Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 20182019

 

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

 

For the transition period from __________to__________

 

Commission File Number: 0-15057

 

 

P.A.M. TRANSPORTATION SERVICES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

71-0633135

(State or other jurisdiction of incorporation

or organization)

 

(I.R.S. Employer Identification no.)

 

297 West Henri De Tonti, Tontitown, Arkansas 72770

(Address of principal executive offices) (Zip Code)

 

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 Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.

Yes  ☑     No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☑       No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  ☑      No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

Accelerated filer  

Non-accelerated filer  ☐ (Do not check if a smaller reporting company)

Smaller reporting company ☑

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

Yes  ☐      No  ☑ 

 

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

 

Class

 

Outstanding at April 20, 201819, 2019

Common Stock, $.01 Par Value

 

6,179,0715,920,005

 

 

 

 

P.A.M. TRANSPORTATION SERVICES, INC.

Form 10-Q

For The Quarter Ended March 31, 20182019

Table of Contents

 

 

 

Part I. Financial Information

   

Item 1.

Financial Statements (unaudited).

3
   

 

Condensed Consolidated Balance Sheets as of March 31, 20182019 and December 31, 20172018

3

 

 

 

 

Condensed Consolidated Statements of Operations for the Three months Ended March 31, 20182019 and 20172018

4

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three months Ended March 31, 2018 and 2017

5
 

 

Condensed Consolidated Statements of Cash Flows for the Three months Ended March 31, 20182019 and 20172018

6

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity for the Three months Ended March 31, 2019 and 2018

7
   

 

Notes to Condensed Consolidated Financial Statements as of March 31, 20182019

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

20

 

 

 

Item 4.

Controls and Procedures.

21
  

 

Part II. Other Information

 

 

 

Item 1.

Legal Proceedings.

22
   

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

22
   

Item 6.

Exhibits.

23

 

 

Signatures

24

 

2

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

 

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 (in

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

March 31,

  

December 31,

  

March 31,

  

December 31,

 
 

2018

  

2017

  

2019

  

2018

 
 

(unaudited)

  

(audited)

  

(unaudited)

  

(audited)

 

ASSETS

                

Current assets:

                

Cash and cash equivalents

 $247  $224  $286  $282 

Accounts receivable-net:

                

Trade, less allowance of $1,493 and $1,335, respectively

  64,772   59,055 

Trade, less allowance of $2,293 and $2,224, respectively

  68,735   63,350 

Other

  3,848   3,028   3,717   3,814 

Inventories

  1,700   1,660   1,471   1,461 

Prepaid expenses and deposits

  8,437   10,112   9,114   10,393 

Marketable equity securities

  26,104   26,664   30,805   27,549 

Income taxes refundable

  1,469   1,499   1,804   1,876 

Total current assets

  106,577   102,242   115,932   108,725 
                

Property and equipment:

                

Land

  5,374   5,374   5,596   5,596 

Structures and improvements

  18,852   18,927   19,611   19,547 

Revenue equipment

  386,613   375,817   455,454   457,142 

Office furniture and equipment

  9,814   9,761   10,221   10,040 

Total property and equipment

  420,653   409,879   490,882   492,325 

Accumulated depreciation

  (133,412)  (122,935)  (144,494)  (137,738)

Net property and equipment

  287,241   286,944   346,388   354,587 
                

Other assets

  2,999   2,999   2,752   2,754 
                

TOTAL ASSETS

 $396,817  $392,185  $465,072  $466,066 
                

LIABILITIES AND SHAREHOLDERS' EQUITY

                

Current liabilities:

                

Accounts payable

 $23,591  $19,645  $22,716  $20,002 

Accrued expenses and other liabilities

  19,480   17,609   25,907   23,497 

Current maturities of long-term debt

  77,188   73,641   58,508   63,908 

Total current liabilities

  120,259   110,895   107,131   107,407 
                

Long-term debt-less current portion

  92,287   98,995   146,969   157,315 

Deferred income taxes

  54,986   54,691   64,626   61,897 

Total liabilities

  267,532   264,581   318,726   326,619 
                

SHAREHOLDERS' EQUITY

                

Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued

  -   -   -   - 

Common stock, $.01 par value, 40,000,000 shares authorized; 11,546,374 and 11,529,124 shares issued; 6,177,139 and 6,160,889 shares outstanding at March 31, 2018 and December 31, 2017, respectively

  115   115 

Common stock, $.01 par value, 40,000,000 shares authorized; 11,613,394 and 11,612,144 shares issued; 5,918,160 and 5,956,558 shares outstanding at March 31, 2019 and December 31, 2018, respectively

  116   116 

Additional paid-in capital

  81,889   81,559   82,992   82,776 

Accumulated other comprehensive income

  -   7,444 

Treasury stock, at cost; 5,369,235 and 5,368,235 shares at March 31, 2018 and December 31, 2017, respectively

  (129,219)  (129,183)

Treasury stock, at cost; 5,695,234 and 5,655,586 shares at March 31, 2019 and December 31, 2018, respectively

  (144,170)  (142,552)

Retained earnings

  176,500   167,669   207,408   199,107 

Total shareholders’ equity

  129,285   127,604   146,346   139,447 
                

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

 $396,817  $392,185  $465,072  $466,066 

 

See notes to condensed consolidated financial statements.

 

3

Table of Contents

 

 

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

 

 

Three Months Ended

  

Three Months Ended

 
 

March 31,

  

March 31,

 
 

2018

  

2017

  

2019

  

2018

 

OPERATING REVENUES:

                

Revenue, before fuel surcharge

 $99,104  $93,603  $110,345  $99,104 

Fuel surcharge

  20,354   15,802   18,341   20,354 

Total operating revenues

  119,458   109,405   128,686   119,458 
                

OPERATING EXPENSES AND COSTS:

                

Salaries, wages and benefits

  28,639   25,904   31,063   28,639 

Operating supplies and expenses

  22,671   20,232   23,512   22,671 

Rent and purchased transportation

  45,917   43,123   44,554   45,917 

Depreciation

  11,623   10,671   13,187   11,623 

Insurance and claims

  4,268   4,697   4,114   4,268 

Other

  2,581   2,117   2,994   2,581 

Loss (gain) on disposition of equipment

  3   (1)

(Gain)/loss on disposition of equipment

  (425)  3 

Total operating expenses and costs

  115,702   106,743   118,999   115,702 
                

OPERATING INCOME

  3,756   2,662   9,687   3,756 
                

NON-OPERATING (EXPENSE)/INCOME

  (879)  2,052 

NON-OPERATING INCOME/(EXPENSE)

  3,472   (879)

INTEREST EXPENSE

  (1,160)  (977)  (2,040)  (1,160)
                

INCOME BEFORE INCOME TAXES

  1,717   3,737   11,119   1,717 
                

FEDERAL AND STATE INCOME TAX EXPENSE:

                

Current

  35   67   89   35 

Deferred

  295   1,387   2,729   295 

Total federal and state income tax expense

  330   1,454   2,818   330 
                

NET INCOME

 $1,387  $2,283  $8,301  $1,387 
                

INCOME PER COMMON SHARE:

                

Basic

 $0.22  $0.36  $1.40  $0.22 

Diluted

 $0.22  $0.36  $1.39  $0.22 
                

AVERAGE COMMON SHARES OUTSTANDING:

                

Basic

  6,168   6,399   5,921   6,168 

Diluted

  6,264   6,425   5,985   6,264 

 

See notes to condensed consolidated financial statements.

