer. Of the Company's revenues for 1996 which were attributable to its top ten customers, approximately 37% were derived from transportation services provided to the automobile industry. The Company is no longer required to file tariffs with the Interstate Commerce Commission ("ICC") or any successor agency. See "Regulation" section. OPERATIONS The Company's operations department is generally divided into two groups - - fleet operations and customer service. Fleet operations personnel maintain daily contact with drivers and dispatch the predesignated computerized load assignments to the drivers. Dispatchers also control and oversee the 2 4 movement of equipment and drivers and update the computer system as to their location and status after each contact. Customer service personnel handle day-to-day solicitation of freight from the Company's customers. The Company maintains 24-hour dispatch offices at its headquarters, as well as its offices in Oklahoma City and Warren, Ohio, with a toll free WATS line to facilitate communications with both customers and drivers. The location, status and contact assignment of all of the Company's equipment are available on an up-to-date basis through the Company's computer system, which permits the Company to better meet delivery schedules, respond to customer inquiries and match equipment with the next available load. In early 1996 the Company began installing Qualcomm Omnitracs(TM) display units in its tractors. The Omnitracs system is a satellite-based global positioning and communications system that allows fleet managers to communicate directly with drivers. Drivers can provide location status and updates directly to the customer's computer, saving telephone usage cost, lost productivity, and inconvenience. The Omnitracs system provides customer service with accurate estimated time of arrival information which optimizes load selection and service levels to the Company's customers. During 1996, the Company installed display units in 381 tractors. Each Customer Service Representative ("CSR") has an assigned geographic region for which he or she has responsibility for efficiently matching the customer's freight pickup origins with available equipment in the area. The CSR obtains all relevant information from the customer regarding the service needs of the freight shipment and enters the data into the Company's computer, assigning the most practical tractor to the load and scheduling the delivery appointment. A substantial majority of customers' orders require freight pickup within 24 hours of such order, making responsiveness and availability of equipment another major component of customer service. The Company communicates through electronic data interchange with many of its customers, providing live status reports of freight shipments and arrival time information. This system provides the Company's customers flexibility and convenience by allowing the customer to tender freight electronically. The Company has contractual arrangements with customers to move freight in dedicated lanes within the United States, primarily in the Midwest and between the Midwest and Southwest. A majority of this freight is moved on a round-trip basis, and due to the volume involved, the Company has agreed to dedicate equipment and personnel to handle this part of its business. The Company has found that dedicated service promotes increased utilization of equipment and greater driver satisfaction due to the greater regularity of the routes and schedules, which allows the drivers to be at home more often. There exists a large volume of dedicated-type business throughout the continental United States. The Company has enjoyed considerable success in entering this market, and is aggressively seeking to expand its share of the dedicated services market. INTERMODAL SERVICE The Company entered the intermodal transportation business in 1992, and has contractual arrangements with Consolidated Rail Corporation (Conrail), Norfolk Southern, the Atchison, Topeka and Santa Fe Railway Company (Santa Fe), Burlington Northern, Union Pacific and CSX Intermodal ("CSX"). Intermodal service provides customers with an alternative to highway long-hauls. 3 5 Management expects to take advantage of opportunities to expand this business and views the intermodal market as a mechanism to realize non-asset based revenue growth. OVER-THE-ROAD EQUIPMENT The Company operated a fleet of 912 tractors and 2,398 trailers at December 31, 1996. All of the trailers and all except 126 tractors are owned or leased by the Company. The trailer fleet is made up of 1,150 48' by 102" dry vans and 1,248 53' by 102" dry vans. In 1993, the Company began its trailer fleet conversion to air ride equipment and the Company intends to purchase only air ride trailers in the future. The Company also has certain specialized drop-frame trailers. The tractors that are not Company owned are leased from owner/operators on a per mile basis. At the end of the respective years, the average age of the Company's tractors was 1.70 in 1994, 1.26 in 1995 and 1.85 in 1996. The average age of the Company's trailer fleet was 2.09, 2.34 and 2.60 at the end of 1994, 1995 and 1996, respectively. During 1996, the Company purchased 218 new tractors and 214 new trailers and disposed of 80 tractors and 83 trailers. During 1997, the Company expects to purchase 230 new tractors and 500 new trailers while continuing to sell or trade older equipment. MAINTENANCE The Company has a strictly enforced comprehensive preventive maintenance program for the tractors and trailers it operates. Inspections and various levels of repair and preventive maintenance are performed at set mileage intervals on both tractors and trailers. Although a significant portion of maintenance is performed at the Company's maintenance facility in Tontitown, Arkansas, the Company's subsidiaries have additional maintenance facilities in Warren, Ohio; Springfield, Missouri; Dallas, Laredo and El Paso, Texas; Oklahoma City, Oklahoma; and Columbia, Mississippi. These facilities enhance the Company's preventive and routine maintenance operations and are strategically located on major transportation routes where a majority of the Company's freight originates and terminates. A maintenance and safety inspection is performed on all vehicles each time they return to a terminal. The Company's primary maintenance facilities consist of thirteen mechanical repair bays, four bodyshop bays and three safety and maintenance inspection bays. The Company believes that its current maintenance facilities will be adequate to accommodate its fleet for the foreseeable future. The Company's tractors carry full warranty coverages of at least 100,000 miles. Extended warranties are negotiated with the manufacturer and major component manufacturer (i.e., engine, transmission, differential) for up to 1,000,000 miles. Trailers are also warranted by the manufacturer and major component manufacturer for up to five years. Manufacturers of tractors are required to certify that new tractors meet federal emission standards and the Company receives such certifications on each new tractor it acquires. Certain governmental regulations require the Company to adhere to a fuel and oil spillage prevention plan and to comply with regulations concerning the discharge and disposal of waste oil. The Company believes it is in compliance with applicable waste disposal and emission regulations. The Company also maintains insurance to cover clean up expense in the event of a spill. 4 6 DRIVERS At December 31, 1996, the Company utilized 1,125 drivers in its operations. All drivers are recruited, screened, drug tested and trained and are subject to the control and supervision of the Company's operations and safety departments. The Company's driver training program stresses the importance of safety and reliable, on-time delivery. Drivers are required to report to their dispatchers daily and at the earliest possible moment when any condition en route occurs which might delay their scheduled delivery time. The Company has established a relationship with a recruiting and training school in Indiana to enhance its ability to secure the services of qualified drivers. The Company agrees to pay a student's costs for attending the training school so long as the student fulfills a commitment to work for the Company for at least nine months. Drivers who fail to complete their nine month commitment are required to reimburse all or a portion of the Company's costs in training the driver, depending upon the date of termination of employment. The Company's drivers are selected only after strict application screening and drug testing. Before being permitted to operate a vehicle for the Company, drivers must undergo classroom instruction on Company policies and procedures, safety techniques and proper operation of equipment and then must pass both written and road tests. Instruction in defensive driving and safety techniques continues after hiring, with the Company holding seminars at its terminals in Tontitown, Oklahoma City, Jacksonville, Florida, and Warren, Ohio. The Company currently employs approximately 28 persons on a full-time basis in its driver recruiting, training and safety instruction programs. The Company's drivers are compensated on the basis of miles driven, loading and unloading, extra stop pay and layovers in transit. Drivers can earn bonuses by recruiting other qualified drivers who are employed by the Company and both cash and non-cash prizes are awarded for consecutive periods of safe, accident-free driving. Intense competition in the trucking industry for qualified drivers over the last several years, along with difficulties and added expense in recruiting and retaining qualified drivers, has had a negative impact on the industry. The Company's operations have also been impacted and from time to time the Company has experienced under-utilization and increased expenses due to a shortage of qualified drivers. Management places the highest of priorities on the recruitment and retention of an adequate supply of qualified drivers. EMPLOYEES At December 31, 1996, the Company employed 1,438 persons, of which 1,125 are drivers, 95 are maintenance personnel, 105 are employed in operations, 31 are employed in marketing, 28 are employed in safety and personnel, and 54 are employed in general administration and accounting. Of the total number of employees, 190 of the Company's employees are salaried, and the remainder are employed on an hourly or mileage basis. The Company also has 126 owner/operators under contract who are compensated on a per mile basis. None of these employees are represented by a collective bargaining unit and the Company believes that its employee relations are good. 5 7 REGULATION The Company is a common and contract motor carrier that is regulated by certain state and Canadian regulatory agencies. Prior to January 1, 1996, the Company was also regulated by the ICC. The ICC governed such activities as the authority to engage in motor carrier operations, rates and charges, accounting systems, certain mergers, consolidations, acquisitions and periodic financial reporting. On January 1, 1996, however, the ICC Termination Act of 1995 (the "Termination Act") was enacted, terminating the ICC and substantially deregulating the rail and motor carrier industries. The Termination Act substantially revises the Motor Carrier Act of 1980, eliminating numerous unnecessary provisions and streamlining many of the ICC's functions regarding the regulation of the motor carrier industry. The majority of the remaining ICC functions are transferred to the Department of Transportation ("DOT"), with limited responsibilities transferred to a newly formed Surface Transportation Board. Some of the ICC functions that have been eliminated include: tariff filings, except for non-contiguous domestic trade; rate regulation, except for non-contiguous domestic trade and individual household goods movements; federal grants of operating authority; price regulation and tariff filing requirements for office and exhibit moves; the possibility of future undercharge claims; restrictions on intermodal ownership; review of motor carrier mergers; and state regulation of transportation intermediaries. In addition, registration and insurance filings under the Motor Carrier Act are streamlined into a single federal registration and insurance system to eliminate duplicative and burdensome filing requirements. Exemption authority to permit administrative deregulation has also been substantially broadened, with restrictions remaining on only cargo loss and damage, insurance, safety fitness and antitrust immunity. Prior to the enactment of the Termination Act, most of the ICC's authority to oversee the commercial operation of the motor carrier industry had already been transferred to the DOT. The primary remaining functions which are transferred to the DOT by the Termination Act are motor carrier registration and the setting and maintenance of minimum levels of liability insurance. In addition, the maintenance of nationwide motor carrier industry commercial rules (such as leasing rules, uniform cargo loss and damage rules, rules for shipper payment, and perfecting security interests) are transferred to the DOT. Currently, the ICC and the DOT operate separate registration systems. The ICC requires that interstate, for hire carriers receive a license (operating authority) with the standards for granting of authority limited to a showing of safety and fitness and insurance coverage at a specified level. The DOT registration system extends to all carriers, including private and exempt carriers not regulated by the ICC. DOT assigns each carrier an identification number. Carriers are not required to show proof of insurance at the time of DOT registration, nor is any fee currently charged. The Termination Act continues the two registration systems for a period of twenty-four months, during which time the Secretary of Transportation shall conduct a rule-making and implement changes to consolidate these two registration systems into one system. The new system will serve as a clearing house and depository of information on and identification of all domestic and foreign motor carriers, brokers, freight forwarders and others required to register. The DOT will utilize the information in overseeing safety fitness and compliance with required levels of insurance. Registrations will be renewed periodically and the on-line system will be available to state authorities and the public. The Termination Act also continues antitrust immunity granted by the ICC but contains reforms intended to prevent any potential market abuses. 6 8 On January 1, 1995, federal legislation went into effect eliminating intrastate regulation of motor carrier operations. This action allows the Company to better compete for intrastate business, possibly reducing empty miles, and should result in more comprehensive service to the Company's existing customers. Motor carrier operations are also subject to safety requirements prescribed by the United States Department of Transportation governing interstate operation. Such matters as weight and dimensions of equipment are also subject to federal and state regulations. The Company believes that it is in compliance in all material respects with applicable regulatory requirements relating to its trucking business and operates with a satisfactory rating from the United States Department of Transportation. COMPETITION The trucking industry is highly competitive. The Company competes primarily with other irregular route long-haul truckload carriers, with private carriage conducted by its existing and potential customers, and, to a lesser extent, with the railroads. Increased competition has resulted from deregulation of the trucking industry and has generally exerted downward pressure on prices. The Company competes on the basis of its quality of service and delivery performance as well as price. Many of the other irregular route long-haul truckload carriers have substantially greater financial resources, own more equipment or carry a larger total volume of freight than the Company. EXECUTIVE OFFICERS The executive officers of the Company are as follows:
Name Position with Company -------------------- ----------------------------------------- Robert W. Weaver President and Chief Executive Officer W. Clif Lawson Executive Vice President and Chief Operating Officer Larry J. Goddard Vice President-Finance, Chief Financial Officer, Secretary and Treasurer
ROBERT W. WEAVER, age 47, is a co-founder of the Company and served as its Vice President from March 1980 to June 1986. He was President and Chief Operating Officer from June 1986 until he resigned in February 1987. Between February 1987 and September 1989, he was self-employed as a transportation consultant. In September 1989, Mr. Weaver returned to the Company as President and Chief Operating Officer and a director. On February 22, 1990, he was appointed Chief Executive Officer. W. CLIF LAWSON, age 43, has been Executive Vice President of the Company since August 1989 and Chief Operating Officer since March 1992. He joined the Company in June 1984 and served in various operations and sales capacities until August 1989. LARRY J. GODDARD, age 38, has been Vice President-Finance and Chief Financial Officer since January 1991 and served as Controller of the Company from May 1989 to January 1991. In addition, 7 9 he has served as Secretary since September 1989, and Treasurer since May 1991. From November 1987 to May 1989, he served as General Accounting Manager of the Company. ITEM 2. PROPERTIES. The Company's executive offices and primary terminal facilities are located in Tontitown, Arkansas. The Company's facilities are located on approximately 45 acres and consist of 79,193 square feet of office space and maintenance and storage facilities. The Company's facilities in Tontitown are owned by the Company. The Company's subsidiaries also lease terminal facilities in Warren, Ohio; Springfield, Missouri; Laredo, El Paso, and Dallas, Texas; and Oklahoma City, Oklahoma; the terminal facilities in Columbia, Mississippi are owned. These facilities are leased primarily on a month-to-month basis, and provide on-the-road maintenance and trailer drop and relay stations. The Company's subsidiaries also lease an aggregate of 17 other locations as trailer drop and relay stations only. The Company has access to trailer drop and relay stations in various locations across the country. Certain of these facilities are leased by the Company on a month-to-month basis from an affiliate of its majority shareholder. The Company believes that all of the properties owned or leased by the Company are suitable for their purposes and adequate to meet the Company's needs. ITEM 3. LEGAL PROCEEDINGS. The nature of the Company's business routinely results in litigation, primarily involving claims for personal injuries and property damage incurred in the transportation of freight, and management of the Company believes all such litigation is adequately covered by insurance and that adverse results in one or more of those cases would not have a material adverse effect on the Company's financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders of the Company during the fourth quarter ended December 31, 1996. 8 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the Nasdaq National Market System under the Nasdaq symbol PTSI. The following table sets forth, for the fiscal quarters indicated, the range of the high and low sales price per share for the Common Stock as quoted on the Nasdaq National Market System. Fiscal Year Ended December 31, 1996
High Low ---- --- First Quarter $8 1/8 $6 5/8 Second Quarter 7 7/8 6 1/4 Third Quarter 7 6 1/8 Fourth Quarter 6 1/4 4
Fiscal Year Ended December 31, 1995
High Low ---- --- First Quarter $ 7 1/2 $ 5 1/2 Second Quarter 6 5/8 5 1/2 Third Quarter 8 1/4 5 3/4 Fourth Quarter 8 3/4 6 3/4
As of March 21, 1997, the number of stockholders of record was approximately 460. The Company has not declared or paid any cash dividend on its common stock. The policy of the Board of Directors of the Company is to retain earnings for the expansion and development of the Company's business. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including the Company's earnings, financial condition and other factors deemed relevant by the Board. 9 11 ITEM 6. SELECTED FINANCIAL DATA. The following selected financial data should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere herein.
