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PTSI > SEC Filings for PTSI > Form 10-Q on 10-May-2013All Recent SEC Filings

Show all filings for PAM TRANSPORTATION SERVICES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PAM TRANSPORTATION SERVICES INC


10-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING INFORMATION
Certain information included in this Quarterly Report on Form 10-Q constitutes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to expected future financial and operating results or events, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, excess capacity in the trucking industry; surplus inventories; recessionary economic cycles and downturns in customers' business cycles; increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls, license and registration fees; the resale value of the Company's used equipment and the price of new equipment; increases in compensation for and difficulty in attracting and retaining qualified drivers and owner-operators; increases in insurance premiums and deductible amounts relating to accident, cargo, workers' compensation, health, and other claims; unanticipated increases in the number or amount of claims for which the Company is self insured; inability of the Company to continue to secure acceptable financing arrangements; seasonal factors such as harsh weather conditions that increase operating costs; competition from trucking, rail, and intermodal competitors including reductions in rates resulting from competitive bidding; the ability to identify acceptable acquisition candidates, consummate acquisitions, and integrate acquired operations; a significant reduction in or termination of the Company's trucking service by a key customer; and other factors, including risk factors, included from time to time in filings made by the Company with the Securities and Exchange Commission ("SEC"). The Company undertakes no obligation to update or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

CRITICAL ACCOUNTING POLICIES
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the fiscal year ended December 31, 2012.

BUSINESS OVERVIEW
The Company's administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through wholly owned subsidiaries based in various locations around the United States, Mexico, 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 91.1% and 91.2% of total revenues, excluding fuel surcharges for the three months ended March 31, 2013 and 2012, respectively. The remaining revenues, excluding fuel surcharges, were generated from brokerage and logistics services.

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 the three months ended March 31, 2013 and 2012, approximately $22.2 million and $21.0 million, respectively, of the Company's total revenue was generated from fuel surcharges. We may 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 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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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.

                                              Three Months Ended
                                                   March 31,
                                               2013          2012
                                                 (percentages)

Operating revenues, before fuel surcharge        100.0        100.0

Operating expenses:
Salaries, wages and benefits                      57.8         46.6
Fuel expense, net of fuel surcharge                6.8         14.4
Rent and purchased transportation                 (0.1 )        1.0
Depreciation                                      14.2         13.5
Operating supplies and expenses                   12.5         13.6
Operating taxes and licenses                       1.8          1.8
Insurance and claims                               4.8          4.9
Communications and utilities                       0.8          0.9
Other                                              2.3          2.0
Gain on sale or disposal of property              (0.2 )          -
Total operating expenses                         100.7         98.7
Operating (loss) income                           (0.7 )        1.3
Non-operating income                               0.4          0.9
Interest expense                                  (1.1 )       (0.8 )
(Loss) income before income taxes                 (1.4 )        1.4

THREE MONTHS ENDED MARCH 31, 2013 VS. THREE MONTHS ENDED MARCH 31, 2012

During the first quarter of 2013, truckload services revenue, before fuel surcharges, increased 3.5% to $70.9 million as compared to $68.5 million during the first quarter of 2012. The increase was primarily due to an increase in both the number of miles traveled and the average rate charged to customers. The number of miles traveled increased from 50.7 million miles during the first quarter of 2012 to 51.7 million miles during the first quarter of 2013 primarily as a result of an increase in the average number of trucks in service, which increased from 1,747 trucks during the first quarter of 2012 to 1,804 trucks during the first quarter of 2013. The average rate charged per total mile during the first quarter of 2013 increased $0.02 as compared to the average rate charged during the first quarter of 2012. Also contributing to the increase was an increase in equipment utilization as the Company continues to replace older trucks, which generally have a higher probability for mechanical problems which could disrupt en route service thereby reducing route efficiency.

Salaries, wages and benefits increased from 46.6% of revenues, before fuel surcharges, in the first quarter of 2012 to 57.8% of revenues, before fuel surcharges, during the first quarter of 2012. The increase relates primarily to an increase in driver lease expense, which is a component of the Salaries, wages and benefits category, as the average number of owner operators under contract increased from 95 during the first quarter of 2012 to 257 during the first quarter of 2013. The increase in costs in this category, as they relate to the increase in the number of owner operators, are partially offset by a decrease in other cost categories, such as repairs and fuel, which are generally borne by the owner operator. Also contributing to this increase was an increase in costs associated with workers compensation claims expensed during the first quarter of 2013 as compared to the first quarter of 2012 and was related to the accrual of an expected adverse settlement of a large workers' compensation claim in excess of its estimated reserve.