 

4

Table of Contents

 

 

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

  

Three Months Ended

 
  

March 31

 
  

2018

  

2017

 
         

NET INCOME

 $1,387  $2,283 
         

Other comprehensive income, net of tax:

        
         

Reclassification adjustment for realized gains on marketable equity securities included in net income (1)(3)

  -   (900)
         

Changes in fair value of marketable securities (2)(3)

  -   (22)
         

COMPREHENSIVE INCOME

 $1,387  $1,361 


(1) Net of deferred income taxes of $0, and $(551), respectively.

(2) Net of deferred income taxes of $0, and $(15), respectively.

(3) In accordance with the adoption of ASU 2016-01 on January 1, 2018 (see Note B) unrealized market gains and losses on equity securities have been reclassified to income for the current period and to retained earnings for historical amounts recorded in Other Comprehensive Income at 12/31/2017.

 

  

Three Months Ended

 
  

March 31,

 
  

2019

  

2018

 

OPERATING ACTIVITIES:

        

Net income

 $8,301  $1,387 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  13,187   11,623 

Bad debt expense

  69   158 

Stock compensation-net of excess tax benefits

  306   233 

Provision for deferred income taxes

  2,729   295 

Recognized (gain) loss on marketable equity securities

  (3,184)  1,142 

(Gain)/loss on disposition of equipment

  (425)  3 

Changes in operating assets and liabilities:

        

Accounts receivable

  (5,356)  (6,693)

Prepaid expenses, deposits, inventories, and other assets

  1,269   1,633 

Income taxes refundable

  75   31 

Trade accounts payable

  199   4,414 

Accrued expenses and other liabilities

  2,567   1,494 

Net cash provided by operating activities

  19,737   15,720 
         

INVESTING ACTIVITIES:

        

Purchases of property and equipment

  (7,926)  (13,220)

Proceeds from disposition of equipment

  5,787   756 

Purchases of marketable equity securities, net of return of capital

  (72)  (582)

Net cash used in investing activities

  (2,211)  (13,046)
         

FINANCING ACTIVITIES:

        

Borrowings under line of credit

  131,387   130,935 

Repayments under line of credit

  (133,442)  (126,372)

Borrowings of long-term debt

  5,789   6,949 

Repayments of long-term debt

  (19,480)  (14,674)

Borrowings under margin account

  166   669 

Repayments under margin account

  (324)  (290)

Repurchases of common stock

  (1,618)  (36)

Exercise of stock options

  -   168 

Net cash used in financing activities

  (17,522)  (2,651)
         

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

  4   23 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period

  282   224 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period

 $286  $247 
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-

        

Cash paid during the period for:

        

Interest

 $2,037  $1,164 

Income taxes

 $15  $5 
         

NONCASH INVESTING AND FINANCING ACTIVITIES-

        

Purchases of property and equipment included in accounts payable

 $4,025  $2,431 

See notes to condensed consolidated financial statements.

 

 

 

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

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

  

Treasury

Stock

  

Retained

Earnings

  

Total

 
                         

Balance at January 1, 2019

  5,957  $116  $82,776  $(142,552) $199,107  $139,447 
                         

Net Income

                  8,301   8,301 
                         

Exercise of stock awards-shares issued including tax benefits

  1       -           - 
                         

Treasury stock repurchases

  (40)          (1,618)      (1,618)
                         

Stock compensation (1)

          216           216 
                         

Balance at March 31, 2019

  5,918  $116  $82,992  $(144,170) $207,408  $146,346 

(1)Approximately $90,000 was accrued as Share-based compensation at March 31, 2019 for restricted stock earned by non-employee directors but for which shares were not issued until April 2019.

 

  

Three Months Ended

 
  

March 31,

 
  

2018

  

2017

 

OPERATING ACTIVITIES:

        

Net income

 $1,387  $2,283 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  11,623   10,671 

Bad debt expense

  158   36 

Stock compensation-net of excess tax benefits

  233   115 

Provision for deferred income taxes

  295   1,387 

Recognized loss (gain) on marketable equity securities

  1,142   (1,782)

Loss (gain) on sale or disposition of equipment

  3   (1)

Changes in operating assets and liabilities:

        

Accounts receivable

  (6,693)  (3,918)

Prepaid expenses, deposits, inventories, and other assets

  1,633   1,321 

Income taxes refundable

  31   51 

Trade accounts payable

  4,414   197 

Accrued expenses and other liabilities

  1,494   1,999 

Net cash provided by operating activities

  15,720   12,359 
         

INVESTING ACTIVITIES:

        

Purchases of property and equipment

  (13,220)  (4,038)

Proceeds from disposition of equipment

  756   4,005 

Sales of marketable equity securities

  -   2,368 

Purchases of marketable equity securities, net of return of capital

  (582)   28 

Net cash used in investing activities

  (13,046)  2,363 
         

FINANCING ACTIVITIES:

        

Borrowings under line of credit

  130,935   104,149 

Repayments under line of credit

  (126,372)  (105,511)

Borrowings of long-term debt

  6,949   - 

Repayments of long-term debt

  (14,674)  (10,795)

Borrowings under margin account

  669   41 

Repayments under margin account

  (290)  (2,631)

Repurchases of common stock

  (36)  - 

Exercise of stock options

  168   46 

Net cash used in financing activities

  (2,651)  (14,701)
         

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

  23   21 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period

  224   137 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period

 $247  $158 
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-

        

Cash paid during the period for:

        

Interest

 $1,164  $989 

Income taxes

 $5  $16 
         

NONCASH INVESTING AND FINANCING ACTIVITIES-

        

Purchases of property and equipment included in accounts payable

 $2,431  $29 

See notes to condensed consolidated financial statements.

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Shareholders’ Equity

(unaudited)

(in thousands)

 

Common Stock

Shares / Amount

  

Additional

Paid-In Capital

  

Accumulated Other Comprehensive Income

  

Treasury

Stock

  

Retained

Earnings

  

Total

  

Common Stock

Shares / Amount

  

Additional

Paid-In Capital

  

Accumulated

Other

Comprehensive

Income

  

Treasury

Stock

  

Retained

Earnings

  

Total

 
                                                        

Balance at January 1, 2018

  6,161  $115  $81,559  $7,444  $(129,183) $167,669  $127,604   6,161  $115  $81,559  $7,444  $(129,183) $167,669  $127,604 
                                                        

Net Income

                      1,387   1,387                       1,387   1,387 
                                                        

Exercise of stock options and stock awards-shares issued including tax benefits

  17       168               168   17       168               168 
                                                        

Treasury stock repurchases

  (1)              (36)      (36)  (1)              (36)      (36)
                                                        

Share-based compensation (1)

          162               162           162               162 
                                                        

Cumulative effect adjustment – ASU 2016-01

              (7,444)      7,444   -               (7,444)      7,444   - 
                                                        

Balance at March 31, 2018

  6,177  $115  $81,889   -  $(129,219) $176,500  $129,285 

Balance at March 31, 2018

  6,177  $115  $81,889   -  $(129,219) $176,500  $129,285 

 

(1)

Approximately $70,000 was accrued as Share-based compensation at March 31, 2018 for restricted stock earned by non-employee directors but for which shares were not issued until April 2018.

 

See notes to condensed consolidated financial statements.

