10-K 1 form10k_2009.htm PTSI 2009 FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ý Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2009
or
For the transition period from ________to________
Commission File No. 0-15057
P.A.M. TRANSPORTATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
71-0633135
(I.R.S. Employer
Identification No.)
297 West Henri De Tonti Blvd, Tontitown, Arkansas 72770
(Address of principal executive offices) (Zip Code)
(479) 361-9111
Registrant's telephone number, including area code
Securities registered pursuant to section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value
Name of each exchange on which registered
NASDAQ Global Market
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes o
No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes o
No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ
No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).
Yes o
No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes o
No þ
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant computed by
reference to the average of the closing bid and asked prices of the common stock as of the last business day of the
registrant's most recently completed second quarter was $24,788,119. Solely for the purposes of this response, executive
officers, directors and beneficial owners of more than five percent of the registrant’s common stock are considered the
affiliates of the registrant at that date.
The number of shares outstanding of the registrant’s common stock, as of March 1, 2010: 9,413,607 shares of $.01 par
value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held in June 2010 are
incorporated by reference in answer to Part III of this report, with the exception of information regarding executive officers
required under Item 10 of Part III, which information is included in Part I, Item 1. Such proxy statement will be filed with the
Securities and Exchange Commission within 120 days of the Registrant’s fiscal year ended December 31, 2009.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (“this Report”) contains forward-looking statements, including statements about our
operating and growth strategies, our expected financial position and operating results, industry trends, our capital
expenditure and financing plans and similar matters. Such forward-looking statements are found throughout this Report,
including under Item 1, Business, Item 1A, Risk Factors, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures About Market Risk. In those
and other portions of this Report, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,”
“project” and similar expressions, as they relate to us, our management, and our industry are intended to identify forward-
looking statements. We have based these forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting our business. Actual results may differ materially. Some of the risks,
uncertainties and assumptions about P.A.M. that may cause actual results to differ from these forward-looking statements
are described under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk.”
All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety
by this cautionary statement.
We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this Report might not transpire.
P.A.M. TRANSPORTATION SERVICES, INC.
FORM 10-K
For the fiscal year ended December 31, 2009
TABLE OF CONTENTS
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Item 14
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Reserved
PART I
PART II
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Item 15
Exhibits, Financial Statement Schedules
PART IV
SIGNATURES
EXHIBIT INDEX
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Item 1. Business.
PART I
Unless the context otherwise requires, all references in this Annual Report on Form 10-K to “P.A.M.,” the “Company,” “we,”
“our,” or “us” mean P.A.M. Transportation Services, Inc. and its subsidiaries.
We are a truckload dry van carrier transporting general commodities throughout the continental United States, as well as in
certain Canadian provinces. We also provide transportation services in Mexico under agreements with Mexican carriers.
Our freight consists primarily of automotive parts, consumer goods, such as general retail store merchandise, and
manufactured goods, such as heating and air conditioning units.
P.A.M. Transportation Services, Inc. is a holding company incorporated under the laws of the State of Delaware in June
1986 and has historically conducted operations through the following wholly owned subsidiaries: P.A.M. Transport, Inc.,
T.T.X., Inc., P.A.M. Dedicated Services, Inc., P.A.M. Logistics Services, Inc., Choctaw Express, Inc., Choctaw Brokerage,
Inc., Transcend Logistics, Inc., Allen Freight Services, Inc., Decker Transport Co., Inc., East Coast Transport and Logistics,
LLC, S & L Logistics, Inc., P.A.M. International, Inc. and P.A.M. Canada, Inc. Our operating authorities are held by P.A.M.
Transport, Inc., P.A.M. Dedicated Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc., Allen Freight Services,
Inc., T.T.X., Inc., Decker Transport Co., Inc., and East Coast Transport and Logistics, LLC. However, effective January 1,
2010, the operations of most of the Company’s operating subsidiaries have been consolidated under the P.A.M. Transport,
Inc. name in a effort to more clearly reflect the Company’s scope and available service offerings.
We are headquartered and maintain our primary terminal and maintenance facilities and our corporate and administrative
offices in Tontitown, Arkansas, which is located in northwest Arkansas, a major center for the trucking industry and where
the support services (including warranty repair services) for most major truck and trailer equipment manufacturers are
readily available.
Segment Financial Information
The Company's operations are all in the motor carrier segment and are aggregated into a single operating segment in
accordance with the aggregation criteria under Generally Accepted Accounting Principles (“GAAP”).
Operations
Our operations can generally be classified into truckload services or brokerage and logistics services. Truckload services
include those transportation services in which we utilize company owned trucks or owner-operator owned trucks for the
pickup and delivery of freight. The brokerage and logistics services consists of services such as transportation scheduling,
routing, mode selection, transloading and other value added services related to the transportation of freight which may or
may not involve the use of company owned or owner-operator owned equipment. Both our truckload operations and our
brokerage and logistics operations have similar economic characteristics and are impacted by virtually the same economic
factors as discussed elsewhere in this Report. Truckload services operating revenues, before fuel surcharges represented
85.3%, 89.6%, and 90.4% of total operating revenues for the years ended December 31, 2009, 2008, and 2007,
respectively. The remaining operating revenues, before fuel surcharge for the same periods were generated by brokerage
and logistics services, representing 14.7%, 10.4%, and 9.6%, respectively. Approximately 99% of the Company's revenues
are generated by operations conducted in the United States and all of the Company's assets are located or based in the
United States.
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Business and Growth Strategy
Our strategy focuses on the following elements:
Providing a Full Suite of Complimentary Truckload Transportation Solutions. Our objective is to provide our customers with
a comprehensive solution to their truckload transportation needs. Our asset-based service offerings consist of dedicated,
expedited, regional, automotive, and long-haul truckload services with non-asset based supply chain management,
logistics , brokerage and intermodal solutions rounding out our service offerings. Our range of service offerings also include
our complete range of asset-based and non-asset based services to Mexico and Canada.
Developing Customer Relationships within High Density Traffic Lanes. We strive to maximize utilization and increase
revenue per truck while minimizing our time and empty miles between loads. In this regard, we seek to provide equipment
to our customers where possible and to concentrate our equipment in defined regions and disciplined traffic lanes. This
strategy enables us to:
· maintain more consistent equipment capacity;
·
provide a high level of service to our customers, including time-sensitive delivery schedules;
·
attract and retain drivers; and
· maintain a sound safety record as drivers travel familiar routes.
Providing Superior and Flexible Customer Service . Our wide range of services includes dedicated fleet services, logistics
services, time-definite delivery, two-man driving teams, cross-docking and consolidation programs, specialized trailers, and
Internet-based customer access to delivery status. These services allow us to quickly and reliably respond to the diverse
needs of our customers, and provide an advantage in securing new business. We also maintain ISO 9002 certification to
ensure that we operate in accordance with approved quality assurance standards.
Many of our customers depend on us to make delivery on a time-definite basis, meaning that parts or raw materials are
scheduled for delivery as they are needed on the manufacturer’s production line. The need for this service is a product of
modern manufacturing and assembly methods that are designed to drastically decrease inventory levels and handling
costs. Such requirements place a premium on the freight carrier’s delivery performance and reliability.
Employing Stringent Cost Controls . Throughout our organization, emphasis is placed on gaining efficiency in our processes
with the primary goals of decreasing costs and improving customer satisfaction. Maintaining a high level of efficiency and
prioritizing our focus on improvements allows us to minimize the number of non-driving personnel we employ and positively
influence other overhead costs. Expenses are intensely scrutinized for opportunities for elimination, reduction or to further
leverage our purchasing power to achieve more favorable pricing.
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Industry
According to the American Trucking Association’s “American Trucking Trends 2009-2010” report, the trucking industry
transported approximately 69% of the total volume of freight transported in the United States during 2008, which equates to
10.2 billion tons and $660 billion in revenue. The truckload industry is highly fragmented and is impacted by several
economic and business factors, many of which are beyond the control of individual carriers. The state of the economy,
coupled with equipment capacity levels, can impact freight rates. Volatility of various operating expenses, such as fuel and
insurance, make the predictability of profit levels uncertain. Availability, attraction, retention and compensation for drivers
also affect operating costs, as well as equipment utilization. In addition, the capital requirements for equipment, coupled
with potential uncertainty of used equipment values, impact the ability of many carriers to expand their operations. The
current operating environment is characterized by the following:
·
·
Price increases by truck and trailer equipment manufacturers, volatile fuel costs, and intense competition for freight.
In recent years, many less profitable or undercapitalized carriers have been forced to consolidate or to exit the
industry.
Competition
The trucking industry is highly competitive and includes thousands of carriers, none of which dominates the market in
which the Company operates. The Company's market share is less than 1% and we compete primarily with other irregular
route medium- to long-haul truckload carriers, with private carriage conducted by our existing and potential customers,
and, to a lesser extent, with the railroads. We compete on the basis of quality of service and delivery performance, as well
as price. Many of the other irregular route long-haul truckload carriers have substantially greater financial resources, own
more equipment or carry a larger total volume of freight as compared to the Company.
Marketing and Significant Customers
Our marketing emphasis is directed to that portion of the truckload market which is generally service-sensitive, as opposed
to being solely price competitive. We seek to become a “core carrier” for our customers in order to maintain high utilization
and capitalize on recurring revenue opportunities. Our marketing efforts are diversified and designed to gain access to
dedicated, expedited, regional, automotive, and long-haul opportunities (including those in Mexico and Canada) and to
expand supply chain solutions offerings.
Our marketing efforts are conducted by a sales staff of nine employees who are located in our major markets and
supervised from our headquarters. These individuals work to improve profitability by maintaining an even flow of freight
traffic (taking into account the balance between originations and destinations in a given geographical area) and high
utilization, and minimizing movement of empty equipment.
Our five largest customers, for which we provide carrier services covering a number of geographic locations, accounted for
approximately 42%, 49% and 56% of our total revenues in 2009, 2008 and 2007, respectively. General Motors Corporation
accounted for approximately 25%, 31% and 38% of our revenues in 2009, 2008 and 2007, respectively.
We also provide transportation services to other manufacturers who are suppliers for automobile manufacturers.
Approximately 31%, 40% and 49% of our revenues were derived from transportation services provided to the automobile
industry during 2009, 2008 and 2007, respectively.
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Revenue Equipment
At December 31, 2009, we operated a fleet of 1,731 trucks and 4,630 trailers. We operate late-model, well-maintained
premium trucks to help attract and retain drivers, promote safe operations, minimize maintenance and repair costs, and
improve customer service by minimizing service interruptions caused by breakdowns. We evaluate our equipment
purchasing decisions based on factors such as initial cost, useful life, warranty terms, expected maintenance costs, fuel
economy, driver comfort, customer needs, manufacturer support, and resale value.
We also typically contract with owner-operators to provide transportation services for a small portion of our business.
Owner-operators provide their own trucks and are contractually responsible for all associated expenses, including
financing costs, fuel, maintenance, insurance, and taxes, among other things. They are also responsible for maintaining
compliance with the Federal Motor Carrier Administration regulations. We believe that utilizing owner-operators
complements our recruiting efforts and offers greater flexibility in responding to fluctuations in customer demand. At
December 31, 2009, the Company had 34 owner-operators under contract.
During 1999, the U.S. Environmental Protection Agency (“EPA”) proposed a three-phase strategy to reduce engine
emissions from heavy-duty vehicles through a combination of advanced emissions control technologies and diesel fuel
with a reduced sulfur content. Each phase and its effect on the Company’s operations, if known, are described below.
The first phase (Phase I) mandated new engine emission standards for all model year 2004 heavy-duty trucks; however,
through agreements with heavy-duty diesel engine manufacturers, the effective date was accelerated to October 1, 2002.
Therefore, effective October 1, 2002, all newly manufactured truck engines had to comply with the new engine emission
standards. All truck engines manufactured prior to October 1, 2002 were not subject to these new standards. As of
December 31, 2009, the majority of our Company-owned truck fleet consisted of trucks with engines that comply with these
emission standards. The Company has experienced a reduction in fuel efficiency and increased depreciation expense due
to the higher cost of trucks with these new engines.
In the second phase (Phase II), effective January 1, 2007, the EPA mandated a new set of more stringent emission
standards for vehicles powered by diesel fuel engines manufactured in 2007 through 2009. These new engines have been
designed for and require the use of a more costly type of fuel known as ultra-low-sulfur-diesel (“ULSD”) which, according to
EPA estimates, cost from $0.04 to $0.05 more per gallon due to increased refining costs. The EPA also mandated that
refiners and importers nationwide ensure that at least 80% of the volume of the highway diesel fuel they produced or
imported was ULSD-compliant by June 1, 2006. However, the EPA does not require service stations and truck stops to sell
ULSD fuel. Therefore, it is possible that ULSD fuel might not be available in a particular area in which the Company
operates. A majority of the Company’s current truck fleet can be fueled with either ULSD or low-sulfur diesel (“LSD”), but
additional future purchases of trucks which contain 2007 or later diesel engines will require the use of ULSD fuel which
have resulted in lower fuel economy as the process that removes sulfur can also reduce the energy content of the fuel. As
of December 31, 2009, 739 trucks in our Company-owned truck fleet consisted of trucks with engines that comply with the
Phase II emission standards and require the use of ULSD. During 2010, the Company expects to take delivery of 185 new
trucks, all of which will contain engines compliant with the Phase II emission standards requiring the use of ULSD. As
compared to our current Company-owned truck fleet which contain primarily Phase I diesel engines, trucks powered by the
Phase II compliant diesel engines have a significantly higher purchase price and as a result, we expect that our
depreciation expense will increase as we replace older trucks with trucks powered by the Phase II diesel engines. We also
expect that these Phase II diesel engines will result in higher maintenance costs. To the extent we are unable to offset
these anticipated increased costs with rate increases charged to customers or offsetting cost savings in other areas, our
results of operations will be adversely affected.
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During the third phase (Phase III), effective in 2010, final emission standards become effective and LSD fuel will no longer
be available for highway use. The EPA requires that by June 1, 2010 all diesel fuel imported or produced must be ULSD-
compliant as it phases out LSD fuel availability by December 1, 2010 when all highway diesel fuel must be ULSD fuel. We
are unable at this time to determine the increase in operating costs of trucks powered by the Phase III compliant engines,
but we expect that the engines produced under the final standards will be less fuel-efficient and have higher maintenance
costs than either the Phase I or Phase II compliant engines. Trucks powered by the Phase III diesel engine are currently
available for purchase at a significant price premium as compared to the Phase II powered trucks and as a result, the
Company expects that our depreciation expense will increase as we replace older trucks with trucks powered by the Phase
III diesel engines.
Technology
We have installed Qualcomm Omnitracs™ display units in all of our trucks. The Omnitracs system is a satellite-based
global positioning and communications system that allows fleet managers to communicate directly with drivers. Drivers can
provide location status and updates directly to our computer system which increases productivity and convenience. The
Omnitracs system provides us with accurate estimated time of arrival information, which optimizes load selection and
service levels to our customers. In order to optimize our truck-to-trailer ratio, we have also installed Qualcomm
TrailerTracs™ tracking units in all of our trailers. The TrailerTracs system is a trailer tracking product that enables us to
more efficiently track the location of trailers in our inventory.
Our computer system manages the information provided by the Qualcomm devices to provide us with real-time information
regarding the location, status and load assignment of all of our equipment, which permits us to better meet delivery
schedules, respond to customer inquiries and match equipment with the next available load. Our system also provides
real-time information electronically to our customers regarding the status of freight shipments and anticipated arrival times.
This system provides our customers flexibility and convenience by extending supply chain visibility through electronic data
interchange, the Internet and e-mail.
Maintenance
We have a strictly enforced comprehensive preventive maintenance program for our trucks and trailers. Inspections and
various levels of preventive maintenance are performed at set mileage intervals on both trucks and trailers. A maintenance
and safety inspection is performed on all vehicles each time they return to a terminal.
Our trucks carry full warranty coverage for at least three years or 350,000 miles. Extended warranties are negotiated with
the truck manufacturer and manufacturers of major components, such as engine, transmission and differential
manufacturers, for up to four years or 500,000 miles. Our trailers carry full warranties by the manufacturer and major
component manufacturers for up to five years.
Employees
At December 31, 2009, we employed 2,591 persons, of whom 2,156 were drivers, 151 were maintenance personnel, 161
were employed in operations, 15 were employed in marketing, 57 were employed in safety and personnel, and 51 were
employed in general administration and accounting. None of our employees are represented by a collective bargaining unit
and we believe that our employee relations are good.
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Drivers
At December 31, 2009, we utilized 2,156 company drivers in our operations. We also had 34 owner-operators under
contract compensated on a per mile basis. Our drivers are compensated on the basis of miles driven, loading and
unloading, extra stops and layovers in transit. Drivers can earn bonuses by recruiting other qualified drivers who become
employed by us and both cash and non-cash prizes are awarded for consecutive periods of safe, accident-free driving. All
of our drivers are recruited, screened, drug tested and trained and are subject to the control and supervision of our
operations and safety departments. Our driver training program stresses the importance of safety and reliable, on-time
delivery. Drivers are required to report to their driver managers daily and at the earliest possible moment when any
condition en route occurs that might delay their scheduled delivery time.
In addition to strict application screening and drug testing, before being permitted to operate a vehicle our drivers must
undergo classroom instruction on our policies and procedures, safety techniques as taught by the Smith System of
Defensive Driving, and the proper operation of equipment, and must pass both written and road tests. Instruction in
defensive driving and safety techniques continues after hiring, with seminars at several of our terminals. At December 31,
2009, we employed 57 persons on a full-time basis in our driver recruiting, training and safety instruction programs.
Historically, intense competition in the trucking industry for qualified drivers has resulted in additional expense to recruit
and retain an adequate supply of drivers, and has had a negative impact on the industry. In prior years, our operations
have also been impacted and from time to time we have experienced under-utilization and increased expenses due to a
shortage of qualified drivers. During 2009, the continued economic downturn reduced the trucking industry’s demand for
drivers and we did not experience decreases in utilization resulting from a driver shortage. However, we continue to place
a high priority on the recruitment and retention of an adequate supply of qualified drivers.
Available Information
The Company maintains a website where additional information concerning its business can be found. The address of that
website is www.pamtransport.com. The Company makes available free of charge on its Internet website its Annual Report
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as
reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange Commission.
Seasonality
Our revenues do not exhibit a significant seasonal pattern due primarily to our varied customer mix. Operating expenses
can be somewhat higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs
associated with inclement weather. In addition, the automobile plants for which we transport a large amount of freight
typically utilize scheduled shutdowns of two weeks in July and one week in December and the volume of freight we ship is
reduced during such scheduled plant shutdowns.
