UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON,
Washington, D.C. 20549

FORM 10-Q


[ X ]          

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005


[ _ ]          March 31, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______

                       __________to__________

Commission File NumberNumber: 0-15057
                                                 -------

                      

P.A.M. TRANSPORTATION SERVICES, INC.
                      ------------------------------------
             (Exact
(Exact name of registrant as specified in its charter)

          Delaware                                           71-0633135
          --------                                           ----------
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                           Identification No.)

            


Delaware
71-0633135
(State or other jurisdiction of incorporation)
(I.R.S. Employer Identification no.)

297 West Henri De Tonti, Blvd, Tontitown, Arkansas 72770
            -------------------------------------------------------
            (Address
(Address of principal executive offices)(Zip (Zip Code)

       Registrants

Registrant’s telephone number, including area code: (479) 361-9111

N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by sectionSection 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 suchthe filing requirements for the past 90 days.

Yes  [ X ]          No  [ _ ]

Yes  ý
No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o
Accelerated filer ý
Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  [ X ]          No  [ _ ]

Yes  o
No  ý

Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common stock, as of the latest practicable date:

         Class                                      Outstanding at July 29, 2005
         -----                                      ----------------------------
Common Stock, $.01 Par Value                                 10,896,407


Class
Outstanding at May 4, 2006
Common Stock, $.01 Par Value
10,293,607



P.A.M. TRANSPORTATION SERVICES, INC.
Form 10-Q
For The Quarter Ended March 31, 2006
Table of Contents



Part I. Financial Information
Item 1.
Financial Statements.
Condensed Consolidated Balance Sheets as of March 31, 2006 and December 31, 2005
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2006 and 2005
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2006 and 2005
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2006
Notes to Condensed Consolidated Financial Statements as of March 31, 2006
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
Item 4.
Controls and Procedures.
Part II. Other Information
Item 1.
Legal Proceedings.
Item 6.
Exhibits.
Exhibits
Signatures


2
Table of Contents

PART I -I. FINANCIAL INFORMATION
Item 1. Financial Statements

                      P.A.M. TRANSPORTATION SERVICES, INC.
                               AND SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (in thousands, except share data)

                                                          June 30,    December 31,
                                                           2005          2004
                                                           ----          ----
                                                       (unaudited)    (see note)

ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                              $   3,256     $  19,659
  Accounts receivable-net:
   Trade                                                   60,459        47,926
   Other                                                    1,376         1,110
 Inventories                                                  749           913
 Prepaid expenses and deposits                              8,539        14,862
 Marketable equity securities available-for-sale            9,611         8,792
 Income taxes refundable                                      632           754
                                                        ---------     ---------
      Total current assets                                 84,622        94,016

PROPERTY AND EQUIPMENT:
 Land                                                       2,674         2,674
 Structures and improvements                                9,308         9,299
 Revenue equipment                                        252,494       238,750
 Office furniture and equipment                             6,449         6,449
                                                        ---------     ---------
      Total property and equipment                        270,925       257,172
 Accumulated depreciation                                 (88,848)      (83,029)
                                                        ---------     ---------
      Net property and equipment                          182,077       174,143

OTHER ASSETS:
 Goodwill                                                  15,413        15,413
 Non-compete agreements                                       517           654
 Other                                                      1,111         1,123
                                                        ---------     ---------
      Total other assets                                   17,041        17,190
                                                        ---------     ---------
TOTAL ASSETS                                            $ 283,740     $ 285,349
                                                        =========     =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                       $  22,343     $  28,702
 Accrued expenses and other liabilities                    11,434         9,828
 Current maturities of long-term debt                         853         2,080
 Deferred income taxes-current                              7,316         7,162
                                                        ---------     ---------
      Total current liabilities                            41,946        47,772

 Long-term debt-less current portion                       24,076        23,225
 Deferred income taxes-less current portion                49,125        45,375
 Other                                                        334           434
                                                        ---------     ---------
      Total liabilities                                   115,481       116,806
                                                        ---------     ---------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value:
     10,000,000 shares authorized; none issued
Common stock, $.01 par value:
     40,000,000 shares authorized; issued and
     outstanding- 10,896,407 at June 30, 2005,
     11,303,207 at December 31, 2004                          113           113
Additional paid-in capital                                 76,412        76,050
Accumulated other comprehensive income                      1,382         1,151
Treasury stock, at cost; 445,800 shares                    (7,460)            -
Retained earnings                                          97,812        91,229
                                                        ---------     ---------
      Total shareholders' equity                          168,259       168,543
                                                        ---------     ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY              $ 283,740     $ 285,349
                                                        =========     =========

Note:  The  balance sheet at December 31, 2004 has been derived from the audited
financial  statements  at  that date but does not include all of the information
and  footnotes required by generally accepted accounting principles for complete
financial statements.  See notes to condensed consolidated financial statements.

                                  P.A.M. TRANSPORTATION SERVICES, INC.
                                            AND SUBSIDIARIES
                             CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (unaudited)
                                  (in thousands, except per share data)


                                                     Three Months Ended             Six Months Ended
                                                          June 30,                       June 30,
                                                    2005           2004            2005           2004
                                                    ----           ----            ----           ----

OPERATING REVENUES:
 Revenue, before fuel surcharge                  $  83,321      $  79,071       $ 163,430      $ 156,744
 Fuel surcharge                                      7,706          3,213          13,789          5,660
                                                 ---------      ---------       ---------      ---------
                                                    91,027         82,284         177,219        162,404
                                                 ---------      ---------       ---------      ---------
OPERATING EXPENSES AND COSTS:
 Salaries, wages, and benefits                      31,645         29,640          62,650         60,038
 Operating supplies and expenses                    25,114         18,588          47,768         36,964
 Rents and purchased transportation                  9,424         10,010          19,256         19,772
 Depreciation and amortization                       7,656          7,416          15,122         14,885
 Operating taxes and licenses                        4,050          3,945           8,004          7,956
 Insurance and claims                                4,532          3,904           8,631          7,892
 Communications and utilities                          643            658           1,342          1,366
 Other                                               1,359          1,555           2,667          2,904
 Loss on sale or disposal of equipment                  56             18              74            278
                                                 ---------      ---------       ---------      ---------
      Total operating expenses and costs            84,479         75,734         165,514        152,055
                                                 ---------      ---------       ---------      ---------
NET OPERATING INCOME                                 6,548          6,550          11,705         10,349

NON-OPERATING INCOME                                   108             93             299            155
INTEREST EXPENSE                                      (474)          (442)           (918)          (854)
                                                 ---------      ---------       ---------      ---------
NET INCOME BEFORE INCOME TAXES                       6,182          6,201          11,086          9,650

FEDERAL AND STATE INCOME TAXES:
 Current                                               498            319             750            637
 Deferred                                            2,004          2,235           3,753          3,335
                                                 ---------      ---------       ---------      ---------
      Total federal and state income taxes           2,502          2,554           4,503          3,972
                                                 ---------      ---------       ---------      ---------
NET INCOME                                       $   3,680      $   3,647       $   6,583      $   5,678
                                                 =========      =========       =========      =========
EARNINGS PER COMMON SHARE:
 Basic                                           $    0.33      $    0.32       $    0.59      $    0.50
                                                 =========      =========       =========      =========
 Diluted                                         $    0.33      $    0.32       $    0.59      $    0.50
                                                 =========      =========       =========      =========
AVERAGE COMMON SHARES OUTSTANDING:
 Basic                                              11,114         11,296          11,209         11,296
                                                 =========      =========       =========      =========
 Diluted                                            11,130         11,322          11,227         11,322
                                                 =========      =========       =========      =========
See notes to condensed consolidated financial statements.

                      P.A.M. TRANSPORTATION SERVICES, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
                                 (in thousands)
                                                            Six Months Ended
                                                                 June 30,
                                                           2005           2004
                                                           ----           ----

OPERATING ACTIVITIES:
Net income                                              $   6,583     $   5,678
 Adjustments to reconcile net income to net
 cash provided by operating activities:
  Depreciation and amortization                            15,122        14,885
  Bad debt expense                                            257            79
  Non-compete agreement amortization-net of payments           38             -
  Provision for deferred income taxes                       3,753         3,335
  Loss on sale or disposal of equipment                        74           278
  Changes in operating assets and liabilities:
   Accounts receivable                                    (13,035)       (6,367)
   Prepaid expenses, inventories, and other assets          6,499        (3,563)
   Income taxes refundable                                    122           534
   Trade accounts payable                                  (6,208)         (186)
   Accrued expenses                                         1,607           740
                                                        ---------     ---------
Net cash provided by operating activities                  14,812        15,413
                                                        ---------     ---------
INVESTING ACTIVITIES:
 Purchases of property and equipment                      (30,436)      (19,109)
 Proceeds from sale or disposal of equipment                7,448        16,900
 Purchase of marketable equity securities                    (733)         (153)
 Other                                                        (20)           35
                                                        ---------     ---------
Net cash used in investing activities                     (23,741)       (2,327)
                                                        ---------     ---------
FINANCING ACTIVITIES:
 Borrowings under line of credit                          201,856       171,463
 Repayments under line of credit                         (200,644)     (174,331)
 Borrowings of long-term debt                                   -         2,304
 Repayments of long-term debt                              (1,587)       (2,585)
 Repurchases of common stock                               (7,460)            -
 Other                                                        361            17
                                                        ---------     ---------
Net cash used in financing activities                      (7,474)       (3,132)
                                                        ---------     ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      (16,403)        9,954

CASH AND CASH EQUIVALENTS-Beginning of period              19,659         3,064
                                                        ---------     ---------
CASH AND CASH EQUIVALENTS-End of period                 $   3,256     $  13,018
                                                        =========     =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
 Cash paid during the period for:
  Interest                                              $     969     $     873
                                                        =========     =========
  Income taxes                                          $     750     $     518
                                                        =========     =========

See notes to condensed consolidated financial statements.


