P.A.M. Transportation Services, Inc. — 2011 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2011, including unaudited fourth-quarter results. P.A.M. is a truckload dry-van carrier serving the continental United States, portions of Canada, and Mexico, with additional brokerage and logistics services. The company reports one motor-carrier segment.
- Truckload services represented 93.5% of revenue before fuel surcharges in 2011; brokerage and logistics represented 6.5%.
- Approximately 63% of revenue came from domestic shipments and 37% from freight originating from or destined for Mexico or Canada.
- At year-end, the company operated 1,770 trucks and 4,696 trailers and employed 2,764 people.
Key financial metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Operating revenue before fuel surcharge | $284.2 million | $282.5 million | 0.6% increase |
| Fuel surcharge revenue | $75.1 million | $49.5 million | 52.0% increase |
| Total operating revenue | $359.2 million | $332.0 million | 8.2% increase |
| Operating loss | $5.3 million | $0.2 million | Worsened |
| Loss before income taxes | $5.6 million | $1.6 million | Worsened |
| Net loss | $2.9 million | $0.7 million | Worsened |
| Diluted loss per share | $0.32 | $0.07 | Worsened |
| Operating ratio | 101.9% | 100.1% | 180 basis points higher |
| Cash flow from operations | $34.9 million | $15.0 million | Increase |
| Capital expenditures, primarily equipment | $69.4 million | $24.1 million | Increase |
Fuel expense increased to $125.0 million from $97.5 million, while salaries, wages and benefits increased to $118.3 million from $109.7 million. Depreciation and amortization rose to $34.2 million from $27.0 million, and operating supplies and expenses increased to $38.7 million from $30.1 million.
At December 31, 2011, total assets were $279.1 million and stockholders’ equity was $137.5 million. Cash and cash equivalents were only $180,000, compared with $13.8 million in 2010. Total long-term debt was $61.6 million, including $9.3 million drawn under the revolving line of credit and $52.2 million of equipment financing. The company reported $19.5 million of remaining availability under its $30.0 million revolving facility, including consideration of outstanding advances and letters of credit.
Fourth-quarter 2011 results
| Metric | Q4 2011 | Q4 2010 |
|---|---|---|
| Operating revenue | $89.4 million | $78.2 million |
| Operating expenses | $89.8 million | $80.2 million |
| Operating loss | $0.4 million | $2.0 million |
| Net income (loss) | $0.1 million | $(1.1) million |
| Diluted earnings (loss) per share | $0.02 | $(0.12) |
Fourth-quarter results improved year over year and produced a small profit, but the full year remained unprofitable. Quarterly results were volatile: the company reported losses in the first and third quarters and modest income in the second and fourth quarters.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher fuel surcharges and improved customer pricing. Truckload revenue before fuel surcharges increased 9.5% to $265.8 million, while logistics and brokerage revenue declined 53.7% to $18.4 million following the closure of a New Jersey brokerage office in 2010.
- The average rate charged per total mile increased by $0.10, and average revenue before fuel surcharge per loaded mile increased to $1.49 from $1.35. However, the empty-mile factor worsened to 8.3% from 6.3%.
- Management accelerated the planned truck replacement cycle from five years to three years and revised useful lives and residual values. The resulting additional depreciation expense was approximately $4.2 million and increased the reported 2011 net loss by approximately $2.6 million, or $0.29 per diluted share.
- The company took delivery of approximately 550 trucks during 2011 and expects higher depreciation and potentially higher maintenance costs from newer emissions-compliant equipment.
- Capital spending increased substantially, with approximately $67.6 million spent on revenue equipment. The company purchased 557 trucks and 203 trailers and disposed of 297 trucks and 115 trailers.
- The company repurchased 724,000 shares during 2011, including 224,000 shares in the fourth quarter, for an aggregate cost of approximately $8.1 million. No cash dividends were paid or planned.
Guidance, outlook, risks and unusual items
- For 2012, management expected to purchase 600 trucks and 450 trailers, with net capital expenditures of approximately $67.5 million.
- Management stated that near-term working capital and equipment needs were expected to be funded through cash flows from operations, cash balances and available financing, and that no significant liquidity constraints were anticipated in the foreseeable future.
- Key risks include fuel-price volatility, driver shortages, intense freight-rate competition, significant customer and automotive-industry concentration, equipment costs and residual values, regulatory changes, and ongoing capital requirements.
- The five largest customers accounted for approximately 47% of 2011 revenue; General Motors accounted for approximately 26%, and the automotive industry accounted for approximately 38%.
- The company does not hedge diesel fuel prices. Based on 2011 consumption, a 10% increase in average diesel prices would have increased annual fuel expense by approximately $12.5 million.
- Final FMCSA hours-of-service rules effective July 1, 2013 could restrict scheduling flexibility and reduce productivity. Potential electronic onboard recorder requirements could create additional costs and operational changes.
- The company maintains self-insurance exposures for health and workers’ compensation claims. A 10% increase in both incurred and incurred-but-not-reported claims would have increased annual health and workers’ compensation expense by approximately $0.9 million.
- Contractual obligations totaled approximately $66.7 million, including $64.3 million of long-term debt payments including interest, $2.2 million of operating leases, and $197,000 of lease residual-value guarantees.
- The company had a $48.8 million federal net operating loss carryforward and recorded a net deferred tax liability of $46.6 million. Management concluded that no valuation allowance was necessary for deferred tax assets.
- There were no material pending legal proceedings disclosed. Grant Thornton issued unqualified opinions on the financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Whether pricing, utilization and lower fuel-adjusted operating costs can return the operating ratio below 100%.
- Whether operating cash flow can consistently fund the approximately $67.5 million 2012 equipment program while meeting debt maturities and maintaining liquidity.
- The availability and renewal terms of the revolving credit facility, including compliance with its 2:1 debt-to-equity and $135 million tangible-net-worth covenants.
- The effect of accelerated depreciation, higher equipment prices and maintenance costs on future earnings and asset values.
- Exposure to General Motors, the broader automotive sector, and the company’s five largest customers.
- The financial impact of diesel prices, driver recruitment and retention, FMCSA hours-of-service requirements, and any future electronic-recording mandates.
- The assumptions supporting the realization of deferred tax assets and the company’s continued lack of a valuation allowance.