 

 

P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (unaudited)

March 31,, 20189

 

 

 

NOTE A: BASIS OF PRESENTATION

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q10-Q to “P.A.M.,” the “Company,” “we,” “our,” or “us” mean P.A.M. Transportation Services, Inc. and its subsidiaries.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q10-Q and Article 10 of Regulation S-X.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’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2017 2018 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. Operating results for the three-monththree-month period ended March 31, 2018 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. 2019. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company’s annual report on Form 10-K10-K for the year ended December 31, 2017.2018.

 

 

NOTE B: RECENT ACCOUNTING PRONOUNCEMENTS

In May 2017, July 2018, the FASBFinancial Accounting Standards Board, (“FASB”) issued Accounting Standards Update, (“ASU”) No. 2018-09, (“ASU No.2017-09, ("ASU 2017-09"2018-09”), Compensation – Stock Compensation (Topic 718) which provides guidance about which changesCodification Improvements. ASU 2018-09 was issued to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.update codification on multiple topics, and includes updates for technical corrections, clarifications and other minor improvements. ASU 2017-09 is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, and early adoption is permitted, including in an interim period. ASU 2017-09 is to be applied on a prospective basis to an award modified on or after the adoption date. The adoption of this guidance on January 1, 2018 did not have a significant impact on the Company’s financial condition, results of operations, or cash flows.

In November 2016, the FASB issued ASU No.2016-18, (“ASU 2016-18”), Statement of Cash Flows (Topic 230). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This standard is intended to reduce diversity in practice in how restricted cash or restricted cash equivalents are presented and classified in the statement of cash flows. ASU No.2016-182018-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, 2018, with early adoption permitted. The standard requires application using a retrospective transition method. The adoption of this guidance on January 1, 2018 changed the presentation and classification of restricted cash and restricted cash equivalents in our consolidated statements of cash flows but did not have a material impact on our financial condition, results of operations, or cash flows.

In August 2016, the FASB issued ASU No.2016-15, (“ASU 2016-15”), Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 amends the guidance in ASC 230, Statement of Cash Flows, and clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15,2017, and interim periods within those fiscal years. Early adoption was permitted. The adoption of this guidance on January 1, 2018 2019 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.

 

In June 2016, July 2018, the FASB issued ASU No.2016-13, 2018-10, (“ASU 2016-13”2018-10”), Codification Improvements to Topic 842, Leases. ASU 2018-10 was issued to update codification specific to Topic 842, and includes updates for technical corrections, clarifications and other minor improvements. ASU 2018-10 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. The adoption of this guidance on January 1, 2019 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Accounting for Credit Losses (Topic 326)326). ASU 2016-132016-13 requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. ASU 2016-132016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial condition, results of operations, or cash flows.

 

In MarchFebruary 2016, the FASB issued ASU No.2016-09, 2016-02, (“ASU 2016-09”2016-02”), Compensation – Stock Compensation (Topic 718). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liability, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15,2016, with early adoption permitted. The adoption of this guidance on January 1, 2017, did not have a significant impact on the Company’s financial condition, results of operations, or cash flows.

In February 2016, the FASB issued ASU No.2016-02, (“ASU 2016-02”), Leases (Topic 842)842). This update seeks to increase the transparency and comparability among entities by requiring public entities to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. To satisfy the standard’s objective, a lessee will recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a lease liability for the obligation to make lease payments. Both the right-of-use asset and lease liability will initially be measured at the present value of the lease payments, with subsequent measurement dependent on the classification of the lease as either a finance or an operating lease. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset to not recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. Accounting by lessors will remain mostly unchanged from current U.S. GAAP.

 

In transition, lessees and lessors will beare required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that companies may elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The transition guidance also provides specific guidance for sale and leaseback transactions, build-to-suit leases, leveraged leases and amounts previously recognized in accordance with the business combinations guidance for leases. The new standard iswas effective for public companies for annual periods beginning after December 15,2018, and interim periods within those years, with early adoption permitted.

The Company has evaluatedcurrently leases shop, office and parking spaces in various locations around the new guidancecountry. The initial term for the majority of these leases is one year, with an option for early cancellation and does not expect itan option to have a material impact on its financial condition, resultsrenew for subsequent one month periods. These leases can be terminated by either party by providing notice to the other party of operations,the intent to cancel or cash flows.

In January 2016, to not extend. Relatively short lease durations for these properties are intended to provide flexibility to the FASB issued ASU 2016-01, (“ASU 2016-01”), Financial Instruments - Overall (Subtopic 825-10): RecognitionCompany as changing operational needs and Measurementshifting opportunities often result in cancellation or non-renewal of Financial Assets and Financial Liabilities. The updated guidance enhancesthese leases by the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure.Company or the lessor.

 

The initial lease term for certain shop and office locations is for periods ranging from one to five years with early cancellation options. The Company insists on early cancellation provisions of ASU 2016-01 require, among other things,when negotiating leases to prevent becoming locked into long term leases that become operationally unjustified and to allow the Company:

Categorize securities as equity securities or debt securities

Eliminate the classification of equity securities as trading or available for sale

Determine which securities have readily determinable fair values

Use the exit price notion when measuring the fair value of financial instruments for disclosure purposes

Consider the need for a valuation allowance related to a deferred tax asset on available-for-sale securities in combination with the Company’s other deferred tax assets, and

Recognize changes in the fair market value of equity securities in net income

ASU 2016-01 isflexibility to pursue more cost effective options for annual and interim periods beginning after December 15,2017. With certain exceptions, early adoption was not permitted. The adoption of this guidance on January 1, 2018, did not have a significant impact on the Company’s financial condition or cash flows, but did impact the Company’s results of operations, as the current guidance requires changes in market value related to equity securities to be recognized in net income, rather than being recognized as other comprehensive income. Upon adoption, approximately $7.4 million in accumulated changes in the fair market value of the Company’s equity securities, net of deferred tax, that were presented at December 31, 2017 as Accumulated Other Comprehensive Income were reclassified to Retained Earnings.

In May 2014, the Financial Accounting Standards Board, (“FASB”), issued Accounting Standards Update, (“ASU”) No.2014-09, (“ASU 2014-09”), Revenue from Contracts with Customers. The objective of ASU 2014-09 and subsequent amendments is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle of ASU 2014-09 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification, (“ASC”). The new guidance, as amended, is effective for annual reporting periods (including interim periods within those periods) beginning after December 15,2017 for public companies. Early adoption was not permitted prior to annual periods beginning after December 31, 2016. Entities havesimilar properties if they become available. These leases often include the option of using either a full retrospectiveto extend for additional periods, which may or modified approachmay not be exercised. Based on historical experience, the Company does not always extend these leases, sometimes exercises the option to adopt ASU 2014-09.cancel leases early and sometimes lessors choose to cancel leases or not extend.

 

The Company has concluded that it is not appropriate to record a right to use asset or liability for the shop, office and parking spaces for lease arrangements as of March 31, 2019 or December 31, 2018. This conclusion is based on the determination that the lease term for the majority of these leases is under one year in duration, and that based on historical experience, it is reasonable to conclude that we may cancel longer term leases or options to extend for periods in excess of one year may not be exercised.

The Company leases trucks to independent contractors under our lease-to-own program. We also lease dock space to a related party at our Laredo, Texas terminal. We have reviewed these leases and determined that the adoption of this guidanceASU 2016-02 did not require a change to our financial statements, as our method of accounting for related assets and lease revenue is consistent with the provisions of the new standard.