                                                 P.A.M. TRANSPORTATION SERVICES, INC.
                                                          AND SUBSIDIARIES
                                      CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                            (unaudited)
                                                           (in thousands)

- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Accumulated
                                                         Additional     Other          Other
                                          Common Stock     Paid-In  Comprehensive  Comprehensive   Treasury    Retained
                                        Shares    Amount   Capital   Income(Loss)   Income(Loss)    Stock      Earnings     Total
- ------------------------------------------------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2004            11,303     $113    $76,050                     $1,151                   $91,229    $168,543

Components of comprehensive income:
  Net income                                                           $  6,583                                   6,583       6,583
   Other comprehensive income (loss)-
    Unrealized gain on hedge,
     net of tax of $120                                                     175           175                                   175
    Unrealized gain on marketable
     securities, net of tax of $30                                           56            56                                    56
                                                                       --------
   Total comprehensive income                                          $  6,814
                                                                       ========

  Treasury stock repurchases             (446)                                                     $(7,460)                  (7,460)

  Exercise of stock options-
  shares issued including tax
  benefits                                 39                  362                                                              362
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 2005               10,896      $113    $76,412                     $1,382      $(7,460)     $97,812    $168,259
====================================================================================================================================

See notes to condensed consolidated financial statements.
.

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
 
 
 
March 31,
 
December 31,
 
 
 
2006
 
2005
 
ASSETS
 
(unaudited)
 
(see note)
 
Current assets:
 
 
 
 
 
Cash and cash equivalents
 
$
1,466
 
$
1,129
 
Accounts receivable-net:
 
 
 
 
 
 
 
Trade
 
 
72,555
 
 
65,433
 
Other
 
 
1,341
 
 
1,392
 
Inventories
 
 
775
 
 
749
 
Prepaid expenses and deposits
 
 
10,730
 
 
15,095
 
Marketable equity securities available-for-sale
 
 
11,684
 
 
10,999
 
Income taxes refundable
 
 
64
 
 
225
 
Total current assets
 
 
98,615
 
 
95,022
 
 
 
 
 
 
 
 
 
Property and equipment:
 
 
 
 
 
 
 
Land
 
 
2,674
 
 
2,674
 
Structures and improvements
 
 
9,319
 
 
9,319
 
Revenue equipment
 
 
257,587
 
 
250,664
 
Office furniture and equipment
 
 
6,743
 
 
6,692
 
Total property and equipment
 
 
276,323
 
 
269,349
 
Accumulated depreciation
 
 
(91,588
)
 
(87,854
)
Net property and equipment
 
 
184,735
 
 
181,495
 
 
 
 
 
 
 
 
 
Other assets:
 
 
 
 
 
 
 
Goodwill
 
 
15,413
 
 
15,413
 
Non-compete agreements
 
 
367
 
 
417
 
Other
 
 
1,094
 
 
1,094
 
Total other assets
 
 
16,874
 
 
16,924
 
TOTAL ASSETS
 
$
300,224
 
$
293,441
 
 
 
 
 
 
 
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Accounts payable
 
$
33,163
 
$
22,055
 
Accrued expenses and other liabilities
 
 
13,092
 
 
10,507
 
Current maturities of long-term debt
 
 
1,376
 
 
1,859
 
Income taxes payable
 
 
2,793
 
 
-
 
Deferred income taxes-current
 
 
7,482
 
 
7,134
 
Total current liabilities
 
 
57,906
 
 
41,555
 
 
 
 
 
 
 
 
 
Long-term debt-less current portion
 
 
24,386
 
 
39,693
 
Deferred income taxes-less current portion
 
 
47,262
 
 
47,197
 
Other
 
 
184
 
 
234
 
Total liabilities
 
 
129,738
 
 
128,679
 
 
 
 
 
 
 
 
 
SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued
 
 
-
 
 
-
 
Common stock, $.01 par value, 40,000,000 shares authorized; 11,350,207 and
 
 
 
 
 
 
 
11,344,207 shares issued; 10,291,607 and 10,285,607 shares outstanding
 
 
 
 
 
 
 
at March 31, 2006 and December 31, 2005, respectively
 
 
114
 
 
113
 
Additional paid-in capital
 
 
76,595
 
 
76,429
 
Accumulated other comprehensive income
 
 
2,095
 
 
1,721
 
Treasury stock, at cost; 1,058,600 shares
 
 
(17,869
)
 
(17,869
)
Retained earnings
 
 
109,551
 
 
104,368
 
Total shareholders’ equity
 
 
170,486
 
 
164,762
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
 
$
300,224
 
$
293,441
 
 
 
 
 
 
 
 
 
Note: The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements.
3
Table of Contents
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2006
 
2005
 
OPERATING REVENUES:
 
 
 
 
 
 
 
Revenue, before fuel surcharge
 
$
90,849
 
$
80,109
 
Fuel surcharge
 
 
9,676
 
 
6,083
 
Total operating revenues
 
 
100,525
 
 
86,192
 
 
 
 
 
 
 
 
 
OPERATING EXPENSES AND COSTS:
 
 
 
 
 
 
 
Salaries, wages and benefits
 
 
33,229
 
 
31,005
 
Fuel expense
 
 
22,254
 
 
17,052
 
Rent and purchased transportation
 
 
11,349
 
 
9,832
 
Depreciation and amortization
 
 
8,366
 
 
7,467
 
Operating supplies and expenses
 
 
5,939
 
 
5,601
 
Operating taxes and license
 
 
4,057
 
 
3,954
 
Insurance and claims
 
 
4,196
 
 
4,099
 
Communications and utilities
 
 
694
 
 
699
 
Other
 
 
1,498
 
 
1,308
 
(Gain) loss on disposition of equipment
 
 
(109
)
 
17
 
Total operating expenses and costs
 
 
91,473
 
 
81,034
 
 
 
 
 
 
 
 
 
NET OPERATING INCOME
 
 
9,052
 
 
5,158
 
 
 
 
 
 
 
 
 
NON-OPERATING INCOME
 
 
57
 
 
191
 
INTEREST EXPENSE
 
 
(465
)
 
(445
)
 
 
 
 
 
 
 
 
NET INCOME BEFORE INCOME TAXES
 
 
8,644
 
 
4,904
 
 
 
 
 
 
 
 
 
FEDERAL AND STATE INCOME TAXES:
 
 
 
 
 
 
 
Current
 
 
3,271
 
 
252
 
Deferred
 
 
190
 
 
1,749
 
Total federal and state income taxes
 
 
3,461
 
 
2,001
 
 
 
 
 
 
 
 
 
NET INCOME
 
$
5,183
 
$
2,903
 
 
 
 
 
 
 
 
 
EARNINGS PER COMMON SHARE:
 
 
 
 
 
 
 
Basic
 
$
0.50
 
$
0.26
 
Diluted
 
$
0.50
 
$
0.26
 
 
 
 
 
 
 
 
 
AVERAGE COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
Basic
 
 
10,288
 
 
11,305
 
Diluted
 
 
10,288
 
 
11,327
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
 
 


4
Table of Contents


P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2006
 
2005
 
OPERATING ACTIVITIES:
 
 
 
 
 
 
 
Net income
 
$
5,183
 
$
2,903
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
 
 
8,366
 
 
7,467
 
Bad debt expense (recoveries)
 
 
123
 
 
134
 
Stock compensation
 
 
100
 
 
-
 
Non-compete agreement amortization-net of payments
 
 
-
 
 
38
 
Provision for deferred income taxes
 
 
190
 
 
1,749
 
(Gain) loss on sale or disposal of equipment
 
 
(109
)
 
17
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
 
 
(7,193
)
 
(5,575
)
Prepaid expenses, inventories, and other assets
 
 
4,339
 
 
4,600
 
Income taxes payable
 
 
2,955
 
 
249
 
Trade accounts payable
 
 
2,605
 
 
(10,409
)
Accrued expenses
 
 
2,585
 
 
1,674
 
Net cash provided by operating activities
 
 
19,144
 
 
2,847
 
 
 
 
 
 
 
 
 
INVESTING ACTIVITIES:
 
 
 
 
 
 
 
Purchases of property and equipment
 
 
(6,228
)
 
(13,151
)
Proceeds from sale or disposal of equipment
 
 
3,265
 
 
3,283
 
Purchase of marketable equity securities
 
 
(121
)
 
(216
)
Other
 
 
-
 
 
(19
)
Net cash used in investing activities
 
 
(3,084
)
 
(10,103
)
 
 
 
 
 
 
 
 
FINANCING ACTIVITIES:
 
 
 
 
 
 
 
Borrowings under line of credit
 
 
99,215
 
 
102,178
 
Repayments under line of credit
 
 
(114,341
)
 
(95,861
)
Borrowings of long-term debt
 
 
-
 
 
-
 
Repayments of long-term debt
 
 
(664
)
 
(901
)
Exercise of stock options
 
 
67
 
 
67
 
Net cash (used in) provided by financing activities
 
 
(15,723
)
 
5,483
 
 
 
 
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
 
337
 
 
(1,773
)
 
 
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS-Beginning of period
 
 
1,129
 
 
19,659
 
 
 
 
 
 
 
 
 
CASH AND CASH EQUIVALENTS-End of period
 
$
1,466
 
$
17,886
 
 
 
 
 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
Interest
 
$
506
 
$
508
 
Income taxes
 
$
316
 
$
23
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.
 