Years ended December 31, 1996 1995 1994 1993 1992 --------------------------------------------------------- (in thousands, except per share amounts) Statements of Operations: Operating revenues $113,021 $91,595 $76,147 $70,238 $66,687 -------- ------- ------- ------- ------- Operating Expenses: Salaries, wages and benefits 52,444 40,020 33,647 31,850 30,745 Operating supplies 21,909 16,719 14,688 16,393 16,248 Rent and purchased transportation 1,824 1,538 991 1,599 3,409 Depreciation and amortization 11,999 9,428 7,142 4,683 3,131 Operating taxes and licenses 6,734 5,608 5,078 4,680 4,410 Insurance and claims 5,004 4,163 3,816 3,686 3,822 Communications and utilities 1,090 852 868 864 914 Other 2,077 1,666 1,279 1,430 1,168 (Gain) loss on sale or disposal of property and equipment 375 159 (334) (246) (87) -------- ------- ------- ------- ------- Total operating expenses 103,456 80,153 67,175 64,939 63,760 -------- ------- ------- ------ ------- Operating income (loss) 9,565 11,442 8,972 5,299 2,927 Interest expense (4,137) (3,521) (2,926) (1,972) (985) Other 31 166 217 122 (70) -------- ------- ------- ------- ------- Income (loss) before income taxes and dividends on redeemable preferred stock 5,459 8,087 6,263 3,449 1,872 Income taxes 2,147 3,073 2,493 321 70 -------- ------- ------- ------- ------- Income (loss) before dividends on redeemable preferred stock 3,312 5,014 3,770 3,128 1,802 Accrued dividends on redeemable preferred stock 0 0 30 360 360 -------- ------- ------- ------- ------- Net income (loss) $ 3,312 $ 5,014 $ 3,740 $ 2,768 $ 1,442 ======== ======= ======= ======= ======= Earnings per common share Primary: Net income (loss) per share $ .44 $ .65 $ .50 $ .39 $ .23 ======== ======= ======= ======= ======= Average common and common equivalent shares outstanding 7,578(1) 7,661(1) 7,520(1) 7,335(1) 7,020(1) ======== ======= ======= ======= =======
- ---------------------- (1) Income per share for 1996, 1995, 1994, 1993 and 1992 assumes the exercise of stock purchase warrants and stock options to purchase an aggregate of 3,271,280, 3,529,278, 3,454,549, 3,434,429 and 3,125,250 shares of Common Stock, respectively. 10 12
Balance Sheet Data At December 31, 1996 1995 1994 1993 1992 --------------------------------------------------------------- (in thousands) Total assets $94,895 $86,808 $65,324 $56,140 $30,676 Long-term debt, excluding current maturities 34,938 37,966 32,206 28,650 4,068 Redeemable preferred stock 0 0 0 4,397 4,037 Shareholders' equity 26,312 18,232 13,034 9,155 6,312
Operating Data For the Year Ended December 31, 1996 1995 1994 1993 1992 --------------------------------------------------------------- (in thousands) Operating ratio(1) 91.5% 87.5% 88.2% 92.5% 95.6% Average number of truckloads per week 2,437 1,913 1,617 1,633 1,555 Average miles per trip 845 899 859 794 809 Total miles traveled (in thousands) 102,946 85,588 69,128 64,879 63,423 Average miles per tractor 122,250 118,424 116,181 114,830 110,879 Average revenue per tractor per week $ 2,684 $ 2,711 $ 2,668 $ 2,462 $ 2,313 Average revenue per loaded mile $ 1.17 $ 1.14 $ 1.18 $ 1.16 $ 1.13 Empty mile factor 6.1% 6.2% 6.8% 6.9% 7.3% AT END OF PERIOD: Total Company-owned/leased tractors 912(2) 716(3) 595(4) 565(5) 572(6) Average age of all tractors (in years) 1.85 1.26 1.70 3.04 3.66 Total trailers 2,398(8) 1,638(7) 1,434(8) 1,512(9) 1,519(10) Average age of trailers (in years) 2.60 2.34 2.09 3.84 5.28 Number of employees 1,438 1,192 859 945 927
(1) Total operating expenses as a percentage of total operating revenues. (2) Includes 126 owner operator tractors. (3) Includes 45 owner operator tractors. (4) Includes 40 owner operator tractors. (5) Includes 34 owner operator tractors. (6) Includes 19 tractors leased to an affiliate of the Company's majority shareholder and 40 owner operator tractors. (7) Includes 82 trailers leased from an affiliate of the Company's majority shareholder. (8) Includes 74 trailers leased from an affiliate of the Company's majority shareholder. (9) Includes 266 trailers leased from an affiliate of the Company's majority shareholder. (10) Includes 493 trailers leased from an affiliate of the Company's majority shareholder. 11 13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following table sets forth the percentage relationship of revenue and expense items to operating revenues for the periods indicated.
Percentage of Operating Revenues Years ended December 31, -------------------------------------- 1996 1995 1994 ---- -------- -------- Operating revenues 100% 100.0% 100.0% ----- ------ ------ Operating expenses: Salaries, wages and benefits 46.4 43.7 44.2 Operating supplies 19.4 18.3 19.3 Rent and purchased transportation 1.6 1.7 1.3 Depreciation and amortization 10.6 10.3 9.4 Operating taxes and licenses 6.0 6.1 6.7 Insurance and claims 4.4 4.5 5.0 Communications and utilities 1.0 0.9 1.1 Other 1.8 1.8 1.6 (Gain) loss on sale or disposal of property and equipment 0.3 0.2 (.4) ----- ------ ------ Total operating expenses 91.5 87.5 88.2 ----- ------ ------ Operating income 8.5 12.5 11.8 Interest expense (3.6) (3.8) (3.8) Other, net 0 .2 .2 ----- ------ ------ Income before income taxes and dividends on redeemable preferred stock 4.9 8.9 8.2 Federal and state income taxes (1.9) (3.4) (3.3) ----- ------ ------ Income before dividends on redeemable preferred stock 3.0 5.5 4.9 Accrued dividends on redeemable preferred stock -- -- -- ----- ------ ------ Net income 3.0 5.5 4.9 ===== ====== ======
RESULTS OF OPERATIONS 1996 COMPARED TO 1995 For the year ended December 31, 1996, revenues increased 23.4% to $113.0 million as compared to $91.6 million for the year ended December 31, 1995. The main factor for the increase in revenues was an increase in average tractors from 658 in 1995 to 843 in 1996, of which 162 were added in connection with the acquisition of Allen Freight Services, Inc. (AFS). AFS produced revenues of $15.0 million from the acquisition date to December 31, 1996. The Company's operating ratio was 91.5% of revenues in 1996 compared to 87.5% in 1995. 12 14 Salaries, wages and benefits increased from 43.7% of revenues in 1995 to 46.4% in 1996. The major factor for the increase was a 2.6% increase in expense attributable to wages paid to AFS fleet owners, which are higher than wages paid to Company drivers. Operating supplies and expenses increased from 18.3% of revenues in 1995 to 19.3% of revenues in 1996, reflecting increased fuel costs for 1996. Interest expense increased approximately $616,000 in 1996 when compared to 1995, primarily as a result of borrowings associated with new equipment purchases and an increased line of credit balance throughout the year. The Company's effective tax rate increased from 38% in 1995 to 39.3% in 1996, as a result of AFS' practice of paying per diem expenses to its drivers, a portion of which is a nondeductible permanent difference in the calculation of income tax expense. Per diems are no longer paid to AFS drivers effective July 1, 1996. In 1994, management concluded that the benefits of all net operating losses and credits would be recorded and that no valuation allowance against the deferred tax assets was necessary at December 31, 1994. At December 31, 1996, the Company's deferred tax assets were $6.9 million and deferred tax liabilities were $13.5 million. In assessing the need for a valuation allowance against deferred tax assets at December 31, 1996, management considered the following factors: 1) the Company has recorded $6.6 million in deferred tax liabilities for future taxable temporary differences (primarily depreciation related) which will result in additional taxable income for future periods; 2) the Company's recent operating results have produced a total of more than $19.7 million of pretax accounting income for 1996, 1995 and 1994 and net operating loss carryovers have offset all taxable income (total of $1.3 million) in these years; 3) the Company has various alternatives, such as equipment leasing, to utilize net operating losses which might otherwise expire; and 4) the Company's carryover periods for its deferred tax assets are extensive, with expiration beginning in 2003 for net operating losses and 1999 for investment credits. 1995 COMPARED TO 1994 For the year ended December 31, 1995, revenues increased 20.3% to $91.6 million as compared to $76.1 million for the year ended December 31, 1994. The Company's utilization (revenue per tractor per work day) increased 1.6% from $534 in 1994 to $542 in 1995. The two main factors contributing to the increase in utilization were (1) the continued replacement of a majority of older equipment in 1995, reducing the down time related to maintenance problems with older equipment, and (2) the increase in revenues in the dedicated services division, due in part as a result of the acquisition of Choctaw Express, Inc. on January 31, 1995. Choctaw Express, Inc. produced revenues of $8.1 million in 1995. The Company's operating ratio improved from 88.2% in 1994 to 87.5% in 1995. Salaries, wages and benefits increased in absolute dollars, but decreased as a percentage of revenues from 44.2% in 1994 to 43.7% in 1995. The largest savings were realized in the areas of maintenance wages where a decrease of .6% was recorded. 13 15 Operating supplies and expenses decreased from 19.3% of revenues in 1994 to 18.3% of revenues in 1995, as the Company continues to modernize its fleet. The largest savings were realized in the area of equipment maintenance where a 1.0% reduction was realized. Operating taxes and licenses expenses decreased from 6.7% of revenues in 1994 to 6.1% of revenues in 1995. The .4% decrease was attributable to lower accruals of state fuel tax expenses. The Company incurred an increase in depreciation expense of .9% as a result of new equipment being placed into service in 1995. For the period, as a percentage of revenues, depreciation expense increased from 9.4% in 1994 to 10.3% in 1995. This increase in depreciation expense was offset by reductions in operating costs combined with increased utilization of equipment. Interest expense as a percentage of revenues in 1995 remained consistent with 1994. Interest expense increased in absolute dollars by $.6 million, which is attributable to additional long-term debt incurred on equipment purchased during 1995. The Company's effective tax rate decreased slightly from 40% in 1994 to 38% in 1995. The Company's effective tax rate reflects the statutory federal tax rate and the weighted average tax rate of the states in which the Company conducts business. The 1995 tax rate is slightly lower than the effective tax rate in 1994 due to a change in the Company's policy relating to driver per diem in 1995. In 1994, management concluded that the benefits of all net operating losses and credits would be recorded and that no valuation allowance against the deferred tax assets was necessary at December 31, 1994. At December 31, 1995, the Company's deferred tax assets were $5.9 million and deferred tax liabilities were $10.8 million. In assessing the need for a valuation allowance against deferred tax assets at December 31, 1995, management considered the following factors: 1) the Company has recorded $4.9 million of deferred tax liabilities for future taxable temporary differences (primarily depreciation related) which will result in additional taxable income in future periods; 2) the Company's recent operating results have produced a total of more than $17.4 million of pretax accounting income for 1995, 1994 and 1993 and net operating loss carryovers have offset all taxable income (total of $4.6 million) in these years; 3) the Company has various alternatives, such as equipment leasing to utilize net operating losses, which might otherwise expire; and 4) the Company's carryover periods for its deferred tax assets are extensive, with expiration beginning in 2003 for net operating losses and 1999 for investment credits. LIQUIDITY AND CAPITAL RESOURCES During 1996, the Company generated $13.0 million in cash from operating activities. The ratio of current assets to current liabilities was 1.0 at the end of 1996, compared to 1.1 and 1.0 at the end of 1995 and 1994, respectively. Investing activities used $16.8 million in cash in 1996 compared to $22.1 million and $10.3 million in 1995 and 1994, respectively. The cash used in all three years related primarily to the purchase of revenue equipment used in the Company's operations. Financing activities provided $2.1 million in cash in 1996 primarily from the warrants exercised in 1996. 