Because the Company’s historical method of accounting for leases is consistent with the provisions of ASU 2016-02, the adoption of ASU 2016-02 on January 1, 2018 2019 did not have a material impact on the Company’s financial condition, results of operations, or cash flows or internal controls.flows.

See Note C, “Revenue Recognition,” for more information.

 

With the exception of the new standards discussed above, there have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended March 31, 2018, 2019, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K10-K for the fiscal year ended December 31,2017, 2018, that are of significance or potential significance to the Company.

 

 

NOTE C: REVENUE RECOGNITION

The Company has a single performance obligation, to transport our customer’s freight from a specified origin to a specified destination. The Company has the discretion to choose to self-transport or to arrange for alternate transportation to fulfill the performance obligation. Where the Company decides to self-transport the freight, the Company classifies the service as truckload services, and where the Company arranges for alternate transportation of the freight, the Company classifies the service as brokerage and logistics services. In either case, the Company is paid a rate to transport freight from its origin location to a specified destination. Because the primary factors influencing revenue recognition, including performance obligation, customer base, and timing of revenue recognition, are the same for both of its service categories, the Company utilizes the same revenue recognition method throughout its operations.

Company revenue is generated from freight transportation services performed utilizing heavy tractortruck trailer combinations. While various ownership arrangements may exist for the equipment utilized to perform these services, including Company owned or leased, owner-operator owned, and third party carriers, revenue is generated from the same base of customers. Contracts with these customers establish rates for services performed, which are predominantly rates that will be paid to pick up, transport and drop off freight at various locations. In addition to transportation, revenue is also awarded for various accessorial services performed in conjunction with the base transportation service. The Company also has other revenue categories that are not discussed in this note or broken out in our StatementStatements of Operations due to their non-materialimmaterial amounts.

 

We are obligatedIn fulfilling the Company’s obligation to pick uptransport freight from shippers, transport, and deliver the freight in good condition in a timely manner. Controlspecified origin to a specified destination, control of freight is transferred to us at the point it has been loaded into ourthe driver’s trailer, the doors are sealed and we havethe driver has signed a bill of lading, which is the basic transportation agreement that establishes the nature, quantity and condition of the freight loaded, responsibility for invoice payment, of our invoice, and pickup and delivery locations. Our revenue is generated, and our customer receives benefit, as the freight progresses towards delivery locations. In the event our customer cancels the shipment at some point prior to the final delivery location and re-consigns the shipment to an alternate delivery location, we are entitled to receive payment for services performed for the partial shipment. Shipments are generally conducted over a relatively short time span, generally one to three days; however, freight is sometimes stored temporarily in our trailer at one of our drop yard locations or at a location designated by a customer. Our revenue is categorized as either Freight Revenue or Fuel Surcharge Revenue, and both are both earned by performing the same freight transportation services, discussed further below.

 

Freight Revenue – revenue generated by the performance of the freight transportation service, including any accessorial service, provided to customers.

 

Fuel Surcharge Revenue – revenue designed to adjust freight revenue rates to an agreed upon base cost for diesel fuel. Diesel fuel prices can fluctuate widely during the term of a contract with a customer. At the point that freight revenue rates are negotiated with customers, a sliding scale is agreed upon that approximately adjusts diesel fuel costs to an agreed upon base amount. In general, as fuel prices increase, revenue from fuel surcharge increases, so that diesel fuel cost is adjusted to the approximate base amount agreed upon.

 

Revenue is recognized in full upon completion of delivery toover time as the receiver's location.freight progresses towards its destination and the transportation service obligation is fulfilled. For freight in transit atloads picked up during the end of a reporting period, the Company recognizesbut delivered in a subsequent reporting period, revenue on a pro rata basis that is allocated to each period based on relativethe transit time completedin each period as a portionpercentage of the estimated total transit time. Expenses are recognized as incurred. There are no assets or liabilities recorded in conjunction with revenue recognized, other than Accounts Receivable and Allowance for doubtful accounts.

 

 

NOTE D: MARKETABLE EQUITY SECURITIES

The Company accounts for its marketable equity securities in accordance with ASC Topic 321, (“ASC Topic 321”), Investments- Equity Securities. ASC Topic 321 requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income (expense).

 

Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note J, below.

 

The following table sets forth market value, cost, and unrealized gains on equity securities as of March 31, 2018 2019 and December 31, 2017.2018.

 

 

March 31, 2018

  

December 31, 2017

  

March 31, 2019

  

December 31, 2018

 
 

(in thousands)

  

(in thousands)

 

Fair market value

 $26,104  $26,664  $30,805  $27,549 

Cost

  19,536   16,640   26,000   25,602 

Unrealized gain

 $6,568  $10,024  $4,805  $1,947 

Prior to the Company’s January 1, 2018 adoption of ASU 2016-01, unrealized losses in fair market value were presented as a component of Accumulated Other Comprehensive Income in shareholders’ equity, and only realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities, were included in the determination of net income. The cost of securities determined to be in an other-than-temporary loss position were required to be presented net of the amount of the other-than-temporary impairment calculated. Subsequent to adoption of ASU 2016-01, cost is no longer presented net of other-than-temporary impairment. The December 31, 2017 cost reflected in the table above was presented net of approximately $2,314,000 of other-than-temporary impairment.

 

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of March 31, 2018 2019 and December 31, 2017.2018.

 

 

March 31, 2018

  

December 31, 2017

  

March 31, 2019

  

December 31, 2018

 
 

(in thousands)

  

(in thousands)

 

Gross unrealized gains

 $7,651  $10,150  $7,129  $5,668 

Gross unrealized losses

  1,083   126   2,324   3,721 

Net unrealized gains

 $6,568  $10,024  $4,805  $1,947 

 

The following table shows the Company’s net realized gains

There were no sales of marketable equity securities during the firstthree months of 2018 and 2017 on certain marketable equity securities.2019 or 2018.

 

  

Three Months Ended

 
  

March 31, 2018

  

March 31, 2017

 
  

(in thousands)

 

Realized gain

        

Sale proceeds

 $-  $2,367 

Cost of securities sold

  -   585 

Realized gain

 $-  $1,782 
         

Realized gain, net of taxes

 $-  $1,089 

 

For the quarter ended March 31, 2018, 2019, the Company recognized dividends received of approximately $271,000$277,000 in non-operating income in its statements of operations. For the quarter ended March 31, 2017, 2018, the Company recognized dividends of approximately $221,000$271,000 in non-operating income in its statements of operations.

 

The market value of the Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of March 31, 2018 2019 and December 31, 2017, 2018, the Company had outstanding borrowings of approximately $6,281,000$11,123,000 and $5,903,000,$11,281,000, respectively, under its margin account. Margin account borrowings are used for the purchase of marketable equity securities and as a source of short-term liquidity and are included in Accrued expenses and other liabilities on our balance sheets.

 

During the first quarter of 2018, ourOur marketable equity securities portfolio had a net unrealized pre-tax gain in market value of approximately $3,184,000 during the first quarter of 2019, and a net unrealized pre-tax loss in market value of approximately $1,142,000,$1,142,000 during the first quarter of 2018, which waswere reported as Non-operating expenseincome for the period.respective periods.