 
 
 
 
 
 


5
Table of Contents


P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
Shares / Amount
 
Additional Paid-In Capital
 
Other Comprehensive Income (Loss)
 
Accumulated Other Comprehensive Income (Loss)
 
Treasury Stock
 
Retained Earnings
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2005
 
 
10,285
 
$
113
 
$
76,429
 
 
 
 
$
1,721
 
$
(17,869
)
$
104,368
 
$
164,762
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Components of comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
 
 
$
5,183
 
 
 
 
 
 
 
 
5,183
 
 
5,183
 
Other comprehensive gain:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized gain on hedge,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
net of tax of $13
 
 
 
 
 
 
 
 
 
 
 
19
 
 
19
 
 
 
 
 
 
 
 
19
 
Unrealized gain on marketable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
securities, net of tax of $209
 
 
 
 
 
 
 
 
 
 
 
355
 
 
355
 
 
 
 
 
 
 
 
355
 
Total comprehensive income
 
 
 
 
 
 
 
 
 
 
$
5,557
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options-shares issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
including tax benefits
 
 
6
 
 
1
 
 
66
 
 
 
 
 
 
 
 
 
 
 
 
 
 
67
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 
 
 
 
 
 
 
 
100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
100
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2006
 
 
10,291
 
$
114
 
$
76,595
 
 
 
 
$
2,095
 
$
(17,869
)
$
109,551
 
$
170,486
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See notes to condensed consolidated financial statements.



6
Table of Contents

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                 JUNE 30, 2005

Notes to Condensed Consolidated Financial Statements (unaudited)
March 31, 2006


NOTE A: BASIS OF PRESENTATION
- --------------------------------
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management'smanagement’s opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the six-monththree-month period ended June 30,  2005March 31, 2006 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.2006. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company'sCompany’s annual report on Form 10-K for the year ended December 31, 2004.

2005.

Reclassifications - Certain 2005 amounts have been reclassified to conform to the 2006 presentation.

NOTE B: DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
- ----------------------------------------------------------------
Effective February 28, 2001, the Company entered into an interest rate swap agreement on a notional amount of $15,000,000. The pay fixed rate under the swap iswas 5.08%, while the receive floating rate is "1-month"was “1-month” LIBOR. This interest rate swap agreement terminatesterminated on March 2, 2006. Effective May 31, 2001, the Company entered into an interest rate swap agreement on a notional amount of $5,000,000. The pay fixed rate under the swap is 4.83%, while the receive floating rate is "1-month"“1-month” LIBOR. This interest rate swap agreement terminates on June 2, 2006.

The Company designates both of thesethe remaining interest rate swapsswap as cash flow hedgeshedge of its exposure to variability in future cash flows resulting from interest payments indexed to "1-month"“1-month” LIBOR. ChangesDuring the term of the interest rate swap agreement changes in future cash flows from the interest rate swaps will offset changes in interest rate payments on the first $20,000,000$5,000,000 of the Company'sCompany’s current revolving credit facility or future "1-month"“1-month” LIBOR based borrowings that reset on the last London Business Day prior to the start of the next interest period. The hedge locks the interest rate at 5.08%  or  4.83% plus the pricing spread (currently 1.15%) for the notional amountsamount of $15,000,000 and $5,000,000, respectively.

These$5,000,000.

The interest rate swap agreements meetagreement met the specific hedge accounting criteria. The measurement of hedge effectiveness is based upon a comparison of the floating-rate leg of the swap and the hedged floating-rate cash flows on the underlying liability. The effective portion of the cumulative gain or loss has been reported as a component of accumulated other comprehensive income in shareholders'shareholders’ equity and will be reclassified into current earnings by June 2, 2006, the latest termination date for all current swap agreements. The December 31, 20042005 balance of the net after tax deferred hedging loss in accumulated other comprehensive income ("AOCI"(“AOCI”) related to thesethe swap agreements was approximately $301,000$19,000 and the ending balance as of June 30, 2005March 31, 2006 was approximately $126,000.$142. The change in AOCI related to these swap agreements during the current year was approximately $175,000.  As  of  June  30, 2005 the fair value of approximately
$213,000  is  included  in  accrued liabilities in the accompanying consolidated
financial  statements.$19,000. Ineffectiveness related to these hedges was not significant.

In  July 2001, the Company entered into an agreement to obtain price  protection
and  reduce  a  portion  of  our  exposure  to  fuel  price fluctuations.  Under
this  agreement,  we  were obligated to purchase a minimum amount of diesel fuel
per  month,  with  a  price protection component, for the six month period ended
February  28,  2002. The agreement also provided that if during the twelve-month
period  commencing  January 2005, the average NY MX HO is below $.58 per gallon,
we  will be obligated to pay the contract holder the difference between $.58 and
the  average  NY  MX HO price for  such  month, multiplied by 1,000,000 gallons.
During  June  2005,  the  average  NY  MX  HO  price was $1.62. The value of the
agreement  is periodically adjusted to fair value, as determined by obtaining an
offer  from  the contract holder of the  dollar  amount  required  to  terminate
all  future  liability  under  the  contract,  and  as  of  June  30,  2005  the
estimated  fair  value  of  $250,000  is included in accrued liabilities in  the
accompanying  consolidated  financial  statements.  For  the three and six month
period  ended  June  30,  2005  an  adjustment  of  $125,000  and  $250,000,
respectively  was  made to reflect the decline in fair value  of  the  agreement
which  had  the  effect of reducing operating supplies expense and other current
liabilities  each  by $125,000 and $250,000 during each respective period in the
accompanying consolidated financial statements.


NOTE C: RECENT ACCOUNTING PRONOUNCEMENTS
- -----------------------------------------
In December  2004,February 2006, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140 (“SFAS No. 155”). SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation in accordance with the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”)The provisions of this statement apply to all financial instruments acquired or issued by the Company after December 31, 2006 and is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 further requires a change in depreciation, amortization or depletion method for long-lived, non-financial assets to be accounted for as a change in accounting estimate effected by a change in accounting principle. Corrections of errors in the application of accounting principles will continue to be reported by retroactively restating the affected financial statements. The provisions of this statement are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Adoption of this statement did not have a material effect on the Company’s consolidated financial statements.

7
Table of Contents

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), Share-Based Payment
(", (“SFAS No. 123(R)"”) which replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires compensation costs relating to share-based payment transactions be recognized in financial statements. The pro forma disclosure previously permitted under SFAS No. 123 will no longer be an acceptable alternative to recognition of expenses in the financial statements. SFAS No. 123(R) was originally to be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005, with early adoption encouraged. In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the effective date of SFAS No. 123(R). The effective  date  of the newCompany adopted this standard under these new rules for our
consolidatedon January 1, 2006 and now reports in its financial statements is January 1, 2006. Management is currently
evaluating  the possible  future impact on the Company's financial position and
results of operations.

In  December  2004,  the FASB issued Statement of Financial Accounting Standards
No.  153,  Exchanges  of  Nonmonetary  Assets-an amendment to APB Opinion No. 29
("SFAS  No. 153"). This statement amends Accounting Principles Board Opinion No.
29  ("APB  No.  29")  to  eliminate  the  exceptionshare-based compensation expense for nonmonetary exchanges of
similar productive assets and replaces it with a general exception for exchanges
of  nonmonetary  assets  that  do  not  have commercial substance. A nonmonetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected  to  change  significantly as a result of the exchange. SFAS No. 153 is
effective  for nonmonetary exchanges occurring in fiscalreporting periods beginning after
June  15, 2005. Adoption of this statement did not have a material effect on the
Company's consolidated financial statements.

in 2006.

NOTE D: MARKETABLE EQUITY SECURITIES
- ------------------------------
The Company accounts for its marketable securities in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (" (“SFAS No. 115"115”). SFAS No. 115 requires companies to classify their investments as either trading, available-for-sale or held-to-maturity. The Company'sCompany’s investments in marketable securities are classified as 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 the first sixthree months of 20052006, there were no sales or reclassifications of marketable securities. These securities 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'shareholders’ equity. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in non-operating income. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities, if any, are included in the determination of net income as gains (losses) on the sale of securities.

As of June  30,  2005,March 31, 2006, these equity securities had a combined original cost of approximately $7,071,000$8,504,000 and a combined fair market value of approximately $9,611,000.$11,684,000. For the sixthree months ended June  30,  2005,March 31, 2006, the Company had net unrealized gains in market value of approximately $56,000,$355,000, net of deferred income taxes. TheseAs of March 31, 2006, these securities had gross unrealized gains of approximately $2,680,000$3,571,000 and gross unrealized losses of approximately $140,000.$76,000. As of June 30,
2005,March 31, 2006, the total net unrealized gain, net of deferred income taxes, in accumulated other comprehensive income was approximately $1,508,000.

$2,095,000.

The following table shows the investments that were in a loss position at March 31, 2006 and 2005 and their related fair value at March 31, 2006 and 2005. These investments are all classified as available-for-sale and consist of equity securities. As of March 31, 2006 and 2005 there were no investments that had been in a continuous unrealized loss position for twelve months or longer.

 
 
2006
 
2005
 
 
 
(in thousands)
 
 
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Equity securities with unrealized losses
 
$
601
 
$
76
 
$
935
 
$
172
 
Totals
 
$
601
 
$
76
 
$
935
 
$
172
 

NOTE E: STOCK BASED COMPENSATION
- ---------------------------------
The Company adoptedmaintains a stock option plan under which incentive stock options and nonqualified stock options may be granted. The plan provides for the disclosure-only provisionsissuance of Statementoptions to directors, officers, key employees and others. The option price under these plans is the fair market value of the stock at the date the options were granted, ranging from $16.99 to $23.22 as of March 31, 2006. At March 31, 2006, approximately 264,000 shares were available for granting future options.