14 16 The Company's principal subsidiary, P.A.M. Transport, Inc., has a $15.0 million secured line of credit from a bank subject to borrowing limitations. Outstanding advances on this line of credit were approximately $8.7 million (at an interest rate of 8.07%) at December 31, 1996, including $1.5 million in letters of credit. The Company's borrowing limitation at December 31, 1996 was $9.2 million. This line of credit is guaranteed by the Company and matures May 31, 1998. The line of credit agreement contains restrictive covenants which require the Company to maintain a net worth of $12.5 million and a debt service coverage ratio of not less than 1.0 to 1.0. The line of credit agreement also includes restrictions on dividend payments and certain corporate acts such as mergers and consolidations. At December 31, 1996, the Company was in compliance with all such covenants. In addition to cash flow from operations, the Company uses its existing line of credit on an interim basis to finance capital expenditures and repay long-term debt. Longer-term transactions, such as installment notes (generally three and four year terms at fixed rates) are entered into for the purchase of revenue equipment. Two subsidiaries of the Company, P.A.M. Transport and P.A.M. Dedicated Services, Inc., entered into installment obligations in 1996 for the purchase of replacement revenue equipment which totaled approximately $17.5 million. The Company's weighted average interest rates on all borrowings were 7.67%, 7.9% and 7.9% for 1996, 1995 and 1994, respectively. During 1996, the Company disposed of certain revenue equipment for approximately $2.0 million. The Company plans to replace 360 trailers and 130 tractors, and to add 100 additional new tractors and 140 additional new trailers during 1997, which would result in additional debt of approximately $19.0 million. However, the Company intends to structure a portion of these equipment expenditures in the form of operating leases. Management expects that the Company's existing working capital and its available line of credit will be sufficient to meet the Company's capital commitments as of December 31, 1996, to repay indebtedness coming due in the current year, and to fund its operating needs during fiscal 1997. INSURANCE With respect to cargo loss, physical damage and auto liability, the Company generally maintains insurance policies covering these risks with an aggregate deductible of $5,000 per occurrence. The Company maintains a reserve for estimated losses for claims incurred, and maintains a reserve for claims incurred but not reported (based on the Company's historical experience). As of July 1, 1994, the Company became self-insured for workers' compensation, with excess coverage maintained for claims exceeding $250,000 in Arkansas, Oklahoma, Ohio, Mississippi and Florida. Prior to July 1, 1994, the Company maintained an insurance policy for worker's compensation with a deductible of $350,000 per occurrence. The Company has reserved for estimated losses to pay such claims as incurred. Additionally, a reserve has been estimated for those claims incurred but not reported. The Company has not experienced any adverse trends involving differences in claims experienced versus claims estimates for workers' compensation reserves. The Company contracts a third-party licensed associate of risk management and a certified Hazard Control Manager to develop its workers' compensation reserves using the Company's historical data of past injuries. Letters of credit in the amounts of $300,000, $200,000, $250,000, and $500,000 are held by a bank as security for workers' compensation claims in Arkansas, Oklahoma, Mississippi, and Florida, respectively, and letters of credit in the amounts of $100,000 and $150,000 are held by a bank for auto liability claims. 15 17 SEASONALITY The Company's revenues do not exhibit a seasonal pattern, due primarily to its varied customer mix. Operating expenses are generally somewhat higher in the winter months, primarily due to decreased fuel efficiency and increased maintenance costs in cold weather. OTHER MATTERS In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock Based Compensation, which becomes effective in 1996. The Company has disclosed in its 1995 financial statements that it elects to continue following the existing accounting rules (the intrinsic value method). ENVIRONMENTAL The Company has no outstanding inquiries with any federal or state environmental agency at December 31, 1996. INFLATION Inflation has an impact on most of the Company's operating costs. Recently, the effect of inflation has been minimal. Competition for drivers has increased in recent years, leading to increased labor costs. While increases in fuel and driver costs affect the Company's operating costs, the effects of such increases are not greater for the Company than for other trucking concerns. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following statements are filed with this report: Report of Independent Auditors Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements 16 18 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On November 19, 1996, the Company dismissed its independent auditors, Ernst & Young LLP, and on the same date engaged the firm of Arthur Andersen LLP as its independent auditors for the fiscal year ending December 31, 1996. Each of these actions was approved by the Board of Directors of the Company. The reports of Ernst & Young LLP on the financial statements of the Company for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audits of the Company's financial statements for each of the two fiscal years ended December 31, 1995 and 1994, and in the subsequent interim period prior to the dismissal of Ernst & Young LLP, there were no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreement, if not resolved to the satisfaction of Ernst & Young LLP, would have caused it to make reference to the subject matter of the disagreement in its report. Ernst & Young LLP has furnished the Company with a letter addressed to the Securities and Exchange Commission stating that it agrees with the above statements, a copy of which has been filed as an exhibit to the Current Report on Form 8-K dated November 19, 1996. 17 19 CONSOLIDATED FINANCIAL STATEMENTS P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Years ended December 31, 1996, 1995 and 1994 with Report of Independent Auditors 18 20 P.A.M. Transportation Services, Inc. and Subsidiaries Consolidated Financial Statements Years ended December 31, 1996, 1995 and 1994 CONTENTS Audited Consolidated Financial Statements: Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Consolidated Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . 23 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 25 Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
19 21 P.A.M. Transportation Services, Inc. Consolidated Balance Sheets (thousands, except par value and share information)
DECEMBER 31 1996 1995 --------------------- ASSETS (NOTE 4) Current assets: Cash and cash equivalents $ 5,941 $ 7,629 Accounts receivable (Note 4): Trade, net of allowance for doubtful accounts (1996--$579; 1995--$324) 16,072 12,517 Other 1,030 307 Equipment held for sale (Note 1) 1,264 1,223 Operating supplies and inventories 382 468 Prepaid expenses and deposits 2,816 3,341 Investment in direct financing lease (Note 8) -- 691 Income taxes refundable (Note 5) -- 95 Total current assets 27,505 26,271 Property and equipment (Notes 4, 8 and 9): Land 956 956 Structures and improvements 2,611 2,395 Revenue equipment 84,059 71,885 Service vehicles 1,804 1,037 Office furniture and equipment 3,164 2,556 --------------------- 92,594 78,829 Allowances for depreciation and amortization (29,714) (21,540) --------------------- 62,880 57,289 Other assets: Investment in direct financing lease, less current portion (Note 8) -- 548 Excess of cost over net assets acquired, net of accumulated amortization (1996--$615; 1995--$502) 2,511 1,140 Noncompetition agreements, net of accumulated amortization (1996--$668; 1995--$261) 1,178 1,059 Other 821 501 --------------------- 4,510 3,248 --------------------- Total assets $ 94,895 $ 86,808 =====================
20 22
DECEMBER 31 1996 1995 --------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 5,583 $ 6,729 Accrued expenses (Note 3) 3,817 3,048 Deferred income taxes (Note 5) 65 409 Current portion of long-term debt (Notes 4 and 9) 16,849 15,120 -------------------- Total current liabilities 26,314 25,306 Long-term debt, less current portion (Notes 4 and 9) 34,938 37,966 Deferred income taxes (Note 5) 6,569 4,489 Noncompetition agreements (Note 2) 762 815 Shareholders' equity (Note 6): Common stock, $.01 par value: Authorized shares--20,000,000 Issued and outstanding shares: 1996--8,123,557; 1995--4,990,968 81 50 Additional paid-in capital 18,044 13,307 Retained earnings 8,187 4,875 -------------------- Total shareholders' equity 26,312 18,232 -------------------- Total liabilities and shareholders' equity $94,895 $86,808 ====================
See accompanying notes. 21 23 P.A.M. Transportation Services, Inc. Consolidated Statements of Income (thousands, except per share data)
YEAR ENDED DECEMBER 31 1996 1995 1994 ---------------------------------------- Operating revenues (Notes 1, 2 and 8) $113,021 $ 91,595 $ 76,147 Operating expenses and costs: Salaries, wages and benefits 52,444 40,020 33,647 Operating supplies and expenses 21,909 16,719 14,688 Rents and purchased transportation 1,824 1,538 991 Depreciation and amortization 11,999 9,428 7,142 Operating taxes and licenses 6,734 5,608 5,078 Insurance and claims 5,004 4,163 3,816 Communications and utilities 1,090 852 868 Other 2,077 1,666 1,279 Loss (gain) on sale or disposal of property and equipment 375 159 (334) ---------------------------------------- 103,456 80,153 67,175 ---------------------------------------- Operating income 9,565 11,442 8,972 Other income (expense): Interest expense (4,137) (3,521) (2,926) Other (Note 8) 31 166 217 ---------------------------------------- (4,106) (3,355) (2,709) ---------------------------------------- Income before income taxes and dividends on redeemable preferred stock 5,459 8,087 6,263 Federal and state income taxes: Current 259 528 1,160 Deferred 1,888 2,545 1,333 --------------------------------------- 2,147 3,073 2,493 --------------------------------------- Income before dividends on redeemable preferred stock 3,312 5,014 3,770 Accrued dividends on redeemable preferred stock -- -- 30 --------------------------------------- Net income $ 3,312 $ 5,014 $ 3,740 ======================================= Earnings per common share (Note 7) $ .44 $ .65 $ .50 ======================================= Average common and common equivalent shares outstanding $ 7,578 7,661 7,520 =======================================
See accompanying notes. 22 24 P.A.M. Transportation Services, Inc. Consolidated Statements of Shareholders' Equity (thousands)
- -------------------------------------------------------------------------------------------------- ADDITIONAL RETAINED COMMON PAID-IN EARNINGS STOCK CAPITAL (DEFICIT) TOTAL - -------------------------------------------------------------------------------------------------- Balances at January 1, 1994 $ 49 $12,986 $(3,879) $ 9,156 Net income -- -- 3,740 3,740 Exercise of stock options-- 42,700 shares issued (Note 6) -- 101 -- 101 Tax benefits of stock options (Note 6) -- 36 -- 36 - -------------------------------------------------------------------------------------------------- Balances at December 31, 1994 49 13,123 (139) 13,033 Net income -- -- 5,014 5,014 Exercise of stock options-- 56,700 shares issued (Note 6) 1 142 -- 143 Tax benefits of stock options (Note 6) -- 42 -- 42 - -------------------------------------------------------------------------------------------------- Balances at December 31, 1995 50 13,307 4,875 18,232 Net income -- -- 3,312 3,312 Exercise of stock options and warrants-- 3,128,600 shares issued (Note 6) 31 4,695 -- 4,726 Tax benefits of stock options (Note 6) -- 42 -- 42 - -------------------------------------------------------------------------------------------------- Balances at December 31,1996 $ 81 $18,044 $ 8,187 $26,312 - --------------------------------------------------------------------------------------------------
See accompanying notes. 23 25 P.A.M. Transportation Services, Inc. Consolidated Statements of Cash Flows (thousands, except per share data)
YEAR ENDED DECEMBER 31 1996 1995 1994 -------------------------------------------- OPERATING ACTIVITIES Net income $ 3,312 $ 5,014 $ 3,740 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,999 9,428 7,142 Noncompetition agreement amortization 408 261 -- Provision for doubtful accounts 140 89 113 Provision for deferred income taxes 1,888 2,545 1,333 Loss (gain) on sale or disposal of property and equipment 375 159 (334) Accrued dividends on redeemable preferred stock -- -- 30 Changes in operating assets and liabilities: Accounts receivable (2,047) (3,013) (937) Prepaid expenses and other assets 749 (798) (452) Income taxes refundable -- 187 (154) Trade accounts payable (2,934) 1,652 2,166 Accrued expenses (831) (246) 241 ----------------------------------------- Net cash provided by operating activities 13,059 15,278 12,888 ----------------------------------------- INVESTING ACTIVITIES Purchases of property and equipment (19,921) (25,307) (15,111) Proceeds from sale or disposal of property and equipment 2,020 3,841 4,224 Lease payments received on direct financing lease 1,240 624 561 Choctaw acquisition less cash acquired -- (1,323) -- AFS acquisition (Note 2) (200) -- -- ----------------------------------------- Net cash used in investing activities (16,861) (22,165) (10,326) ----------------------------------------- FINANCING ACTIVITIES Redemption of preferred stock -- -- (4,426 Borrowings under line of credit 127,766 99,884 58,835 Repayments under line of credit (128,445) (97,518) (59,920) Borrowings of long-term debt 17,527 21,239 14,835 Repayments of long-term debt (19,093) (13,083) (11,566) Payments under noncompetition agreement (407) (269) -- Proceeds from exercise of stock options and warrants 4,724 143 101 Tax benefits of stock options 42 42 36 ----------------------------------------- Net cash provided by (used in) financing activities 2,114 10,438 (2,105 ----------------------------------------- Net increase (decrease) in cash and cash equivalents (1,688) 3,551 457 Cash and cash equivalents at beginning of year 7,629 4,078 3,621 ----------------------------------------- Cash and cash equivalents at end of year $ 5,941 $ 7,629 $ 4,078 =========================================