Fuel expense, net of fuel surcharge, decreased from 14.4% of revenues, before fuel surcharges, during the first quarter of 2012 to 6.8% of revenues, before fuel surcharges, during the first quarter of 2013. The decrease was primarily related to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel. The average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased from $1.17 during the first quarter of 2012 to $0.65 during the first quarter of 2013 as a result of more favorable fuel surcharge arrangements made with customers and to an increase in the number of owner operators in our fleet. Fuel surcharge collections can fluctuate significantly 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 falling fuel prices. Fuel surcharge revenue generated from transportation services performed by owner operators is reflected as a reduction in net fuel expense, while fuel surcharges paid to owner operators for their services is reported along with their base rate in the Salaries, wages and benefits category. These categorizations have the effect of reducing our net fuel expense while increasing Salaries, wages and benefits category, as discussed above. The Company has also implemented driver bonus programs which are tied directly to fuel efficiency.

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Depreciation increased from 13.5% of revenues, before fuel surcharges, during the first quarter of 2012 to 14.2% of revenues, before fuel surcharges, during the first quarter of 2013. The increase relates primarily to purchases of new trucks made since the first quarter of 2012 which replaced older trucks within the fleet. These new truck replacements have a significantly higher purchase price than those trucks that are being replaced and are being depreciated over a shorter period of time as the Company accelerates its truck replacement cycle from every five years to a replacement cycle of every three years. This reduction in replacement cycle, combined with a higher purchase price, results in higher depreciation expense over a shorter period of time. The decrease in the truck replacement cycle time is intended to reduce long-term maintenance costs as well as increase fleet efficiency by reducing maintenance down-time.

Rent and purchased transportation decreased from 1.0% of revenues, before fuel surcharges, during the first quarter of 2012 to a credit of 0.1% of revenues, before fuel surcharges, during the first quarter of 2013. The decrease relates primarily to a decrease in amounts paid for third-party equipment rentals and to third-party transportation service providers.

Operating supplies and expenses decreased from 13.6% of revenues, before fuel surcharges, during the first quarter of 2012 to 12.5% of revenues, before fuel surcharges, during the first quarter of 2013. The decrease relates primarily to a decrease in amounts paid for equipment maintenance costs during the first quarter of 2013 as compared to amounts paid during the first quarter of 2012 as a result of replacing older equipment with new equipment. Partially offsetting this decrease was an increase in amounts paid for driver training schools and driver layover compensation during the first quarter of 2013 as compared to amounts paid during the first quarter of 2012. The increase in driver training and recruiting costs are a result of heightened competition as industry demand for qualified drivers has increased while increased regulations have forced some qualified drivers to exit the profession.

Other expenses increased from 2.0% of revenues, before fuel surcharges, during the first quarter of 2012 to 2.3% of revenues, before fuel surcharges, during the first quarter of 2013. The increase relates primarily to an increase in amounts expensed for uncollectible revenue and for other supplies and expenses.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 98.7% for the first quarter 2012 to 100.7% for the first quarter of 2013.

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.

                                              Three Months Ended
                                                   March 31,
                                               2013          2012
                                                 (percentages)

Operating revenues, before fuel surcharge        100.0        100.0

Operating expenses:
Salaries, wages and benefits                       2.2          1.4
Rent and purchased transportation                 93.7         95.5
Communications and utilities                       0.2          0.1
Other                                              0.3          0.3
Total operating expenses                          96.4         97.3
Operating income                                   3.6          2.7
Non-operating income                               0.0          0.2
Interest expense                                  (0.2 )       (0.2 )
Income before income taxes                         3.4          2.7

THREE MONTHS ENDED MARCH 31, 2013 VS. THREE MONTHS ENDED MARCH 31, 2012

During the first quarter of 2013, logistics and brokerage services revenue, before fuel surcharges, increased 4.3% to $6.9 million as compared to $6.6 million during the first quarter of 2012. The increase relates to an increase in brokered load rates during the first quarter of 2013 as compared to the first quarter of 2012.

Salaries, wages and benefits increased from 1.4% of revenues, before fuel surcharges, in the first quarter of 2012 to 2.2% of revenues, before fuel surcharges, during the first quarter of 2013. The increase relates to an increase in the number of employees assigned to the logistics and brokerage services division.

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Rent and purchased transportation decreased from 95.5% of revenues, before fuel surcharges, during the first quarter of 2012 to 93.7% of revenues, before fuel surcharges during the first quarter of 2013. The decrease, as a percentage of revenues, relates to the increase in brokerage revenue and a disproportionate increase in rates charged by third party logistics and brokerage service providers. On a dollar basis, rent and purchased transportation increased from $6.3 million during the first quarter of 2012 to $6.5 million during the first quarter of 2013.

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 from 97.3% for the first quarter of 2012 to 96.4% for the first quarter of 2013.

RESULTS OF OPERATIONS - COMBINED SERVICES

THREE MONTHS ENDED MARCH 31, 2013 VS. THREE MONTHS ENDED MARCH 31, 2012

Net loss for all divisions was approximately $0.5 million, or 0.6% of revenues, before fuel surcharge for the first quarter of 2013 as compared to net income of $0.7 million or 0.9% of revenues, before fuel surcharge for the first quarter of 2012. The decrease in income resulted in diluted loss per share of $0.05 for the first quarter of 2013 as compared to diluted income per share of $0.08 for the first quarter of 2012.