Outstanding incentive stock options at March 31, 2006, must be exercised within six years from the date of grant and vest in increments of 20% each year. Outstanding nonqualified stock options at March 31, 2006, must be exercised within five to ten years from the date of grant. Certain nonqualified options may not be exercised within one year of the date of grant.

In August 2002, the Company granted 300,000 performance-based variable stock options to certain key executives. The exercise price for these awards was fixed at the grant date and was equal to the fair market value of the stock on that date. On the date of grant 60,000 options vested immediately and vesting of the remaining 240,000 options was scheduled to occur on a straight-line basis each year from March 15, 2003 through March 15, 2008 upon meeting performance criteria. In order to meet the performance criteria, net income for each fiscal year must be at least equal to 1.05 times net income for the preceding fiscal year, unless net income for the preceding fiscal year was zero or negative, in which case net income for the fiscal year must be at least 90% of net income for the most recent year with positive income. The number of options earned each fiscal year will not be known until the date the performance criteria is measured and as of March 31, 2006, 140,000 options have vested under the plan (including those options which immediately vested upon grant) while 80,000 have been forfeited as the performance criteria were not met for the fiscal years 2003 and 2004.

8
Table of Contents


Effective January 1, 2006, the Company adopted Financial Accounting Standards Board Statement No. 123, 123(R), Share-Based Payment, (“SFAS No. 123(R)”) utilizing the “modified prospective” method as described in SFAS No. 123(R). In the “modified prospective” method, compensation cost is recognized for all share-based payments granted after the effective date and for all unvested awards granted prior to the effective date. In accordance with SFAS No. 123(R), prior period amounts were not restated.

At March 31, 2006, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $1.1 million which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $300,000 in additional compensation expense related to unvested option awards during the remainder of 2006 and to recognize approximately $400,000 of expense in each of the years 2007 and 2008. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits was approximately $100,000 during the first quarter of 2006. The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately $0.01 during the first quarter of 2006.

Prior to the effective date, the stock-based compensation plans were accounted for based on the intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting for Stock-Based Compensation (SFASStock Issued to Employees, (“APB Opinion No. 123).  The following table illustrates25”) and related interpretations. Pro-forma information regarding the effectimpact of total stock-based compensation on net income and earningsincome per share for prior periods is required by SFAS No. 123(R). Such pro-forma information, determined as if the Company had appliedaccounted for its employee stock options under the fair value recognition provisionsmethod during the first quarter of SFAS
No. 1232005, is illustrated in the following table:

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2005
 
 
 
(in thousands, except
per share data)
 
 
 
 
 
Net income-as reported
 
$
2,903
 
 
 
 
 
 
Total stock-based employee compensation expense
 
 
 
 
determined under fair value based method for all
 
 
 
 
awards, net of related tax effects
 
 
(74
)
 
 
 
 
 
Pro-forma net income
 
$
2,829
 
 
 
 
 
 
Earnings per common share:
 
 
 
 
Basic-as reported
 
$
0.26
 
Basic-pro-forma
 
$
0.25
 
 
 
 
 
 
Diluted-as reported
 
$
0.26
 
Diluted-pro-forma
 
$
0.25
 

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:

 
Three Months Ended
 
March 31,
 
2006
 
2005
Dividend yield
0%
 
0%
Volatility range
38.54% - 38.54%
 
33.86% - 38.54%
Risk-free rate range
4.38% - 4.38%
 
4.08% - 4.38%
Expected life
5 years
 
5 years
Fair value of options
$8.89 - $9.45
 
$6.73 - $9.45

The Company has never paid any cash dividends on our 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 contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options represents the period of time that options granted are expected to stock-based employee compensation:

                                                          Three Months Ended             Six Months Ended
                                                               June 30,                      June 30,
                                                         2005           2004           2005           2004
                                                        -------        -------        -------        -------
                                                                (in thousands, except per share data)

Net income                                              $ 3,680        $ 3,647        $ 6,583        $ 5,678

Total stock-based employee compensation
 expense determined under fair value based
 method for all awards, net of related tax effects          (74)           (74)          (148)          (148)
                                                        -------        -------        -------        -------
Pro forma net income                                    $ 3,606        $ 3,573        $ 6,435        $ 5,530
                                                        =======        =======        =======        =======
Earnings per share:
  Basic - as reported                                   $   .33        $   .32        $   .59        $   .50
  Basic - pro forma                                     $   .32        $   .32        $   .57        $   .49

  Diluted - as reported                                 $   .33        $   .32        $   .59        $   .50
  Diluted - pro forma                                   $   .32        $   .32        $   .57        $   .49
be outstanding.

9
Table of Contents


Information related to option activity for the three months ended March 31, 2006 is as follows:

 
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term
 
Aggregate Intrinsic Value*
 
 
 
 
 
 
 
(in years)
 
 
 
Outstanding-beginning of year
 
 
286,500
 
$
22.22
 
 
 
 
 
 
 
Granted
 
 
-
 
 
-
 
 
 
 
 
 
 
Exercised
 
 
6,000
 
 
11.16
 
 
 
 
 
 
 
Cancelled/forfeited/expired
 
 
-
 
 
-
 
 
 
 
 
 
 
Outstanding at March 31, 2006
 
 
280,500
 
$
22.46
 
 
5.7
 
$
613,925
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercisable at March 31, 2006
 
 
195,500
 
$
22.22
 
 
5.4
 
$
475,675
 
___________________________
 
 
 
 
 
 
 
 
 
 
 
 
 
* 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 March 31, 2006, was $24.65.

The number, weighted average exercise price and weighted average remaining contractual life of options outstanding as of March 31, 2006 and the number and weighted average exercise price of options exercisable as of March 31, 2006 follow:

Exercise Price
 
Options Outstanding
 
Weighted Average Remaining Contractual Term
 
Options Exercisable
 
 
 
 
(in years)
 
 
$16.99
 
12,000
 
3.0
 
12,000
$18.27
 
14,000
 
4.0
 
14,000
$19.88
 
12,500
 
2.5
 
7,500
$20.79
 
8,000
 
0.9
 
8,000
$22.68
 
14,000
 
1.9
 
14,000
$23.22
 
220,000
 
6.5
 
140,000
 
 
280,500
 
5.7
 
195,500

Cash received from option exercises totaled approximately $66,980 and $67,250 during the three months ended March 31, 2006 and March 31, 2005, respectively. The Company issues new shares upon option exercise.

NOTE F: SEGMENT INFORMATION
- ----------------------------
The Company considers the guidance provided by Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information  (" (“SFAS No. 131"131”), in its identification of operating segments. The Company has determined that it has a total of eight operating segments whose primary operations can be characterized as either Truckload Services or Brokerage and Logistics Services, however in accordance with the aggregation criteria provided by SFAS No. 131 the Company has determined that the operations of the eight operating segments can be aggregated into a single reporting segment, motor carrier operations. Truckload Services revenues and Brokerage and Logistics Services revenues, each before fuel surcharges, for the three and six
months ending June 30, 2005 and 2004 were as follows:

                                           Three Months Ended June 30,                    Six Months Ended June 30,
                                            2005                 2004                     2005                 2004
                                     -----------------    -----------------      ------------------    ------------------
                                       Amount      %        Amount      %           Amount      %         Amount      %
                                     ----------  -----    ----------  -----      -----------  -----    -----------  -----

Truckload Services revenues (1)     $73,433,867   88.1   $68,197,240   86.2     $143,514,242   87.8   $135,326,616   86.3

Brokerage and Logistics
 Services revenues (1)                9,887,573   11.9    10,873,483   13.8       19,915,673   12.2     21,417,542   13.7
                                     ----------  -----    ----------  -----      -----------  -----    -----------  -----
  Total revenues (1)                $83,321,440  100.0   $79,070,723  100.0     $163,429,915  100.0   $156,744,158  100.0
                                     ==========  =====    ==========  =====      ===========  =====    ===========  =====


- ------------------------------
(1) Before fuel surcharges.
 
 
Three Months Ended March 31,
 
 
 
2006
 
2005
 
 
 
Amount
 
 %
 
Amount
 
 %
 
 
 
(in thousands, except percentage data)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Truckload Services revenue (1)
 
$
79,705
 
 
87.7
 
$
70,081
 
 
87.5
 
Brokerage and Logistics Services revenue (1)
 
 
11,144
 
 
12.3
 
 
10,028
 
 
12.5
 
Total revenues (1)
 
$
90,849
 
 
100.0
 
$
80,109
 
 
100.0
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
_______________________
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Before fuel surcharges.
 
 
 
 
 
 
 
 
 
 
 
 
 


10
Table of Contents

NOTE G: TREASURY STOCK
- -----------------------
On April 11, 2005, the Company announced that itsthe Board of Directors had authorized the Company to repurchase up to 600,000 shares of its common stock during the six month period ending October 11, 2005. During the three months
ended JuneThese 600,000 shares were all repurchased by September 30, 2005. On September 6, 2005, the Company repurchased 445,800announced that its Board of Directors had authorized the Company to extend the stock repurchase program until September 6, 2006 and to include up to an additional 900,000 shares of its common stock.

The Company accounts for Treasury stock using the cost method and as of June 30,
2005,  445,800March 31, 2006, 1,058,600 shares were held in the treasury at an aggregate cost of $7,459,938.


approximately $17,869,000.