See accompanying notes. 24 26 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES DESCRIPTION OF BUSINESS AND CONSOLIDATION P.A.M. Transportation Services, Inc. (the "Company"), through its subsidiaries, operates as a truckload motor carrier. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Majority ownership of the Company is held by an affiliate of another transportation company, with whom the Company has certain business relationships. See Note 8. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. TIRE PURCHASES Tires purchased with revenue equipment are capitalized as a cost of the related equipment. Replacement tires are included in other current assets and are amortized over a 24-month period. Amounts paid for the recapping of tires are expensed when incurred. EXCESS OF COST OVER NET ASSETS ACQUIRED The excess of cost over net assets acquired, or goodwill, is being amortized on a straight-line basis over 25 years. The carrying value of goodwill will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on undiscounted cash flows acquired over the remaining amortization period, the Company's carrying value of the goodwill would be reduced by the estimated shortfall of cash flows. No reduction of goodwill was required as of December 31, 1996. CLAIMS LIABILITIES The Company maintains insurance policies covering cargo loss and auto liability claims. The Company, generally, maintains an aggregate deductible of $5,000 on cargo, physical damage and liability loss claims. As of July 1, 1994, the Company became self-insured for worker's compensation. Excess coverage is maintained for claims exceeding $250,000 (Arkansas, Oklahoma, Ohio, Mississippi and Florida). Prior to July 1, 1994, the Company maintained an insurance for 25 27 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES (CONTINUED) worker's compensation with a deductible of $350,000 per occurrence. The Company has reserved for estimated losses to pay such claims as incurred. Additionally, a reserve has been estimated for those claims incurred but not reported. The Company has not experienced any adverse trends involving differences in claims experienced versus claims estimated for worker's compensation reserves. The Company contracts with a third-party licensed associate of risk management and a certified Hazard Control Manager to develop its worker's compensation reserves using the Company's historical data of past injuries. Letters of credit in the amounts of $300,000, $200,000, $250,000 and $500,000 are held by a bank as security for worker's compensation claims in Arkansas, Oklahoma, Mississippi and Florida, respectively, and letters of credit in the amounts of $100,000 and $150,000 are held by a bank for auto liability claims. REVENUE RECOGNITION POLICY The Company recognizes revenue based upon relative transit time in each reporting period with expenses recognized as incurred. PROPERTY AND EQUIPMENT Property and equipment is recorded at cost. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Gains and losses are reflected in the year of disposal. The following is a table reflecting estimated ranges of asset lives by major class of depreciable asset for financial reporting purposes:
ASSET CLASS ESTIMATED ASSET LIFE ------------------ -------------------- Tractors 3-4 years Trailers 5 years Service Vehicles 3-5 years Office Furniture 3-7 years Buildings 5-30 years
EQUIPMENT HELD FOR SALE Equipment held for sale consists of revenue equipment no longer in service, that is expected to be sold within the next year. This equipment is recorded at its estimated net realizable value. 26 28 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES (CONTINUED) INCOME TAXES In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (FAS 109). The Company adopted this statement in the first quarter of 1994. Adoption of FAS 109 had no material effect on the Company's financial position or results of operations. BUSINESS SEGMENT AND CONCENTRATIONS OF CREDIT RISK The Company operates in one business segment, motor carrier operations. The Company provides transportation services to customers throughout the United States and portions of Canada. The Company performs ongoing credit evaluations and generally does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. At December 31, 1996, one customer accounted for 16% of the consolidated trade accounts receivable balance. At December 31, 1995, two separate customers accounted for 14% and 12%, respectively, of the consolidated trade accounts receivable balance. In 1996, 1995 and 1994, one customer accounted for 22%, 19% and 12% of revenues, respectively. A second customer accounted for 12% of revenues in 1996 and 1995. The Company's largest customer is an automobile manufacturer. The Company also provides transportation services to other manufacturers who are suppliers for automobile manufacturers including the Company's largest customer. As a result, concentration of the Company's business within the automobile industry is greater than the concentration in a single customer. Of the Company's major customers' revenues for 1996 and 1995, 36.6% and 39.8%, respectively, were derived from transportation services provided to the automobile manufacturing industry. COMPENSATION TO EMPLOYEES Stock based compensation to employees is accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. RECENT ACCOUNTING PRONOUNCEMENTS In 1995, the Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement was adopted in the first quarter of 1996. The adoption of Statement No. 121 did not have a significant impact on the Company's financial position or results of operations. 27 29 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 2. ACQUISITIONS On March 11, 1996, the Company acquired all of the outstanding capital stock (the "Shares") of Allen Freight Services, Inc., a Missouri corporation ("AFS"). The total purchase price for the shares was $200,000, which was negotiated by the parties at arms length. Assets of approximately $2.2 million were acquired and liabilities of approximately $3.5 million were assumed. The Company paid the purchase price by utilizing its existing line of credit. The acquisition has been accounted for under the purchase method, effective March 11, 1996, with the operations of AFS included in the Company's financial statements since that date. If the acquisition had occurred at the beginning of fiscal 1996, the effect on consolidated operating revenues, net income and net income per share would not have been material. The purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of the acquisition. Approximately $1.5 million in goodwill was recorded as a result of the purchase allocation and it is being amortized over a 25-year period. The Company also entered into three-year noncompetition agreements with four former shareholders and officers/employees of AFS. On January 31, 1995, the Company acquired all the outstanding stock of Choctaw Express, Inc. and Choctaw Brokerage, Inc., based in Oklahoma, (collectively "Choctaw"). Assets of approximately $2.7 million were acquired and liabilities of approximately $.8 million were assumed. The total purchase price for Choctaw was approximately $2.5 million. The acquisition has been accounted for using the purchase method, effective January 31, 1995, with operations included in the Company's financial statements beginning on the acquisition date. The purchase price has been allocated to assets and liabilities based on their estimated fair values as of the date of acquisition. Goodwill in the amount of $600,000 was recorded as a result of the purchase allocation and it is being amortized over a 25-year period. The Company entered into a five-year noncompetition agreement with the former shareholder of Choctaw which provides for payments of approximately $300,000 per year. 28 30 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 2. ACQUISITIONS (CONTINUED) Proforma unaudited financial information (as if the Choctaw acquisition was completed at the beginning of the respective periods) for 1995 and 1994 is provided below:
YEAR ENDED DECEMBER 31, 1995 1994 --------------------------------- (thousands except per share data) (Unaudited) Operating revenues $92,462 $88,287 Operating expenses 80,917 78,797 ------- ------- Operating income $11,545 $ 9,490 Other expenses, net 3,373 2,890 Income taxes 3,105 2,624 ------- ------- Income before dividends on preferred stock 5,067 3,976 Accrued dividends on preferred stock -- 30 ------- ------- Net income $ 5,067 $ 3,946 ======= ======= Net income per common share (primary) $ .66 $ .53 ======= ======= Average common and common equivalent shares outstanding 7,661 7,520 ======= =======
The above pro forma unaudited financial information does not purport to be indicative of the results which actually would have occurred had the acquisition been made at the beginning of the respective periods. 3. ACCRUED EXPENSES
DECEMBER 31 1996 1995 ------------------------------- (thousands) Payroll $ 1,591 $ 1,051 Taxes 217 613 Interest 280 207 Driver escrows 340 237 Insurance 263 - Current portion of noncompete agreements 371 236 Self insurance claims reserves 755 704 ------------------------------- $ 3,817 $ 3,048 ===============================
29 31 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 4. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31 1996 1995 -------------------------------- (thousands) Equipment financings (1) $ 40,757 $ 40,365 Line of credit with a bank, with interest at the LIBOR rate plus 2.35% (8.069% at December 31, 1996) due May 31, 1998 and collateralized by accounts receivable (2) 7,229 7,909 Note payable (3) 418 466 Capitalized lease obligations (4) 3,383 4,346 51,787 53,086 Less current maturities 16,849 15,120 -------------------------------- $ 34,938 $ 37,966 ================================
(1) Equipment financings consist of installment obligations for revenue and service equipment purchases, payable in various monthly installments through 2001, at a weighted average interest rate of 7.67% and collateralized by equipment with a net book value of approximately $58 million at December 31, 1996. (2) The line of credit agreement with a bank provides for maximum borrowings of $15.0 million and contains restrictive covenants which requires the Company to maintain a net worth of $12.5 million and a debt service coverage ratio of not less than 1.0 to 1.0. The line of credit agreement also includes restrictions on dividend payments and certain corporate acts such as mergers and consolidations. (3) 8% real estate note to the former majority shareholder, payable in monthly installments through March 2003. (4) Capitalized lease obligations to a financial services organization for revenue equipment are payable in various monthly installments through December 1999 at rates of 8.15% and 8.49%, collateralized by equipment with a net book value of approximately $3.75 million, as of December 31, 1996 (Note 9). 30 32 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 4. LONG-TERM DEBT (CONTINUED) Scheduled annual maturities on long-term debt outstanding, excluding capital lease obligations, at December 31, 1996 are: (thousands)
1997 $ 15,802 1998 20,784 1999 8,331 2000 2,899 2001 448 Thereafter 140 ----------- $ 48,404 ===========
Interest payments of approximately $4.0 million, $3.5 million, and $2.9 million were made during 1996, 1995 and 1994, respectively. 5. INCOME TAXES Under FAS 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
DECEMBER 31 1996 1995 ---------------------------- (thousands) Deferred tax liabilities: Property and equipment $ 12,615 $ 9,766 Prepaid expenses 896 1,072 ---------------------------- Total deferred tax liabilities 13,511 10,838 Deferred tax assets: Net operating loss carryover 2,981 2,440 Alternative minimum tax credit 1,851 1,672 Investment credit carryovers 1,096 1,095 Allowance for doubtful accounts 220 123 Vacation reserves 220 163 Self-insurance reserves 235 285 Noncompetition agreement 182 70 Revenue recognition 92 92 ---------------------------- Total deferred tax assets 6,877 5,940 ---------------------------- Net deferred tax liabilities $ 6,634 $ 4,898 ============================
31 33 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 5. INCOME TAXES (CONTINUED) The reconciliation between the effective income tax rate and the statutory federal income tax rate is presented in the following table:
YEAR ENDED DECEMBER 31 1996 1995 1994 ---------------------------------------- (thousands) Income tax at the statutory federal rate of 34% $ 1,856 $ 2,750 $ 2,130 Nondeductible expenses 108 39 230 Decrease in valuation allowance - - (96) State income taxes (118) (167) (142) Other (46) (41) (45) ---------------------------------------- Federal income taxes 1,800 2,581 2,077 State income taxes 347 492 417 Total income taxes $ 2,147 $ 3,073 $ 2,494 ======================================== Effective tax rate 39.3% 38.0% 40.0% ========================================
The current income tax provision consists of the following:
1996 1995 1994 --------------------------------------- (thousands) Federal $ 179 $ 406 $ 1,080 State 80 122 80 --------------------------------------- 259 528 1,160 =======================================
As of December 31, 1996, the Company has federal net operating loss and investment tax credit carryovers of approximately $7.8 million and $1.0 million, respectively. The net operating loss carryovers expire beginning in 2003 and the investment credit carryovers begin to expire in 1999. Net operating loss carryovers are available to offset 1994 and 1995 estimated taxable income for regular income tax purposes. The current taxes provided in 1994, 1995 and 1996 result from alternative minimum taxable income which is only partially offset by net operating loss carryovers in 1994. All net operating losses for alternative minimum taxes were fully utilized as of December 31, 1994 and there are no remaining net operating loss carryovers to offset against 1995 and 1996 alternative minimum taxable income. The Company has alternative minimum tax credits of approximately $1.9 million at December 31, 1996, which carryover indefinitely. In February 1990, a stock transaction occurred whereby the Company's then majority shareholder sold his stock to the current majority shareholder. This transaction constituted an ownership change under Internal Revenue Code Section 382. As a result of the ownership change, the amount of federal taxable income which may be offset by net operating loss carryovers ("NOLs") which existed as of 32 34 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 5. INCOME TAXES (CONTINUED) the ownership change date (estimated at $10.4 million) is limited to approximately $500,000 per year. The annual limitation may be increased, under certain circumstances, by realization of tax "built-in gains" which existed at the time of the ownership change. Substantial tax built-in gains have been realized since the ownership change date including gains recognized during 1993 and 1994. Taxes paid totaled approximately $400,000, $400,000 and $1.3 million for the years ended December 31, 1996, 1995 and 1994, respectively. 6. SHAREHOLDER'S EQUITY On January 30, 1994, the Company redeemed 100% of the 12% Series A cumulative redeemable preferred stock (Series A preferred stock) plus accrued dividends for cash of $4,425,205. The redemption was funded through a combination of cash on hand and borrowings under the Company's line of credit arrangements. The Company maintains an incentive stock option plan, a nonqualified stock option plan, and an employee stock option plan for the issuance of options to directors, officers, key employees and others. The option price under these plans is the fair market value of the stock at the date the options were granted, ranging from $2.375 to $7.375 as of December 31, 1996. Outstanding incentive stock options and employee stock options at December 31, 1996 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, 1996 must be exercised within five to six years and certain nonqualified options may not be exercised within one year of the date of grant. 33 35 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 6. SHAREHOLDER'S EQUITY (CONTINUED) Transactions in stock options under these plans are summarized as follows:
SHARES UNDER PRICE OPTION RANGE --------------------------- Outstanding at January 1, 1994 388,700 $2.38-$ 5.50 Granted 15,000 $4.38-$ 6.00 Exercised (42,700) $2.38-$ 6.00 Canceled (8,800) $2.38-$ 6.00 -------------------------- Outstanding at December 31, 1994 352,200 $2.38-$ 6.00 Granted 260,000 $5.75-$ 6.75 Exercised (56,700) $2.38-$ 6.00 Canceled (23,400) $2.38-$ 6.75 ------------ Outstanding at December 31, 1995 532,100 $2.38-$ 6.75 Granted 10,000 $6.50-$7.375 Exercised (36,600) $2.38-$ 6.00 Canceled (13,900) $2.38-$ 6.75 -------------------------- Outstanding at December 31, 1996 491,600 $2.38-$7.375 ========================== Options exercisable at December 31, 1996 308,100 ========
The Company adopted the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plans. Had compensation cost for the Company's stock option plans been determined consistent with the provisions of SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
1996 1995 --------------------------------- (thousands) Net income: As reported $ 3,312 $ 5,014 Pro forma $ 3,172 $ 4,940 Earnings per share: As reported $ .44 $ .65 Pro Forma $ .42 $ .64
34 36 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 6. SHAREHOLDER'S EQUITY (CONTINUED) Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: dividend yield of 0%; expected volatility of 65.15% to 76.64%; risk-free interest rate of 5.73% to 7.02%; and expected lives of five years. The majority shareholder exercised stock warrants to purchase an aggregate of 3,092,000 shares of the Company's common stock at $1.50 per warrant on December 30, 1996. 7. EARNINGS PER SHARE Earnings per share assumes the exercise of stock warrants and options to purchase a total of 3.5 million, 3.5 million, and 3.4 million shares of common stock for 1996, 1995 and 1994, respectively. Under the treasury stock method of computing earnings per share, the number of shares of treasury stock assumed repurchased is limited to 20% of common stock outstanding, with the remaining shares assumed to be newly issued, and the excess proceeds assumed to have reduced long-term borrowings outstanding for the year. Earnings per share, assuming full dilution, would not be materially different than primary earnings per share. 8. RELATED PARTY TRANSACTIONS The Company provides motor carrier services to an affiliate of its majority shareholder. Revenues from these transactions totaled approximately $.4 million, $5.3 million and $4.9 million for 1996, 1995 and 1994, respectively. During 1993, the Company began leasing certain revenue equipment with an original cost of $2.7 million to an affiliate of the majority shareholder under a direct financing lease arrangement. The Company earned interest income of $31,000, $200,000 and $200,000 in 1996, 1995 and 1994, respectively, relating to this lease which is included in other income in the accompanying consolidated financial statements. The Company received full payment of the remaining balance on the lease agreement during 1996 in the amount of $1.1 million. Payments made by the Company to an affiliate of the majority shareholder for the reimbursement of operating and other expenses paid on behalf of the Company, and debt repayments made on notes payable to the affiliate aggregated approximately $6.4 million, $6.8 million and $14.1 million in 1996, 1995 and 1994, respectively. 35 37 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 8. RELATED PARTY TRANSACTIONS (CONTINUED) The Company has entered into noncancelable operating leases for revenue equipment with an affiliate of the majority shareholder. The leases are payable monthly and are currently under a month-to-month leasing arrangement. Rent expense under these leases was approximately $200,000, $200,000 and $400,000 in 1996, 1995 and 1994, respectively. Trade accounts payable at December 31, 1996 includes a payable to an affiliate of the majority shareholder of approximately $500,000. 9. LEASES AND COMMITMENTS The Company leases certain revenue equipment under capital leases. The scheduled future minimum payments under these leases (see Note 4) at December 31, 1996 were as follows:
(thousands) 1997 $ 1,293 1998 1,293 1999 1,293 Total minimum lease payments 3,879 Amounts representing interest 496 --------- Present value of net minimum lease payments $ 3,383 =========
Assets held under capitalized leases are included in property and equipment as of December 31, 1996 as follows:
(thousands) Revenue equipment $ 5,273 Accumulated amortization (1,521) --------- $ 3,752 =========
No capital lease obligations were entered into in 1996. Capital lease obligations incurred in 1995 totaled $1.5 million. Lease amortization is included in depreciation expense. 10. PROFIT SHARING PLAN P.A.M. Transport, Inc., a subsidiary of the Company, sponsors a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax deductible contributions to the plan. The plan provides for annual employer matching contributions of 25% of each participant's voluntary contribution up to $400. 36 38 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 10. PROFIT SHARING PLAN (CONTINUED) Choctaw Express, Inc., a subsidiary of the Company sponsored a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing all 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. The Choctaw Express, Inc. profit sharing plan was merged into the P.A.M. Transport, Inc. profit sharing plan effective December 31, 1995. Allen Freight Services, Inc., a subsidiary of the Company, sponsored a profit sharing plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing all 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. P.A.M. Transport, Inc.'s matching contributions to the plan totaled approximately $48,000, $46,000, and $40,000 in 1996, 1995 and 1994, respectively. Choctaw Express, Inc.'s matching contribution to its plan totaled approximately $14,000 for 1995. Allen Freight Services, Inc.'s matching contribution to its plan totaled approximately $52,000 for the period from the acquisition date of March 11, 1996 to December 31, 1996. 11. LITIGATION The Company is not a party to any pending legal proceedings which management believes to be material to the financial condition or results of operation of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business. 37 39 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The tables below presents quarterly financial information for 1996 and 1995:
1996 THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------------------------------------------- (thousands, except per share data) Operating revenues $23,532 $30,169 $29,618 $29,701 Operating expenses 21,390 27,089 26,892 28,086 ---------------------------------------------- Operating income 2,142 3,080 2,726 1,615 Other expenses - net 917 1,083 1,088 1,017 Income taxes 465 799 655 227 ---------------------------------------------- Net income $ 760 $ 1,198 $ 983 $ 371 ============================================== Net income per common share (primary) $ .10 $ .16 $ .13 $ .05 ============================================== Average common and common equivalent shares outstanding 7,724 7,643 7,610 7,312 ==============================================
1995 THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------------------------------------------- (thousands, except per share data) Operating revenues $22,084 $23,833 $22,241 $23,437 Operating expenses 19,713 20,421 19,365 20,654 ---------------------------------------------- Operating income 2,371 3,412 2,876 2,783 Other expenses - net 740 828 882 905 Income taxes 620 982 758 713 ---------------------------------------------- Net income $ 1,011 $ 1,602 $ 1,236 $ 1,165 ============================================== Net income per common share (primary) $ .13 $ .21 $ .16 $ .15 ============================================== Average common and common equivalent shares outstanding 7,648 7,605 7,674 7,708 ==============================================
13. FAIR VALUES OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments: Cash and cash equivalents - The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. 38 40 P.A.M. Transportation Services, Inc. Notes to Consolidated Financial Statements 13. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) Long-term debt - The fair values of the Company's long-term debt are estimated using discounted cash flow analyses, based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. Line of credit - The carrying amount for the line of credit approximates fair value. The carrying amounts and fair values of the Company's financial instruments at December 31 are as follows (in thousands):
1996 1995 ----------------------------- ------------------------------ CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ----------------------------- ------------------------------ Cash and cash equivalent $ 5,941 $ 5,941 $ 7,629 $ 7,629 Long-term debt 44,558 45,512 45,177 46,257 Line of credit 7,229 7,229 7,909 7,909 Direct financing lease N/A N/A 1,239 1,283
39 41 Report of Independent Public Accountants To The Board of Directors and Shareholders of P.A.M. Transportation Services, Inc. We have audited the accompanying consolidated balance sheet of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 1996, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. The consolidated financial statements of P.A.M. Transportation Services, Inc. and subsidiaries as of and for the years ended December 31, 1995 and 1994, were audited by other auditors whose report dated February 14, 1996, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, 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, 1996, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index as item 14(a) is presented for purposes of additional analysis and is not a required part of the basic financial statements. This information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Fayetteville, Arkansas March 5, 1997 40 42 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders P.A.M. Transportation Services, Inc. We have audited the accompanying consolidated balance sheet of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the two years in the period ended December 31, 1995. 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 generally accepted auditing standards. 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 consolidated financial position of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 1995, and the consolidated results of their operations and their cash flows for the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Little Rock, Arkansas February 14, 1996 43 PART III Except as to information with respect to executive officers which is contained in a separate heading under Item 1 to this Form 10-K, the information required by Part III of Form 10-K is, pursuant to General Instruction G(3) of Form 10-K, incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A for the Company's Annual Meeting of Shareholders to be held on May 16, 1997. The Company will, within 120 days of the end of its fiscal year, file with the Securities and Exchange Commission a definitive proxy statement pursuant to Regulation 14A. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information responsive to this item is incorporated by reference from the section entitled "Election of Directors" contained in the proxy statement. ITEM 11. EXECUTIVE COMPENSATION. The information responsive to this item is incorporated by reference from the section entitled "Executive Compensation" contained in the proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information responsive to this item is incorporated by reference from the section entitled "Security Ownership of Certain Beneficial Owners and Management" contained in the proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information responsive to this item is incorporated by reference from the section entitled "Certain Relationships and Related Transactions" contained in the proxy statement. 42 44 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. Financial Statements and Auditors' Report. The following financial statements and auditors' report have been filed as Item 8 in Part II of this report: Report of Independent Auditors Consolidated Balance Sheets - December 31, 1996 and 1995 Consolidated Statements of Income - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity - Years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements (a) 2. Financial Statement Schedules. The following supporting financial statement schedule is filed with this report: II - Valuation and Qualifying Accounts - Years Ended December 31, 1996, 1995 and 1994 All other schedules are omitted as the required information is inapplicable, or the information is presented in the consolidated financial statements or related notes. 43 45 (a) 3. Exhibits. The following exhibits are filed with or incorporated by reference into this report. The exhibits which are denominated by an asterisk (*) were previously filed as a part of, and are hereby incorporated by reference from either (i) the Form S-1 Registration Statement under the Securities Act of 1933, as filed with the Securities and Exchange Commission on July 30, 1986, Registration No. 33-7618, as amended on August 8, 1986, September 3, 1986 and September 10, 1986 ("1986 S-1"); (ii) the Annual Report on Form 10-K for the year ended December 31, 1987 ("1987 10-K"); (iii) the Annual Report on Form 10-K for the year ended December 31, 1992 ("1992 10-K"); (iv) the Annual Report on Form 10-K for the year ended December 31, 1993 ("1993 10-K"); (v) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 ("6/30/94 10-Q"); (vi) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 ("6/30/95 10-Q"); (vii) the Annual Report on Form 10-K dated December 31, 1995 ("1995 10-K"); or (viii) the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (9/30/96 10-Q).