 

 

NOTE E: STOCK BASED COMPENSATION

The Company maintains a stock incentive plan (the “Plan”) under which incentive and nonqualified stock options and other stock awards may be granted. On March 2, 2006, the Company’s Board of Directors (the “Board”) adopted, and shareholders later approved, the 2006 Stock Option Plan (the “2006 Plan”). Under the 2006Plan, 750,000 shares were reserved for the issuance of stock options to directors, officers, key employees, and others. The option exercise price under the 2006 Plan is the fair market value of the stock on the date the option is granted. The fair market value is determined by the average of the highest and lowest sales prices for a share of the Company’s common stock, on its primary exchange, on the same date that the option is granted. On March 13, 2014, the Board adopted, and on May 29, 2014 our shareholders approved, the 2014 Amended and Restated Stock Option and Incentive Plan (the “2014 Plan”) which replaced the 2006 Plan. The shares which remained reserved under the 2006 Plan were carried over to the 2014 Plan and are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock purchase price under the 2014Plan shall not be less than 85% of the fair market value of the Company’s common stock on the date the award is granted. The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.

 

Outstanding nonqualified stock options at On March 31, 2018, must be exercised within either five or ten years from the date of grant. Outstanding nonqualified stock options granted to members of the Company’s Board vested immediately while outstanding nonqualified stock options issued to employees vest in increments of 20% to 25% each year.

On March 31, 2018, 2019, each non-employee director accrued 276205 shares of common stock under the2014 Plan. The shares were issued by the Company in the subsequent periodApril 2019 and had a grant date fair value of $36.35$48.94 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.

 

The total grant date fair value of stock vested during the firstthree months of 20182019 was approximately $39,000.$39,000. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits during the firstthree months of 20182019 was approximately $233,000$306,000 and includes approximately $70,000$90,000 recognized as a result of the accrual of 276205 shares to each non-employee director during the first quarter of 2018.2019. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.03$0.04 during the first quarter of 2018.2019. As of March 31, 2018, 2019, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $1,171,000$1,648,000 which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $482,000$630,000 in additional compensation expense related to unvested option awards during the remainder of 20182019 and to recognize approximately $552,000$430,000, $294,000 and $137,000$294,000 in additional compensation expense related to unvested option awards during the years 20192020, 2021 and 2020,2022, respectively.

 

The total grant date fair value of stock and stock options vested during the firstthree months of 20172018 was approximately $109,000.$39,000. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits during the firstthree months of 20172018 was approximately $115,000,$233,000, and included approximately $70,000$70,000 recognized as a result of the grant of 614276 shares to each non-employee director during the first quarter of 2017.2018. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.01$0.03 during the three months ended first quarter 2018. As of March 31, 2017. As of March 31, 2017, 2018, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $194,000$1,171,000 which was being amortized on a straight-line basis over the remaining vesting period.

 

Information related to stock option activity for the three months ended March 31, 2018 is as follows:

  

Shares

Under Options

  

Weighted-Average

Exercise Price

  

Weighted- Average

Remaining Contractual Term

  

Aggregate

Intrinsic Value*

 
      

(per share)

  

(in years)

     

Outstanding-January 1, 2018

  45,068  $10.79         

Granted

  -   -         

Exercised

  (16,000)  10.47         

Cancelled/forfeited/expired

  (63)  10.90         

Outstanding at March 31, 2018

  29,005  $10.96   3.89  $736,448 
                 

Exercisable at March 31, 2018

  29,005  $10.96   3.89  $736,448 

___________________________

* 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 May 29,2018, was $36.35.

A summary of the status of the Company’s non-vested options and restricted stock as of March 31, 2018 2019 and changes during the three months ended March 31, 2018, 2019, is as follows:

 

 

Stock Options

  

Restricted Stock

  

Restricted Stock

 
 

Number

of Options

  

Weighted- Average

Grant Date Fair Value

  

Number

of Shares

  

Weighted- Average

Grant Date Fair Value*

  

Number of

Shares

  

Weighted-

Average Grant

Date Fair Value

 

Non-vested at January 1, 2018

  -   -   104,150  $17.14 

Non-vested at January 1, 2019

  100,917  $23.09 

Granted

  -   -   -   -   -   - 

Canceled/forfeited/expired

  -   -   -   -   -   - 

Vested

  -   -   (1,250)  30.81   (1,250)  30.81 

Non-vested at March 31, 2018

  -  $-   102,900  $16.98 

Non-vested at March 31, 2019

  99,667  $22.99 

___________________________

* The weighted-average grant date fair value was based on the closing price of the Company’s stock on the date of the grant.

The number, weighted average exercise price, and weighted average remaining contractual life of options outstanding as of March 31, 2018 and the number and weighted average exercise price of options exercisable as of March 31, 2018 are as follows:

Exercise Price

Shares Under

Outstanding Options

Weighted-Average

Remaining Contractual Term

Shares Under

Exercisable Options

(in years)

$10.9023,6004.223,600
$11.225,4052.75,405
29,0053.929,005

 

Cash received from option exercises totaled approximately $168,000$0 and $46,000$168,000 during the three months ended March 31, 2019 and March 31, 2018, and March 31, 2017, respectively. The Company issues new shares upon option exercise.

 

 

NOTE F: SEGMENT INFORMATION

The Company follows the guidance provided by ASC Topic 280, Segment Reporting, in its identification of operating segments. The Company has determined that it has a total of two 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 FASB ASC Topic 280, the Company has determined that the operations of the two 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, were as follows:

  

Three Months Ended March 31,

 
  

2019

  

2018

 
  

Amount

  

%

  

Amount

  

%

 
  

(in thousands, except percentage data)

 
                 

Truckload Services revenue

 $90,013   81.6  $80,524   81.3 

Brokerage and Logistics Services revenue

  20,332   18.4   18,580   18.7 

Total revenues

 $110,345   100.0  $99,104   100.0 

 

  

Three Months Ended March 31,

 
  

2018

  

2017

 
  

Amount

  

%

  

Amount

  

%

 
  

(in thousands, except percentage data)

 

Truckload Services revenue

 $80,524   81.3  $82,918   88.6 

Brokerage and Logistics Services revenue

  18,580   18.7   10,685   11.4 

Total revenues

 $99,104   100.0  $93,603   100.0 
10

 

 

NOTE G: TREASURY STOCK

The Company’s stock repurchase program has been extended and expanded several times, most recently in April 2017, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. During the three months ended March 31, 2018 2019, the Company repurchased 1,00039,648 shares of its common stock at an aggregate cost of approximately $36,000$1.6 million under this program.

 

The Company accounts for Treasury stock using the cost method and as of March 31, 2018, 5,369,2352019, 5,695,234 shares were held in the treasury at an aggregate cost of approximately $129,219,000.$144.2 million.

 

 

NOTE H: EARNINGSNET INCOME PER SHARE

Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding by common stock equivalents attributable to dilutive stock options. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The computations of basic and diluted earnings per share were as follows:

 

 

Three Months Ended

 
 

March 31,

 
 

Three Months Ended

March 31,

  

2019

  

2018

 
 

2018

  

2017

  

(in thousands, except per share data)

 
 

(in thousands, except per share data)

         

Net income

 $1,387  $2,283  $8,301  $1,387 
                

Basic weighted average common shares outstanding

  6,168   6,399   5,921   6,168 

Dilutive effect of common stock equivalents

  96   26   64   96 

Diluted weighted average common shares outstanding

  6,264   6,425   5,985   6,264 
                

Basic earnings per share

 $0.22  $0.36  $1.40  $0.22 

Diluted earnings per share

 $0.22  $0.36  $1.39  $0.22 

 

As of March 31, 2019 and March 31, 2018, and March 31, 2017, there were no options outstanding to purchase shares of common stock that had an anti-dilutive effect on the computation of diluted earnings per share.