NOTE H: COMPREHENSIVE INCOME
- -----------------------------
Comprehensive income was comprised of net income plus or minus market value adjustments related to our interest rate swap agreementsagreement and marketable securities. The components of comprehensive income were as follows:

                                                       Three Months Ended       Six Months Ended
                                                            June 30,                June 30,
                                                        2005        2004        2005        2004
                                                        ----        ----        ----        ----

Net income                                            $ 3,680     $ 3,647     $ 6,583     $ 5,678

Other comprehensive income (loss):
 Reclassification adjustment for losses (gains) on
  derivative instruments included in net income
  accounted for as hedges, net of income taxes             65         120         143         238
 Change in fair value of interest rate
  swap agreements, net of income taxes                    (13)        206          32          74
 Change in fair value of marketable
  securities, net of income taxes                         184         (17)         56          (9)
                                                      -------     -------     -------     -------
 Total comprehensive income                           $ 3,916     $ 3,956     $ 6,814     $ 5,981
                                                      =======     =======     =======     =======




                       PART I - FINANCIAL INFORMATION

           

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2006
 
2005
 
 
 
(in thousands)
 
 
 
 
 
 
 
 
 
Net income
 
$
5,183
 
$
2,903
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
Reclassification adjustment for losses (gains) on derivative instruments
 
 
 
 
 
 
 
included in net income accounted for as hedges, net of income taxes
 
 
18
 
 
77
 
Reclassification adjustment for unrealized losses (gains) on marketable
 
 
 
 
 
 
 
securities included in net income, net of income taxes
 
 
44
 
 
-
 
Change in fair value of interest rate swap agreements, net of income taxes
 
 
1
 
 
46
 
Change in fair value of marketable securities, net of income taxes
 
 
311
 
 
(128
)
Total comprehensive income
 
$
5,557
 
$
2,898
 

NOTE I: EARNINGS PER SHARE
Diluted earnings per share computations assume the exercise of stock options to purchase shares of common stock. The shares assumed exercised are based on the weighted average number of shares under options outstanding during the period and only include those options for which the exercise price is less than the average share price during the period. The net additional shares issuable are calculated based on the treasury stock method and are added to the weighted average number of shares outstanding during the period.

A reconciliation of the basic and diluted income per share computations for the three months ended March 31, 2006 and 2005, respectively, is as follows:
 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2006
 
2005
 
 
 
(in thousands, except per share data)
 
 
 
 
 
 
 
 
 
Net income
 
$
5,183
 
$
2,903
 
 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
 
 
10,288
 
 
11,305
 
 
 
 
 
 
 
 
 
Dilutive effect of common stock equivalents
 
 
-
 
 
22
 
 
 
 
 
 
 
 
 
Diluted weighted average common shares outstanding
 
 
10,288
 
 
11,327
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.50
 
$
0.26
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
$
0.50
 
$
0.26
 

Options to purchase 242,000 and 259,011 shares of common stock were outstanding at March 31, 2006 and 2005, respectively, but were not included in the computation of diluted earnings per share because the option price was greater than the average market price of the common shares.

11
Table of Contents

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




                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS


Operations.

FORWARD-LOOKING INFORMATION
- ----------------------------
Certain information included in this Quarterly Report on Form 10-Q constitutes "forward-looking  statements"“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'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'sCompany’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, referred
toincluded from time to time in filings made by the Company with the Securities and Exchange Commission. 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
- ----------------------------
The Company'sCompany’s management makes estimates and assumptions in preparing the condensed consolidated financial statements that affect reported amounts and disclosures therein. In the opinion of management, the accounting policies that generally have the most significant impact on the financial position and results of operations of the Company include:

Accounts Receivable.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.Equipment. Management must use its judgment in the selection of estimated useful lives and salvage values for purposes of depreciating tractors and trailers which in some cases do not have guaranteed residual values. Estimates of salvage value at the expected date of trade-in or sale are based on the expected market values of equipment at the time of disposal which, in many cases include guaranteed residual values by the manufacturers.

Self Insurance.Insurance. The Company is self-insured for health and workers'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.Recognition. Revenue is recognized in full upon completion of delivery to the receiver'sreceiver’s location. For freight in transit at the end of a reporting period, the Company recognizes revenue prorata based on relative transit miles completed as a portion of the estimated total transit miles. Expenses are recognized as incurred.

Prepaid Tires.Tires. Tires purchased with revenue equipment are capitalized as a cost of the related equipment. Replacement tires are included in prepaid expenses and deposits and are amortized over a 24-month period. Costs related to tire recapping are expensed when incurred.

Income Taxes.Taxes. Significant management judgment is required to determine the provision for income taxes and to determine whether deferred income taxestax 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 due to the Company'sCompany’s profitable operations. 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.

12
Table of Contents


Share-Based Compensation. The Company adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payments, effective January 1, 2006, utilizing the “modified prospective” method as described in the standard. Under the “modified prospective” method, compensation cost is recognized for all share-based payments granted after the effective date and for all unvested awards granted prior to the effective date. Prior to adoption, the Company accounted for share-based payments under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. The Company uses historical volatility when estimating the expected volatility of its share price. For additional information with respect to share-based compensation, see Note E to our consolidated financial statements.

Business Segment and Concentrations of Credit Risk.Risk. The Company operates in one reporting segment, motor carrier operations. The Company provides transportation services to customers throughout the United States and portions of Canada and Mexico. 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'sCompany’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'sCompany’s overall evaluation of accounts receivable.

Business Combinations and Goodwill.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 wasis tested for impairment
onannually and as of December 31, 2004 and2005 the Company determined that there was no impairment. The impairment testing requires an estimate of the value of the Company as a whole, as the Company has determined it only has one reporting unit as defined in Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

BUSINESS OVERVIEW
- -----------------
The Company'sCompany’s administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through wholly owned subsidiaries based in various locations around the United States and Canada. The operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics services. Truckload services include those transportation services in which we utilize company owned tractors or owner-operator owned tractors. 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'sCompany’s operations are in the motor carrier reporting
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. For the
three  and  six  month  period ended June 30, 2005, truckloadTruckload services revenues, excluding fuel surcharges, represented 88.1%87.7% and 87.8%87.5% of total revenues, excluding fuel surcharges for the three months ended March 31, 2006 and 2005, respectively with remaining revenues, excluding fuel surcharges, being generated by ourfrom brokerage and logistics services. For the three and six
month  period  ended  June 30, 2004, truckload services revenues, excluding fuel
surcharges,  represented  86.2%  and  86.3%  of  total  revenues, excluding fuel
surcharges,  with remaining revenues, excluding fuel surcharges, being generated
by our 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 and six months ending June 30,March 31, 2006 and 2005, approximately $7.7$9.7 million and $13.8$6.1 million, respectively, of the Company's total revenue was
generated  from  fuel  surcharges.  For the three and six months ending June 30,
2004,  approximately  $3.2  million  and  $5.7  million,  respectively,  of  the
Company'sCompany’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.

13
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. Operating supplies expense, which includes fuelFuel costs are shown net of fuel surcharges.

                                                Three Months Ended     Six Months Ended
                                                     June 30,              June 30,
                                                  2005      2004        2005      2004
                                                  ----      ----        ----      ----

Operating revenues, before fuel surcharge        100.0%    100.0%      100.0%    100.0%
                                                 ------    ------      ------    ------
Operating expenses:
  Salaries, wages, and benefits                   42.4      42.6        42.9      43.5
  Operating supplies (1)                          24.0      22.7        24.0      23.3
  Rent and purchased transportation                0.8       0.4         0.9       0.5
  Depreciation and amortization                   10.4      10.8        10.5      11.0
  Operating taxes and licenses                     5.5       5.8         5.6       5.9
  Insurance and claims                             6.2       5.7         6.0       5.8
  Communications and utilities                     0.8       0.9         0.9       0.9
  Other                                            1.6       2.1         1.6       1.9
  Loss on sale or disposal of property             0.1       0.0         0.1       0.2
                                                ------    ------      ------    ------
Total operating expenses                          91.8      91.0        92.5      93.0
                                                ------    ------      ------    ------
Operating income                                   8.2       9.0         7.5       7.0
Non-operating income                               0.1       0.1         0.2       0.1
Interest expense                                  (0.6)     (0.5)       (0.6)     (0.5)
                                                ------    ------      ------    ------
Income before income taxes                         7.7       8.6         7.1       6.6
                                                ------    ------      ------    ------
- -----------------------------
(1) Net of fuel surcharges.

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2006
 
2005
 
 
 
(percentages)
 
 
 
 
 
 
 
 
 
Operating revenues, before fuel surcharge
 
 
100.0
 
 
100.0
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Salaries, wages and benefits
 
 
41.0
 
 
43.5
 
Fuel expense, net of fuel surcharge
 
 
16.2
 
 
15.9
 
Rent and purchased transportation
 
 
1.3
 
 
1.1
 
Depreciation and amortization
 
 
10.5
 
 
10.6
 
Operating supplies and expenses
 
 
7.4
 
 
8.0
 
Operating taxes and license
 
 
5.1
 
 
5.7
 
Insurance and claims
 
 
5.3
 
 
5.9
 
Communications and utilities
 
 
0.8
 
 
0.9
 
Other
 
 
1.7
 
 
1.6
 
(Gain) loss on sale or disposal of property
 
 
(0.1
)
 
0.1
 
Total operating expenses
 
 
89.2
 
 
93.3
 
Operating income
 
 
10.8
 
 
6.7
 
Non-operating income
 
 
0.1
 
 
0.3
 
Interest expense
 
 
(0.6
)
 
(0.5
)
Income before income taxes
 
 
10.3
 
 
6.5
 

THREE MONTHS ENDED JUNE 30, 2005MARCH 31, 2006 VS. THREE MONTHS ENDED JUNE 30, 2004

MARCH 31, 2005

For the quarter ended June 30, 2005,March 31, 2006, truckload services revenues,revenue, before fuel surcharges, increased 7.7%13.7% to $73.4$79.7 million as compared to $68.2$70.1 million for the quarter ended June  30,  2004.March 31, 2005. The increase was primarily due to a 10.0%12.5% increase in the average rate per total mile charged to customers from $1.11$1.22 during the secondfirst quarter 2005 to $1.37 during the first quarter of 2004 to
$1.23  during the second quarter of 2005. The revenue growth attributable2006. Also contributing to the increase in average  rate per milerevenue was partially offset by a 2.1% reductionan increase in the total number of miles traveled from 61,235,65657.5 million during the secondfirst quarter of 20042005 to 59,929,150 miles58.2 million during the secondfirst quarter 2005.

of 2006.