Exhibit # Description of Exhibit - --------- -------------------------------------------------------------------------------------------------- *3.1 - Amended and Restated Certificate of Incorporation of the Registrant (Exh. 3.1, 1986 S-1) *3.1.1 - Amendment to Certificate of Incorporation dated June 24, 1987 (Exh. 3.1.1, 1987 10-K) *3.2 - Amended and Restated By-Laws of the Registrant (Exh. 3.2, 1986 S-1) *3.2.1 - Amendment to Article I, Section 3 of Bylaws of Registrant (Exh. 3.2.1, 1986 S-1) *3.2.2 - Amendments to Bylaws of Registrant adopted May 7, 1987 (Exh. 3.2.2, 1987 10-K) *3.2.3 - Amendments to Bylaws of Registrant adopted January 4, 1993 (Exh. 3.2.3, 1992 10-K) *4.1 - Specimen Stock Certificate (Exh. 4.1, 1986 S-1) *4.2 - Loan Agreement dated July 26, 1994 among First Tennessee Bank National Association, Registrant and P.A.M. Transport, Inc. together with Promissory Note (Exh. 4.1, 6/30/94 10-Q) *4.2.1 - Security Agreement dated July 26, 1994 between First Tennessee Bank National Association and P.A.M. Transport, Inc. (Exh. 4.2, 6/30/94 10-Q) *4.3 - First Amendment to Loan Agreement date June 27, 1995 by and among P.A.M. Transport, Inc., First Tennessee Bank National Association and P.A.M. Transportation Services, Inc., together with Promissory Note in the principal amount of $2,500,000 (Exh. 4.1.1, 6/30/95 10-Q) *4.3.1 - First Amendment to Security Agreement dated June 28, 1995 by and between P.A.M. Transport, Inc. and First Tennessee Bank National Association (Exh. 4.2.2, 6/30/95 10-Q) *4.3.2 - Security Agreement dated June 27, 1995 by and between Choctaw Express, Inc. and First Tennessee Bank National Association (Exh. 4.1.3, 6/30/95 10-Q) *4.3.3 - Guaranty Agreement of P.A.M. Transportation Services, Inc. dated June 27, 1995 in favor of First Tennessee Bank National Association respecting $10,000,000 line of credit (Exh. 4.1.4, 6/30/95 10-Q) *4.4 - Second Amendment to Loan Agreement dated July 3, 1996 by and among P.A.M. Transport, Inc., First Tennessee Bank National Association and P.A.M. Transportation
44 46 Services, Inc., together with Promissory Note in the principal amount of $5,000,000 (Exh. 4.1.1, 9/30/96 10-Q) *4.4.1 - Second Amendment to Security Agreement dated July 3, 1996 by and between P.A.M. Transport, Inc. and First Tennessee National Bank Association (Exh. 4.1.2, 9/30/96 10-Q) *4.4.2 - First Amendment to Security Agreement dated July 3, 1996 by and between Choctaw Express, Inc. and First Tennessee Bank National Association (Exh. 4.1.3, 9/30/96 10-Q) *4.4.3 - Security Agreement dated July 3, 1996 by and between Allen Freight Services, Inc. and First Tennessee Bank National Association (Exh. 4.1.4, 9/30/96 10-Q) - No other long-term debt instrument of the Registrant or its subsidiaries authorizes indebtedness exceeding 10% of the total assets of the Registrant and its subsidiaries on a consolidated basis and the Registrant hereby undertakes to provide the Commission upon request with any long-term debt instrument not filed herewith. *10.1 - Incentive Stock Option Plan, dated July 25, 1986 (Exh. 10.2, 1986 S-1) *10.1.1 - Amendment to 1986 Incentive Stock Option Plan, dated June 2, 1987 (Exh. 10.2.1, 1987 10-K) *10.2 - Non-Qualified Stock Option Plan, dated July 25, 1986 (Exh. 10.3, 1986 S-1) *10.2.1 - Amendment No. 1 to Non-Qualified Stock Option Plan (Exh. 10.2.1, 1993 10-K) *10.3 - Employment Agreement between the Registrant and Robert W. Weaver dated January 1, 1995 (Exh. 10.3, 1995 10-K) *10.4 - Non-Competition Agreement dated January 31, 1995 between Registrant and Joe M. Bussell (Exh. 10.1, 1/31/95 8-K) 10.5 - Incentive Compensation Plan of Registrant adopted February 28, 1996 for fiscal years 1996 and 1997 10.6 - 1995 Stock Option Plan, effective June 29, 1995 21.1 - Subsidiaries of the Registrant 23.1 - Consent of Arthur Andersen LLP 23.2 - Consent of Ernst & Young LLP 27 - Financial Data Schedule
(b) Reports on Form 8-K. During the fourth quarter ended December 31, 1996, the Company filed a Current Report on Form 8-K (Event Date: November 19, 1996) to report a change in its independent auditors. See Item 9. herein. 45 47 SCHEDULE II P.A.M. TRANSPORTATION SERVICES, INC. VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1996, 1995 and 1994 ADDITIONS
Charged to Balance at Charged to Other Balance Beginning Costs and Accounts Deductions at End Description of Period Expenses (Describe) (Describe) of Period ----------- ----------- ----------- ------------- ------------ ----------- 1996 - Allowance for doubtful accounts $323,887 $140,446 $115,000(A) -- $579,333 1995 - Allowance for doubtful accounts 239,343 88,692 -- 4,148(B) 323,887 1994 - Allowance for doubtful accounts 135,275 114,014 -- 9,946(B) 239,343
Note A - Allen Freight Services, Inc. Allowance for Bad Debts. Note B - Accounts written off. 48 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. P.A.M. TRANSPORTATION SERVICES, INC. Dated: March 25, 1997 By: /s/ Robert W. Weaver ------------------------------------ ROBERT W. WEAVER President and Chief Executive Officer (principal executive officer) Dated: March 25, 1997 By: /s/ Larry J. Goddard ------------------------------------ LARRY J. GODDARD, Vice President - Finance, Chief Financial Officer, Secretary and Treasurer (principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: P.A.M. TRANSPORTATION SERVICES, INC. Dated: March 25, 1997 By: /s/ Robert W. Weaver -------------------------------------- ROBERT W. WEAVER, President and Chief Executive Officer, Director Dated: March 25, 1997 By: /s/ Matthew T. Moroun ------------------------------------- MATTHEW T. MOROUN, Director Dated: March 25, 1997 By: /s/ Daniel C. Sullivan ------------------------------------- DANIEL C. SULLIVAN, Director Dated: March 25, 1997 By: /s/ Charles F. Wilkins ------------------------------------- CHARLES F. WILKINS, Director 49 EXHIBIT INDEX
Exhibit No. Description ----------- -------------------------------------------------- 10.5 Incentive Compensation Plan of Registrant adopted February 28, 1996 for fiscal years 1996 and 1997 10.6 1995 Stock Option Plan, effective June 29, 1995 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Ernst & Young LLP 27 Financial Data Schedule (for SEC use only)
EX-10.5 2 INCENTIVE COMPENSATION PLAN 1 EXHIBIT 10.5 P.A.M. TRANSPORTATION SERVICES, INC. INCENTIVE COMPENSATION PLAN THIS IS THE INCENTIVE COMPENSATION PLAN of P.A.M. Transportation Services, Inc., a Delaware corporation (the "Company"), under which bonuses may be granted to certain employees of the Company and its subsidiaries subject to the limitations, provisions and requirements hereinafter stated. The Plan is as follows: 1. PURPOSES. The purposes of the P.A.M. Transportation Services, Inc. Incentive Compensation Plan (the "Plan") are as follows: (a) To encourage each participant in the Plan to make exceptional contributions to further the growth, success and profits of the Company. (b) To foster teamwork and personal involvement in the Company's success. (c) To provide the Company with an objective method of recognizing and rewarding certain employees who have been or will be given substantial responsibility for the direction and management of the Company. 2. ADMINISTRATION OF PLAN. This Plan shall be administered by the Compensation and Stock Option Committee of the Company's Board of Directors (the "Committee"). This Committee shall interpret the Plan in a manner consistent with its purposes; and, subject to the terms of the Plan, will have discretion to determine who shall participate in the Plan and the amounts of any incentive compensation to be awarded pursuant to the Plan. All actions and determinations of the Committee taken in connection with the Plan, including the awarding of any incentive compensation, shall be final and conclusive. The Committee may adopt rules from time to time for carrying out the Plan. 3. ELIGIBLE EMPLOYEES. Upon the adoption of the Plan and at or near the start of each succeeding calendar year, all full-time employees of the Company and its subsidiaries, excluding those employees who are eligible to participate in any other cash bonus plan of the Company or any subsidiary, shall be eligible to participate in the Plan during such calendar year. Additionally, the Committee may, in its discretion, allow a recently promoted or hired officer or employee to participate in the Plan commencing with the date of his promotion or his employment, as the case may be. In order to be considered an "Eligible Employee" for purposes of the Plan and except as provided in Section 4(d), each participant must be employed without interruption during the applicable calendar year from January 1 through December 31 and furthermore must be employed at the time that the bonus is actually paid pursuant to Section 4(c). In the event that the participant's employment is terminated, by reason of (i) discharge with or without cause or (ii) voluntary termination by the participant, at any time during the calendar year, such terminated participant shall not be entitled to any bonus for such calendar year. There shall be two classes of Eligible Employees as follows: 1 2 (a) Class I shall include the chief executive officer, the chief operating officer and the chief financial officer, respectively, of the Company, and such additional officers and other key employees of the Company or its subsidiaries as may be selected by the Committee or by the Board of Directors to be eligible for participation in the Plan under the Class I category at the beginning of any applicable calendar year. (b) Class II shall include all Eligible Employees under the Plan other than those employees included in Class I. 4. MECHANICS OF THE PLAN. The Plan will award participants for above-average performance, measured by the Company's operating ratio, subject to the following rules: (a) Annual Plan. This Plan is an "annual plan" and incentive awards shall be based on audited results of operations for each respective fiscal year ending December 31. (b) Incentive Awards. The Board of Directors or Committee shall establish the targeted operating ratios and corresponding bonus percentages for each calendar year at or near the completion of the audit of the Company's financial statements for the previous calendar year; provided, however, that the targeted operating ratios and bonus percentages for the 1994 calendar year shall be established by the Board of Directors upon the adoption of this Plan. Upon adoption by the Board of Directors or Committee, the targeted operating ratio and bonus percentages for the current calendar year shall be set forth on a schedule and attached hereto as an exhibit. Under the Plan, each participant may be awarded a bonus equal to the percentage of his annual base compensation which corresponds to the Company's operating ratio for that calendar year. For example, assume a participant has annual base compensation of $50,000 and the Committee established the following targeted operating ratios and corresponding bonus percentages for that calendar year:
Operating Ratios Bonus Percentage ---------------- ---------------- 85.1% and over 0% 84.1% to 85.0% 5% 83.1% to 84.0% 10% 82.1% to 83.0% 20% 81.1% to 82.0% 25% 80.1% to 81.0% 30% 80.0% or less 40%
If the operating ratio of the Company for the calendar year was 85.5%, the participant would not be entitled to a bonus. If the operating ratio of the Company for the calendar year was 80.5%, the participant would be entitled to a bonus equal to $50,000 x 30% or $15,000. (c) Payment of Awards. Any bonus awarded hereunder shall be paid by the Company upon the determination of the operating ratio for such calendar year by the Company's independent accountants; provided, however, the bonuses shall be paid no later than ninety (90) days after the end of each calendar year. (d) Death or Disability. Notwithstanding anything contained herein to the contrary, if a participant's employment ceases on account of death or total disability, as defined in Section 105(d)(4) of the Internal Revenue Code, such participant shall be entitled to receive a pro-rata portion of any bonus he otherwise would be awarded. In either event, the participant shall be entitled to an amount equal to a 2 3 normal bonus award under Section 4(b) multiplied by a fraction the numerator of which shall be the number of days in the year during which the participant was participating in the Plan and the denominator of which shall be 365 days. For example, a participant with annual base compensation of $50,000 dies on July 1 of a calendar year. The Company has an operating ratio of 80.5% for that calendar year which otherwise would entitle the participant to a bonus of 30% of his annual base compensation or $15,000. Such participant would be entitled to a bonus equal to $15,000 x 182/365 or $7,479. All bonus amounts payable to a deceased or disabled participant shall be paid to such participant or his personal representative, as the case may be. (e) Recently Promoted or Hired Employees. In the event the Committee allows a recently promoted or hired employee to participate in the Plan, such participant shall be entitled to receive a pro-rata portion of any bonus he otherwise would be awarded. Such pro-rata bonus shall be the amount equal to a normal bonus award under Section 4(b) multiplied by a fraction the numerator of which shall be the number of days in the year during which the participant was participating in the Plan and the denominator of which shall be 365 days. For example, a participant commences participation in the Plan on July 1 of a calendar year at annual base compensation of $60,000. The Company has an operating ratio of 80.0% for that calendar year which otherwise would entitle the participant to a bonus of 40% of his annual base compensation or $24,000. Such participant would be entitled to a bonus equal to $24,000 x 183/365 or $12,033. (f) Applicable Base Annual Compensation. For purposes of calculating all bonus awards hereunder, whenever the term "annual base compensation" of a participant is referred to in this Plan it shall mean the following: i) With respect to any eligible employee who is compensated on the basis of a fixed salary, annual base compensation shall be the amount of such base salary determined at December 31 of each calendar year. ii) With respect to any eligible employee who is compensated on the basis of hourly wages, the annual base compensation shall be equal to the base wage of such eligible employee at December 31 of each calendar year and then annualized. (g) Operating Ratio. The "operating ratio" for any calendar year means operating expenses as a percentage of operating revenues. For purposes of this Plan, operating revenues shall not include interest income, other non- operating income or extraordinary items, and operating expenses shall not include any incentive compensation awarded hereunder, interest expense or income taxes but shall include loss (gain) on sale of equipment. For purposes of this Plan, the operating ratio shall be determined to the nearest one-hundredth of one percent (.01%). 