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Regulation
We are a common and contract motor carrier regulated by various federal and state agencies. These regulatory agencies
have broad powers, generally governing matters such as authority to engage in motor carrier operations, motor carrier
registration, driver hours-of-service (“HOS”), drug and alcohol testing of drivers, and safety, weight and dimensions of
transportation equipment. Key regulatory agencies affecting the Company’s operations include the Federal Motor Carrier
Safety Administration (“FMCSA”), the Pipeline and Hazardous Materials Safety Agency, and the Surface Transportation
Board, which are all agencies within the U.S. Department of Transportation (“DOT”). We believe that we are in compliance
in all material respects with applicable regulatory requirements relating to our business and operate with a “satisfactory”
rating (the highest of three grading categories) from the DOT. In addition, we are subject to compliance with cargo-security
and transportation regulations issued by the Transportation Security Administration, a component department within the
U.S. Department of Homeland Security.
The FMCSA, a separate administration within the DOT charged with regulating motor carrier safety, issued new rules that
limit driver HOS effective January 4, 2004, and then later modified effective October 1, 2005 (the "2005 Rules"). In July
2007, a federal appeals court vacated certain provisions of the 2005 Rules relating to the expansion of the driving day from
10 hours to 11 hours, and the "34-hour restart," which allowed drivers to restart calculations of the weekly on-duty time
limits after the driver had at least 34 consecutive hours off duty. The court indicated that, in addition to other reasons, it
vacated these two provisions because the FMCSA failed to provide adequate data supporting its decision to increase the
driving day and provide for the 34-hour restart. In November 2008, following the submission of additional data by FMCSA
and a series of appeals and related court rulings, FMCSA published its final rule, which retains the 11 hour driving day and
the 34-hour restart. However, advocacy groups may continue to challenge the final rule. We are unable to predict how a
court may rule on such challenges but expect that any significant changes to the driver HOS rules that, in effect, reduce
available driving time would have a negative impact our current operations.
During 2010, the FMCSA plans to launch a new compliance and enforcement initiative known as “Comprehensive Safety
Analysis 2010” (“CSA 2010”). The stated goal under CSA 2010 is to achieve a greater reduction in large truck and bus
crashes, injuries and fatalities, while maximizing the resources of the FMCSA and its state partners. Since the 1970s,
federal and state enforcement agencies, in partnership with the motor carrier industry, have progressively reduced the
commercial vehicle related fatality crash rate. Under CSA 2010, the FMCSA will use a comprehensive measurement
system of all safety-based violations found during roadside inspections, weighing such violations by their relationship to
crash risk. CSA 2010’s data analysis expands on the previous system utilized by the FMCSA and covers more behavioral
areas specifically linked to crash risk such as unsafe or fatigued driving, driver fitness, controlled substances, crash history,
vehicle maintenance, and improper loading. Safety performance information will be accumulated to assess the safety
performance of both carriers and drivers. The CSA 2010 implementation date is set for July 1, 2010 with enforcement
beginning later during the year. The Company is currently preparing for CSA 2010 by expanding existing safety programs
to include CSA 2010 training and education.
Our motor carrier operations are also subject to environmental laws and regulations, including laws and regulations dealing
with underground fuel storage tanks, the transportation of hazardous materials and other environmental matters, and our
operations involve certain inherent environmental risks. We maintain two bulk fuel storage and fuel islands. Our operations
involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. We
have instituted programs to monitor and control environmental risks and assure compliance with applicable environmental
laws. As part of our safety and risk management program, we periodically perform internal environmental reviews so that
we can achieve environmental compliance and avoid environmental risk. We transport a minimum amount of
environmentally hazardous substances and, to date, have experienced no significant claims for hazardous materials
shipments. If we should fail to comply with applicable regulations, we could be subject to substantial fines or penalties and
to civil and criminal liability.
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Company operations conducted in industrial areas, where truck terminals and other industrial activities are conducted, and
where groundwater or other forms of environmental contamination have occurred, potentially expose us to claims that we
contributed to the environmental contamination.
We believe we are currently in material compliance with applicable laws and regulations and that the cost of compliance
has not materially affected results of operations.
In addition to environmental regulations directly affecting our business, we are also subject to the effects of new truck
engine design requirements implemented by the EPA. See "Revenue Equipment" above.
Item 1A. Risk Factors.
Set forth below and elsewhere in this Report and in other documents we file with the SEC are risks and uncertainties that
could cause our actual results to differ materially from the results contemplated by the forward-looking statements
contained in this Report.
Our business is subject to general economic and business factors that are largely beyond our control, any of which could
have a material adverse effect on our operating results.
These factors include significant increases or rapid fluctuations in fuel prices, excess capacity in the trucking industry,
surpluses in the market for used equipment, interest rates, fuel taxes, license and registration fees, insurance premiums,
self-insurance levels, and difficulty in attracting and retaining qualified drivers and independent contractors.
We are also affected by recessionary economic cycles and downturns in customers’ business cycles, particularly in market
segments and industries, such as the automotive industry, where we have a significant concentration of customers.
Economic conditions may adversely affect our customers and their ability to pay for our services.
We operate in a highly competitive and fragmented industry, and our business may suffer if we are unable to adequately
address downward pricing pressures and other factors that may adversely affect our ability to compete with other carriers.
Numerous competitive factors could impair our ability to operate at an acceptable profit. These factors include, but are not
limited to, the following:
·
·
·
·
·
we compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-truckload
carriers and railroads, some of which have more equipment and greater capital resources than we do;
some of our competitors periodically reduce their freight rates to gain business, especially during times of reduced
growth rates in the economy, which may limit our ability to maintain or increase freight rates, maintain our margins or
maintain significant growth in our business;
many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved service
providers, and in some instances we may not be selected;
many customers periodically accept bids from multiple carriers for their shipping needs, and this process may
depress freight rates or result in the loss of some of our business to competitors;
the trend toward consolidation in the trucking industry may create other large carriers with greater financial resources
and other competitive advantages relating to their size and with whom we may have difficulty competing;
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·
·
advances in technology require increased investments to remain competitive, and our customers may not be willing
to accept higher freight rates to cover the cost of these investments;
competition from Internet-based and other logistics and freight brokerage companies may adversely affect our
customer relationships and freight rates; and
economies of scale that may be passed on to smaller carriers by procurement aggregation providers may improve
their ability to compete with us.
We are highly dependent on our major customers, the loss of one or more of which could have a material adverse effect on
our business.
A significant portion of our revenue is generated from our major customers. For 2009, our top five customers, based on
revenue, accounted for approximately 42% of our revenue, and our largest customer, General Motors Corporation,
accounted for approximately 25% of our revenue. We also provide transportation services to other manufacturers who are
suppliers for automobile manufacturers. As a result, the concentration of our business within the automobile industry is
greater than the concentration in a single customer. Approximately 31% of our revenues for 2009 were derived from
transportation services provided to the automobile industry.
Generally, we do not have long-term contractual relationships with our major customers, and we cannot assure that our
customer relationships will continue as presently in effect. A reduction in or termination of our services by our major
customers could have a material adverse effect on our business and operating results.
Ongoing insurance and claims expenses could significantly reduce our earnings.
Our future insurance and claims expenses might exceed historical levels, which could reduce our earnings. The Company
is self insured for health and workers compensation insurance coverage up to certain limits. If medical costs continue to
increase, or if the severity or number of claims increase, and if we are unable to offset the resulting increases in expenses
with higher freight rates, our earnings could be materially and adversely affected.
We may be adversely impacted by fluctuations in the price and availability of diesel fuel.
Diesel fuel represents a significant operating expense for the Company and we do not currently hedge against the risk of
diesel fuel price increases. An increase in diesel fuel prices or diesel fuel taxes, or any change in federal or state
regulations that results in such an increase, could have a material adverse effect on our operating results to the extent we
are unable to recoup such increases from customers in the form of increased freight rates or through fuel surcharges.
Historically, we have been able to offset, to a certain extent, diesel fuel price increases through fuel surcharges to our
customers but we cannot be certain that we will be able to do so in the future. We continuously monitor the components of
our pricing, including base freight rates and fuel surcharges, and address individual account profitability issues with our
customers when necessary. While we have historically been able to adjust our pricing to help offset changes to the cost of
diesel fuel, through changes to base rates and/or fuel surcharges, we cannot be certain that we will be able to do so in the
future.
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We may be unable to successfully integrate businesses we acquire into our operations.
Integrating businesses we acquire may involve unanticipated delays, costs or other operational or financial problems.
Successful integration of the businesses we acquire depends on a number of factors, including our ability to transition
acquired companies to our management information systems. In integrating businesses we acquire, we may not achieve
expected economies of scale or profitability or realize sufficient revenues to justify our investment. We also face the risk
that an unexpected problem at one of the companies we acquire will require substantial time and attention from senior
management, diverting management’s attention from other aspects of our business. We cannot be certain that our
management and operational controls will be able to support us as we grow.
Difficulty in attracting drivers could affect our profitability and ability to grow.
Periodically, the transportation industry experiences difficulty in attracting and retaining qualified drivers, including
independent contractors, resulting in intense competition for drivers. We have from time to time experienced under-
utilization and increased expenses due to a shortage of qualified drivers. If we are unable to attract drivers when needed
or contract with independent contractors when needed, we could be required to further adjust our driver compensation
packages or let trucks sit idle, which could adversely affect our growth and profitability.
If we are unable to retain our key employees, our business, financial condition and results of operations could be harmed.
We are highly dependent upon the services of our key employees and executive officers. The loss of any of their services
could have a material adverse effect on our operations and future profitability. We must continue to develop and retain a
core group of managers if we are to realize our goal of expanding our operations and continuing our growth. We cannot
assure that we will be able to do so.
If our employees were to unionize, our operating costs would increase and our ability to compete would be impaired.
None of our employees are currently represented by a collective bargaining agreement. However, we can offer no
assurance that our employees will not unionize in the future, particularly if legislation is passed that facilitates unionization
such as the Employee Free Choice Act.
We have significant ongoing capital requirements that could affect our profitability if we are unable to generate sufficient
cash from operations.
The trucking industry is capital intensive. If we are unable to generate sufficient cash from operations in the future, we may
have to limit our growth, enter into financing arrangements, or operate our revenue equipment for longer periods, any of
which could have a material adverse affect on our profitability.
Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial
fines or penalties.
We are subject to various environmental laws and regulations dealing with the handling of hazardous materials,
underground fuel storage tanks, and discharge and retention of storm-water. We operate in industrial areas, where truck
terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination
could occur. We also maintain bulk fuel storage and fuel islands at three of our facilities. Our operations involve the risks of
fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. If we are involved in a spill
or other accident involving hazardous substances, or if we are found to be in violation of applicable laws or regulations, it
could have a materially adverse effect on our business and operating results. If we should fail to comply with applicable
environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.
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We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or
future regulations could have a material adverse effect on our business.
The DOT and various state agencies exercise broad powers over our business, generally governing such activities as
authorization to engage in motor carrier operations, safety, and financial reporting. We may also become subject to new or
more restrictive regulations relating to fuel emissions, drivers’ hours in service, and ergonomics. Compliance with such
regulations could substantially impair equipment productivity and increase our operating expenses.
The EPA adopted new emission control regulations, which require progressive reductions in exhaust emissions from diesel
engines through 2010. In part to offset the costs of compliance with the new EPA engine design requirements, some
manufacturers have increased new equipment prices and eliminated or sharply reduced the price of repurchase or trade-in
commitments. If new equipment prices were to increase, or if the price of repurchase commitments by equipment
manufacturers were to decrease more than anticipated, we may be required to increase our depreciation and financing
costs and/or retain some of our equipment longer, which may result in an increase in maintenance expenses. To the extent
we are unable to offset any such increases in expenses with rate increases or cost savings, our results of operations would
be adversely affected. If our fuel or maintenance expenses were to increase as a result of our use of the new, EPA-
compliant engines, and we are unable to offset such increases with fuel surcharges or higher freight rates, our results of
operations would be adversely affected. Further, our business and operations could be adversely impacted if we
experience problems with the reliability of the new engines. Although we have not experienced any significant reliability
issues with these engines to date, the expenses associated with the trucks containing these engines have been slightly
elevated, primarily as a result of lower fuel efficiency and higher depreciation.
We may incur additional operating expenses or liabilities as a result of potential future requirements to address climate
change issues.
Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to
reduce greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels such as those used in the
Company’s trucks. If increased regulation of greenhouse gas emissions are implemented, our operations may be
significantly impacted as there can be no assurance that environmental costs may be recovered through rate increases
charged to customers.
The EPA is also beginning to implement regulatory actions under the Clean Air Act to address emission of greenhouse
gases. Pending or future legislation or other regulatory actions could have a material impact on our operations and financial
position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is
currently planned, financing costs related to additional capital expenditures and the potential purchase of emission
allowances from market sources.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
Our executive offices and primary terminal facilities, which we own, are located in Tontitown, Arkansas. These facilities are
located on approximately 49.3 acres and consist of 114,403 square feet of office space and maintenance and storage
facilities.
Our subsidiaries lease facilities in Jacksonville, Florida; Breese and Effingham, Illinois; Paulsboro, New Jersey; North
Jackson, Ohio; Oklahoma City, Oklahoma; and El Paso, Texas. Our terminal facilities in Columbia, Mississippi; Irving and
Laredo, Texas; North Little Rock, Arkansas; and Willard, Ohio are owned. The leased facilities are leased primarily on
contractual terms typically ranging from one to five years. As of December 31, 2009, the following provides a summary of
the ownership and types of activities conducted at each location:
Location
Tontitown, Arkansas
North Little Rock, Arkansas
Jacksonville, Florida
Breese, Illinois
Effingham, Illinois
Columbia, Mississippi
Paulsboro, New Jersey
North Jackson, Ohio
Willard, Ohio
Oklahoma City, Oklahoma
El Paso, Texas
Irving, Texas
Laredo, Texas
Own/
Lease
Own
Own
Lease
Lease
Lease
Own
Lease
Lease
Own
Lease
Lease
Own
Own
Dispatch
Office
Yes
No
Yes
Yes
No
No
Yes
Yes
Yes
Yes
No
Yes
Yes
Maintenance
Facility
Yes
Yes
Yes
No
Yes
No
No
Yes
Yes
Yes
No
Yes
Yes
Safety
Training
Yes
No
Yes
No
No
No
No
Yes
Yes
Yes
No
Yes
No
We also have access to trailer drop and relay stations in various other locations across the country. We lease certain of
these facilities on a month-to-month basis from affiliates of our largest shareholder.
We believe that all of the properties that we own or lease are suitable for their purposes and adequate to meet our needs.
Item 3. Legal Proceedings.
The nature of our business routinely results in litigation, primarily involving claims for personal injuries and property
damage incurred in the transportation of freight. We believe that all such routine litigation is adequately covered by
insurance and that adverse results in one or more of those cases would not have a material adverse effect on our financial
condition.
Item 4. Reserved.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our common stock is traded on the NASDAQ Global Market under the symbol PTSI. The following table sets forth, for the
quarters indicated, the range of the high and low sales prices per share for our common stock as reported on the NASDAQ
Global Market.
Fiscal Year Ended December 31, 2009
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year Ended December 31, 2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$
$
High
Low
7.89 $
5.86
8.87
10.93
2.71
5.00
5.47
7.51
High
Low
16.85 $
16.90
15.82
11.08
13.82
9.22
9.82
3.15
As of March 1, 2010, there were approximately 146 holders of record of our common stock.
Dividends
We have never declared or paid any cash dividends on our common stock. The policy of our Board of Directors is to retain
earnings for the expansion and development of our business and the payment of our debt service obligations. Future
dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances
then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors.
Repurchases of Equity Securities by the Issuer
The Company’s stock repurchase program was first announced on April 11, 2005. The repurchase program was
subsequently extended and expanded several times, most recently in June 2008, when the Board of Directors authorized
the Company to repurchase up to 300,000 shares of its common stock during the twelve month period following the
announcement. As of December 31, 2009, no shares remain available for repurchase under any repurchase programs.
The Company did not repurchase any shares of its common stock during the fourth quarter of 2009.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”
of this Annual Report for a presentation of compensation plans under which equity securities of the Company are
authorized for issuance.
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Performance Graph
Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on our
common stock against the cumulative total return of the CRSP Total Return Index for the Nasdaq Stock Market (U.S.
companies) and the CRSP Total Return Index for the Nasdaq Trucking and Transportation Stocks for the period of five
years commencing December 31, 2004 and ending December 31, 2009. The graph assumes that the value of the
investment in our common stock and in each index was $100 on December 31, 2004 and that all dividends were
reinvested.
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Item 6. Selected Financial Data.
The following selected financial and operating data should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Report.
Statement of Operations Data:
Operating revenues:
Operating revenues, before fuel surcharge
Fuel surcharge
Total operating revenues
Operating expenses:
Salaries, wages and benefits
Fuel expense
Rent and purchased transportation
Depreciation and amortization
Goodwill impairment charge
Operating supplies
Operating taxes and licenses
Insurance and claims
Communications and utilities
Other
Loss (gain) on sale or disposal of property
Total operating expenses
Operating (loss) income
Non-operating (loss) income
Interest expense
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
(Loss) earnings per common share:
Basic
Diluted
Average common shares outstanding – Basic
Average common shares outstanding – Diluted(1)
__________
2009
2008
Year Ended December 31,
2007
2006
2005
(in thousands, except per share amounts)
$
$
260,774
31,136
291,910
323,272 $
83,451
406,723
351,701 $
57,140
408,841
351,373 $
48,896
400,269
101,833
65,527
40,713
37,742
-
26,572
13,055
12,579
2,644
4,967
931
306,563
(14,653)
(745)
(2,373)
(17,771)
(6,924)
123,961
140,531
39,887
37,477
15,413
30,514
15,937
16,018
2,869
5,119
952
428,678
(21,955)
(4,996)
(2,429)
(29,380)
(10,615)
135,606
114,242
38,718
38,759
-
30,845
17,520
17,591
3,113
7,130
(48)
403,476
5,365
1,707
(2,453)
4,619
1,966
127,539
97,286
43,844
33,929
-
25,682
16,421
16,389
2,642
5,426
47
369,205
31,064
448
(1,475)
30,037
12,073
$
$
$
(10,847) $
(18,765) $
2,653 $
17,964 $
(1.15) $
(1.15) $
9,411
9,416
(1.94) $
(1.94) $
9,683
9,683
0.26 $
0.26 $
10,238
10,239
1.74 $
1.74 $
10,296
10,302
326,353
34,527
360,880
122,005
81,017
39,074
31,376
-
23,114
15,776
15,992
2,648
6,205
147
337,354
23,526
477
(1,881)
22,122
8,983
13,139
1.20
1.20
10,966
10,976
(1) Diluted income per share for 2009, 2008, 2007, 2006 and 2005 assumes the exercise of stock options to purchase an aggregate of 7,139, 0, 19,213, 55,738
and 22,297 shares of common stock, respectively.