Salaries, wages and benefits decreased from 42.6%43.5% of revenues, before fuel surcharges, in the secondfirst quarter of 20042005 to 42.4%41.0% of revenues, before fuel surcharges, induring the secondfirst quarter of 2005.2006. The decrease relates primarily to a decrease in driver lease expense, which is a component of salaries, wages and benefits, as the average number of owner operators under contract decreased from 94  in74 during the secondfirst quarter of 20042005 to 70 in50 during the secondfirst quarter of 2005.2006. The decrease associated with driver lease expense was partially offset by an increase in amounts paid to the corresponding company driver replacement, and in other costs normally absorbed by the owner operator such as repairs and fuel. Operating  suppliesAlthough to a lesser degree, the effect of higher revenues without a corresponding increase in those wages with fixed cost characteristics, such as general and expensesadministrative wages, also contributed to the decrease in salaries, wages and benefits as a percentage of revenues, before fuel surcharges. During January 2006 the Company implemented a driver pay increase ranging from $.01 to $.03 per mile depending on individual driver qualifications and management anticipates that salaries, wages and benefits will increase to the extent the Company is unable to pass the additional costs to customers in the form of rate increases.

Fuel expense increased from 22.7%15.9% of revenues, before fuel surcharges, induring the secondfirst quarter of 20042005 to 24.0%16.2% of revenues, before fuel surcharges, induring the secondfirst quarter of 2005. The increase relates to an increase in2006. Fuel costs, net of fuel costs resultingsurcharges, increased from a 34.5% increase in the average price per gallon paid
by  the  Company$11.2 million during the secondfirst quarter of 2005 as compared to $12.9 million during the secondfirst quarter of 2004.2006 primarily due to higher fuel prices. During periods of rising fuel prices the Company is often able to recoup at least a portion of the increase through fuel surcharges passed along to its customers. Fuel costs, net of fuel surcharges, increased to $11.9
million  in  the second quarter of 2005 from $10.1 million in the second quarter
of  2004.  The Company collected approximately $7.5$6.1 million in fuel surcharges during the secondfirst quarter of 2005 and $3.1$9.7 million during the secondfirst quarter of 2004.2006. Fuel costs were also affected by the replacement of owner operators with companyCompany drivers as discussed above.

Rent


14
Table of Contents

Depreciation and purchased transportation increasedamortization decreased from 0.4%10.6% of revenues, before fuel surcharges, induring the secondfirst quarter of 20042005 to 0.8%10.5% of revenues, before fuel surcharges, induring the secondfirst quarter of 2005. The increase relates2006. Depreciation expense increased from $7.5 million during the first quarter of 2005 to $8.4 million during the first quarter of 2006 primarily due to an
increase  in amounts paid to third party transportation companies for intermodal
services.

Depreciationhigher new tractor and amortizationtrailer prices coupled with decreased from  10.8%residual trade-in values guaranteed by the manufacturer, however as a percentage of revenues, before fuel surcharges, in  the  second  quarter  of 2004 to 10.4% of revenues, before fuel
surcharges,  in  the  second  quarter  of 2005. Thisa decrease as a percentage of
revenues  is  the result ofresults from the interaction of higherincreased revenues as a result offrom an increased rate per mile charged to customers and the fixed cost nature of depreciation expense.

Insurance and claims increasedexpense decreased from 5.7%5.9% of revenues, before fuel surcharges, induring the secondfirst quarter of 20042005 to 6.2%5.3% of revenues, before fuel surcharges, induring the secondfirst quarter of 2005.2006. The increasedecrease was the result of an increase in rates forrenegotiations with one of the Company’s insurance providers to change the method of determining the Company’s auto liability insurance coverage.

The  truckload  services  division  operating ratio, which measurespremiums. Previously, the ratio of
operating  expenses,  net of fuel surcharges, to operating revenues, before fuel
surcharges, increased to 91.8% for the second quarter of 2005 from 91.0% for the
second quarter of 2004.

SIX MONTHS ENDED JUNE 30, 2005 VS. SIX MONTHS ENDED JUNE 30, 2004

For  the  first  six  months  ended  June 30, 2005, truckload services revenues,
before  fuel  surcharges, increased 6.1% to $143.5 million as compared to $135.3
million  for  the six months ended June 30, 2004. The increase was due toCompany’s auto liability premiums were determined using a 9.9%
increase  in  the  averagespecified rate per total mile from $1.11 duringone hundred dollars of revenue including fuel surcharges. This method had the first six
monthsunintended consequence of 2004 to $1.22 during the first six months of 2005. The revenue growth
attributable  to the increase in average rate per mile was partially offset by a
4.0%  reduction  in  total  miles traveled from 122,364,021 during the first six
months of 2004 to 117,448,781 miles during the first six months of 2005.

Salaries,  wages  and  benefits  decreased  from  43.5% of revenues, before fuel
surcharges,  in  the  first six months of 2004 to 42.9% of revenues, before fuel
surcharges, in the first six months of 2005. The decrease relates primarily to a
decrease  in driver lease expense as the average number of owner operators under
contract  decreased  from  96 in the first six months of 2004 to 72 in the first
six  months  of  2005.  The  decrease  associated  with driver lease expense was
partially  offset  by  an  increase in amounts paid to the corresponding company
driver  replacement,  and in other costs normally absorbed by the owner operator
such as repairs and fuel.

Operating  supplies  and  expenses increased from 23.3% of revenues, before fuel
surcharges,  in  the  first six months of 2004 to 24.0% of revenues, before fuel
surcharges, in the first six months of 2005. The primary reason for the increase
relates  to  an  increase  in  fuel costs resulting from a 31.8% increase in the
average price per gallon paid bypenalizing the Company during the first six months of 2005
as  compared  to  the  first  six  months of 2004. During periods of risingwith increased insurance costs solely from passing higher fuel prices  the  Company  is often able to recoup at least a portion of the increase
through  fuel  surcharges passedcosts along to its customers. Fuel costs, netcustomers in the form of fuel surcharges,  increased  to  $23.1  million  insurcharges. The method of determining the first six monthsCompany’s auto liability premium is now based on the number of 2005 from
$20.6  million  in  the  first  six  monthsmiles traveled instead of 2004.  The  Company  collected
approximately  $13.4  million  in fuel surcharges during the first six months of
2005  and $5.4 million during the first six months of 2004. Fuel costs were also
affected by the replacement of owner operators with company drivers as discussed
above.

Rent  and  purchased transportation increased from 0.5% of revenues, before fuel
surcharges,  in  the  first  six months of 2004 to 0.9% of revenues, before fuel
surcharges in the first six months of 2005. The increase relates primarily to an
increase  in amounts paid to third party transportation companies for intermodal
services.

Depreciation  and  amortization  decreased  from  11.0% of revenues, before fuel
surcharges,  in  the  first six months of 2004 to 10.5% of revenues, before fuel
surcharges,  in  the  first six months of 2005. This decrease as a percentage of
revenues  is  the result of the interaction of higher revenues as a result of an
increased  rate  per  mile  charged  to  customers  and the fixed cost nature of
depreciation expense.

revenue generated.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, decreased to 92.5%from 93.3% for the first six months ofquarter 2005 from 93.0%to 89.2% for the first six monthsquarter of 2004.

2006.

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     Six Months Ended
                                                     June 30,              June 30,
                                                  2005      2004        2005      2004
                                                  ----      ----        ----      ----

Operating revenues, before fuel surcharge        100.0%    100.0%      100.0%    100.0%
                                                 ------    ------      ------    ------
Operating expenses:
  Salaries, wages, and benefits                    5.3       5.3         5.1       5.4
  Operating supplies                               0.0       0.0         0.0       0.0
  Rent and purchased transportation (1)           87.4      88.7        87.8      88.0
  Depreciation and amortization                    0.3       0.3         0.3       0.3
  Operating taxes and licenses                     0.0       0.0         0.0       0.0
  Insurance and claims                             0.1       0.1         0.1       0.1
  Communications and utilities                     0.3       0.3         0.4       0.4
  Other                                            1.5       1.4         1.6       1.5
  Loss on sale or disposal of property             0.0       0.0         0.0       0.0
                                                 ------    ------      ------    ------
Total operating expenses                          94.9      96.1        95.3      95.7
                                                 ------    ------      ------    ------
Operating income                                   5.1       3.9         4.7       4.3
Non-operating income                               0.0       0.0         0.0       0.0
Interest expense                                  (0.6)     (0.6)       (0.6)     (0.6)
                                                 ------    ------      ------    ------
Income before income taxes                         4.5       3.3         4.1       3.7
                                                 ------    ------      ------    ------
- -----------------------------
(1) Net of fuel surcharges.