 

 

NOTE I: INCOME TAXES

The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which the Company operates generally provide for a deficiency assessment statute of limitation period of three years, and as a result, the Company’s tax years 20142015 and forward remain open to examination in those jurisdictions.

 

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740-10-30,740-10-30, weighs all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of March 31, 2018, 2019, management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was not necessary.

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by taxing authorities, based on the technical merits of the position. As of March 31, 2018, 2019, an adjustment to the Company’s consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During the three months ended March 31, 2018 2019 and 2017,2018, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.

 

The Company’s effective income tax rates were 19.2%25.4% and 38.9%19.2% for the three months ended March 31, 2018 2019 and 2017,2018, respectively. Our effective tax rate for the three months ended March 31, 2018 2019 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state taxes and the tax benefits related to stock-based compensation.

 

 

NOTE J: FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist of cash and cash equivalents, marketable equity securities, accounts receivable, trade accounts payable, and borrowings.

 

The Company follows the guidance for financial assets and liabilities measured on a recurring basis. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1:

Quoted market prices in active markets for identical assets or liabilities.

 

 

Level 2:

Inputs other than Level 1 inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable; or other inputs not directly observable, but derived principally from, or corroborated by, observable market data.

  

Level 3:

Unobservable inputs that are supported by little or no market activity.

     

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

 

At March 31, 2018, 2019, the following items are measured at fair value on a recurring basis:

 

  

Total

  

Level 1

  

Level 2

  

Level 3

 
  

(in thousands)

 
                 

Marketable equity securities

 $26,104  $26,104   -   - 

14

  

Total

  

Level 1

  

Level 2

  

Level 3

 
  

(in thousands)

 
                 

Marketable equity securities

 $30,805  $30,805   -   - 

 

The Company’s investments in marketable securities are recorded at fair value based on quoted market prices. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.

 

The carrying amount for the line of credit approximates fair value because the line of credit interest rate is adjusted frequently.

 

For long-term debt other than the lines of credit, the fair values are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying value and estimated fair value of this other long-term debt at March 31, 2018 2019 was as follows:

 

  

Carrying

Value

  

Estimated

Fair Value

 
  

(in thousands)

 
         

Long-term debt

 $164,912  $163,017 
  

Carrying

Value

  

Estimated

Fair Value

 
  

(in thousands)

 
         

Long-term debt

 $197,340  $197,597 

 

The Company has not elected the fair value option for any of its financial instruments.

 

 

NOTE K: NOTES PAYABLE

During the firstthree months of 2018,2019, the Company’s subsidiaries entered into installment obligations totaling approximately $6.9$5.8 million for the purpose of purchasing revenue equipment. These obligations are payable in 36 monthly installments.

 

 

NOTE L: LITIGATION

Other than the lawsuit discussed below, the Company is not a party to any pending legal proceeding which management believes to be material to the financial statements of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business.

 

We are a defendant in a collective-action lawsuit which was re-filed on December 9, 2016, in the United States District Court for the Western District of Arkansas. The plaintiffs, who are former drivers who worked for the Company during the period of December 6, 2013, through the date of the filing, allege unsubstantiated violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law. The plaintiffs, through their attorneys, have filed causes of action alleging “Failure to pay minimum wage during orientation, failure to pay minimum wage to team drivers after initial orientation, failure to pay minimum wage to solo-drivers after initial orientation, failure to pay for compensable travel time, Comdata card fees, unlawful deductions, and breach of contract.” The plaintiffs are seeking actual and liquidated damages to include court costs and legal fees. The lawsuitrelated litigation is being vigorously defendedongoing and we cannot reasonably estimate, at this time, the possible loss or range of loss, if any, that may arise from this lawsuit. Management has determined that any losses under this claim will not be covered by existing insurance policies.

 

 

NOTE M: SUBSEQUENT EVENTS

Management has evaluated subsequent events for recognition and disclosure through the date these financial statements were filed with the United States Securities and Exchange Commission and concluded that no subsequent event or transactions have occurred that required recognition or disclosure in our consolidated financial statements.

 

 

 

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

 

FORWARD-LOOKING INFORMATION

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

 

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the fiscal year ended December 31, 2017.2018.

 

BUSINESS OVERVIEW

The Company’s administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through wholly-owned subsidiaries based in various locations around the United States and in Mexico and Canada. The operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics services. This designation is based primarily on the ownership of the asset that performed the freight transportation service. Truckload services include those transportation services in which weare performed by Company divisions that generally utilize companyCompany owned trucks, long-term contractors, or owner-operator owned trucks. Brokeragesingle-trip contractors to transport loads of freight for customers, while brokerage and logistics services consistcoordinate or facilitate the transport of services such as transportation scheduling, routing, mode selection, trans-loading and other value added services related to the transportationloads of freight which may or may notfor customers and generally involve the usageutilization of company owned or owner-operator owned equipment.single-trip contractors. Both our truckload operations and our brokerage/brokerage and logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this report. All of the Company’s operations are in the motor carrier segment.Report.

 

For both operations, substantially all of our revenue is generated by transporting freight for customers and is predominantly affected by the rates per mile received from our customers, equipment utilization, and our percentage of non-compensated miles. These aspects of our business are carefully managed and efforts are continuously underway to achieve favorable results. Truckload services revenues, excluding fuel surcharges, represented 81.3%81.6% and 88.6%81.3% of total revenues, excluding fuel surcharges, for the three months ended March 31, 20182019 and 2017,2018, respectively. The remaining revenues, excluding fuel surcharges, were generated from brokerage and logistics services.

 

The main factors that impact our profitability on the expense side are costs incurred in transporting freight for our customers. Currently, our most challenging costs include fuel, driver recruitment, training, wage and benefits costs, independent broker costs (which we record as purchased transportation), insurance, maintenance and capital equipment costs.

 

In discussing our results of operations, we use revenue, before fuel surcharge (and fuel expense, net of fuel surcharge), because management believes that eliminating the impact of this sometimes volatile source of revenue allows a more consistent basis for comparing our results of operations from period to period. During the three months ended March 31, 2019 and 2018, and 2017, approximately $20.4$18.3 million and $15.8$20.4 million, respectively, of the Company’s total revenue was generated from fuel surcharges. We may also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.

 

 

RESULTS OF OPERATIONS – TRUCKLOAD SERVICES

The following table sets forth, for truckload services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Fuel costs are reported net of fuel surcharges.