Balance Sheet Data:
Total assets
Long-term debt, excluding current portion
Stockholders' equity
2009
2008
At December 31,
2007
(in thousands)
2006
2005
$
$
260,656
27,202
147,127
$
290,361
35,492
155,477
$
319,904
44,172
179,377
$
314,246
21,205
185,028
293,441
39,693
164,762
2009
2008
Year Ended December 31,
2007
2006
2005
Operating Data:
Operating ratio (1)
Average number of truckloads per week
Average miles per trip
Total miles traveled (in thousands)
Average miles per truck
Average revenue, before fuel surcharge per truck per day
Average revenue, before fuel surcharge per loaded mile
Empty mile factor
105.6%
6,275
556
177,872
102,816
591
1.36
$
$
7.7%
106.8%
7,559
598
221,450
111,114
662
1.41
$
$
7.3%
$
$
98.5%
91.2%
92.8%
7,849
647
246,801
118,483
695
1.38
$
$
6.5%
7,200
659
229,810
123,156
778
1.43
$
$
5.9%
At end of period:
Total company-owned/leased trucks
Average age of trucks (in years)
Total trailers
Average age of trailers (in years)
Number of employees
1,731(2)
1,839(3)
2,055(4)
1,998(5)
2.60
4,630
5.22
2,591
1.90
4,809
4.43
2,931
1.75
4,882
4.44
3,181
1.55
4,540
4.16
3,062
__________
(1) Total operating expenses, net of fuel surcharge as a percentage of operating revenues, before fuel surcharge.
(2) Includes 34 owner operator trucks; (3) Includes 33 owner operator trucks; (4) Includes 55 owner operator trucks.
(5) Includes 49 owner operator trucks; (6) Includes 50 owner operator trucks.
The Company has not declared or paid any cash dividends during any of the periods presented above.
6,946
680
228,624
125,479
740
1.33
5.5%
1,792(6)
1.43
4,406
3.92
3,035
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Table of contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview
The Company's administrative headquarters are in Tontitown, Arkansas. From this location we manage operations
conducted through our wholly owned subsidiaries based in various locations around the United States and Canada. The
operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics
services. Truckload services include those transportation services in which we utilize company owned trucks or owner-
operator owned trucks. Brokerage and logistics services consist of services such as transportation scheduling, routing,
mode selection, transloading and other value added services related to the transportation of freight which may or may not
involve the usage of company owned or owner-operator owned equipment. Both our truckload operations and our
brokerage/logistics operations have similar economic characteristics and are impacted by virtually the same economic
factors as discussed elsewhere in this Report. All of the Company's operations are in the motor carrier segment.
For both operations, substantially all of our revenue is generated by transporting freight for customers and is predominantly
affected by the rates per mile received from our customers, equipment utilization, and our percentage of non-compensated
miles. These aspects of our business are carefully managed and efforts are continuously underway to achieve favorable
results. Truckload services revenues, excluding fuel surcharges, represented 85.3%, 89.6%, and 90.4% of total revenues,
excluding fuel surcharges for the twelve months ended December 31, 2009, 2008, and 2007, respectively.
The main factors that impact our profitability on the expense side are costs incurred in transporting freight for our
customers. Currently, our most challenging costs include fuel, driver recruitment, training, wage and benefit costs,
independent broker costs (which we record as purchased transportation), insurance, and maintenance and capital
equipment costs.
In discussing our results of operations we use revenue, before fuel surcharge, (and fuel expense, net of surcharge),
because management believes that eliminating the impact of this sometimes volatile source of revenue allows a more
consistent basis for comparing our results of operations from period to period. During 2009, 2008 and 2007, approximately
$31.1 million, $83.5 million and $57.1 million, respectively, of the Company's total revenue was generated from fuel
surcharges. We also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather
than absolute dollar changes. We do this because we believe the high variable cost nature of certain expenses makes a
comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.
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Table of contents
Results of Operations - Truckload Services
The following table sets forth, for truckload services, the percentage relationship of expense items to operating revenues,
before fuel surcharges, for the periods indicated. Fuel costs are shown net of fuel surcharges.
Operating revenues, before fuel surcharge
Operating expenses:
Salaries, wages and benefits
Fuel expense, net of fuel surcharge
Rent and purchased transportation
Depreciation and amortization
Goodwill impairment
Operating supplies and expenses
Operating taxes and licenses
Insurance and claims
Communications and utilities
Other
Loss on sale or disposal of property
Total operating expenses
Operating (loss) income
Non-operating (loss) income
Interest expense
(Loss) income before income taxes
2009 Compared to 2008
Years Ended December 31,
2009
2008
2007
100.0%
100.0%
100.0%
44.8
15.6
2.7
17.0
0.0
11.9
5.9
5.6
1.1
2.1
0.4
107.1
(7.1)
(0.3)
(1.1)
(8.5)%
42.1
19.9
3.2
12.9
2.9
10.5
5.5
5.5
1.0
1.7
0.3
105.5
(5.5)
(1.7)
(0.8)
(8.0)%
42.0
18.2
2.5
12.2
0.0
9.7
5.5
5.5
0.9
2.0
0.0
98.5
1.5
0.5
(0.7)
1.3%
For the year ended December 31, 2009, truckload services revenue, before fuel surcharges, decreased 23.2% to $222.5
million as compared to $289.6 million for the year ended December 31, 2008. The decrease relates primarily to a decrease
in the average number of trucks utilized, a decrease in equipment utilization, and a decrease in the average rate charged
to customers for the periods compared. During 2009, the number of trucks utilized decreased to an average count of 1,730
units compared to 1,993 units during 2008 as the Company has reduced its fleet size in response to current freight
demand. During 2009, the Company also experienced a decrease in the average number of miles traveled per unit each
work day from 454 miles during 2008 to 403 miles during 2009. Also contributing to the decrease in revenue was a
decrease in the average rate charged per total mile. During 2009, the average rate charged to customers per total mile
decreased by $0.06 as compared to the average rate charged during 2008.
Salaries, wages and benefits increased from 42.1% of revenues, before fuel surcharges, during 2008 to 44.8% of
revenues, before fuel surcharges, during 2009. The increase, as a percentage of revenues, resulted primarily from the
fixed cost characteristics of wages which do not fluctuate with changes in revenue, such as general and administrative,
maintenance, and operations wages. Using a dollar-based comparison, salaries, wages and benefits decreased from
$121.9 million during 2008 to $99.7 million during 2009 as the number of driver compensated miles decreased from 221.4
million miles during 2008 to 177.9 million miles during 2009. Also reflected in the dollar-based decrease was the effect of
an across-the-board 5% employee pay rate reduction program implemented in June 2009. The Company also experienced
an increase in expenses associated with employee benefits as employee health and workers compensation costs
increased from $7.2 million during 2008 to $9.0 million during 2009. Partially offsetting these increases was a decrease in
driver lease expense, a component of salaries, wages and benefits, which decreased from $6.2 million in 2008 to $4.4
million in 2009. This decrease was due to a decrease in the average number of owner operators under contract during the
periods compared.
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Fuel expense, net of fuel surcharge, decreased from 19.9% of revenues, before fuel surcharges, during 2008 to 15.6% of
revenues, before fuel surcharges, during 2009 which, on a dollar basis, represented a decrease from $57.5 million during
2008 to $34.6 million during 2009. The decrease relates to both a decrease in the number of gallons of fuel purchased
resulting from fewer miles traveled and a decrease in the average surcharge-adjusted price paid per gallon of fuel from
$1.61 during 2008 to $1.30 paid per gallon during 2009. Fuel surcharge collections vary from period to period as they are
generally based on changes in fuel prices from period to period so that during periods of rising fuel prices fuel surcharge
collections increase while fuel surcharge collections decrease during periods of declining fuel prices.
Rent and purchased transportation decreased from 3.2% of revenues, before fuel surcharges, in 2008 to 2.7% of revenues,
before fuel surcharges, in 2009. The decrease relates primarily to a decrease in amounts paid to third party transportation
service providers for intermodal services.
Depreciation and amortization increased from 12.9% of revenues, before fuel surcharges, in 2008 to 17.0% of revenues,
before fuel surcharges, in 2009. The percentage change in depreciation expense was elevated due to a change in
estimated residual values for a certain group of tractors. During the fourth quarter of 2009, management determined that a
certain group of trucks, with guaranteed manufacturer trade-in residual values, would not be used as trade-ins for a newer
model of the same make. Accordingly, the manufacturer guaranteed residual values associated with these trucks are no
longer available. Management expects that these trucks will be sold on the open market and believes that the ultimate
selling price will be significantly lower than the manufacturer guaranteed residual values. As such, the residual values of
these trucks were reduced during the fourth quarter of 2009 to reflect this expectation which resulted in additional
depreciation expense of $4.2 million during 2009. Excluding the impact of this additional depreciation, depreciation and
amortization, increased from 12.9% of revenues, before fuel surcharges, in 2008 to 15.1% of revenues, before fuel
surcharges, in 2009. The increase, as a percentage of revenue, relates to the effect of lower revenues during 2009 as
compared to 2008 and the fixed cost nature of depreciation expense. On a dollar basis, and excluding the additional
depreciation discussed above, depreciation and amortization expense decreased from $37.5 million during 2008 to $33.5
million during 2009 as the average size of the Company-owned truck fleet decreased from 1,949 trucks during 2008 to
1,697 trucks during 2009.
Goodwill impairment decreased from 2.9% of revenues, before fuel surcharges, in 2008 to 0.0% of revenues, before fuel
surcharges, in 2009 as the Company has no recorded goodwill remaining. Goodwill impairment was recorded as a result of
the Company’s 2008 annual test of goodwill impairment as required by GAAP. The impairment of our goodwill was
triggered by the sustained decline of our market capitalization caused by a decrease in our stock price during 2008 and in
the fourth quarter of 2008 we recognized an impairment expense which represented the entire balance of our recorded
goodwill.
Operating supplies and expenses increased from 10.5% of revenues, before fuel surcharges, during 2008 to 11.9% of
revenues, before fuel surcharges, during 2009. The increase, as a percentage of revenue, relates primarily to the effect of
lower revenues during 2009 as compared to 2008 and the fixed cost nature of routine equipment maintenance costs, driver
layover payments, drop lot rentals, and new tire amortization. On a dollar basis, operating supplies and expenses
decreased from $30.5 million during 2008 to $26.5 million during 2009 primarily due to a decrease in driver recruiting costs
and equipment maintenance costs. Driver recruiting costs, which consist primarily of payments to third-party driver training
schools, decreased from $5.7 million during 2008 to $3.4 million during 2009 due to the availability of experienced drivers
and a reduction in driver turnover. Equipment maintenance costs decreased from $17.0 million during 2008 to $15.7 million
during 2009, primarily as a result of maintaining a smaller Company-owned truck fleet which decreased from an average
count of 1,949 trucks during 2008 to 1,697 during 2009.
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Operating taxes and licenses increased from 5.5% of revenues, before fuel surcharges, during 2008 to 5.9% of revenues,
before fuel surcharges, during 2009. The increase, as a percentage of revenue, resulted from the interaction of expenses
with fixed-cost characteristics, such as registration fees, with a decrease in revenues for the periods compared. However,
on a dollar basis, operating taxes and licenses, which consists primarily of fuel taxes, decreased from $15.9 million during
2008 to $13.1 million during 2009. Fuel tax expense is primarily affected by the number of gallons of diesel fuel purchased
which is directly related to the number of miles traveled. During 2009, a decrease in the number of miles traveled to 177.9
million in 2009 from 221.4 million miles in 2008, resulted in a decrease in the number of diesel fuel gallons purchased.
Insurance and claims expense increased from 5.5% of revenues, before fuel surcharges, during 2008 to 5.6% of revenues,
before fuel surcharges, during 2009. On a dollar basis, insurance and claims expense decreased from $16.0 million during
2008 to $12.6 million during 2009. This dollar-based decrease relates primarily to a decrease in auto liability insurance
premiums which are determined based on a negotiated rate-per-mile (“NRPM”) with the Company’s insurance carrier.
During 2009, the number of miles used to calculate the premiums decreased to 177.9 million miles as compared to 2008
miles of 221.4 million and translated into a decrease in auto liability insurance expense. During October 2009, the
Company’s auto liability insurance policy was renewed at a rate which represented a 2.2% reduction in the NRPM and this
lower rate-per-mile has also contributed to the dollar-based decrease for the periods compared.
Other expenses increased from 1.7% of revenues, before fuel surcharges, during 2008 to 2.1% of revenues, before fuel
surcharges, during 2009. The increase relates primarily to an increase in uncollectible revenue expense.
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to
operating revenues, before fuel surcharges, increased to 107.1% for 2009 from 105.5% for 2008.
Non-operating expense decreased from 1.7% of revenues, before fuel surcharges, during 2008 to 0.3% of revenues, before
fuel surcharges, during 2009. The decrease relates to a decrease in amounts expensed due to write-downs of the
Company’s investments in marketable equity securities. Each period, management must determine if the Company’s
investments in marketable equity securities are other-than-temporarily impaired. Any of these investments determined to be
other-than-temporarily impaired, must be written down to fair market value. The amount of these write-downs, as
determined by the difference between the recorded cost of the investment and its respective quoted market price, were
approximately $5.2 million during 2008 as compared to $1.5 million during 2009.
2008 Compared to 2007
For the year ended December 31, 2008, truckload services revenue, before fuel surcharges, decreased 8.9% to $289.6
million as compared to $317.9 million for the year ended December 31, 2007. The decrease relates primarily to a decrease
in the number of trucks utilized during 2008 as compared to 2007 and to a decrease in equipment utilization for the periods
compared. During 2008 the number of trucks utilized decreased to an average count of 1,993 units compared to 2,083 units
during 2007 as the Company has reduced its fleet size in response to current freight demand. During 2008, the Company
also experienced a decrease in the average number of miles traveled per unit each work day from 488 miles during 2007
to 454 miles during 2008. Partially offsetting these decreases in revenue was an increase in the average rate charged per
total mile. During 2008, the average rate charged to customers per total mile increased by $0.02 as compared to the
average rate charged during 2007.
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Salaries, wages and benefits increased from 42.0% of revenues, before fuel surcharges, during 2007 to 42.1% of
revenues, before fuel surcharges, during 2008, however, based on a dollar comparison, salaries, wages and benefits
decreased from $133.5 million during 2007 to $121.9 million during 2008 as the number of driver compensated miles
decreased from 246.8 million miles during 2007 to 221.4 million miles during 2008. The increase, as a percentage of
revenues, resulted primarily from the fixed cost characteristics of wages which do not fluctuate with changes in revenue,
such as general and administrative, maintenance, and operations wages. Partially offsetting the increase was a decrease
in driver lease expense and a decrease in amounts recorded for employee health insurance expense. Driver lease
expense, which is a component of salaries, wages and benefits,
decreased from $7.8 million in 2007 to $6.2 million in 2008, as the average number of owner operators under contract
decreased from 57 during 2007 to 44 during 2008. Employee health insurance expense decreased from $6.3 million in
2007 to $5.0 million in 2008 as a result of a decrease in the total number of covered employees and a decrease in the
number and severity of health claims reported during 2008 as compared to 2007.
Fuel expense, net of fuel surcharge, increased from 18.2% of revenues, before fuel surcharges, during 2007 to 19.9% of
revenues, before fuel surcharges, during 2008. On a dollar basis, fuel expense decreased from $57.8 million during 2007
to $57.5 million during 2008 as the number of gallons of diesel fuel purchased during 2008 were significantly lower than the
number of gallons purchased during 2007 due to the decrease in miles traveled for the periods compared. The increase, as
a percentage of revenue, was related to an increase in the average price paid per gallon of diesel fuel from $2.75 during
2007 to an average cost of $3.59 during 2008. Partially offsetting the increase related to the increase in average price paid
per gallon of diesel fuel was an increase in amounts collected from customers in the form of fuel surcharges from an
average of $1.24 per gallon of diesel fuel during 2007 to $1.98 per gallon during 2008. Fuel surcharge collections vary from
period to period as they are generally based on changes in fuel prices from period to period so that during periods of rising
fuel prices fuel surcharge collections increase while fuel surcharge collections decrease during periods of declining fuel
prices.
Rent and purchased transportation increased from 2.5% of revenues, before fuel surcharges, in 2007 to 3.2% of revenues,
before fuel surcharges, in 2008. The increase relates primarily to an increase in amounts paid to third party transportation
service providers for intermodal services.
Depreciation and amortization increased from 12.2% of revenues, before fuel surcharges, in 2007 to 12.9% of revenues,
before fuel surcharges, in 2008. The increase, as a percentage of revenue, relates primarily to the effect of lower revenues
during 2008 as compared to 2007 and the fixed cost nature of depreciation expense. On a dollar basis, depreciation and
amortization expense decreased from $38.7 million during 2007 to $37.5 million during 2008 as the average size of the
Company-owned truck fleet decreased from 2,027 trucks during 2007 to 1,949 trucks during 2008.
Goodwill impairment was recorded during the Company’s annual test of goodwill impairment as required by GAAP. The
impairment of our goodwill was triggered by the sustained decline of our market capitalization caused by a decrease in our
stock price during 2008. In the fourth quarter of 2008, we determined that our market capitalization compared to the
carrying amount of the Company indicated that impairment was probable and that the second step of impairment testing
was necessary. The second step of our impairment test required the calculation of the fair value of the Company and the
subsequent allocation of the fair value to the assets and liabilities of the Company. The excess fair value after this
allocation is performed represents the implied goodwill of the Company, if any, and was zero at December 31, 2008. As a
result we incurred an impairment expense of $15.4 million which represented the entire balance of our goodwill.
Operating supplies and expenses increased from 9.7% of revenues, before fuel surcharges, during 2007 to 10.5% of
revenues, before fuel surcharges, during 2008. The increase relates primarily to an increase in amounts paid for tolls, new
tire amortization, driver layovers, and miscellaneous operations expense. The increase was partially offset by a decrease in
amounts paid to third party driver training schools which the Company uses to recruit new truck drivers.