 
 
Three Months Ended
 
 
 
March 31,
 
 
 
2006
 
2005
 
 
 
(percentages)
 
 
 
 
 
 
 
 
 
Operating revenues, before fuel surcharge
 
 
100.0
 
 
100.0
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
Salaries, wages and benefits
 
 
4.8
 
 
5.0
 
Fuel expense, net of fuel surcharge
 
 
0.0
 
 
0.0
 
Rent and purchased transportation
 
 
89.2
 
 
88.2
 
Depreciation and amortization
 
 
0.0
 
 
0.3
 
Operating supplies and expenses
 
 
0.0
 
 
0.0
 
Operating taxes and licenses
 
 
0.0
 
 
0.0
 
Insurance and claims
 
 
0.1
 
 
0.1
 
Communications and utilities
 
 
0.3
 
 
0.4
 
Other
 
 
1.4
 
 
1.7
 
(Gain) loss on sale or disposal of property
 
 
0.0
 
 
0.0
 
Total operating expenses
 
 
95.8
 
 
95.7
 
Operating income
 
 
4.2
 
 
4.3
 
Non-operating income
 
 
0.0
 
 
0.0
 
Interest expense
 
 
(0.5
)
 
(0.6
)
Income before income taxes
 
 
3.7
 
 
3.7
 

THREE MONTHS ENDED JUNE 30, 2005MARCH 31, 2006 VS. THREE MONTHS ENDED JUNE 30, 2004

MARCH 31, 2005

For the quarter ended June 30, 2005,March 31, 2006, logistics and brokerage services revenues,revenue, before fuel surcharges, decreased  9.1%increased 11.1% to $9.9$11.1 million as compared to $10.9$10.0 million for the quarter ended June 30, 2004.March 31, 2005. The decreaseincrease was primarily duethe result of rate increases, and to a 19.0% decreaselesser extent, an increase in the number of loads serviced during the second quarter of 2005
as compared to the second quarter of 2004.

brokered.

Rent and purchased transportation decreasedincreased from 88.7%88.2% of revenues, before fuel surcharges, induring the secondfirst quarter of 20042005 to 87.4%89.2% of revenues, before fuel surcharges induring the secondfirst quarter of 2005.2006. The decrease was caused byincrease relates to an increase in amounts collected  from customers for fuel surcharges which helps
offset amounts paid tocharged by third party logistics and brokerage service providers.

providers as a result of higher fuel costs.

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 94.9% for the second quarter of 2005 from
96.1% for the second quarter of 2004.

SIX MONTHS ENDED JUNE 30, 2005 VS. SIX MONTHS ENDED JUNE 30, 2004

For  the  six  months  ended  June  30,  2005,  logistics and brokerage services
revenues, before fuel surcharges, decreased 7.0% to $19.9 million as compared to
$21.4 million for the six months ended June 30, 2004. The decrease was primarily
due  to  a  12.5%  decrease in the number of loads serviced during the first six
months of 2005 as compared to the first six months of 2004.

Rent  and purchased transportation decreased from 88.0% of revenues, before fuel
surcharges,  in  the  first six months of 2004 to 87.8% of revenues, before fuel
surcharges,  in  the  first  six  months  of 2005. The decrease was caused by an
increase  in  amounts  collected  from customers for fuel surcharges which helps
offset  amounts  paid  to third party logistics and brokerage service providers.

The  logistics  and  brokerage services division operating ratio, which measures
the  ratio of operating expenses, net of fuel surcharges, to operating revenues,
before fuel surcharges, decreased to 95.3% for the first six months of 2005increased from 95.7% for the first six monthsquarter 2005 to 95.8% for the first quarter of 2004.

2006.


15
Table of Contents

RESULTS OF OPERATIONS - COMBINED SERVICES
- -----------------------------------------

SIX

THREE MONTHS ENDED JUNE 30, 2005MARCH 31, 2006 VS. SIXTHREE MONTHS ENDED JUNE 30, 2004

The  increase  in  the combined income before income taxes to $11.1 million from
$9.7  million,  respectively,  for  the six month period ended June 30,MARCH 31, 2005 and
2004 resulted in an increase in the provision for income taxes from $4.0 million
for  the  first  six  months of 2004 to $4.5 million for the first six months of
2005.


Net income for all divisions increased to $6.6was $5.2 million, or 4.0%5.7% of revenues, before fuel surcharge infor the first six monthsquarter of 2005 from $5.72006 as compared to $2.9 million or 3.6% of revenues, before fuel surcharge infor the first six monthsquarter of 2004.2005. The increase in net income combined with the effect of treasury stock repurchases resulted in an increase in diluted net incomeearnings per share to $.59 in$0.50 for the first six  monthsquarter of 2005  from  $.50  in2006 compared to $0.26 for the first six monthsquarter of 2004.


2005.

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

During the first sixthree months of 2005, the Company2006, we generated $14.8$19.1 million ofin cash from operating activities. Investing activities used $23.7$3.1 million in cash in the first sixthree months of 2005.2006. Financing activities used $7.5$15.7 million in cash in the first sixthree months of 2005.

2006.

Our primary use of funds is for the purchase of revenue equipment. We typically use 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 the first sixthree months of 2005,2006, we utilized cash on hand and our lines of credit to finance revenue equipment purchases of approximately $30.3$6.1 million.

Occasionally we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 48 months, however as of June 30, 2005,March 31, 2006, we had no outstanding indebtedness under such installment notes.

In order to maintain our tractor and trailer fleet count it is often necessary to purchase replacement tractorsunits and place them in service before trade units are removed from service. The timing difference created during this process often requires the Company to pay for new units without any reduction in price for trade units. In this situation, the Company later receives payment for the trade units as they are delivered to the equipment vendor and have passed vendor inspection. During the sixthree months ended June 30, 2005,March 31, 2006, the Company received approximately $4.9$2.5 million for tractors delivered for trade.

trade and expects to receive approximately $13.6 million during the remainder of the year.

During the remainder of 2005,the year, we expect to purchase approximately 231411 new tractors and approximately 450 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $13.1$31.4 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 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 maintain a $20.0 million revolving line of credit and a $30.0 million revolving line of credit (Line A and Line B, respectively) with separate financial institutions. Amounts outstanding under Line A bear interest at LIBOR (determined as determined  onof the first day of each month,month) plus 1.40% (4.53%, (6.03% at June 30,
2005),March 31, 2006) are secured by our accounts receivable and mature on May 31, 2007. At June  30,  2005,  $1.5March 31, 2006 outstanding advances on line A were approximately $9.9 million, including $.3 million$310,000 in letters of credit, were
outstanding  under  Line  A  with availability to borrow $18.5$10.1 million. Amounts outstanding under Line B bear interest at LIBOR as determined(determined on the last day of the previous month,month) plus 1.15%  (4.30%, (5.81% at June 30, 2005),March 31, 2006) are secured by revenue equipment and mature on June 30, 2007. At June 30, 2005, $27.3March 31, 2006, $18.1 million, including $7.3$5.6 million in letters of credit were outstanding under Line B with availability to borrow $2.7$11.9 million. In an effort to reduce interest rate risk associated with these floating rate facilities, we have entered into an interest rate swap agreementsagreement in an aggregate notional amount of $20.0$5.0 million. For additional information regarding the interest rate swap agreements,agreement, see Note B to the condensed consolidated financial statements.

Trade accounts receivable at June 30, 2005March 31, 2006 increased approximately $12.5 million
from  December  31,  2004.  Certain of the Company's largest customers regularly
schedule  plant  shutdowns for various periods during December and the volume of
freight  we  ship  is reduced during such scheduled shutdowns. This reduction in
freight  volume results in a reduction in accounts receivable at the end of each
year.

Prepaid  expenses  and  deposits  at  June 30, 2005 decreased approximately $6.3$7.1 million as compared to December 31, 2004.2005. Approximately $3.8 million of the increase relates to the timing of payments from a customer which is normally received by the end of the quarter but was not received until after March 31, 2006. The remaining increase was related to a general increase in revenues which flow through our accounts receivable account.

16
Table of Contents

Prepaid expenses and deposits at March 31, 2006 decreased approximately $4.4 million as compared to December 31, 2005. The decrease reflects the amortization of prepaid tractor and trailer license fees and auto liability insurance premiums. In December 2004,2005 approximately $2.8 million of the 2006 license fees and approximately $3.0 million of the 2005 license fees
and  approximately  $5.0  million  of the 20052006 auto liability insurance premiums were paid in advance. These prepaid expenses will be amortized to expense through the remainder of the year.

Accounts payable at June  30,  2005  decreasedMarch 31, 2006 increased approximately $6.4$11.1 million as compared to December 31, 2004.2005. Approximately $8.5 million of the increase is related to an increase in amounts payable to vendors for tractors received by the Company before the end of the period for which payment was not due until the next period. The net increase also reflects the increase of approximately $2.5 million in amounts accrued for fuel purchases.

Accrued expenses and other liabilities at March 31, 2006 increased approximately $2.6 million as compared to December 31, 2005. The increase is 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 actual date employees are paid in relation to the last day of the reporting period.

Income taxes payable at March 31, 2006 increased approximately $2.8 million as compared to December 31, 2005. This amount is primarily composed of federal and state income taxes that are payable for the current period with a payment due date after March 31, 2006.

Long-term debt at March 31, 2006 decreased approximately $15.3 million as compared to December 31, 2005. The decrease is primarily related to a decrease in the amountbalance due on the Company’s lines of bank drafts outstanding in excess of bank balancecredit at March 31, 2006 as compared to bank drafts outstanding at December 31, 2004. As2005. During the first three months of June 30, 2005 bank drafts2006 the Company repaid approximately $15.1 more than it borrowed under its lines of approximately $4.8 million were reclassified to accounts payable as compared
to  approximately  $16.5  million  reclassified as of December 31, 2004. The net
decrease  also  reflects  the  increase of approximately $2.8 million in amounts
accrued  for  the  purchase  of  revenue  equipment  but not yet paid forcredit using idle cash and an
increase of approximately $2.0 million in amounts accrued for fuel purchases and
third party equipment repair costs.

cash generated from operating activities.