5. NOTICES. The Board of Directors or the Committee shall notify all employees selected to participate in the Plan as soon as practicable after such determination has been made. The participants shall be notified of the targeted operating ratios and corresponding bonus percentages for each calendar year, and any subsequent modifications thereto, as soon as practicable after such determinations have been made by the Committee. 6. OTHER BENEFITS. This Plan is intended to provide a method of rewarding employees for exceptional contributions made by such employees and any awards hereunder are intended to be in addition to any other benefits which the Company provides to the participants. The Board of Directors or the Committee may, but is not obligated to, award one or more of the participants additional bonuses 3 4 in such amounts and at such times as the Board of Directors or the Committee, in its sole discretion, shall determine. 7. AMENDMENTS TO PLAN. The Board of Directors or the Committee may from time to time make such amendments to the Plan as the Board or the Committee, in its sole discretion, shall deem desirable, including modifying the targeted operating ratios and the corresponding bonus percentages established pursuant to Section 4(b) at any time during a calendar year. 8. TERMINATION OF THE PLAN. The Board of Directors may at any time terminate the Plan. In the event the Plan is terminated, the Company shall not have any obligation to the participants under the Plan unless the Board of Directors states that the Company has assumed an obligation. For example, assume the Plan is terminated on December 15 of a calendar year. No participant shall have a right to receive, and the Company shall not have any obligation to pay, any bonus amount under the Plan for that calendar year unless the Board of Directors expressly states the Company shall pay such bonus amount. 9. NONASSIGNABILITY. No participant shall have the right to assign or transfer any of his benefits or expected benefits under the Plan except by will or by the laws of descent and distribution. This Plan has been adopted and approved at a special meeting of the Board of Directors of the Company on the 28th day of February, 1996, and shall be effective for calendar years 1996 and 1997, unless otherwise amended by the Board of Directors. 4 5 EXHIBIT A P.A.M. TRANSPORTATION SERVICES, INC. INCENTIVE COMPENSATION PLAN TARGETED OPERATING RATIOS AND CORRESPONDING BONUS PERCENTAGES FOR 1996 AND 1997 CALENDAR YEARS CLASS I ELIGIBLE EMPLOYEES
Operating Ratio Bonus Percentage ------------------ ---------------- 90.0% and Above 0% 89.0% to 89.9% 10% 88.0% to 88.9% 15% 87.0% to 87.9% 20% 86.0% to 86.9% 25% 85.0% to 85.9% 30% 84.0% to 84.9% 35% 83.0% to 83.9% 40% 82.0% to 82.9% 45% 81.0% and Below 50%
CLASS II ELIGIBLE EMPLOYEES
Operating Ratio Bonus Percentage ------------------ ---------------- 90.0% and Above 0.0% 89.0% to 89.9% 5.0% 88.0% to 88.9% 7.5% 87.0% to 87.9% 10.0% 86.0% to 86.9% 12.5% 85.0% to 85.9% 15.0% 84.0% to 84.9% 17.5% 83.0% to 83.9% 20.0% 82.0% to 82.9% 22.5% 81.0% to 81.9% 25.0% 80.0% to 80.9% 27.5% Under 80% 40.0%
5 EX-10.6 3 1995 STOCK OPTION PLAN 1 EXHIBIT 10.6 P.A.M. TRANSPORTATION SERVICES, INC. 1995 STOCK OPTION PLAN EFFECTIVE AS OF JUNE 29, 1995 10. PURPOSE The purpose of the P.A.M. Transportation Services, Inc. 1995 Stock Option Plan (the "Plan") is to encourage and enable eligible directors, officers and key employees of P.A.M. Transportation Services, Inc. (the "Company") and its subsidiaries to acquire proprietary interests in the Company through the ownership of Common Stock of the Company. The Company believes that directors, officers and key employees who participate in the Plan will have a closer identification with the Company by virtue of their ability as shareholders to participate in the Company's growth and earnings. The Plan also is designed to provide motivation for participating directors, officers and key employees to remain in the employ of and to give greater effort on behalf of the Company. It is the intention of the Company that the Plan provide for the award of "incentive stock options" qualified under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder, as well as the award of non-qualified stock options. Accordingly, the provisions of the Plan related to incentive stock options shall be construed so as to extend and limit participation in a manner consistent with the requirements of Section 422 of the Code. 11. DEFINITIONS The following words or terms shall have the following meanings: (a) "Agreement" shall mean a stock option agreement between the Company and an Eligible Employee, Eligible Participant or Non-Employee Director pursuant to the terms of this Plan. (b) "Board of Directors" shall mean the Board of Directors of the Company or the Executive Committee of such Board. (c) "Committee" shall mean the committee appointed by the Board of Directors to administer the Plan. (d) "Company" shall mean P.A.M. Transportation Services, Inc., a Delaware corporation. (e) "Eligible Employee(s)" shall mean key employees regularly employed by the Company or a Subsidiary (including officers, whether or not they are directors) as the Board of Directors or the Committee shall select from time to time. (f) "Eligible Participant(s)" shall mean directors, officers, key employees of the Company and its Subsidiaries, consultants and other persons who are not otherwise eligible to receive Qualified Incentive Options pursuant to Section 8 of the Plan. 1 2 (g) "Market Price" shall mean the fair market value of the Company's Common Stock as determined by the Board of Directors or the Committee, acting in good faith, under any method consistent with the Code, or Treasury Regulations thereunder, as the Board of Directors or the Committee shall in its discretion select and apply at the time of the grant of the option concerned. Subject to the foregoing, the Board of Directors or the Committee, in fixing the market price, shall have full authority and discretion and be fully protected in doing so. (h) "Non-Employee Director(s)" shall mean a director of the Company who is not a regular salaried employee of the Company or one of its Subsidiaries. (i) "Optionee" shall mean an Eligible Employee, Eligible Participant or Non-Employee Director having a right to purchase Common Stock under an Agreement. (j) "Option(s)" shall mean the right or rights granted to Eligible Employees, Eligible Participants or Non- Employee Directors to purchase Common Stock under the Plan. (k) "Plan" shall mean this P.A.M. Transportation Services, Inc. 1995 Stock Option Plan. (l) "Shares," "Stock" or "Common Stock" shall mean shares of the $.01 par value common stock of the Company. (m) "Subsidiary" shall mean any corporation, if the Company owns or controls, directly or indirectly, more than a majority of the voting stock of such corporation. (n) "Ten Percent Owner" shall mean an individual who, at the time an Option is granted, owns directly or indirectly more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or a Subsidiary. 12. EFFECTIVE DATE The effective date of the Plan (the "Effective Date") shall be the date the Plan is adopted by the Board of Directors or the date the Plan is approved by the shareholders of the Company, whichever is earlier. The Plan must be approved by the affirmative vote of not less than a majority of the shares present and voting at a meeting at which a quorum is present, which shareholder vote must be taken within twelve (12) months after the date the Plan is adopted by the Board of Directors. Such shareholder vote shall not alter the Effective Date of the Plan. In the event shareholder approval of the adoption of the Plan is not obtained within the aforesaid twelve (12) month period, then any Options granted in the intervening period shall be void. 13. SHARES RESERVED FOR PLAN The shares of the Company's Common Stock to be sold to Eligible Employees, Eligible Participants and Non-Employee Directors under the Plan may at the election of the Board of Directors be either treasury shares or Shares originally issued for such purpose. The maximum number of Shares which shall be reserved and made available for sale under the Plan shall be 600,000; provided, however, that such Shares shall be subject to the adjustments provided in Section 8(h). Any Shares subject to an Option which for any reason expires or is terminated unexercised may again be subject to an Option under the Plan. 2 3 14. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board of Directors of the Company if each member is a disinterested person (as defined herein), or the Committee. The Committee shall be comprised of not less than two (2) members appointed by the Board of Directors of the Company from among its members. No member of the Board of Directors shall be appointed or serve as a member of the Committee, and any such appointment or service immediately and automatically shall terminate, in the event that such person is not a disinterested person. As used herein, the term "disinterested person" means a director who is not, during the one year prior to service as an administrator of the Plan, or during such service, granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates (as such term is defined in the General Rules and Regulations of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), except for such grants or awards which would not disqualify the director as a "disinterested person" under Rule 16b-3 under the Exchange Act. Within the limitations described herein, the Board of Directors of the Company or the Committee shall administer the Plan, select the Eligible Employees and Eligible Participants to whom Options will be granted, determine the number of shares to be optioned to each Eligible Employee and Eligible Participant and interpret, construe and implement the provisions of the Plan. The Board of Directors or the Committee shall also determine the price to be paid for the Shares upon exercise of each Option, the period within which each Option may be exercised, and the terms and conditions of each Option granted to the Plan. The Board of Directors and Committee members shall be reimbursed for out-of-pocket expenses reasonably incurred in the administration of the Plan. If the Plan is administered by the Board of Directors, a majority of the members of the Board of Directors shall constitute a quorum, and the act of a majority of the members of the Board of Directors present at any meeting at which a quorum is present, or acts approved in writing by all members of the Board of Directors shall be the acts of the Board of Directors. If the Plan is administered by the Committee, a majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all of the members of the Committee shall be the acts of the Committee. 15. ELIGIBILITY Options granted pursuant to Section 8 shall be granted only to Eligible Employees. Options granted pursuant to Section 9 may be granted to Eligible Employees and to Eligible Participants. Options granted pursuant to Section 10 shall be granted only to Non-Employee Directors. 16. DURATION OF THE PLAN The Plan shall remain in effect until all Shares subject to or which may become subject to the Plan shall have been purchased pursuant to Options granted under the Plan; provided that Options under the Plan must be granted within ten (10) years from the Effective Date. The Plan shall expire on the tenth anniversary of the Effective Date. 3 4 17. QUALIFIED INCENTIVE OPTIONS It is intended that Options granted under this Section 8 shall be qualified incentive stock options under the provisions of Section 422 of the Code and the regulations thereunder or corresponding provisions of subsequent revenue laws and regulations in effect at the time such Options are granted. Such Options shall be evidenced by stock option agreements in such form and not inconsistent with this Plan as the Committee or the Board of Directors shall approve from time to time, which Agreements shall contain in substance the following terms and conditions: (a) Price. The purchase price for shares purchased upon exercise will be equal to 100% of the Market Price on the day the Option is granted, as determined by the Board of Directors or the Committee; provided that the purchase price of stock deliverable upon the exercise of a qualified incentive option granted to a Ten Percent Owner shall be not less than one hundred ten percent (110%) of the Market Price on the day the Option is granted, as determined by the Board of Directors or the Committee, but in no case less than the par value of such stock. (b) Number of Shares. The Agreement shall specify the number of Shares which the Optionee may purchase under such Option. (c) Exercise of Options. The shares subject to the Option may be purchased in whole or in part by the Optionee in accordance with the terms of the Agreement, from time to time after shareholder approval of the Plan, but in no event later than ten (10) years from the date of grant of the Option. Notwithstanding the foregoing, Shares subject to an Option granted to a Ten Percent Owner shall be exercisable no later than five (5) years from the date of grant of the Option. (d) Medium and Time of Payment. Stock purchased pursuant to an Agreement shall be paid for in full at the time of purchase. Payment of the purchase price shall be in cash or shares of the Common Stock of the Company, or a combination of cash and shares of the Common Stock of the Company, in the discretion of, and as authorized by, the Committee. Upon receipt of payment, the Company shall, without transfer or issue tax, deliver to the Optionee (or other person entitled to exercise the Option) a