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Operating taxes and licenses remained constant at 5.5% of revenues, before fuel surcharges, for both 2007 and 2008. On
a dollar basis however, operating taxes and licenses, which consists primarily of fuel taxes, decreased from $17.5 million
during 2007 to $15.9 million during 2008. Fuel tax expense is primarily affected by the number of gallons of diesel fuel
purchased which is directly related to the number of miles traveled. During 2008, a decrease in the number of miles
traveled to 221.4 million in 2008 from 246.8 million miles in 2007, resulted in a decrease in the number of diesel fuel
gallons purchased.
Insurance and claims expense remained constant at 5.5% of revenues, before fuel surcharges, for both 2007 and 2008. On
a dollar basis however, insurance and claims expense decreased from $17.6 million during 2007 to $16.0 million during
2008. The decrease relates primarily to a decrease in auto liability insurance premiums which are determined based on a
negotiated rate-per-mile (“NRPM”) with the Company’s insurance carrier. During 2008, the number of miles used to
calculate the premiums decreased to 221.4 million miles as compared to 2007 miles of 246.8 million and translated into a
decrease in auto liability insurance expense. During October 2008, the Company’s auto liability insurance policy was
renewed at a rate which represented a 2.6% reduction in the NRPM and this lower rate-per-mile has also contributed to the
dollar-based decrease for the periods compared.
Other expenses decreased from 2.0% of revenues, before fuel surcharges, during 2007 to 1.7% of revenues, before fuel
surcharges, during 2008. The decrease relates primarily to a decrease in various expenses such as advertising,
miscellaneous operating supplies, uncollectible revenue, and rents.
The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to
operating revenues, before fuel surcharges, increased to 105.5% for 2008 from 98.5% for 2007.
Non-operating income and expenses increased from income of 0.5% of revenues, before fuel surcharges, during 2007 to
expense of 1.7% of revenues, before fuel surcharges, during 2008. During 2008, certain of the Company’s investments in
marketable equity securities were determined by management to be other-than-temporarily impaired and were therefore
written down to fair market value. The amount of the year-to-date write-downs approximated $5.2 million and was
determined based on the difference between recorded cost and quoted market prices at the end of the period.
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Results of Operations - Logistics and Brokerage Services
The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to
operating revenues, before fuel surcharges, for the periods indicated. Brokerage service operations occur specifically in
certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially
similar economic characteristics. Rent and purchased transportation, which includes costs paid to third party carriers, are
shown net of fuel surcharges.
Operating revenues, before fuel surcharge
Operating expenses:
Salaries, wages and benefits
Fuel expense
Rent and purchased transportation, net of fuel surcharge
Depreciation and amortization
Goodwill impairment
Operating supplies and expenses
Operating taxes and licenses
Insurance and claims
Communications and utilities
Other
Loss on sale or disposal of property
Total operating expenses
Operating (loss) income
Non-operating (loss) income
Interest expense
(Loss) income before income taxes
2009 Compared to 2008
Years Ended December 31,
2009
2008
2007
100.0%
100.0%
100.0%
5.5
0.0
90.4
0.0
0.0
0.0
0.0
0.1
0.2
0.9
0.0
97.1
2.9
0.0
(0.1)
2.8%
6.2
0.0
89.5
0.0
20.6
0.0
0.0
0.1
0.3
1.0
0.0
117.7
(17.7)
0.0
(0.2)
(17.9)%
6.3
0.0
88.9
0.0
0.0
0.0
0.0
0.1
0.3
2.1
0.0
97.7
2.3
0.0
(0.4)
1.9%
For the year ended December 31, 2009, logistics and brokerage services revenues, before fuel surcharges, increased
13.7% to $38.3 million as compared to $33.7 million for the year ended December 31, 2008. The increase was primarily
the result of an increase in the number of loads brokered during 2009 as compared to 2008.
Salaries, wages and benefits decreased from 6.2% of revenues, before fuel surcharges, in 2008 to 5.5% of revenues,
before fuel surcharges, in 2009. The decrease relates to the interaction between these expenses, which exhibit fixed cost
characteristics, and an increase in revenue.
Rent and purchased transportation increased from 89.5% of revenues, before fuel surcharges, in 2008 to 90.4% of
revenues, before fuel surcharges, in 2009. The increase relates to an increase in amounts charged by third party logistics
and brokerage service providers.
Goodwill impairment decreased from 20.6% of revenues, before fuel surcharges, in 2008 to 0.0% of revenues, before fuel
surcharges, in 2009 as the Company has no recorded goodwill remaining. Goodwill impairment was recorded during the
Company’s 2008 annual test of goodwill impairment as required by GAAP. The impairment of our goodwill was triggered by
the sustained decline of our market capitalization caused by a decrease in our stock price during 2008 and in the fourth
quarter of 2008 we recognized an impairment expense which represented the entire balance of our recorded goodwill.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel
surcharges, to operating revenues, before fuel surcharges, decreased to 97.1% for 2009 from 117.7% for 2008.
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2008 Compared to 2007
For the year ended December 31, 2008, logistics and brokerage services revenues, before fuel surcharges, decreased
0.2% to $33.7 million as compared to $33.8 million for the year ended December 31, 2007. The decrease was primarily the
result of a slight decrease in the number of loads brokered during 2008 as compared to 2007.
Rent and purchased transportation increased from 88.9% of revenues, before fuel surcharges, in 2007 to 89.5% of
revenues, before fuel surcharges, in 2008. The increase relates to an increase in amounts charged by third party logistics
and brokerage service providers primarily as a result of higher fuel costs.
Goodwill impairment was discovered during the Company’s annual test of goodwill impairment as required by GAAP. The
impairment of our goodwill was triggered by the sustained decline of our market capitalization caused by a decrease in our
stock price during 2008. In the fourth quarter of 2008, we determined that our market capitalization compared to the
carrying amount of the Company indicated that impairment was probable and that the second step of impairment testing
was necessary. The second step of our impairment test required the calculation of the fair value of the Company and the
subsequent allocation of the fair value to the assets and liabilities of the Company. The excess fair value after this
allocation is performed represents the implied goodwill of the Company, if any, and was zero at December 31, 2008. As a
result we incurred an impairment expense of $15.4 million which represented the entire balance of our goodwill.
Other expenses decreased from 2.1% of revenues, before fuel surcharges, during 2007 to 1.0% of revenues, before fuel
surcharges during 2008. The decrease relates to a decrease in non-compete amortization expense as the non-compete
agreement with the former owner of East Coast Transport, LLC expired in January 2008.
The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel
surcharges, to operating revenues, before fuel surcharges, increased to 117.7% for 2008 from 97.7% for 2007.
Results of Operations - Combined Services
2009 Compared to 2008
Income tax benefit was approximately $6.9 million in 2009 resulting in an effective rate of 39.0%, as compared to income
tax benefit of approximately $10.6 million in 2008 which resulted in an effective rate of 36.1%. The effective tax rate differs
from the statutory rate primarily due to the existence of partially non-deductible meal and incidental expense per-diem
payments to company drivers as well as a one-time benefit due to non-taxable life insurance proceeds received during
2009. Per-diem payments may cause a significant difference in the Company’s effective tax rate from period-to-period as
the proportion of non-deductible expenses to pre-tax net income increases or decreases.
We have determined, based on significant judgment, that a valuation allowance against our deferred tax assets has not
been necessary. Management evaluates the realizability of its deferred tax assets based upon negative and positive
evidence available and, based on the evidence available at this time, management concludes that it is "more likely than
not" that we will be able to realize the benefit of our deferred tax assets in the near future.
As of December 31, 2009, there were no unrecognized tax benefits and an adjustment to the Company’s consolidated
financial statements for uncertain tax positions was not required as management believes that the Company’s significant
tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws.
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The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws
of multiple state jurisdictions. The major tax jurisdictions in which we operate generally provide for a deficiency assessment
statute of limitation period of three years and as a result, the Company’s tax years 2006 through 2008 remain open to
examination in those jurisdictions. During 2009, the Company has not recognized or accrued any interest or penalties
related to uncertain income tax positions and does not believe it is reasonably possible that our unrecognized tax benefits
will significantly change within the next twelve months.
The combined net loss for all divisions was $10.8 million, or 4.2% of revenues, before fuel surcharge, for 2009 as
compared to the combined net loss for all divisions of $18.8 million or 5.8% of revenues, before fuel surcharge, for 2008.
The increase in income resulted in a decrease in the diluted loss per share from $1.94 for 2008 to a diluted loss per share
of $1.15 for 2009.
2008 Compared to 2007
Income tax benefit was approximately $10.6 million in 2008 resulting in an effective rate of 36.1%, as compared to income
tax expense of approximately $2.0 million in 2007 which resulted in an effective rate of 42.6%. The effective tax rate differs
from the statutory rate primarily due to the existence of partially non-deductible meal and incidental expense per-diem
payments to company drivers. These per-diem payments may cause a significant difference in the Company’s effective tax
rate from period-to-period as the proportion of non-deductible expenses to pre-tax net income increases or decreases.
We have determined, based on significant judgment, that a valuation allowance against our deferred tax assets has not
been necessary. Management evaluates the realizability of its deferred tax assets based upon negative and positive
evidence available and, based on the evidence available at this time, management concludes that it is "more likely than
not" that we will be able to realize the benefit of our deferred tax assets in the near future.
As of December 31, 2008, there were no unrecognized tax benefits and an adjustment to the Company’s consolidated
financial statements for uncertain tax positions was not required as management believes that the Company’s significant
tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws.
The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws
of multiple state jurisdictions. The major tax jurisdictions in which we operate generally provide for a deficiency assessment
statute of limitation period of three years and as a result, the Company’s tax years 2005 through 2007 remain open to
examination in those jurisdictions. During 2008, the Company has not recognized or accrued any interest or penalties
related to uncertain income tax positions and does not believe it is reasonably possible that our unrecognized tax benefits
will significantly change within the next twelve months.
The combined net loss for all divisions was $18.8 million, or 5.8% of revenues, before fuel surcharge, for 2008 as
compared to combined net income for all divisions of $2.7 million or 0.8% of revenues, before fuel surcharge, for 2007. The
decrease in income combined with the effect of treasury stock repurchases resulted in a decrease in diluted earnings per
share from $0.26 for 2007 to a diluted loss per share of $1.94 for 2008.
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Quarterly Results of Operations
The following table presents selected consolidated financial information for each of our last eight fiscal quarters through
December 31, 2009. The information has been derived from unaudited consolidated financial statements that, in the
opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the quarterly information.
Mar. 31,
2009
June 30,
Sept. 30,
Dec. 31,
Mar. 31,
June 30,
Sept. 30,
Dec. 31,
2009
2009
2009
2008
2008
2008
2008
Quarter Ended
(unaudited)
(in thousands, except earnings per share data)
$ 68,476 $ 76,743 $ 80,872 $ 105,820 $ 110,930 $ 105,958 $ 84,014
$ 65,818
Operating revenues
Total operating
expenses
Operating (loss) income
Net (loss) income
(Loss) earnings per
common share:
Basic
$
69,432
(3,614)
(3,346)
72,040 78,092 86,999 109,786 112,460 107,240 99,190
(1,282) (15,176)
(3,181) (11,424)
(6,127)
(3,915)
(1,349)
(1,230)
(3,966)
(2,828)
(1,530)
(1,332)
(3,564)
(2,356)
(0.36) $
(0.25) $
(0.13) $
(0.42) $
(0.29) $
(0.14) $
(0.33) $
(1.19)
Diluted
$
(0.36) $
(0.25) $
(0.13) $
(0.42) $
(0.29) $
(0.14) $
(0.33) $
(1.19)
Liquidity and Capital Resources
Our business has required, and will continue to require, a significant investment in new revenue equipment. Our primary
sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, issuances of
equity securities, and borrowings under our lines of credit and installment notes.
During 2009, we generated $32.1 million in cash from operating activities compared to $40.6 million and $45.2 million in
2008 and 2007, respectively. Investing activities used $2.4 million in cash during 2009 compared to $48.3 million and $61.7
million in 2008 and 2007, respectively. The cash used in all three years related primarily to the purchase of revenue
equipment such as trucks and trailers or revenue related equipment such as auxiliary power units. Financing activities used
$20.7 million in cash during 2009 compared to financing activities in 2008 and 2007 which provided $8.1 million and $15.9
million, respectively. See the Consolidated Statements of Cash Flows in Item 8 of this Report.
Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing lines of
credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations, to finance capital
expenditures and repay long-term debt. During 2009 and 2008, we utilized cash on hand, installment notes, and our lines of
credit to finance revenue equipment purchases of approximately $9.2 million and $53.5 million, respectively.
Occasionally we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms
ranging from 12 to 48 months. At December 31, 2009, the Company’s subsidiaries had combined outstanding
indebtedness under such installment notes of $37.4 million. These installment notes are payable in 36 monthly installments
at a weighted average interest rate of 4.87%. At December 31, 2008, the Company’s subsidiaries had combined
outstanding indebtedness under such installment notes of $45.7 million. These installment notes are payable in monthly
installments ranging from 12 months to 36 months at a weighted average interest rate of 4.80%.
In order to maintain our truck and trailer fleet count it is often necessary to purchase replacement units and place them in
service before trade units are removed from service. The timing of this process often requires the Company to pay for new
units without any reduction in price for trade units. In this situation, the Company later receives payment for the trade units
as they are delivered to the equipment vendor and have passed vendor inspection. During the twelve months ended
December 31, 2009 and 2008, the Company received approximately $7.1 million and $4.3 million, respectively, for units
delivered for trade.
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During 2009 we maintained a $30.0 million revolving line of credit. Amounts outstanding under the line bear interest at
LIBOR (determined as of the first day of each month) plus 1.95% (2.19% at December 31, 2009), are secured by our
accounts receivable and mature on May 31, 2010. However the Company has the intent and ability to extend the terms of
this line of credit for an additional one year period until May 31, 2011. At December 31, 2009, outstanding advances on the
line were approximately $2.9 million, which consisted entirely of letters of credit, with availability to borrow $27.1 million.
Cash and cash equivalents at December 31, 2009 increased approximately $9.0 million as compared to December 31,
2008. The primary reason for the increase relates to a reduction in capital expenditures made during December 2009 as
compared to December 2008.
Prepaid expenses and deposits at December 31, 2009 decreased approximately $4.2 million as compared to December
31, 2008. The primary reason for the decrease relates to a decrease in amounts prepaid for auto liability insurance
premiums. In December 2008, a portion of the 2009 auto liability insurance premiums were paid in advance. There were
no corresponding prepayments made during December 2009 for auto liability insurance premiums related to 2010.
Marketable equity securities available for sale at December 31, 2009 increased approximately $2.4 million as compared to
December 31, 2008. The increase was primarily related to changes in the market value of the investments, net of sales
and other-than-temporary write-downs. These securities, combined with equity securities purchased in prior periods, have
a combined cost basis of approximately $9.8 million and a combined fair market value of approximately $14.9 million. The
Company has developed a strategy to invest in securities from which it expects to receive dividends that qualify for
favorable tax treatment, as well as appreciate in value. The Company anticipates that increases in the market value of the
investments combined with dividend payments will exceed interest rates paid on borrowings for the same period. During
2009 the Company had net unrealized pre-tax gains of approximately $4.1 million and received dividends of approximately
$532,000. The holding term of these securities depends largely on the general economic environment, the equity markets,
borrowing rates and the Company's cash requirements.
Revenue equipment, which generally consists of trucks, trailers, and revenue equipment accessories such as Qualcomm™
satellite tracking units and auxiliary power units, at December 31, 2009 decreased approximately $22.4 million as
compared to December 31, 2008. The decrease is attributable to the net effect of disposing approximately 300 trucks and
150 trailers during 2009 while only purchasing 25 trailers during 2009. Partially off-setting the decrease was the acquisition
of approximately 900 additional auxiliary power units.
Accounts payable at December 31, 2009 decreased approximately $5.8 million as compared to December 31, 2008. The
decrease is primarily related to a decrease in amounts accrued for the purchase of revenue equipment at December 31,
2009 as compared to December 2008.
Accrued expenses and other liabilities at December 31, 2009 decreased approximately $5.2 million as compared to
December 31, 2008. The decrease is primarily related to a $6.9 million decrease in margin account borrowings secured by
the Company’s investments in marketable equity securities. Partially offsetting the decrease related to margin account
borrowings was a $1.3 million increase in amounts reserved at the end of the period for workers compensation claims
reserves.
Current maturities of long-term debt at December 31, 2009 decreased approximately $5.6 million as compared to
December 31, 2008. The decrease is related to a decrease in the number of monthly payments for installment note
borrowings due within the next twelve months as a result of the maturity of certain of these borrowings.
Long-term debt at December 31, 2009 decreased approximately $8.3 million as compared to December 31, 2008. The
decrease is primarily related to a decrease in amounts payable on the Company’s line of credit and a decrease in
installment note borrowings outstanding.
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For 2010, we expect to purchase 185 new trucks while continuing to sell or trade older equipment, which we expect to result
in net capital expenditures of approximately $7.6 million. Management believes we will be able to finance our near term
needs for working capital over the next twelve months, as well as acquisitions of revenue equipment during such period,
with cash balances, cash flows from operations, and borrowings believed to be available from financing sources. We will
continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional
equity capital. The availability of additional capital will depend upon prevailing market conditions, the market price of our
common stock and several other factors over which we have limited control, as well as our financial condition and results of
operations. Nevertheless, based on our anticipated future cash flows and sources of financing that we expect will be
available to us, we do not expect that we will experience any significant liquidity constraints in the foreseeable future.
Contractual Obligations and Commercial Commitments
The following table sets forth the Company's contractual obligations and commercial commitments as of December 31,
2009:
Payments due by period
(in thousands)
Total
Less than
1 year
1 to 3
Years
3 to 5
Years
More than
5 Years
Long-term debt (1)
Operating leases (2)
Total
$
$
39,992 $
755
40,747 $
11,978 $
296
12,274 $
28,014 $
379
28,393 $
- $
80
80 $
-
-
-
(1) Including interest.
(2) Represents building, facilities, and drop yard operating leases.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements as defined in Regulation S-K 303 (a)(4)(ii) issued by the Securities
and Exchange Commission.
Insurance
With respect to physical damage for trucks, cargo loss and auto liability, the Company maintains insurance coverage to
protect it from certain business risks. These policies are with various carriers and have per occurrence deductibles of
$2,500, $10,000 and $2,500 respectively. The Company maintains workers’ compensation coverage in Arkansas, Ohio,
Oklahoma, Mississippi, and Florida with a $500,000 self-insured retention and a $500,000 per occurrence excess policy.