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

Item 3. 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 tractors). The potential adverse impact of these risks and the general strategies we employ to manage such risks are discussed below.

The following sensitivity analyses do not consider the effects that an adverse change may have on the overall economy nor do they consider additional actions we may take to mitigate our exposure to such changes. Actual results of changes in prices or rates may differ materially from the hypothetical results described below.

EQUITY PRICE RISK


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 $9.6$11.7 million at June 30, 2005March 31, 2006 from $8.8$11.0 million at December 31, 2004.2005. The increase is the resultreflects additional purchases of additional purchasesapproximately $121,000 during the first sixthree months of 2005.2006 and an increase in the fair market value of approximately $564,000 during the first three months of 2006. 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 $960,000.$1.2 million. For additional information with respect to the marketable equity securities, see Note D to our condensed consolidated financial statements.

INTEREST RATE RISK


Interest Rate Risk
Our two lines of credit each bear interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR, which are effected by changes in interest rates, will affect the interest rate on, and therefore our costs under, the lines of credit. In an effort to manage the risks associated with changing interest rates, we entered into interest rate swap agreements effective February 28, 2001 and May 31, 2001, on notional amounts of $15,000,000 and $5,000,000, respectively. The "pay“pay fixed rates"rates” under the $15,000,000 and $5,000,000 swap agreements are 5.08% and 4.83%, respectively. The "receive“receive floating rate"rate” for both swap agreements is "1-month"“1-month” LIBOR. TheseThe interest rate swap agreements  terminateagreement on the notional amount of $15,000,000 terminated on March 2, 2006 andwhile the interest rate swap agreement on the notional amount of $5,000,000 will terminate on June 2, 2006, respectively.2006. Assuming $20.0 million of variable rate debt was outstanding under Line "A"“A” and not covered by thea hedge agreement for a full fiscal year, a hypothetical 100 basis point increase in LIBOR would result in approximately $200,000 of additional interest expense,  net  of  the effect of the swap agreements.expense. For additional information with respect to the interest rate swap agreements, see Note B to our condensed consolidated financial statements.

COMMODITY PRICE RISK


17
Table of Contents

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 20042005 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $5.6$8.1 million.

In  July  2001, the Company entered into an agreement to obtain price protection
and  reduce  a  portion  of  our exposure to fuel price fluctuations. Under this
agreement,  we  were  obligated  to purchase a minimum amount of diesel fuel per
month,  with  a  price  protection  component,  for  the  six month period ended
February  28,  2002. The agreement also provided that if during the twelve-month
period  commencing  January 2005, the average NY MX HO is below $.58 per gallon,
we  will be obligated to pay the contract holder the difference between $.58 and
the  average  NY  MX  HO  price for such month, multiplied by 1,000,000 gallons.
During  June  2005,  the  average  NY  MX  HO  price was $1.62. The value of the
agreement  is periodically adjusted to fair value, as determined by obtaining an
offer  from  the  contract holder of the dollar amount required to terminate all
future  liability under the contract, and as of June 30, 2005 the estimated fair
value  of  $250,000  is  included  in  accrued  liabilities  in the accompanying
consolidated financial statements. For the three and six month period ended June
30,  2005  an  adjustment  of  $125,000  and  $250,000, respectively was made to
reflect  the  decline  in  fair  value  of the agreement which had the effect of
reducing  operating  supplies  expense  and  other  current  liabilities each by
$125,000  and  $250,000  during  each  respective  period  in  the  accompanying
consolidated  financial  statements.  For additional information with respect to
this agreement, see Note B to our condensed consolidated financial statements.


Item 4. Controls and Procedures.
- ---------------------------------

Evaluation of disclosure controls and procedures. In accordance with Rule 13a-15(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), the Company's management evaluated, with the participation of the Company's President and Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of June  30,  2005.March 31, 2006. Based upon that evaluation of these disclosure controls and procedures, the President and Chief Executive Officer and the Chief Financial Officer concluded that the disclosure controls and procedures were effective as of June  30, 2005March 31, 2006 so that material information relating to the Company, including its consolidated subsidiaries, was made known to them by others within those entities, particularly during the period in which this quarterly report on Form 10-Q was being prepared.

Changes in internal controls over financial reporting. There was no change in the Company's internal control over financial reporting that occurred during the quarter ended June  30,  2005March 31, 2006 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.


18
Table of Contents

PART II. OTHER INFORMATION
                         ---------------------------




Item 1. Legal Proceedings.
- ---------------------------

The nature of  the our business routinely results in litigation, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. We believe that an unfavorable outcomeall 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 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
- ---------------------------------------------------------------------
On  April  11,  2005,  the  Company  announced  that  its Board of Directors had
authorized  the  Company  to repurchase up to 600,000 shares of its common stock
during  the  six  month  period  ending  October  11,  2005. The following table
summarizes  the Company's common stock repurchases during the second quarter of
2005  made  pursuant  to this authorization. No shares were purchased during the
quarter  other  than  through this program, and all purchases were made by or on
behalf of the Company and not by any "affiliated purchaser".

Issuer Purchases of Equity Securities
                                                                                    Maximum Number
                                                                                   (or Approximate)
                                                           Total Number of         Dollar Value) of
                      Total Number                        Shares (or Units)        Shares (or Units)
                       of Shares      Average Price      Purchased as Part of      that May Yet Be
                      (or Units)      Paid per Share      Publicly Announced      Purchased Under the
Period                 Purchased        (or Unit)         Plans or Programs        Plans or Programs
- ------------------------------------------------------------------------------------------------------

April 1-30, 2005              -                -                     -                  600,000
May 1-31, 2005          367,000         $16.6983               367,000                  233,000
June 1-30, 2005          78,800          16.6756                78,800                  154,200
                       --------         --------             ---------
Total                   445,800         $16.6943               445,800                  154,200
                       ========         ========             =========



Item 4.  Submission of Matters to a Vote of Security Holders.
- -------------------------------------------------------------

The  2005  Annual  Meeting  of  Stockholders  of the Company was held on May 26,
2005.  The  results  of  the  voting with respect to each matter voted on at the
meeting is set forth below:


     (1)  Proposal to elect eight directors:

                                             Votes         Votes        Broker
                                              FOR         WITHHELD     NON-VOTES
                                              ---         --------     ---------
          Fredrick P. Calderone            9,652,901     1,331,872         0
          Frank L. Conner                 10,854,588       130,185         0
          Thomas H. Cooke                 10,854,088       130,685         0
          Manuel J. Moroun                 9,776,998     1,207,775         0
          Matthew T. Moroun                9,652,926     1,331,847         0
          Daniel C. Sullivan              10,854,588       130,185         0
          Robert W. Weaver                 9,803,739     1,181,034         0
          Charles F. Wilkins              10,854,088       130,685         0



Item 6. Exhibits.
- ------------------

       

Exhibits required by Item 601 of Regulation S-K:
3.1
Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Company's Form 10-Q filed on May 15, 2002.)
3.2
Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 of the Company's Form 10-Q filed on May 15, 2002.)
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 Certification of Chief Executive Officer
32.2
Section 1350 Certification of Chief Financial Officer


19
Table of Regulations S-K:

           3.1  - Amended and Restated Certificate of Incorporation of the
                  Registrant (incorporated by reference to Exhibit 3.1 of
                  the Company's Form 10-Q filed on May 15, 2002.)

           3.2  - Amended and Restated By-Laws of the Registrant (incorporated
                  by reference to Exhibit 3.2 of the Company's Form 10-Q filed
                  on May 15, 2002.)

          11.1  - Statement Re:  Computation of Diluted Earnings Per Share

          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 Certification of Chief Executive Officer

          32.2  - Section 1350 Certification of Chief Financial Officer

Contents

SIGNATURES



Pursuant to the requirements 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.


P.A.M. TRANSPORTATION SERVICES, INC.
Dated: May 5, 2006
By: /s/ Robert W. Weaver
Robert W. Weaver
President and Chief Executive Officer
(principal executive officer)
Dated: May 5, 2006
By: /s/ Larry J. Goddard
Larry J. Goddard
Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
(principal accounting and financial officer)

20
Table of Contents

P.A.M. TRANSPORTATION SERVICES, INC.


Dated:   August 3, 2005            By: /s/ Robert W. Weaver
                                   ---------------------------------
                                   Robert W. Weaver
                                   President and Chief Executive Officer
                                   (principal executive officer)


Dated:   August 3, 2005            By: /s/ Larry J. Goddard
                                   ---------------------------------
                                   Larry J. Goddard
                                   Vice President-Finance, Chief Financial
                                   Officer, Secretary and Treasurer
                                   (principal accounting and financial officer)





                       P.A.M. TRANSPORTATION SERVICES, INC.

                         INDEX TO EXHIBITS TO FORM 10-Q

Exhibit
Number                        Exhibit Description
- --------     ---------------------------------------------------------

 3.1         Amended and Restated Certificate of Incorporation of the
             Registrant (incorporated by referenceINC.
Index to Exhibit 3.1 of
             the Company'sExhibits to Form 10-Q filed on May 15, 2002.)

 3.2         Amended and Restated By-Laws of the Registrant (incorporated
             by reference to Exhibit 3.2 of the Company's Form 10-Q filed
             on May 15, 2002.)

11.1         Statement Re:  Computation of Diluted Earnings Per Share

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 Certification of Chief Executive Officer

32.2         Section 1350 Certification of Chief Financial Officer