certificate or certificates for such Shares. (e) Rights as a Shareholder. An Optionee shall have no rights as a shareholder with respect to any Shares covered by an Option until the date of issuance of the stock certificate to the Optionee for such Shares. Except as otherwise expressly provided in the Plan, no adjustments shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued. (f) Nonassignability of Option. No Option shall be assignable or transferable by the Optionee except by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by him or her. (g) Effect of Termination of Employment or Death. In the event that an Optionee during his or her lifetime ceases to be an employee of the Company or of any subsidiary of the Company for any reason (including retirement) other than death or permanent and total disability, any Option or unexercised portion thereof which was otherwise exercisable on the date of termination of employment shall expire unless exercised within a period of three (3) months from the date on which the Optionee ceased to be an employee, but in no event after the term provided in the Optionee's 4 5 Agreement. In the event that an Optionee ceases to be an employee of the Company or of any subsidiary of the Company for any reason (including retirement) other than death or permanent and total disability prior to the time that an Option or portion thereof becomes exercisable, such Option or portion thereof which is not then exercisable shall terminate and be null and void. Whether authorized leave of absence for military or government service shall constitute termination of employment for the purpose of this Plan shall be determined by the Board of Directors or the Committee, which determination shall be final and conclusive. In the event that an Optionee during his or her lifetime ceases to be an employee of the Company or any subsidiary of the Company by reason of death or permanent and total disability, any Option or unexercised portion thereof which was otherwise exercisable on the date such Optionee ceased employment shall expire unless exercised within a period of one (1) year from the date on which the Optionee ceased to be an employee, but in no event after the term provided in the Optionee's Agreement. In the event that an Optionee during his or her lifetime ceases to be an employee of the Company or any subsidiary of the Company by reason of death or permanent and total disability, any Option or portion thereof which was not exercisable on the date such Optionee ceased employment shall become immediately exercisable for a period of one (1) year from the date on which the Optionee ceased to be an employee, but in no event after the term provided in the Optionee's Agreement. "Permanent and total disability" as used in this Plan shall be as defined in Section 22(e)(3) of the Code. In the event of the death of an Optionee, the Option shall be exercisable by his or her personal representatives, heirs or legatees, as provided herein. (h) Recapitalization. In the event that dividends are payable in Common Stock of the Company or in the event there are splits, subdivisions or combinations of shares of Common Stock of the Company, the number of Shares available under the Plan shall be increased or decreased proportionately, as the case may be, and the number and Option exercise price of Shares deliverable upon the exercise thereafter of any Option theretofore granted shall be increased or decreased proportionately, as the case may be, as determined to be proper and appropriate by the Board of Directors or the Committee. (i) Reorganization. In case the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, or in case the property or stock of the Company is acquired by another corporation, or in case of a separation, reorganization, recapitalization or liquidation of the Company, the Board of Directors of the Company, or the Board of Directors of any corporation assuming the obligations of the Company hereunder, shall either (i) make appropriate provision for the protection of any outstanding Options by the substitution on an equitable basis of appropriate stock of the Company, or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect to the shares of Common Stock of the Company, provided only that the excess of the aggregate fair market value of the Shares subject to option immediately after such substitution over the purchase price thereof is not more than the excess of the aggregate fair market value of the Shares subject to option immediately before such substitution over the purchase price thereof, or (ii) upon written notice to the Optionee provide that the Option (including, in the discretion of the Board of Directors, any portion of such Option which is not then exercisable) must be exercised within sixty (60) days of the date of such notice or it will be terminated. If any adjustment under this Section 8(i) would create a fractional share of Stock or 5 6 a right to acquire a fractional share, such shall be disregarded and the number of shares of Stock available under the Plan and the number of Shares covered under any Options previously granted pursuant to the Plan shall be the next lower number of shares of Stock, rounding all fractions downward. An adjustment made under this Section 8(i) by the Board of Directors shall be conclusive and binding on all affected persons. Except as otherwise expressly provided in this Plan, the Optionee shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation; and any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or prices of shares of Common Stock subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. (j) Annual Limitation. The aggregate fair market value (determined at the time the Option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by an Optionee during any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000. Any excess over such amount shall be deemed to be related to and part of a non-qualified stock option granted pursuant to Section 9. (k) General Restriction. Each Option shall be subject to the requirement that if at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of the Shares subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue or purchase of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. Alternatively, such Options shall be issued and exercisable only upon such terms and conditions and with such restrictions as shall be necessary or appropriate to effect exemption from such listing, registration, or other qualification requirement. 18. NON-QUALIFIED OPTIONS The Board of Directors or the Committee may grant to Eligible Employees or Eligible Participants Options under the Plan which are not qualified incentive stock options under the provisions of Section 422 of the Code. Such non-qualified options shall be evidenced by Agreements in such form and not inconsistent with this Plan as the Committee shall approve from time to time, which Agreements shall contain in substance the same terms and conditions as set forth in Section 8 hereof with respect to qualified incentive options; provided, however, that the limitations set forth in Sections 8(a) and 8(c) with respect to Ten Percent Owners shall not be applicable to non-qualified options granted to any Ten Percent Owner, and the limitation set forth in Section 8(j) with respect to the annual limitation of incentive stock options shall not be applicable to non-qualified option grants; provided further, that non-qualified options may be granted at a purchase price equal to not less than 75% of the Market Price on the day the Option is granted. 6 7 19. OPTIONS TO NON-EMPLOYEE DIRECTORS Notwithstanding any provisions of the Plan to the contrary, the participation and eligibility of a Non-Employee Director in the Plan shall be limited exclusively to the following: (a) On March 2, 1997 and on March 2 of each year thereafter during the term of this Plan, each then Non-Employee Director of the Company shall be granted, without the necessity of action by the Board of Directors or any committee thereof, an Option to purchase 1,000 shares of Common Stock at an option exercise or purchase price equal to the Market Price of such Stock on the date of grant; provided, that in the event that the date of grant falls on a weekend or holiday, then the option exercise price shall be determined by reference to the Market Price of the Common Stock on the business day next preceding the grant date. (b) Options granted under this Section 10 shall be exercisable commencing on the date of grant or, with respect to any Option granted prior to stockholder approval of this Plan, upon the date of such stockholder approval, and thereafter until the earlier to occur of the following: the close of business on (i) the date which is the fifth anniversary of the date of grant; (ii) the date which is the 90th day following the date upon which such Non-Employee Director ceases to be a director of the Company for any reason other than death or permanent and total disability; or (iii) the date which is the first anniversary of the date on which such Non-Employee Director ceases to be a director of the Company as a result of death or permanent and total disability. (c) In all other respects, Options granted to Non-Employee Directors hereunder shall contain in substance the same terms and conditions as set forth in Section 9 hereof with respect to non-qualified options. No Non-Employee Director shall be eligible to receive Options hereunder except as provided in this Section 10. This Section may not be amended more than once every six months. 20. AMENDMENT OF THE PLAN The Plan may at any time or from time to time be terminated, modified or amended by the affirmative vote of not less than a majority of the shares present and voting thereon by the Company's shareholders at a meeting of the shareholders at which a quorum is present. The Board of Directors may at any time and from time to time modify or amend the Plan in any respect, except that without shareholder approval the Board of Directors may not (1) increase the maximum number of Shares for which Options may be granted under the Plan (other than increases due to changes in capitalization as referred to in Section 8(h) hereof), or (2) reduce the option exercise price or waiting period (except as otherwise expressly provided in Sections 8(h) and 8(i) hereof), or (3) extend the maximum period during which Options may be granted or exercised, or (4) change the class of persons eligible for Options under Section 6 hereof, or (5) otherwise materially modify (within the meaning of Rule 16b-3 of the Exchange Act) the requirements as to eligibility for participation in the Plan, or (6) otherwise materially increase (within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended) the benefits accruing to participants under the Plan. The termination or any modification or amendment of the Plan shall not, without the written consent of an Optionee, affect his or her rights under an Option or right previously granted to him or her. With the written consent of the Optionee affected, the Board of Directors or the Committee may amend outstanding option agreements in a manner not inconsistent with the Plan. Without employee consent, the Board of Directors may at any time and from time to time modify or amend outstanding option agreements in such respects as it shall deem necessary in order that incentive options granted 7 8 hereunder shall comply with the appropriate provisions of the Code and regulations thereunder which are in effect from time to time respecting "Qualified Incentive Options." The Company's Board of Directors may also suspend the granting of Options pursuant to the Plan at any time and may terminate the Plan at any time; provided, however, no such suspension or termination shall modify or amend any Option granted before such suspension or termination unless (1) the affected participant consents in writing to such modification or amendment or (2) there is a dissolution or liquidation of the Company. 21. BINDING EFFECT All decisions of the Board of Directors or the Committee involving the implementation, administration or operation of the Plan or any offering under the Plan shall be binding on the Company and on all persons eligible or who become eligible to participate in the Plan. 22. APPLICATION OF FUNDS The proceeds received by the Company from the sale of Common Stock pursuant to Options exercised hereunder will be used for general corporate purposes. 8 EX-21.1 4 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT P.A.M. Transport, Inc. (Arkansas Corporation) P.A.M. Special Services, Inc. (Arkansas Corporation) P.A.M. Dedicated Services, Inc. (Ohio Corporation) P.A.M. Logistics Services, Inc. (Arkansas Corporation) T.T.X., Inc. (Texas Corporation) Choctaw Express, Inc. (Oklahoma Corporation) Choctaw Brokerage, Inc. (Oklahoma Corporation) Allen Freight Services, Inc. (Missouri Corporation) EX-23.1 5 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-16220, Form S-8 No. 33-16084, Form S-8 No. 33-60926, and Form S-8 No. 333-10813 pertaining to the Incentive Stock Option Plan, the Non-Qualified Stock Option Plan, the 1993 Employee Stock Option Plan and the 1995 Stock Option Plan) of P.A.M. Transportation Services, Inc. of our report dated March 5, 1997, with respect to the consolidated financial statements and schedule of P.A.M. Transportation Services, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. ARTHUR ANDERSEN LLP Fayetteville, Arkansas March 24, 1997 EX-23.2 6 CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-16220, Form S-8 No. 33-16084, Form S-8 No. 33-60926, and Form S-8 No. 333-10813) pertaining to the Incentive Stock Option Plan, the Non-Qualified Stock Option Plan, the 1993 Employee Stock Option Plan and the 1995 Stock Option Plan of P.A.M. Transportation Services, Inc. of our report dated February 14, 1996, with respect to the consolidated financial statements and schedule of P.A.M. Transportation Services, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 1996. ERNST & YOUNG LLP Little Rock, Arkansas March 24, 1997 EX-27 7 FDS
5 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1,000 5,941 0 17,681 579 382 27,505 92,594 29,714 94,895 26,314 34,938 0 0 81 26,231 94,895 0 113,021 0 103,456 31 140 4,137 5,459 2,147 3,312 0 0 0 3,312 .44 .44
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