The Company has elected to opt out of workers' compensation coverage in Texas and is providing coverage through the
P.A.M. Texas Injury Plan. The Company has reserved for estimated losses to pay such claims as well as claims incurred
but not yet reported. The Company has not experienced any adverse trends involving differences in claims experienced
versus claims estimates for workers’ compensation claims. Letters of credit aggregating $1,001,000 and certificates of
deposit totaling $300,000 are held by banks as security for workers’ compensation claims. The Company self insures for
employee health claims with a stop loss of $225,000 per covered employee per year and estimates its liability for claims
incurred but not reported.
Inflation
Inflation has an impact on most of our operating costs. Recently, the effect of inflation has been minimal.
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Adoption of Accounting Policies
See “Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements - Recent
Accounting Pronouncements.”
Critical Accounting Policies
The Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements. The
policies described below represent those that are broadly applicable to the Company's operations and involve additional
management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the
related amounts.
Accounts Receivable. We continuously monitor collections and payments from our customers, third parties and vendors
and maintain a provision for estimated credit losses based upon our historical experience and any specific collection issues
that we have identified. While such credit losses have historically been within our expectations and the provisions
established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.
Property and equipment . Management must use its judgment in the selection of estimated useful lives and salvage values
for purposes of depreciating trucks and trailers which in some cases do not have guaranteed residual values. Estimates of
salvage value at the expected date of trade-in or sale are based on the expected market values of equipment at the time of
disposal which, in many cases include guaranteed residual values by the manufacturers.
The depreciation of property, plant and equipment over their estimated useful lives and the determination of any salvage
value require management to make judgments about future events. The Company’s management periodically evaluates
whether changes to estimated useful lives or salvage values are necessary to ensure these estimates accurately reflect the
economic use of the assets. This periodic evaluation may result in changes in the estimated lives and/or salvage values
used by the Company to depreciate its assets, which can affect the amount of periodic depreciation expense recognized
and, ultimately, the gain or loss on the disposal of the asset. During management’s most recent periodic evaluation, the
estimated useful lives for certain revenue equipment were extended in response to planned capital expenditure levels. As a
result of the revised estimates, management extended the estimated useful life of its tractors to 5 years from 3 or 4 years
and reduced expected salvage values accordingly. These changes are expected to result in a $1.4 million decrease in
2010 tractor depreciation expense. Management also reduced the estimated salvage values for its trailers which is
expected to result in a $0.4 million increase in 2010 trailer depreciation expense. Generally, an increase in useful lives for
revenue equipment is accompanied by an increase in maintenance expenses.
Self Insurance. The Company is self-insured for health and workers' compensation benefits up to certain stop-loss limits.
Such costs are accrued based on known claims and an estimate of incurred, but not reported (IBNR) claims. IBNR claims
are estimated using historical lag information and other data either provided by outside claims administrators or developed
internally. This estimation process is subjective, and to the extent that future actual results differ from original estimates,
adjustments to recorded accruals may be necessary.
Revenue Recognition. Revenue is recognized in full upon completion of delivery to the receiver's location. For freight in
transit at the end of a reporting period, the Company recognizes revenue prorata based on relative transit time completed
as a portion of the estimated total transit time. Expenses are recognized as incurred.
Prepaid Tires. Tires purchased with revenue equipment are capitalized as a cost of the related equipment. Replacement
tires are included in prepaid expenses and deposits and are amortized over a 24-month period. Costs related to tire
recapping are expensed when incurred.
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Income Taxes. Significant management judgment is required to determine the provision for income taxes and to determine
whether deferred income tax assets will be realized in full or in part. Deferred income tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. When it is more likely that all or some portion of specific deferred income tax
assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that
are determined not to be realizable. A valuation allowance for deferred income tax assets has not been deemed to be
necessary. Accordingly, if the facts or financial circumstances were to change, thereby impacting the likelihood of realizing
the deferred income tax assets, judgment would need to be applied to determine the amount of valuation allowance
required in any given period.
On January 1, 2007, the Company adopted authoritative guidance related to uncertain tax positions. This guidance requires
a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be
sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the
tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider
many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments
and which may not accurately anticipate actual outcomes.
Business Combinations and Goodwill . Upon acquisition of an entity, the cost of the acquired entity must be allocated to
assets and liabilities acquired. Identification of intangible assets, if any, that meet certain recognition criteria is necessary.
This identification and subsequent valuation requires significant judgments. The carrying value of goodwill, if any, is tested
annually. As of December 31, 2009 the Company has no recorded goodwill.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Our primary market risk exposures include equity price risk, interest rate risk, and commodity price risk (the price paid to
obtain diesel fuel for our trucks). The potential adverse impact of these risks are discussed below.
The following sensitivity analyses do not consider the effects that an adverse change may have on the overall economy nor
do they consider additional actions we may take to mitigate our exposure to such changes. Actual results of changes in
prices or rates may differ materially from the hypothetical results described below.
Equity Price Risk
We hold certain actively traded marketable equity securities which subjects the Company to fluctuations in the fair market
value of its investment portfolio based on current market price. The recorded value of marketable equity securities
increased to $14.9 million at December 31, 2009 from $12.5 million at December 31, 2008. The increase includes
additional purchases, net of sales or write-downs, of approximately $0.3 million during 2009 and an increase in the fair
market value of approximately $2.7 million during 2009. A 10% decrease in the market price of our marketable equity
securities would cause a corresponding 10% decrease in the carrying amounts of these securities, or approximately $1.5
million. For additional information with respect to the marketable equity securities, see Note 3 to our consolidated financial
statements.
Interest Rate Risk
Our line of credit bears interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR,
which are effected by changes in interest rates, will affect the interest rate on, and therefore our costs under, the line of
credit. Assuming $1.0 million of variable rate debt was outstanding under our line of credit for a full fiscal year, a
hypothetical 100 basis point increase in LIBOR would result in approximately $10,000 of additional interest expense.
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Commodity Price Risk
Prices and availability of all petroleum products are subject to political, economic and market factors that are generally
outside of our control. Accordingly, the price and availability of diesel fuel, as well as other petroleum products, can be
unpredictable. Because our operations are dependent upon diesel fuel, significant increases in diesel fuel costs could
materially and adversely affect our results of operations and financial condition. Based upon our 2009 fuel consumption, a
10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $6.6
million.
Item 8. Financial Statements and Supplementary Data.
The following statements are filed with this report:
Report of Independent Registered Public Accounting Firm – Grant Thornton LLP
Consolidated Balance Sheets - December 31, 2009 and 2008
Consolidated Statements of Operations - Years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Shareholders’ Equity and Other Comprehensive Income (Loss) - Years ended
December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
P.A.M. Transportation Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of P.A.M. Transportation Services, Inc. (a Delaware
corporation) and subsidiaries (collectively the Company) as of December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders’ equity and other comprehensive income (loss),and cash flows for each of the three
years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of
their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), P.A.M. Transportation Services, Inc. and subsidiaries’ internal control over financial reporting as of December 31,
2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report dated March 15, 2010 expressed an unqualified
opinion thereon.
/s/ GRANT THORNTON LLP
Tulsa, Oklahoma
March 15, 2010
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P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(in thousands, except share and per share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—net:
Trade
Other
Inventories
Prepaid expenses and deposits
Marketable equity securities
Income taxes refundable
Deferred income taxes—current
Total current assets
PROPERTY AND EQUIPMENT:
Land
Structures and improvements
Revenue equipment
Office furniture and equipment
Total property and equipment
Accumulated depreciation
Net property and equipment
OTHER ASSETS:
Other
Total other assets
TOTAL ASSETS
See notes to consolidated financial statements.
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2009
2008
$
9,870 $
858
45,911
1,551
750
5,258
14,921
467
1,401
43,815
1,088
858
9,443
12,540
524
-
80,129
69,126
4,924
13,665
297,788
7,929
4,916
13,596
320,188
7,606
324,306
346,306
(145,526)
(125,742)
178,780
220,564
1,747
1,747
671
671
$
260,656 $
290,361
(Continued)
Table of contents
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(in thousands, except share and per share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
2009
2008
CURRENT LIABILITIES:
Accounts payable
Accrued expenses and other liabilities
Current maturities of long—term debt
Deferred income taxes—current
Total current liabilities
Long-term debt—less current portion
Deferred income taxes—less current portion
Total liabilities
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares
authorized; none issued
Common stock, $.01 par value, 40,000,000 shares
authorized; 11,372,207 and 11,368,207 shares issued;
9,413,607 and 9,409,607 shares outstanding at
December 31, 2009 and December 31, 2008, respectively
Additional paid-in capital
Accumulated other comprehensive income
Treasury stock, at cost; 1,958,600 shares
Retained earnings
Total shareholders’ equity
$
14,492 $
10,504
10,331
-
20,269
15,684
15,928
157
35,327
52,038
27,202
51,000
35,492
47,354
113,529
134,884
-
-
114
77,704
3,063
(29,127)
95,373
114
77,659
611
(29,127)
106,220
147,127
155,477
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$
260,656 $
290,361
See notes to consolidated financial statements.
(Concluded)
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P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands, except per share data)
OPERATING REVENUES:
Revenue, before fuel surcharge
Fuel surcharge
2009
2008
2007
$
260,774 $
31,136
323,272 $
83,451
351,701
57,140
Total operating revenues
291,910
406,723
408,841
OPERATING EXPENSES AND COSTS:
Salaries, wages and benefits
Fuel expense
Rents and purchased transportation
Depreciation and amortization
Goodwill impairment charge
Operating supplies and expenses
Operating taxes and licenses
Insurance and claims
Communications and utilities
Other
Loss (gain) on disposition of equipment
101,833
65,527
40,713
37,742
-
26,572
13,055
12,579
2,644
4,967
931
123,961
140,531
39,887
37,477
15,413
30,514
15,937
16,018
2,869
5,119
952
135,606
114,242
38,718
38,759
-
30,845
17,520
17,591
3,113
7,130
(48)
Total operating expenses and costs
306,563
428,678
403,476
OPERATING (LOSS) INCOME
(14,653)
(21,955)
5,365
NON-OPERATING (EXPENSE) INCOME
INTEREST EXPENSE
(745)
(2,373)
(4,996)
(2,429)
1,707
(2,453)
(LOSS) INCOME BEFORE INCOME TAXES
(17,771)
(29,380)
4,619
FEDERAL & STATE INCOME TAX (BENEFIT) EXPENSE:
Current
Deferred
180
(7,104)
314
(10,929)
217
1,749
Total federal & state income tax (benefit) expense
(6,924)
(10,615)
1,966
NET (LOSS) INCOME
$
(10,847) $
(18,765) $
2,653
(LOSS) EARNINGS PER COMMON SHARE:
Basic
Diluted
AVERAGE COMMON SHARES OUTSTANDING:
Basic
Diluted
See notes to consolidated financial statements.
$
$
(1.15) $
(1.15) $
(1.94) $
(1.94) $
0.26
0.26
9,411
9,416
9,683
10,238
9,683
10,239
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P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands)
Common Stock
Shares / Amount
Additional
Paid-In
Capital
Other
Comprehensive
Income (Loss)
Accumulated
Other
Comprehensive
Income
Treasury
Stock
Retained
Earnings
Total
BALANCE— January 1, 2007
10,303
$
114
$
77,309
$
3,142
$
(17,869)
$
122,332
$
185,028
$
2,653
2,653
2,653
(359)
(359)
(862)
(862)
$
1,432
(359)
(862)
(7,331)
(7,331)
125
123
125
123
(471)
6
9,838
114
77,557
1,921
(25,200)
124,985
179,377
$
(18,765)
(18,765)
(18,765)
Components of
comprehensive income:
Net earnings
Other comprehensive gain:
Realized gain on
marketable
securities, net of tax of
$241
Unrealized loss on
marketable
securities, net of tax of
$(448)
Total comprehensive
income
Treasury stock
repurchases
Exercise of stock options-
shares
issued including tax
benefits
Share-based compensation
BALANCE— December 31,
2007
Components of
comprehensive income:
Net loss
Other comprehensive gain:
Realized loss on
marketable
securities, net of tax of
$(6)
Unrealized loss on
marketable
securities, net of tax of
$(1,072)
Total comprehensive loss
Treasury stock
repurchases
Share-based compensation
(428)
$
102
11
11
(1,321)
(20,075)
(1,321)
(3,927)
11
(1,321)
(3,927)
102
BALANCE— December 31,
2008
Components of
comprehensive income:
Net loss
Other comprehensive gain:
Realized gain on
marketable
securities, net of tax of
$(9)
Unrealized gain on
marketable
securities, net of tax of
$(1,601)
Total comprehensive loss
Exercise of stock options-
shares
issued including tax
benefits
9,410
114
77,659
611
(29,127)
106,220
155,477
$
(10,847)
(10,847)
(10,847)
(13)
(13)
$
2,465
(8,395)
2,465
4
16
(13)
2,465
16
Share-based compensation
29
29
BALANCE— December 31,
2009
9,414
$
114
$
77,704
$
3,063
$
(29,127)
$
95,373
$
147,127
See notes to consolidated financial statements.
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P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands)
OPERATING ACTIVITIES:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
Goodwill impairment charge
Bad debt expense
Stock compensation—net of excess tax benefits
Non-compete agreement amortization—net of payments
Provision for deferred income taxes
Reclassification of unrealized loss on marketable equity securities
(Gain) loss on sale of marketable equity securities
Loss (gain) on sale or disposal of equipment
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses, inventories, and other assets
Income taxes refundable (payable)
Trade accounts payable
Accrued expenses
Net cash provided by operating activities
INVESTING ACTIVITIES:
Purchases of property and equipment
Proceeds from disposition of equipment
Changes in restricted cash
Sales of marketable equity securities
Purchases of marketable equity securities
Net cash used in investing activities
FINANCING ACTIVITIES:
Borrowings under line of credit
Repayments under line of credit
Borrowings of long-term debt
Repayments of long-term debt
Borrowings under margin account
Repayments under margin account
Repurchases of common stock
Stock compensation excess tax benefits
Exercise of stock options
Net cash (used in) provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS—Beginning of year
2009
2008
2007
$
(10,847)
$
(18,765)
$
2,653
37,742
-
837
29
-
(7,104)
1,471
(189)
931
(3,415)
3,217
7,639
136
1,691
32,138
(12,261)
9,460
19
399
-
(2,383)
322,365
(326,109)
6,736
(16,879)
13,377
(20,249)
-
-
16
(20,743)
9,012
858
37,477
15,413
295
102
(17)
(10,929)
5,227
656
952
14,505
5,639
2,574
(11,007)
(1,477)
40,645
(60,218)
11,398
4,042
611
(4,154)
(48,321)
546,144
(585,592)
53,470
(8,839)
19,800
(12,929)
(3,927)
-
-
8,127
451
407
38,759
-
573
118
-
1,749
95
(1,071)
(48)
2,585
(113)
(1,696)
1,089
496
45,189
(76,166)
22,273
(4,073)
1,622
(5,389)
(61,733)
508,076
(484,322)
2,067
(2,704)
-
-
(7,331)
5
120
15,911
(633)
1,040
CASH AND CASH EQUIVALENTS—End of year
$
9,870
$
858
$
407
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION—
Cash paid during the period for:
Interest
Income taxes
NONCASH INVESTING AND FINANCING ACTIVITIES—
Purchases of revenue equipment included in accounts payable
See notes to consolidated financial statements.
$
$
$
2,410
137
$
$
2,430
303
$
$
2,410
1,976
38
$
5,951
$
-
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P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
1. ACCOUNTING POLICIES
Description of Business and Principles of Consolidation –P.A.M. Transportation Services, Inc. (the “Company”),
through its subsidiaries, operates as a truckload transportation and logistics company.
The consolidated financial statements include the accounts of the Company and its wholly owned operating
subsidiaries: P.A.M. Transport, Inc., P.A.M. Dedicated Services, Inc., Choctaw Express, Inc., Allen Freight Services,
Inc., Decker Transport Co., Inc., McNeill Express, Inc., T.T.X., Inc., Transcend Logistics, Inc., and East Coast
Transport and Logistics, LLC. The following subsidiaries were inactive during all periods presented: P.A.M.
International, Inc., P.A.M. Logistics Services, Inc., Choctaw Brokerage, Inc., P.A.M. Canada, Inc. and S & L
Logistics, Inc. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates–The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement
date and reported amounts of revenue and expenses during the reporting period. The Company periodically reviews
these estimates and assumptions. The Company's estimates were based on its historical experience and various
other assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ
from those estimates.
Cash and Cash Equivalents –The Company considers all highly liquid investments with a maturity of three months
or less when purchased to be cash equivalents.
Restricted Cash– Restricted cash consists of cash proceeds from the sale of trucks and trailers under our like-kind
exchange (“LKE”) tax program. See Note 11, “Federal and State Income Taxes,” for a discussion of the Company’s
LKE tax program. We classify restricted cash as a current asset within “Accounts receivable-other” as the exchange
process must be completed within 180 days in order to qualify for income tax deferral treatment. The changes in
restricted cash balances are reflected as an investing activity in our Consolidated Statements of Cash Flows as they
relate to the sales and purchases of revenue equipment.
Bank Overdrafts–The Company classifies bank overdrafts in current liabilities as an accounts payable and does not
offset other positive bank account balances located at the same or other financial institutions. Bank overdrafts
generally represent checks written that have not yet cleared the Company’s bank accounts. The majority of the
Company’s bank accounts are zero balance accounts that are funded at the time items clear against the account by
drawings against a line of credit, therefore the outstanding checks represent bank overdrafts. Because the recipients
of these checks have generally not yet received payment, the Company continues to classify bank overdrafts as
accounts payable. Bank overdrafts are classified as changes in accounts payable in the cash flows from operating
activities section of the Company’s Consolidated Statement of Cash Flows. Bank overdrafts as of December 31,
2009 and 2008 were approximately $4,563,000 and $5,312,000, respectively.
Accounts Receivable Other–The components of accounts receivable other consist primarily of amounts
representing company driver advances, owner operator advances and equipment manufacturer warranties.
Advances receivable from company drivers as of December 31, 2009 and 2008, were approximately $275,000 and
$345,000, respectively.
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Accounts Receivable Allowance–An allowance is provided for accounts receivable based on historical collection
experience. Additionally, management considers any accounts individually known to exhibit characteristics indicating
a collection problem.
Marketable Equity Securities–Marketable equity securities are classified by the Company as either available for
sale or trading. Securities classified as available for sale are carried at market value with unrealized gains and losses
recognized in accumulated other comprehensive income in the statements of stockholders’ equity. Securities
classified as trading are carried at market value with unrealized gains and losses recognized in the statements of
operations. Realized gains and losses are computed utilizing the specific identification method.