 

 

Three Months Ended

 
 

March 31,

 
 

Three Months Ended

March 31,

  

2019

  

2018

 
 

2018

  

2017

  

(percentages)

 
 

(percentages)

         

Operating revenues, before fuel surcharge

  100.0   100.0   100.0   100.0 
                

Operating expenses:

                

Salaries, wages and benefits

  34.6   30.5   33.3   34.6 

Operating supplies and expenses

  2.8   5.3   5.7   2.8 

Rents and purchased transportation

  36.3   40.5 

Rent and purchased transportation

  30.3   36.3 

Depreciation

  14.4   12.8   14.5   14.4 

Insurance and claims

  5.3   5.7   4.5   5.3 

Other

  3.0   2.4   3.1   3.0 

Gain on sale or disposal of property

  -   -   (0.4)  - 

Total operating expenses

  96.4   97.2   91.0   96.4 

Operating income

  3.6   2.8   9.0   3.6 

Non-operating (expense)/ income

  (1.0)  2.3 

Non-operating income/(expense)

  3.5   (1.0)

Interest expense

  (1.3)  (1.1)  (2.0)  (1.3)

Income before income taxes

  1.3   4.0   10.5   1.3 

 

THREE MONTHS ENDED MARCH 31, 20182019 VS. THREE MONTHS ENDED MARCH 31, 20172018

 

During the first quarter of 2018,2019, truckload services revenue, before fuel surcharges, decreased 2.4%increased 11.8% to $80.5$90.0 million as compared to $82.9$80.5 million during the first quarter of 2017.2018. The decreaseincrease in revenue was primarily the result of a 129 tractor decreaseincreases in our average fleet size from 1,912and average rate per mile charged to our customers during the first quarter 2019 compared to the first quarter 2018. These increases were partially offset by a decrease in the total number of 2017 to 1,783 duringmiles driven per truck for the first quarter of 2018. This decrease in fleet size was driven by2019 compared to the removalfirst quarter of lanes from our freight network where rate pressure had driven rates below an acceptable level. This fleet reduction reduced miles by approximately 4.1 million, or $5.6 million in revenue. Partially offsetting the reduction in revenue associated with fewer miles was a 5.1% increase in our average rate per mile, which increased revenue by approximately $3.9 million.2018.

 

Salaries, wages and benefits increaseddecreased from 30.5%34.6% of revenues, before fuel surcharges, in the first quarter of 20172018 to 34.6%33.3% of revenues, before fuel surcharges, during the first quarter of 2018. The increase relates2019. This decrease is primarily attributable to a per mile pay increase that went into effect the last week of December 2017. This pay increase increased the average rate per mile paid to company drivers by approximately 12.6%,decreases in worker’s compensation and increased driver pay by approximately $1.7 milliongroup health insurance claims for the first quarter of 20182019 compared to the first quarter of 2017. In addition,2018. To a lesser degree, the proportioneffect of total miles driven by company drivers increased by approximately 4.1%,higher revenues without a corresponding increase in those wages with fixed cost characteristics, such as general and administrative wages, also contributed to the number of company drivers increased year over year. A decrease in group health insurance claims expensed under the Company’s self-insured health plan during the first quartersalaries, wages and benefits as a percentage of 2018 as compared to the first quarter of 2017 partially offset the increase in driver pay.revenues, before fuel surcharges.

 

Operating supplies and expenses decreasedincreased from 5.3% of revenues, before fuel surcharges, during the first quarter of 2017 to 2.8% of revenues, before fuel surcharges, during the first quarter of 2018.2018 to 5.7% of revenues, before fuel surcharges, during the first quarter of 2019. The decreaseincrease relates primarily to a decreasean increase in the average surcharge-adjusted fuel price paid per gallon of diesel fuel. The average surcharge-adjusted fuel price paid per gallon of diesel fuel decreasedincreased as a result of increasedlower fuel surcharge collections from customers. Fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that, during periods of rising fuel prices, fuel surcharge collections increase, while fuel surcharge collections decrease during periods of falling fuel prices. Fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the Rent and purchased transportation category. These categorizations have the effect of reducing our net operating supplies and expenses while increasing the Rent and purchased transportation category, as discussed below.

 

Rent and purchased transportation decreased from 40.5% of revenues, before fuel surcharges, during the first quarter of 2017 to 36.3% of revenues, before fuel surcharges, during the first quarter of 2018.2018 to 30.3% of revenues, before fuel surcharges, during the first quarter of 2019. The decrease was primarily due to a decrease in the average number of owner-operators under contract from 628loads transported by third party carriers during the first quarter of 20172019 compared to 550 during the first quarter of 2018. Also contributing to theThis decrease was a reduction in amounts paid for equipment leasesoccurred as the scheduled expirationaverage number of our final truck operating lease occurred duringcompany owned trucks increased for the first quarter of 2018. Trucks leased under these operating leases were replaced with company owned trucks as2019 compared to the scheduled expirations occurred throughout 2017first quarter 2018, providing additional company-owned capacity and until January of 2018.diminishing the need to utilize third party carriers.

 

Depreciation increased from 12.8% of revenues, before fuel surcharges, during the first quarter of 2017 to 14.4% of revenues, before fuel surcharges, during the first quarter of 2018. As discussed above, new tractors were purchased2018 to replace tractors turned in under expiring operating leases throughout 2017, and continuing into January of 2018. This transition resulted in the movement of expense from the Rent and purchased transportation classification to Depreciation as leased tractors were replaced with owned tractors.

Non-operating (expense)/income decreased from 2.3%14.5% of revenues, before fuel surcharges, during the first quarter of 20172019. This increase is primarily the result of an increase in the average number of trucks and trailers in our fleet for the first quarter of 2019 compared to the first quarter of 2018.

Insurance and claims expense decreased from 5.3% of revenues, before fuel surcharges, during the first quarter of 2018 to 4.5% of revenues before fuel surcharges, during the first quarter of 2019. This decrease primarily resulted from a decision to become self-insured for property damage on company owned trucks commencing on September 1, 2018. During the first quarter 2018, the Company paid for property damage coverage for company owned trucks through a third party insurance carrier. This coverage was in place through August 31, 2018, at which time the Company dropped insurance coverage and became self-insured. Also contributing to the decrease as a percentage of revenue, before fuel surcharges, is the interaction of the increase in revenue with the decrease in total miles driven. Miles driven generally serve as the premium basis for the majority of our insurance coverage.

Non-operating income/(expense) increased from (1.0%) of revenues, before fuel surcharges, during the first quarter of 2018. This decrease resulted primarily from the adoption2018 to 3.5% of ASU 2016-01. As discussed in Note B, this standard requires that equity investments be adjusted to market value each period with current period gains and losses in value recorded in net income. Previous guidance generally required that unrealized gains and losses be reported in Accumulated Other Comprehensive Income. Duringrevenues, before fuel surcharges, during the first quarter of 2017,2019. This increase primarily resulted from an increase in income related to the change in market values of equity investments were sold with pre-tax realized gainssecurities. Approximately a $3.2 million increase in the market value of approximately $1,782,000. Forour marketable equity securities was recorded in non-operating income during the first quarter of 2018, our marketable equity securities portfolio had2019, compared to a net unrealized pre-tax$1.1 million loss in the market value of approximately $1,142,000 which was reported as Non-operatingour equity securities during the first quarter of 2018.

Interest expense forincreased from 1.3% of revenues, before fuel surcharges, during the period.first quarter 2018 to 2.0% of revenues, before fuel surcharges during the first quarter 2019. This increase is attributable to market increases in interest rates.

 

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 97.2% for the first quarter of 2017 to 96.4% for the first quarter of 2018.2018 to 91.0% for the first quarter of 2019.

 

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.

 

 

Three Months Ended

 
 

March 31,

 
 

Three Months Ended

March 31,

  

2019

  

2018

 
 

2018

  

2017

  

(percentages)

 
 

(percentages)

         

Operating revenues, before fuel surcharge

  100.0   100.0   100.0   100.0 
                

Operating expenses:

                

Salaries, wages and benefits

  4.4   5.4   5.4   4.4 

Rent and purchased transportation

  89.8   90.2   84.9   89.8 

Other

  1.3   1.0   2.1   1.3 

Total operating expenses

  95.5   96.6   92.4   95.5 

Operating income

  4.5   3.4   7.6   4.5 

Non-operating (expense)/income

  (0.5)  1.2 

Non-operating income/(expense)

  1.7   (0.5)

Interest expense

  (0.5)  (0.5)  (1.0)  (0.5)

Income before income taxes

  3.5   4.1   8.3   3.5 

 

 

THREE MONTHS ENDED MARCH 31, 20182019 VS. THREE MONTHS ENDED MARCH 31, 20172018

 

During the first quarter of 2018,2019, logistics and brokerage services revenue, before fuel surcharges, increased 73.9%9.4% to $18.6$20.3 million as compared to $10.7$18.6 million during the first quarter of 2017.2018. The increase relates to an increase in the number of loads and to an increase in average rates charged during the first quarter of 20182019 as compared to the first quarter of 2017.2018.