LIQUIDITY AND CAPITAL RESOURCES
The growth of our business has required, and will continue to require, a significant investment in new revenue equipment. Our primary sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, issuances of equity securities, borrowings under our line of credit, installment note agreements, and borrowings under our investment margin account.

During the first three months of 2013, we generated $10.0 million in cash from operating activities. Investing activities used $18.3 million in cash in the first three months of 2013. Financing activities provided $8.7 million in cash in the first three months of 2013.

Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing line 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 the first three months of 2013, we utilized cash on hand, installment notes, and our lines of credit to finance revenue equipment purchases of approximately $23.3 million.

Occasionally, we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 60 months. During the first three months of 2013, the Company's subsidiary, P.A.M. Transport, Inc. entered into installment obligations totaling approximately $16.8 million for the purpose of purchasing revenue equipment. These obligations are payable in 36 monthly installments at interest rates ranging from 2.49% to 3.27%.

During the remainder of 2013, we expect to purchase approximately 450 new trucks and 540 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $50.6 million. Management believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability of additional capital will depend upon prevailing market conditions, the market price of our common stock and several other factors over which we have limited control, as well as our financial condition and results of operations. Nevertheless, based on our recent operating results, current cash position, anticipated future cash flows, and sources of financing that we expect will be available to us, we do not expect that we will experience any significant liquidity constraints in the foreseeable future.

We currently intend to retain our future earnings to finance our growth and do not anticipate paying additional cash dividends in the foreseeable future other than those dividends declared and paid during 2012.

During the first three months of 2013 we maintained a $35.0 million revolving line of credit. Amounts outstanding under the line of credit bear interest at LIBOR (determined as of the first day of each month) plus 1.95% (2.15% at March 31, 2013), are secured by our accounts receivable and mature on June 1, 2014. At March 31, 2013 outstanding advances on the line of credit were approximately $11.7 million, including letters of credit totaling $1.1 million, with availability to borrow $23.3 million.

Trade accounts receivable increased from $50.0 million at December 31, 2012 to $58.7 million at March 31, 2013. The increase relates to a general increase in revenue, which flows through the accounts receivable account, during the first quarter of 2013 as compared to the last quarter of 2012.

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Accounts receivable-other increased from $3.6 million at December 31, 2012 to $5.0 million at March 31, 2013. The increase relates primarily to an increase in amounts receivable from the Company's third-party qualified intermediary. The Company contracts with a third-party qualified intermediary in order to accomplish like-kind exchanges related to its revenue equipment. 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. Amounts held by the Company's third-party qualified intermediary are dependent on the timing and extent of the Company's revenue equipment sales and/or purchase activities which can fluctuate significantly from period-to-period.

Prepaid expenses and deposits decreased from $11.3 million at December 31, 2012 to $9.3 million at March 31, 2013. The decrease relates to the amortization of prepaid tractor and trailer license fees and auto liability insurance premiums. During late 2012, approximately $2.4 million of the 2013 license fees and approximately $1.0 million of the 2013 auto liability insurance premiums were paid in advance. These prepaid expenses will continue to be amortized to expense through the remainder of the year.

Marketable equity securities increased from $17.3 million at December 31, 2012 to $19.0 million at March 31, 2013. The $1.7 million increase was primarily related to an increase in the market value of the Company's investments during the first three months of 2013.

Accounts payable increased from $19.0 million at December 31, 2012 to $22.6 million at March 31, 2013. The $3.6 million increase was primarily related to a $3.0 million increase in amounts reclassified to accounts payable as bank drafts outstanding at March 31, 2013 as compared to December 31, 2012.

Accrued expenses and other liabilities increased from $21.3 million at December 31, 2012 to $23.7 million at March 31, 2013. The increase was primarily related to an increase in amounts accrued at the end of the period for employee wages and benefits which can vary significantly throughout the year depending on many factors, including the timing of the actual date employees are paid in relation to the last day of the reporting period. Also contributing to the increase was a $1.0 million increase in amounts accrued at the end of the period for amounts payable to third-party owner-operator drivers which can also vary significantly throughout the year depending on the timing of the actual date owner-operators are paid in relation to the last day of the reporting period.

Current maturities of long term-debt and long-term debt fluctuations are reviewed on an aggregate basis as the classification of amounts in each category are typically affected merely by the passage of time. Current maturities of long-term debt and long-term debt, on an aggregate basis, increased from $107.5 million at December 31, 2012 to $116.7 million at March 31, 2013. The increase was primarily related to additional borrowings made during the first three months of 2013 net of the principal portion of scheduled installment note payments made during the first three months of 2013.

NEW ACCOUNTING PRONOUNCEMENTS
See Note B to the condensed consolidated financial statements for a description of the most recent accounting pronouncements and their impact, if any, on the Company.

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