Impairment of Long-Lived Assets –The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An
impairment loss would be recognized if the carrying amount of the long-lived asset is not recoverable, and it exceeds
its fair value. For long-lived assets classified as held and used, if the carrying value of the long-lived asset exceeds
the sum of the future net cash flows, it is not recoverable. The Company does not separately identify assets by
subsidiary, as trucks and trailers are routinely transferred from one division to another. As a result, none of the
Company's long-lived assets have identifiable cash flows from use that are largely independent of the cash flows of
other assets and liabilities. Thus, the asset group used to assess impairment would include all assets and liabilities
of the Company.
Property and Equipment–Property and equipment is recorded at historical cost, less accumulated depreciation. For
financial reporting purposes, the cost of such property is depreciated principally by the straight-line method. For tax
reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Depreciation is
recognized over the estimated asset life, considering the estimated salvage value of the asset. Such salvage values
are based on estimates using expected market values for used equipment and the estimated time of disposal which,
in many cases include guaranteed residual values by the manufacturers. Gains and losses are reflected in the year
of disposal. The following is a table reflecting estimated ranges of asset useful lives by major class of depreciable
assets:
Asset Class
Service vehicles
Office furniture and equipment
Revenue equipment
Structure and improvements
Estimated Asset Life
3-5 years
3-7 years
3-10 years
5-40 years
The Company’s management periodically evaluates whether changes to estimated useful lives and/or salvage
values are necessary to ensure its estimates accurately reflect the economic use of the assets. During
management’s most recent periodic evaluation, the estimated useful lives for certain revenue equipment were
extended in response to planned capital expenditure levels. As a result of the revised estimates, management
extended the estimated useful life of its tractors to 5 years from 3 or 4 years and reduced expected salvage values
accordingly. These changes are expected to decrease 2010 depreciation by approximately $1,400,000. Management
also reduced the estimated salvage values for its trailers which is expected to increase 2010 depreciation by
approximately $400,000.
During the fourth quarter of 2009, management determined that a certain group of trucks, with guaranteed
manufacturer trade-in residual values, would not be used as trade-ins for a newer model of the same make.
Accordingly, the manufacturer guaranteed residual values associated with these trucks are no longer available.
Management expects that these trucks will be sold on the open market and believes that the ultimate selling price will
be significantly lower than the manufacturer guaranteed residual values. As such, the residual values of these trucks
were reduced during the fourth quarter of 2009 to reflect this expectation which resulted in additional depreciation
expense of approximately $4,200,000 during 2009. This additional depreciation expense increased the Company’s
net loss by approximately $2,600,000 ($0.27 per diluted share).
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Prepaid Tires–Tires purchased with revenue equipment are capitalized as a cost of the related equipment.
Replacement tires are included in prepaid expenses and deposits and are amortized over a 24-month period.
Amounts paid for the recapping of tires are expensed when incurred.
Advertising Expense–Advertising costs are expensed as incurred and totaled approximately $125,000, $307,000
and $605,000 for the years ended December 31, 2009, 2008, and 2007, respectively.
Repairs and Maintenance –Repairs and maintenance costs are expensed as incurred.
Goodwill–Goodwill represents the excess of the purchase price paid over the value assigned to tangible assets and
liabilities and identifiable intangible assets of businesses acquired. The Company tests goodwill for impairment each
December or more frequently if events or circumstances indicate impairment might exist. Our test for impairment of
goodwill is performed on the Company as a whole, as we have determined that our reporting units can be
aggregated. As of December 31, 2009, all previously recorded goodwill has been fully impaired.
Self Insurance Liability–A liability is recognized for known health, workers’ compensation, cargo damage, property
damage and auto liability damage. An estimate of the incurred but not reported claims for each type of liability is
made based on historical claims made, estimated frequency of occurrence, and considering changing factors that
contribute to the overall cost of insurance.
Income Taxes– The Company applies the asset and liability method of accounting for income taxes, under which
deferred taxes are determined based on the temporary differences between the financial statement and tax basis of
assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse.
A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be
realized.
The application of income tax law to multi-jurisdictional operations such as those performed by the Company, are
inherently complex. Laws and regulations in this area are voluminous and often ambiguous. As such, we may be
required to make subjective assumptions and judgments regarding our income tax exposures. Interpretations of and
guidance surrounding income tax laws and regulations may change over time which could cause changes in our
assumptions and judgments that could materially affect amounts recognized in the consolidated financial statements.
On January 1, 2007, the Company adopted authoritative guidance related to uncertain tax positions. This guidance
relates to the financial statement recognition and measurement of a tax position taken or expected to be taken in a
tax return, and requires that we recognize in our financial statements the impact of a tax position. These tax positions
must meet a more-likely-than-not recognition threshold to be recognized. Tax positions that previously failed to meet
the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that
threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are
derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We
recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated
statements of income as income tax expense.
Revenue Recognition–Revenue is recognized in full upon completion of delivery to the receiver’s location. For
freight in transit at the end of a reporting period, the Company recognizes revenue pro rata based on relative transit
miles completed as a portion of the estimated total transit miles. Expenses are recognized as incurred.
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Share-Based Compensation–The Company uses the modified prospective method in accounting for share-based
compensation. Under the modified prospective method, compensation cost is recognized for all share-based
payments granted after the effective date and for all unvested awards granted prior to the effective date. The
Company uses historical volatility when estimating the expected volatility of its share price. For additional information
with respect to share-based compensation, see Note 12 to our consolidated financial statements.
Earnings Per Share–The Company computes basic earnings per share (“EPS”) by dividing net income (loss)
available to common stockholders by the weighted average number of common shares outstanding during the
period. Diluted EPS includes the potential dilution that could occur from stock-based awards and other stock-based
commitments using the treasury stock or the as if converted methods, as applicable. The difference between the
Company's weighted-average shares outstanding and diluted shares outstanding is due to the dilutive effect of stock
options for all periods presented. See Note 13 for computation of diluted EPS.
Fair Value Measurements –The Company adopted authoritative guidance effective January 1, 2008 regarding
financial assets and liabilities that are measured at fair value within the financial statements on a recurring basis.
Under this guidance, fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. The guidance also establishes a fair value
hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. For additional information with respect to fair value measurements, see Note 16 to
our consolidated financial statements.
Business Segment and Concentrations of Credit Risk –The Company operates in one business segment, motor
carrier operations. The Company provides truckload transportation services as well as brokerage and logistics
services to customers throughout the United States and portions of Canada and Mexico. Truckload transportation
services revenues, excluding fuel surcharges, represented 85.3%, 89.6%, and 90.4% of total revenues, excluding
fuel surcharges, for the twelve months ended December 31, 2009, 2008, and 2007, respectively. Remaining
revenues, excluding fuel surcharges, for each respective year were generated by brokerage and logistics services.
The Company performs ongoing credit evaluations and generally does not require collateral from its customers. The
Company maintains reserves for potential credit losses. In view of the concentration of the Company’s revenues and
accounts receivable among a limited number of customers within the automobile industry, the financial health of this
industry is a factor in the Company’s overall evaluation of accounts receivable.
Subsequent Events–We have evaluated subsequent events for recognition and disclosure through the date these
financial statements were filed with the United States Securities and Exchange Commission.
Recent Accounting Pronouncements– In September 2006, the Financial Accounting Standards Board (“FASB”)
(“ASC”) Topic 820, Fair Value
issued authoritative guidance under Accounting Standards Codification
Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. For
financial assets and liabilities, this guidance was effective for fiscal periods beginning after November 15, 2007 and
did not require any new fair value measurements. In February 2008, the FASB delayed the effective date for
nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008, except for items
that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). On
January 1, 2009, the Company adopted the provisions of ASC Topic 820, as it relates to nonfinancial assets and
nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an
annual basis. The adoption of these provisions, as it relates to nonfinancial assets and nonfinancial liabilities did not
have a material impact on the Company’s financial condition, results of operations, or cash flow.
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Investments-Debt and Equity
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 320,
Securities and Topic 325, Investments-Other, which is designed to create greater clarity and consistency in
accounting for and presenting impairment losses on securities. This guidance is effective for periods ending after
June 15, 2009. The adoption of ASC Topic 320 and ASC Topic 325 did not have a material impact on the Company’s
financial condition, results of operations, or cash flow.
In April 2009, the FASB issued guidance now codified as FASB ASC Topic 825, Financial Instruments, which
amends previous Topic 825 guidance to require disclosures about fair value of financial instruments in interim as well
as annual financial statements. This pronouncement is effective for periods ending after June 15, 2009. The
adoption of ASC Topic 825 did not have a material impact on the Company’s financial condition, results of
operations, or cash flow.
In May 2009, the FASB issued guidance now codified as FASB ASC Topic 855, Subsequent Events, which
establishes general standards of accounting for, and disclosures of, events that occur after the balance sheet date
but before financial statements are issued or are available to be issued. This guidance is effective for interim or fiscal
periods ending after June 15, 2009. The adoption of ASC Topic 855 did not have a material impact on the
Company’s financial condition, results of operations, or cash flow.
In June 2009, the FASB issued guidance now codified as FASB ASC Topic 105, Generally Accepted Accounting
Principles, as the single source of authoritative nongovernmental U.S. generally accepted accounting principles
(“U.S. GAAP”). FASB ASC Topic 105 does not change current U.S. GAAP, but is intended to simplify user access to
all authoritative U.S. GAAP by providing all authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other accounting literature not included in the
FASB Codification will be considered non-authoritative. The provisions of FASB ASC Topic 105 are effective for
interim and annual periods ending after September 15, 2009. On the effective date of this Statement, the
Codification superseded all then-existing non-SEC accounting and reporting standards, and all other non-
grandfathered non-SEC accounting literature not included in the Codification became non-authoritative. The
adoption of ASC Topic 105 did not have a material impact on the Company’s financial condition, results of
operations, or cash flow.
2. TRADE ACCOUNTS RECEIVABLE
The Company's receivables result primarily from the sale of transportation and logistics services. The Company
performs ongoing credit evaluations of its customers and generally does not require collateral for accounts
receivable. Accounts receivable which consist of both billed and unbilled receivables are recorded at their invoiced
amount and are presented net of an allowance for doubtful accounts. Accounts outstanding longer than contractual
payment terms are considered past due and are reviewed individually for collectibility. Accounts receivable balances
consist of the following components as of December 31, 2009 and 2008:
Billed
Unbilled
Allowance for doubtful accounts
Total accounts receivable—net
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2009
2008
(in thousands)
$
42,573 $
5,998
(2,660)
41,247
4,724
(2,156)
$
45,911 $
43,815
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An analysis of changes in the allowance for doubtful accounts for the years ended December 31, 2009, 2008, and
2007 follows:
Balance—beginning of year
Provision for bad debts
Charge-offs
Recoveries
Balance—end of year
3. MARKETABLE EQUITY SECURITIES
2009
2008
(in thousands)
2007
$
$
2,156 $
899
(395)
-
2,660 $
1,891 $
353
(104)
16
2,156 $
1,457
607
(361)
188
1,891
The Company accounts for its marketable securities in accordance with GAAP which requires companies to classify
their investments as trading, available-for-sale or held-to-maturity. The Company’s investments in marketable
securities are classified as either trading or available-for-sale and consist of equity securities. Management
determines the appropriate classification of these securities at the time of purchase and re-evaluates such
designation as of each balance sheet date. During 2009, the Company sold certain securities which were held as
available-for-sale and had a cost basis of approximately $216,000. The proceeds on these sales totaled
approximately $287,000 which resulted in a realized gain of approximately $71,000. During 2009, there were no
reclassifications of marketable securities. During 2008, the Company sold certain securities which were held as
available-for-sale and had a cost basis of approximately $718,000. The proceeds on these sales totaled
approximately $625,000 which resulted in a realized loss of approximately $93,000. Also during 2008, three
securities were transferred from available-for-sale to trading. These securities were transferred because, historically,
they have significantly underperformed in relation to their benchmarks. The resulting loss recognized was $55,000.
Also during 2008, two securities were transferred from trading to available-for-sale. These securities were transferred
at their market value at the time of transfer.
Marketable equity securities classified as available-for-sale are carried at fair value, with the unrealized gains and
losses, net of tax, included as a component of accumulated other comprehensive income in shareholders’ equity.
Realized gains and losses, declines in value judged to be other-than-temporary on available-for-sale securities, and
increases or decreases in value on trading securities, if any, are included in the determination of net income. A
quarterly evaluation is performed in order to judge whether declines in value below cost should be considered
temporary and when losses are deemed to be other-than-temporary. Several factors are considered in this
evaluation process including the severity and duration of the decline in value, the financial condition and near-term
outlook for the specific issuer and the Company’s ability to hold the securities. There were no securities in a
cumulative loss position for twelve months or longer at December 31, 2009. However, based on the severity of
declines in certain securities during 2009 and the fact that the Company has no evidence that indicates these
securities will regain a value equal to or greater than their cost basis, their declines in value have been determined to
be other-than-temporary. As a result of this evaluation, the Company recorded an impairment charge of
approximately $1.5 million in its statement of operations for the year ended December 31, 2009 as a non-operating
expense. These declines came primarily from our equity securities in the financial, pharmaceutical, and
transportation sectors, which have experienced significant declines during 2009 in their respective stock prices. The
cost of securities sold is based on the specific identification method and interest and dividends on securities are
included in non-operating income.
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As of December 31, 2009, equity securities classified as available-for-sale and equity securities classified as trading
had a cost basis of approximately $9,377,000 and $463,000, respectively and fair market values of approximately
$14,395,000 and $526,000, respectively. For the year ended December 31, 2009, the Company had net unrealized
gains in market value on securities classified as available-for-sale of approximately $2,465,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately $5,159,000 and gross unrealized losses
of approximately $140,000. As of December 31, 2009, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $3,063,000.
As of December 31, 2008, equity securities classified as available-for-sale and equity securities classified as trading
had a cost basis of approximately $11,134,000 and $505,000, respectively and fair market values of approximately
$12,090,000 and $450,000, respectively. For the year ended December 31, 2008, the Company had net unrealized
losses in market value on securities classified as available-for-sale of approximately $1,310,000, net of deferred
income taxes. These securities had gross unrealized gains of approximately $2,193,000 and gross unrealized losses
of approximately $1,237,000. As of December 31, 2008, the total unrealized gain, net of deferred income taxes, in
accumulated other comprehensive income was approximately $611,000.
The following table shows the Company’s investments’ approximate gross unrealized losses and fair value at
December 31, 2009 and 2008. These investments consist of equity securities. As of December 31, 2009 and 2008
there were no investments that had been in a continuous unrealized loss position for twelve months or longer.
2009
2008
(in thousands)
Fair Value
Fair Value
Unrealized
Losses
Unrealized
Losses
Equity securities – Available for sale
Equity securities – Trading
Totals
$
$
756 $
62
140 $
1
4,775 $
372
1,237
67
818 $
141 $
5,147 $
1,304
The market value of the Company’s equity securities are periodically used as collateral against any outstanding
margin account borrowings. As of December 31, 2009, the Company had no borrowings under its margin account.
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4.
INTANGIBLE ASSETS
The Company tests goodwill for impairment annually in accordance with GAAP. In addition to the annual test
performed on December 31 of each year, goodwill is monitored for changes in events or circumstances that indicate
that impairment might exist in interim periods. Our test for impairment of goodwill is performed on the Company as a
whole, as we determined at adoption of the standard that our reporting units can be aggregated, and facts and
circumstances subsequent to adoption have not changed this assessment. The annual assessment was not required
at December 31, 2009 as the Company does not have any recorded goodwill. The most recent annual assessment
was completed in December 2008 during which the Company determined that goodwill was impaired. The
impairment of goodwill recorded in 2008 was triggered by the sustained decline of our market capitalization caused
by a decrease in our stock price during 2008.
Goodwill at December 31 is summarized as follows:
Goodwill, beginning of year
Goodwill acquired
Goodwill impairment
Goodwill—end of year
2009
2008
(in thousands)
2007
$
$
- $
-
-
- $
15,413 $
-
(15,413)
15,413
-
-
- $
15,413
Non-compete agreements are amortized on a straight-line basis over the contractual term of the related agreement.
Amortization expense associated with non-compete agreements was approximately $0, $17,000 and $200,000, for
the years ending December 31, 2009, 2008 and 2007. The Company's non-compete agreements were fully
amortized as of December 31, 2008.
5. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 31 are summarized as follows:
Payroll
Accrued vacation
Taxes—other than income
Interest
Driver escrows
Margin account borrowings
Self-insurance claims
2009
2008
(in thousands)
$
1,378 $
2,020
2,264
85
832
-
3,925
1,039
1,932
2,174
122
938
6,871
2,608
Total accrued expenses and other liabilities
$
10,504 $
15,684
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6. CLAIMS LIABILITIES
With respect to physical damage for trucks, cargo loss and auto liability, the Company maintains insurance coverage
to protect it from certain business risks. These policies are with various carriers and have per occurrence deductibles
of $2,500, $10,000 and $2,500 respectively. Since 2002, the Company has elected to self insure itself for physical
damage to trailers. The Company maintains workers’ compensation coverage in Arkansas, Ohio, Oklahoma,
Mississippi, and Florida with a $500,000 self-insured retention and a $500,000 per occurrence excess policy. The
Company has elected to opt out of workers' compensation coverage in Texas and is providing coverage through the
P.A.M. Texas Injury Plan. The Company has accrued for estimated losses to pay such claims as well as claims
incurred but not yet reported. The Company has not experienced any adverse trends involving differences in claims
experienced versus claims estimates for workers’ compensation claims. Letters of credit aggregating $1,001,000 and
certificates of deposit totaling $300,000 are held by banks as security for workers’ compensation claims. The
Company self insures for employee health claims with a stop loss of $225,000 per covered employee per year and
estimates its liability for claims outstanding and claims incurred but not reported.
7. LONG-TERM DEBT
Long-term debt at December 31, consists of the following:
Line of credit with a bank—due May 31, 2010, and
collateralized by accounts receivable (1)
Equipment financing (2)
Note payable (3)
Other (4)
Total long-term debt
Less current maturities
Long-term debt—net of current maturities
2009
2008
(in thousands)
$
$
- $
37,389
144
-
37,533 $
(10,331)
3,744
45,676
980
1,020
51,420
(15,928)
$
27,202 $
35,492
(1) Line of credit agreement with a bank provides for maximum borrowings of $30.0 million and contains certain
restrictive covenants that must be maintained by the Company on a consolidated basis. Borrowings on the
line of credit are at an interest rate of LIBOR as of the first day of the month plus 1.95% (2.19% at
December 31, 2009). Monthly payments of interest are required under this agreement. Also, under the terms of
the agreement the Company must have (a) a debt to equity ratio of no more than 2:1, and (b) maintain a
tangible net worth of at least $135 million. The Company was in compliance with all provisions of the
agreement throughout 2009.
(2) Equipment financings consist of installment obligations for revenue equipment purchases, payable in various
monthly installments with various maturity dates through March 2012, at a weighted average interest rate of
4.87% and collateralized by revenue equipment.
(3) 6.0% note to the former owner of an acquired entity with an original face amount of $4,974,612, payable in
monthly installments of $72,672 through March 2010 and secured by a letter of credit held by a bank.
(4) 3.85% note to insurance premium finance company at December 31, 2008 with an original face amount of
$1,740,528, paid in monthly installments of $147,615 through August 2009.
The Company has provided letters of credit to third parties totaling approximately $2,897,000 at December 31, 2009.
The letters are held by these third parties to assist such parties in collection of any amounts due by the Company
should the Company default in its commitments to the parties.
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Scheduled annual maturities on long-term debt outstanding at December 31, 2009, are:
2010
2011
2012
2013
2014
Total
8. CAPITAL STOCK
(in
thousands)
$
10,331
20,334
6,868
-
-
$
37,533
The Company's authorized capital stock consists of 40,000,000 shares of common stock, par value $.01 per share,
and 10,000,000 shares of preferred stock, par value $.01 per share. At December 31, 2009, there were 11,372,207
shares of our common stock issued and 9,413,607 shares outstanding. No shares of our preferred stock were issued
or outstanding at December 31, 2009.
Common Stock
The holders of our common stock, subject to such rights as may be granted to any preferred stockholders, elect all
directors and are entitled to one vote per share. All shares of common stock participate equally in dividends when
and as declared by the Board of Directors and in net assets on liquidation. The shares of common stock have no
preference, conversion, exchange, preemptive or cumulative voting rights.
Preferred Stock
Preferred stock may be issued from time to time by our Board of Directors, without stockholder approval, in such
series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends,
qualifications or other provisions, as may be fixed by the Board of Directors in the resolution authorizing their
issuance. The issuance of preferred stock by the Board of Directors could adversely affect the rights of holders of
shares of common stock; for example, the issuance of preferred stock could result in a class of securities outstanding
that would have certain preferences with respect to dividends and in liquidation over the common stock, and that
could result in a dilution of the voting rights, net income per share and net book value of the common stock. As of
December 31, 2009, we have no agreements or understandings for the issuance of any shares of preferred stock.
Treasury Stock
In April 2005, our Board of Directors authorized the repurchase of up to 600,000 shares of our common stock during
the six month period ending October 11, 2005. These 600,000 shares were all repurchased by September 30, 2005.
On September 6, 2005 our Board of Directors authorized an extension of the stock repurchase program until
September 2006 and the repurchase of up to an additional 900,000 shares of our common stock. The Company
repurchased 458,600 of these additional shares prior to December 31, 2005 and made no additional purchases
during 2006.
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In May 2007, our Board of Directors authorized the repurchase of up to 600,000 shares of our common stock during
the twelve month period following the announcement. Subsequent to the date of the announcement and through the
remainder of 2007, the Company repurchased 471,500 shares of its common stock. The remaining 128,500 shares
authorized were repurchased during the first three months of 2008.
In June 2008, our Board of Directors authorized the repurchase of up to 300,000 shares of our common stock during
the twelve month period following the announcement. Subsequent to the date of the announcement and through the
remainder of 2008, the Company repurchased 300,000 shares of its common stock.
The Company accounts for Treasury stock using the cost method and as of December 31, 2009, 1,958,600 shares
were held in the treasury at an aggregate cost of approximately $29,127,000.
9. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) was comprised of net income (loss) plus or minus market value adjustments related to
fuel hedges, interest rate swap agreements and marketable securities. The components of comprehensive income
(loss) were as follows:
Net (loss) income
$
(10,847) $
(18,765) $
2,653
2009
2008
(in thousands)
2007
Other comprehensive income (loss):
Reclassification adjustment for realized losses
(gains) on marketable securities, included
in net income (loss), net of income taxes
Reclassification adjustment for unrealized
losses on marketable securities, included in
net income (loss), net of income taxes
Change in fair value of marketable
securities, net of income taxes
(13)
11
(359)
941
3,214
55
1,524
(4,535)
(917)
Total comprehensive (loss) income
$
(8,395) $
(20,075) $
1,432
10. SIGNIFICANT CUSTOMERS AND INDUSTRY CONCENTRATION
In 2009, 2008, and 2007, one customer, who is in the automobile manufacturing industry, accounted for 25%, 31%
and 38% of revenues, respectively. The Company also provides transportation services to other manufacturers who
are suppliers for automobile manufacturers including suppliers for the Company’s largest customer. As a result,
concentration of the Company’s business within the automobile industry is significant. Of the Company’s revenues
for 2009, 2008, and 2007, 31%, 40%, and 49%, respectively, were derived from transportation services provided to
the automobile manufacturing industry. Accounts receivable from the largest customer totaled approximately
$18,585,000 and $17,628,000 at December 31, 2009 and 2008, respectively.
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11. FEDERAL AND STATE INCOME TAXES
Under GAAP, deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and for income tax reporting purposes.
Significant components of the Company’s deferred tax liabilities and assets at December 31 are as follows:
Deferred tax liabilities:
Property and equipment
Unrealized gains on securities
Prepaid expenses and other
2009
2008
(in thousands)
Current
Long-Term Current
Long-Term
$
- $
1,955
1,988
52,646 $
-
-
- $
345
3,584
60,011
-
-
Total deferred tax liabilities
3,943
52,646
3,929
60,011
Deferred tax assets:
Allowance for doubtful accounts
Alternative minimum tax credit
Compensated absences
Self-insurance allowances
Share-based compensation
Goodwill
Marketable equity securities
Net operating loss carryover
Non-competition agreement
Other
1,010
-
617
844
-
-
2,873
-
-
-
-
300
-
-
339
658
-
-
324
25
801
-
597
248
-
-
2,101
-
-
25
-
447
-
-
328
1,161
-
10,279
412
30
Total deferred tax assets
5,344
1,646
3,772
12,657
Net deferred tax (asset) liability
$
(1,401) $
51,000 $
157 $
47,354
The reconciliation between the effective income tax rate and the statutory Federal income tax rate for the years
ended December 31, 2009, 2008 and 2007 is presented in the following table:
2009
2008
(in thousands)
2007
Amount
Percent
Amount
Percent
Amount
Percent
$
(6,042)
(341)
225
34.0 $
1.9
(1.3)
(9,989)
-
923
34.0 $
-
(3.1)
1,571
-
381
34.0
-
8.3
(766)
4.4
(1,549)
5.2
14
0.3
Income tax at the
statutory federal rate
Nontaxable income
Nondeductible expense
State income taxes—net
of federal benefit
Total income tax (benefit)
provision
$
(6,924)
39.0 $
(10,615)
36.1 $
1,966
42.6
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The (benefit) provision for income taxes consisted of the following:
Current:
Federal
State
Deferred:
Federal
State
2009
2008
(in thousands)
2007
$
- $
180
180
(26) $
340
314
(7,209)
105
(7,104)
(8,865)
(2,064)
(10,929)
305
(88)
217
1,295
454
1,749
Total income tax (benefit) provision
$
(6,924) $
(10,615) $
1,966
The Company has alternative minimum tax credits of approximately $300,000 at December 31, 2009, which have no
expiration date under the current federal income tax laws.
The Company does not have any material accrued interest or penalties associated with any unrecognized tax
benefits. The Company's policy is to account for interest and penalties related to uncertain tax positions, if any, in
income tax expense. There was no change in total gross unrecognized tax benefit liabilities for the year ended
December 31, 2009.
The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income
tax laws of multiple state jurisdictions. The major tax jurisdictions in which the Company operates generally provide
for a deficiency assessment statute of limitation period of three years and as a result, the Company’s tax years 2006
through 2008 remain open to examination in those jurisdictions.
During 2007, the Company contracted with a third-party qualified intermediary in order to implement a like-kind
exchange tax program. Under the program, dispositions of eligible trucks or trailers and acquisitions of replacement
trucks or trailers are made in a form whereby any associated tax gains related to the disposal are deferred. To
qualify for like-kind exchange treatment, we exchange, through our qualified intermediary, eligible trucks or trailers
being disposed with trucks or trailers being acquired that allows us to generally carryover the tax basis of the trucks
or trailers sold. The program is expected to result in a significant deferral of federal and state income taxes. Under
the program, the proceeds from the sale of eligible trucks or trailers carry a Company-imposed restriction for the
acquisition of replacement trucks or trailers. These proceeds may be disqualified under the program at any time and
at the Company’s sole discretion, however income tax deferral would not be available on any sale for which the
Company disqualifies the related proceeds. At December 31, 2009, the Company had $12,000 of restricted cash
held by the third-party qualified intermediary. At December 31, 2008, the Company had $31,000 of restricted cash
held by the third-party qualified intermediary.
12. SHARE-BASED COMPENSATION
The Company maintains a stock option plan under which incentive stock options and nonqualified stock options may
be granted. On March 2, 2006, the Company’s Board of Director’s adopted, and shareholders later approved, the
2006 Stock Option Plan (the “2006 Plan”). The 2006 Plan replaces the expired 1995 Stock Option Plan which had
263,500 options remaining which were never issued. Under the 2006 Plan 750,000 shares are reserved for the
issuance of stock options to directors, officers, key employees and others. The option exercise price under the 2006
Plan is the fair market value of the stock on the date the option is granted. The fair market value is determined by
the average of the highest and lowest sales prices for a share of the Company’s common stock, on its primary
exchange, on the same date that the option is granted.
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During 2009, options for 16,000 shares were issued under the 2006 Plan at an option exercise price of $3.84 per
share and at December 31, 2009, 686,000 shares were available for granting future options.
Outstanding incentive stock options at December 31, 2009, 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, 2009, must be
exercised within five to ten years from the date of grant.
The total fair value of options vested during 2009, 2008, and 2007 was approximately $29,000, $102,000, and
$501,000, respectively. As of December 31, 2009, the Company did not have any stock-based compensation plans
with unrecognized stock-based compensation expense. Total pre-tax stock-based compensation expense,
recognized in Salaries, wages and benefits was approximately $29,000 during 2009 as a result of the annual grant of
2,000 shares to each non-employee director during the first quarter of 2009. The Company recognized a total
income tax benefit of approximately $11,000 related to stock-based compensation expense during 2009. The
recognition of stock-based compensation expense did not have a recognizable impact on diluted or basic earnings
per share. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits was
approximately $102,000 during 2008 and includes approximately $80,000 recognized as a result of the annual grant
of 2,000 shares to each non-employee director during the first quarter of 2008. The Company recognized a total
income tax benefit of approximately $29,000 related to stock-based compensation expense during 2008. The
recognition of stock-based compensation expense decreased diluted and basic earnings per common share by
approximately $0.01 during 2008. Total pre-tax stock-based compensation expense, recognized in Salaries, wages
and benefits during 2007 was approximately $123,000 and includes approximately $101,000 recognized as a result
of the annual grant of 2,000 shares to each non-employee director during the second quarter of 2007. The Company
recognized a total income tax benefit of approximately $43,000 related to stock-based compensation expense during
2007. The recognition of stock-based compensation expense decreased diluted and basic earnings per common
share by approximately $0.01 during 2007.
Transactions in stock options under these plans are summarized as follows:
Outstanding—January 1, 2007:
Granted
Exercised
Canceled
Outstanding—December 31, 2007:
Granted
Canceled
Outstanding—December 31, 2008:
Granted
Exercised
Canceled
Outstanding—December 31, 2009:
Options exercisable—December 31, 2009:
-50-
Shares
Under
Option
Weighted-
Average
Exercise
Price
284,500 $
16,000
(6,000)
(46,000)
248,500 $
16,000
(10,000)
254,500 $
16,000
(4,000)
(80,000)
22.83
22.92
19.95
23.34
22.81
14.98
22.68
22.32
3.84
3.84
22.60
186,500 $
21.02
186,500 $
21.02
Table of contents
The fair value of the Company’s employee stock options was estimated at the date of grant using a Black-Scholes-
Merton (“BSM”) option-pricing model using the following assumptions:
Dividend yield
Volatility range
Risk-free rate range
Expected life
Fair value of options (per share)
2009
0%
58.07%
1.57%
4.4 years
$1.84
2008
2007
0%
36.67%—38.54%
2.50%—4.38%
4.3 years—5 years
$4.98—$8.89
0%
37.34%—38.54%
4.38%—4.48%
2.5 years—5 years
$6.32—$9.45
The Company has never paid any cash dividends on its common stock and we do not anticipate paying any cash
dividends in the foreseeable future. The estimated volatility is based on the historical volatility of our stock. The risk
free rate for the periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the
time of grant. The expected life of the options was calculated based on the historical exercise behavior. Prior to
2008, the expected life of the options was calculated using temporary guidance provided by the SEC which allowed
companies to elect a “simplified method” where the expected life is the average of the vesting period and the original
contractual term. This simplified method is generally not available for share option grants after December 31, 2007.
Information related to the Company’s option activity as of December 31, 2009, and changes during the year then
ended is presented below:
Outstanding at January 1, 2009
Granted
Exercised
Canceled/forfeited/expired
Outstanding at December 31, 2009
Fully vested and
exercisable at December 31, 2009
Shares
Under
Option
Weighted-
Average
Exercise
Price
(per share)
Weighted-
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value*
254,500 $
16,000
(4,000)
(80,000)
186,500 $
22.32
3.84
3.84
22.60
21.02
2.6 $
77,880
186,500 $
21.02
2.6 $
77,880
___________________________
* The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the
exercise price of the option. The per share market value of our common stock, as determined by the closing price on
December 31, 2009, was $10.33.
The weighted-average grant-date fair value of options granted during the years 2009, 2008, and 2007 was $1.84,
$4.98, and $6.32 per share, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2009, 2008, and 2007, was approximately $13,000, $0, and $11,000, respectively.
A summary of the status of the Company’s nonvested options as of December 31, 2009 and changes during the
year ended December 31, 2009, is presented below:
Nonvested at January 1, 2009
Granted
Vested
Nonvested at December 31, 2009
Weighted-
Average
Grant Date
Fair Value
Number of
Options
- $
16,000
(16,000)
- $
-
1.84
1.84
-
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The number, weighted average exercise price and weighted average remaining contractual life of options
outstanding as of December 31, 2009 and the number and weighted average exercise price of options exercisable
as of December 31, 2009 is as follows:
Exercise Price
Shares Under
Outstanding Options
$3.84
$14.98
$18.27
$19.88
$22.92
$23.22
$26.73
12,000
16,000
10,000
12,500
14,000
108,000
14,000
186,500
Weighted-Average Remaining
Contractual Term
(in years)
4.2
3.2
0.2
2.8
2.2
2.7
1.4
2.6
Shares Under
Exercisable Options
12,000
16,000
10,000
12,500
14,000
108,000
14,000
186,500
Cash received from option exercises totaled approximately $15,000, $0, and $120,000 during the years ended
December 31, 2009, 2008, and 2007, respectively. The Company issues new shares upon option exercise.
13. EARNINGS PER SHARE
Basic earnings per common share were computed by dividing net income or (loss) by the weighted average number
of shares outstanding during the period. Diluted earnings per common share were calculated as follows:
For the Year Ended December 31,
2007
2008
2009
(in thousands, except per share data)
Net (loss) income
$
(10,847) $
(18,765) $
2,653
Basic weighted average common shares outstanding
Dilutive effect of common stock equivalents
9,411
5
9,683
-
10,238
1
Diluted weighted average common shares outstanding
9,416
9,683
10,239
Basic (loss) earnings per share
Diluted (loss) earnings per share
$
$
(1.15) $
(1.94) $
0.26
(1.15) $
(1.94) $
0.26
Options to purchase 175,837, 253,484, and 234,456 shares of common stock were outstanding as of December 31,
2009, 2008, and 2007, respectively, but were not included in the computation of diluted earnings per share because
to do so would have an anti-dilutive effect.
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14. BENEFIT PLAN
The Company sponsors a benefit plan for the benefit of all eligible employees. The plan qualifies under Section
401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax-deductible contributions to the
plan. The plan provides for employer matching contributions of 50% of each participant’s voluntary contribution up to
3% of the participant’s compensation and vests at the rate of 20% each year until fully vested after five years. Total
employer matching contributions to the plan totaled approximately $270,000, $305,000 and $340,000 in 2009, 2008
and 2007, respectively.
15. COMMITMENTS AND CONTINGENCIES
The Company is not a party to any pending legal proceedings which management believes to be material to the
financial position or results of operations of the Company. The Company maintains liability insurance against risks
arising out of the normal course of its business.
The Company leases certain premises under noncancelable operating lease agreements. Future minimum annual
lease payments under these leases are as follows:
2010
2011
2012
2013
Total
$
296,090
187,000
192,000
80,000
$
755,090
Total rental expense, net of amounts reimbursed for the years ended December 31, 2009, 2008 and 2007 was
approximately $1,201,000, $2,243,000, and $3,035,000, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Our financial instruments consist of cash and cash equivalents, marketable equity securities, accounts receivable,
trade accounts payable, and borrowings.
The Company adopted guidance effective January 1, 2008 for financial assets and liabilities measured on a recurring
basis. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer
a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction
between market participants on the measurement date and also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair
value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1:
Quoted market prices in active markets for identical assets or liabilities.
Level 2:
Inputs other than Level 1 inputs that are either directly or indirectly observable such as quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets
that are not active; inputs other than quoted prices that are observable; or other inputs not directly observable,
but derived principally from, or corroborated by, observable market data.
Level 3:
Unobservable inputs that are supported by little or no market activity.
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The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market
approach uses prices and other relevant information generated by market transactions involving identical or
comparable assets or liabilities.
At December 31, 2009, the following items are measured at fair value on a recurring basis:
Total
Level 1
Level 2
Level 3
(in thousands)
Marketable equity securities
$
14,921 $
14,921
-
-
The Company’s investments in marketable equity securities are recorded at fair value based on quoted market
prices. The carrying value of cash and cash equivalents, accounts receivable, trade accounts payable, and accrued
liabilities approximate fair value due to their short maturities.
The carrying amount for the line of credit approximates fair value because the line of credit interest rate is adjusted
frequently.
For long-term debt other than the lines of credit, the fair values are estimated using discounted cash flow analyses,
based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The
carrying values and estimated fair values of this other long-term debt at December 31, 2009 and 2008 are
summarized as follows:
2009
2008
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
(in thousands)
Long-term debt
$
37,533 $
37,238 $
47,676 $
47,432
The Company has not elected the fair value option for any of our financial instruments.
17. RELATED PARTY TRANSACTIONS
In the normal course of business, transactions for transportation and repair services, property leases and other
services are conducted between the Company and companies affiliated with a major stockholder. The Company
recognized $3,294,293, $114,112, and $1,861,773 in operating revenue and $1,025,074, $1,749,955, and
$1,909,585 in operating expenses in 2009, 2008, and 2007, respectively. In addition, also in the normal course of
business, the Company purchased a terminal in Laredo, TX from an affiliate of a major stockholder for $5,920,969,
of which $4,500,000 was paid as of December 31, 2008 and $1,420,969 was paid in February 2009, subsequent to
the completion of an independent appraisal.
The Company purchased physical damage insurance through an unaffiliated insurance broker which was written by
an insurance company affiliated with a major stockholder. Annual premiums were $1,894,902, $2,232,309 and
$1,927,964 for 2009, 2008 and 2007, respectively. Beginning in 2009, the Company secured coverage for auto
liability and general liability insurance under the same arrangement. Premiums paid for this coverage during 2009
were $2,916,722 and $20,486 for auto liability and general liability respectively.
Amounts owed to the Company by these affiliates were $1,927,715 and $851,471 at December 31, 2009 and 2008
respectively. Of the accounts receivable at December 31, 2009, $30,951 represents revenue resulting from
maintenance performed in the Company’s maintenance facilities and charges paid by the Company to third parties
on behalf of their affiliate and charged back at the amount paid, $1,630,469 represents freight transportation,
$250,082 represents property lease charges, and $16,213 represents equipment rental charges. Amounts payable to
affiliates at December 31, 2009 and 2008 were $237,198 and $1,526,428 respectively.
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18. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The tables below present quarterly financial information for 2009 and 2008:
Operating revenues
Operating expenses
Operating (loss) income
Non-operating (expense) income
Interest expense
Income tax (benefit) expense
2009
Three Months Ended
March 31
June 30
September
30
December
31
(in thousands, except per share data)
$
65,818 $
69,432
68,476 $
72,040
76,743 $
78,092
80,872
86,999
(3,614)
(867)
664
(1,799)
(3,564)
200
629
(1,637)
(1,349)
(160)
563
(842)
(6,127)
82
517
(2,647)
Net (loss) income
$
(3,346) $
(2,356) $
(1,230) $
(3,915)
Net (loss) income per common share:
Basic
Diluted
Average common shares outstanding:
Basic
Diluted
Operating revenues
Operating expenses
Operating (loss) income
Non-operating (expense) income
Interest expense
Income tax (benefit) expense
$
$
(0.36) $
(0.36) $
(0.25) $
(0.25) $
(0.13) $
(0.13) $
(0.42)
(0.42)
9,410
9,410
9,410
9,412
9,411
9,415
9,413
9,418
2008
Three Months Ended
March 31
June 30
September
30
December
31
(in thousands, except per share data)
$
105,820 $
109,786
110,930 $
112,460
105,958 $
107,240
84,014
99,190
(3,966)
(206)
568
(1,912)
(1,530)
(14)
532
(744)
(1,282)
(3,377)
614
(2,092)
(15,176)
(1,400)
714
(5,866)
Net (loss) income
$
(2,828) $
(1,332) $
(3,181) $
(11,424)
Net (loss) income per common share:
Basic
Diluted
Average common shares outstanding:
Basic
Diluted
$
$
(0.29) $
(0.29) $
(0.14) $
(0.14) $
(0.33) $
(0.33) $
(1.19)
(1.19)
9,795
9,795
9,708
9,708
9,665
9,665
9,564
9,564
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness
of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must
reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the
benefits of possible controls and procedures relative to their costs.
Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of December
31, 2009, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide
reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange
Commission rules and forms, and that such information is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
We regularly review our system of internal control over financial reporting and make changes to our processes and systems
to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment.
Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating
processes.
There were no changes in our internal control over financial reporting that occurred during the last quarter of the period
covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as
defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our
internal control over financial reporting was effective as of December 31, 2009. Management reviewed the results of its
assessment with our Audit Committee. The effectiveness of our internal control over financial reporting as of December 31,
2009 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in its report
which is included below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
P.A.M. Transportation Services, Inc. and Subsidiaries
We have audited P.A.M. Transportation Services, Inc. (a Delaware Corporation) and subsidiaries’ (collectively, the
Company) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
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Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial
reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting . Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 2009
and 2008, and the related consolidated statements of operations, stockholders’ equity and other comprehensive income
(loss), and cash flows for each of the three years in the period ended December 31, 2009 and our report dated March 15,
2010 expressed an unqualified opinion on those consolidated financial statements.
/s/ GRANT THORNTON LLP
Tulsa, OK
March 15, 2010
Item 9B. Other Information.
None.
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PART III
Portions of the information required by Part III of Form 10-K are, pursuant to General Instruction G (3) of Form 10-K,
incorporated by reference from our definitive proxy statement to be filed pursuant to Regulation 14A for our Annual Meeting
of Stockholders to be held on June 3, 2010. We will, within 120 days of the end of our fiscal year, file with the Securities
and Exchange Commission a definitive proxy statement pursuant to Regulation 14A.
Item 10. Directors, Executive Officers and Corporate Governance.
The information presented under the captions “Election of Directors”, “Executive Officers”, “Section 16(a) Beneficial
Ownership Reporting Compliance”, “Corporate Governance – Code of Ethics”, “Corporate Governance – Director
Nominating Process” and “Corporate Governance – Board Committees,” in the proxy statement is incorporated here by
reference.
Item 11. Executive Compensation.
The information presented under the captions “Executive Compensation”, “Corporate Governance – Compensation
Committee Interlocks and Insider Participation”, and “Compensation Committee Report” in the proxy statement is
incorporated here by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information presented under the caption “Security Ownership of Certain Beneficial Owners and Management” in the
proxy statement is incorporated here by reference.
Equity Compensation Plan Information
The following table summarizes, as of December 31, 2009, information about compensation plans under which equity
securities of the Company are authorized for issuance:
Number of
securities to
be issued
upon
exercise of
outstanding
options,
warrants
and rights
Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
Plan Category
Equity Compensation Plans approved by Security Holders
186,500 $
21.02
686,000
Equity Compensation Plans not approved by Security Holders
-0-
-0-
-0-
Total
186,500 $
21.02
686,000
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Table of contents
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information presented under the captions “Transactions with Related Persons” and “Corporate Governance – Director
Independence” in the proxy statement is incorporated here by reference.
Item 14. Principal Accounting Fees and Services.
The information presented under the caption “Independent Public Accountants – Principal Accountant Fees and Services”
in the proxy statement is incorporated here by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial Statements and Schedules.
(1)
Financial Statements: See Part II, Item 8 hereof.
Report of Independent Registered Public Accounting Firm - Grant Thornton LLP
Consolidated Balance Sheets - December 31, 2009 and 2008
Consolidated Statements of Operations - Years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Shareholders’ Equity and Other Comprehensive
ended December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements
Income (Loss) - Years
(2)
Financial Statement Schedules.
All schedules for which provision is made in the applicable accounting regulations of the SEC are omitted as the
information is inapplicable, or because the information is presented in the consolidated financial
required
statements or related notes.
(3)
Exhibits.
The following exhibits are filed with or incorporated by reference into this Report. The exhibits which are
denominated by an asterisk (*) were previously filed as a part of, and are hereby incorporated by reference from
either (i) the Form S-1 Registration Statement under the Securities Act of 1933, as filed with the Securities and
Exchange Commission on July 30, 1986, Registration No. 33-7618, as amended on August 8, 1986, September 3,
1986 and September 10, 1986 (“1986 S-1”); (ii) the Quarterly Report on Form 10-Q for the quarter ended June 30,
1994 (“6/30/94 10-Q”); (iii) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 (“6/30/95 10-
Q”); (iv) the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 (“9/30/96 10-Q”); (v) the
Form S-8 Registration Statement filed on June 11, 1999 (“6/11/99 S-8”); (vi) the Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002 (“3/31/02 10-Q”); (vii) the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2004 (“9/30/04 10-Q”); (viii) Form 8-K filed on March 7, 2005 (“3/07/05 8-K”); (ix) Form 8-K
filed on May 31, 2006 (“5/31/06 8-K”); (x) Form 8-K filed on July 28, 2006 (“7/28/06 8-K”); (xi) the Form 8-K filed on
December 11, 2007 (“12/11/07 8-K”); (xii) the Annual Report on Form 10-K for the year ended December 31, 2007
(“2007 10-K”); or (xiii) Form 8-K filed on July 10, 2009 (“7/10/09 8-K”).
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Exhibit #
*3.1
Description of Exhibit
Amended and Restated Certificate of Incorporation of the Registrant (Exh. 3.1, 3/31/02 10-Q)
*3.2
*4.1
*4.2
*4.2.1
*4.3
*4.3.1
*4.3.2
*4.3.3
*4.4
*4.4.1
*4.4.2
*4.4.3
*4.5
Amended and Restated By-Laws of the Registrant (Exh. 3.2, 12/11/07 8-K)
Specimen Stock Certificate (Exh. 4.1, 1986 S-1)
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)
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)
First Amendment to Loan Agreement dated June 27, 1995 by and among P.A.M. Transport, Inc., First
Tennessee Bank National Association and P.A.M. Transportation Services, Inc., together with Promissory
Note in the principal amount of $2,500,000 (Exh. 4.1.1, 6/30/95 10-Q)
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)
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)
Guaranty Agreement of P.A.M. Transportation Services, Inc. dated June 27, 1995 in favor of First
Tennessee Bank National Association $10,000,000 line of credit (Exh. 4.1.4, 6/30/95 10-Q)
Second Amendment to Loan Agreement dated July 3, 1996 by P.A.M. Transport, Inc., First Tennessee
Bank National Association and P.A.M. Transportation Services, Inc., together with Promissory Note in the
principal amount of $5,000,000 (Exh. 4.1.1, 9/30/96 10-Q)
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)
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)
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)
Fourth Amendment to Loan Agreement dated July 26, 1994 among First Tennessee Bank National
Association, Registrant and P.A.M. Transport, Inc. together with Promissory Note (Exh. 4.6, 2007 10-K)
*10.1
(1) Employment Agreement between the Registrant and Daniel H. Cushman, dated June 29, 2009 (Exh. 10.2,
7/10/09 8-K)
*10.2
(1) Employment Agreement between the Registrant and W. Clif Lawson, dated June 1, 2006 (Exh. 10.2,
7/28/06 8-K)
*10.3
(1) Employment Agreement between the Registrant and Larry J. Goddard, dated June 1, 2006 (Exh. 10.3,
7/28/06 8-K)
*10.4
(1) 1995 Stock Option Plan, as Amended and Restated (Exh. 4.1, 6/11/99 S-8)
*10.4.1
(1) Amendment to 1995 Stock Option Plan (Exh. 10.1, 3/07/05 8-K)
*10.4.2
(1) 2006 Stock Option Plan (Exh. 10.1, 5/31/06 8-K)
*10.5
(1) Employee Non-Qualified Stock Option Agreement (Exh. 10.1, 9/30/04 10-Q)
*10.6
(1) Director Non-Qualified Stock Option Agreement (Exh. 10.2, 9/30/04 10-Q)
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Table of contents
*10.6.1
(1) Form of Non-Qualified Stock Option Agreement for Non-Employee Director stock options that are granted
under the 2006 Stock Option Plan (Exh. 10.2, 5/31/06 8-K)
*10.7
(1) Incentive Compensation Plan (Exh. 10.3, 7/10/09 8-K)
*10.8
(1) Consulting Agreement between the Registrant and Manuel J. Moroun, dated December 6, 2007 (Exh.
10.10, 2007 10-K)
Subsidiaries of the Registrant
Consent of Grant Thornton LLP
Rule 13a-14(a) Certification of Principal Executive Officer
Rule 13a-14(a) Certification of Principal Financial Officer
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
21.1
23.1
31.1
31.2
32.1
(1) Management contract or compensatory plan or arrangement.
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Table of contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 15, 2010
P.A.M. TRANSPORTATION SERVICES, INC.
By:/s/ Daniel H. Cushman
DANIEL H. CUSHMAN
President and Chief Executive Officer
(principal executive officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: March 15, 2010
By:/s/ Frederick P. Calderone
Dated: March 15, 2010
Dated: March 15, 2010
Dated: March 15, 2010
Dated: March 15, 2010
FREDERICK P. CALDERONE, Director
By:/s/ Frank L. Conner
FRANK L. CONNER, Director
By:/s/ Daniel H. Cushman
DANIEL H. CUSHMAN
President and Chief Executive Officer, Director
(principal executive officer)
By:/s/ W. Scott Davis
W. SCOTT DAVIS, Director
By:/s/ Christopher L. Ellis
CHRISTOPHER L. ELLIS, Director
Dated: March 15, 2010
By:/s/ Larry J. Goddard
LARRY J. GODDARD
Vice President-Finance, Chief Financial Officer,
Secretary and Treasurer
(principal financial and accounting officer)
Dated: March 15, 2010
By:/s/ Manuel J. Moroun
MANUEL J. MOROUN, Director
Dated: March 15, 2010
By:/s/ Matthew T. Moroun
MATTHEW T. MOROUN, Director and Chairman of
the Board
Dated: March 15, 2010
Dated: March 15, 2010
By:/s/ Daniel C. Sullivan
DANIEL C. SULLIVAN, Director
By:/s/ Charles F. Wilkins
CHARLES F. WILKINS, Director
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Table of contents
EXHIBIT INDEX
The following exhibits are filed with or incorporated by reference into this Report. The exhibits which are denominated by
an asterisk (*) were previously filed as a part of, and are hereby incorporated by reference from either (i) the Form S-1
Registration Statement under the Securities Act of 1933, as filed with the Securities and Exchange Commission on July 30,
1986, Registration No. 33-7618, as amended on August 8, 1986, September 3, 1986 and September 10, 1986 (“1986 S-1”);
(ii) the Quarterly Report on Form 10-Q for the quarter ended June 30, 1994 (“6/30/94 10-Q”); (iii) the Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995 (“6/30/95 10-Q”); (iv) the Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 (“9/30/96 10-Q”); (v) the Form S-8 Registration Statement filed on June 11, 1999 (“6/11/99 S-
8”); (vi) the Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 (“3/31/02 10-Q”); (vii) the Quarterly
Report on Form 10-Q for the quarter ended September 30, 2004 (“9/30/04 10-Q”); (viii) Form 8-K filed on March 7, 2005
(“3/07/05 8-K”); (ix) Form 8-K filed on May 31, 2006 (“5/31/06 8-K”); (x) Form 8-K filed on July 28, 2006 (“7/28/06 8-K”); (xi)
the Form 8-K filed on December 11, 2007 (“12/11/07 8-K”); (xii) the Annual Report on Form 10-K for the year ended
December 31, 2007 (“2007 10-K”); or (xiii) Form 8-K filed on July 10, 2009 (“7/10/09 8-K”).
Exhibit #
*3.1
Description of Exhibit
Amended and Restated Certificate of Incorporation of the Registrant (Exh. 3.1, 3/31/02 10-Q)
*3.2
*4.1
*4.2
*4.2.1
*4.3
*4.3.1
*4.3.2
*4.3.3
*4.4
*4.4.1
*4.4.2
*4.4.3
*4.5
Amended and Restated By-Laws of the Registrant (Exh. 3.2, 12/11/07 8-K)
Specimen Stock Certificate (Exh. 4.1, 1986 S-1)
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)
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)
First Amendment to Loan Agreement dated June 27, 1995 by and among P.A.M. Transport, Inc., First
Tennessee Bank National Association and P.A.M. Transportation Services, Inc., together with Promissory
Note in the principal amount of $2,500,000 (Exh. 4.1.1, 6/30/95 10-Q)
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)
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)
Guaranty Agreement of P.A.M. Transportation Services, Inc. dated June 27, 1995 in favor of First Tennessee
Bank National Association $10,000,000 line of credit (Exh. 4.1.4, 6/30/95 10-Q)
Second Amendment to Loan Agreement dated July 3, 1996 by P.A.M. Transport, Inc., First Tennessee Bank
National Association and P.A.M. Transportation Services, Inc., together with Promissory Note in the principal
amount of $5,000,000 (Exh. 4.1.1, 9/30/96 10-Q)
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)
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)
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)
Fourth Amendment to Loan Agreement dated July 26, 1994 among First Tennessee Bank National
Association, Registrant and P.A.M. Transport, Inc. together with Promissory Note (Exh. 4.6, 2007 10-K)
*10.1
(1) Employment Agreement between the Registrant and Daniel H. Cushman, dated June 29, 2009 (Exh. 10.2,
7/10/09 8-K)
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Table of contents
*10.2
(1) Employment Agreement between the Registrant and W. Clif Lawson, dated June 1, 2006 (Exh. 10.2, 7/28/06
8-K)
*10.3
(1) Employment Agreement between the Registrant and Larry J. Goddard, dated June 1, 2006 (Exh. 10.3,
7/28/06 8-K)
*10.4
(1) 1995 Stock Option Plan, as Amended and Restated (Exh. 4.1, 6/11/99 S-8)
*10.4.1
(1) Amendment to 1995 Stock Option Plan (Exh. 10.1, 3/07/05 8-K)
*10.4.2
(1) 2006 Stock Option Plan (Exh. 10.1, 5/31/06 8-K)
*10.5
(1) Employee Non-Qualified Stock Option Agreement (Exh. 10.1, 9/30/04 10-Q)
*10.6
(1) Director Non-Qualified Stock Option Agreement (Exh. 10.2, 9/30/04 10-Q)
*10.6.1
(1) Form of Non-Qualified Stock Option Agreement for Non-Employee Director stock options that are granted
under the 2006 Stock Option Plan (Exh. 10.2, 5/31/06 8-K)
*10.7
(1) Incentive Compensation Plan (Exh. 10.3, 7/10/09 8-K)
*10.8
(1) Consulting Agreement between the Registrant and Manuel J. Moroun, dated December 6, 2007 (Exh. 10.10,
2007 10-K)
21.1
Subsidiaries of the Registrant
23.1
Consent of Grant Thornton LLP
31.1
Rule 13a-14(a) Certification of Principal Executive Officer
31.2
Rule 13a-14(a) Certification of Principal Financial Officer
32.1
Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
(1) Management contract or compensatory plan or arrangement.
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