 

Salaries, wages and benefits decreasedincreased from 5.4%4.4% of revenues, before fuel surcharges, in the first quarter of 20172018 to 4.4%5.4% of revenues, before fuel surcharges, during the first quarter of 2018.2019. The decreaseincrease relates primarily to increases in brokerage revenue outpacing thean increase in employee resources assigned to the number of employees utilized by logistics and brokerage division during the first quarter of 2018 as compared to the first quarter of 2017. The percentage-based decrease reflects the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, operations wages, and payroll taxes with an increase in revenues for the periods compared.service operations.

 

Rents and purchased transportation decreased from 90.2% of revenues, before fuel surcharges, during the first quarter of 2017 to 89.8% of revenues, before fuel surcharges, during the first quarter of 2018.2018 to 84.9% of revenues, before fuel surcharges, during the first quarter of 2019. The decrease results from paying third party carriers a smaller percentage of customer revenue.

 

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, improved from 96.6%95.5% for the first quarter of 20172018 to 95.5%92.4% for the first quarter of 2019.

Non-operating income/(expense) increased from (0.5%) of revenues, before fuel surcharges, during the first quarter of 2018 to 1.7% of revenues, before fuel surcharges, during the first quarter of 2019. This increase primarily resulted from an increase in income related to the change in market values of equity securities. Approximately a $3.2 million increase in the market value of our marketable equity securities was recorded in non-operating income during the first quarter of 2019, compared to a $1.1 million loss in the market value of our equity securities during the first quarter of 2018.

 

Interest expense increased from 0.5% of revenues, before fuel surcharges, during the first quarter 2018 to 1.0% of revenues, before fuel surcharges during the first quarter 2019. This increase is attributable to market increases in interest rates.

 

RESULTS OF OPERATIONS – COMBINED SERVICES

 

THREE MONTHS ENDED MARCH 31, 20182019 VS. THREE MONTHS ENDED MARCH 31, 20172018

 

Operating income for all divisions was approximately $9.7 million, or 8.8% of revenues, before fuel surcharges, for the first quarter of 2019 as compared to operating income of approximately $3.8 million, or 3.8% of revenues, before fuel surcharges, for the first quarter of 2018 as compared to operating2018. Net income offor all divisions was approximately $2.7$8.3 million, or 2.8%7.5% of revenues, before fuel surcharges for the first quarter of 2017. Net2019 as compared to net income for all divisions was approximatelyof $1.4 million, or 1.4% of revenues, before fuel surcharges for the first quarter of 2018 as compared to2018. The increase in net income resulted in diluted earnings per share of $2.3 million, or 2.4% of revenues, before fuel surcharges$1.39 for the first quarter of 2017. The decrease in net income resulted in2019 as compared to diluted earnings per share of $0.22 for the first quarter of 2018 as compared to diluted earnings per share of $0.36 for the first quarter of 2017.2018.

 

LIQUIDITY AND CAPITAL RESOURCES

Our business has required, and will continue to require, a significant investment in new revenue equipment. Our primary sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, issuances of equity securities, and borrowings under our lines of credit, installment notes, and our investment margin account.

 

During the first three months of 2018,2019, we generated $15.7$19.7 million in cash from operating activities. Investing activities used $13.0$2.2 million in cash in the first three months of 2018.2019. Financing activities used $2.7$17.5 million in cash in the first three months of 2018.2019.

 

Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing line of credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations to finance capital expenditures and repay long-term debt. During the first three months of 2018,2019, we utilized cash on hand, installment notes, and our lines of credit to finance purchases of revenue equipment and other assets of approximately $13.2$7.9 million.

 

Occasionally, we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 6084 months. During the first three months of 2018,2019, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately $6.9$5.8 million for the purpose of purchasing revenue equipment. These obligations are payable in 36 monthly installments.

 

During the remainder of 2018,2019, we expect to purchase approximately 725500 new trucks and 975500 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $106.2$63.4 million.

 

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

 

We currently intend to retain our future earnings to finance our growth and do not anticipate paying cash dividends in the foreseeable future.

 

During the first three months of 2018,2019, we maintained a $40.0 million revolving line of credit. AmountsOn January 25, 2019, certain terms of this revolving line of credit were amended to increase the borrowing limit from $40.0 million to $60.0 million, extend the term by one year, reduce the interest rate by 25 basis points and make certain other changes. See “Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements – Subsequent Events” in our Annual Report on Form 10K for the year ended December 31, 2018, for additional information. Under the amended credit facility, amounts outstanding under the line of credit bear interest at LIBOR (determined as of the first day of each month) plus 1.50% (3.16%1.25% (3.74% at March 31, 2018)2019), are secured by our trade accounts receivable and mature on July 1, 2019. 2021. The amended credit facility also establishes and “unused fee” of 0.25% if average borrowings are less than $18.0 million.

At March 31, 20182019 outstanding advances on the line of credit were approximately $5.3$8.7 million, including approximately $0.7$0.6 million in letters of credit, with availability to borrow $34.7$51.3 million.

 

Trade accounts receivable increased from $59.1$63.4 million at December 31, 20172018 to $64.8$68.7 million at March 31, 2018.2019. The increase relates to a general increase in freight revenues, which flows through the accounts receivable account, at the end of the first quarter of 20182019 as compared to the end of the last quarter of 2017.2018.

 

Other accounts receivable increased from $3.0 million at December 31, 2017 to $3.8 million at March 31, 2018 primarily due to increases in amounts owed by owner-operators and third party carriers for payment advances not charged at the end

 

Prepaid expenses and deposits decreased from $10.1$10.4 million at December 31, 20172018 to $8.4$9.1 million at March 31, 2018.2019. The decrease relates to the normal amortization of items prepaid as of December 31, 2017.2018.

 

Marketable equity securities decreasedincreased from $26.7$27.5 million at December 31, 20172018 to $26.1$30.8 million at March 31, 2018.2019. The $0.6$3.3 million decreaseincrease was due to a net declineincrease in market value of approximately $1.2$3.2 million during the first three months of 2018, partially offset by2019, and to the purchase of marketable equity securities with a combined market value of approximately $0.6$0.1 million.

 

Accounts payable increased from $19.6$20.0 million at December 31, 20172018 to $23.6$22.7 million at March 31, 2018.2019. This increase was primarily attributable to increases in direct expenses such as fuel, purchased transportation and insurance thatan increase in direct correlationunpaid invoices for new equipment at March 31, 2019 compared to increases in miles and revenue.December 31, 2018.

 

Long-term debt and current maturities of long term-debt are reviewed on an aggregate basis, as the classification of amounts in each category are typically affected merely by the passage of time. Long-term debt and current maturities of long-term debt, on an aggregate basis, decreased from $172.6$221.2 million at December 31, 20172018 to $169.5$205.5 million at March 31, 2018.2019. The decrease was primarily related to the net effect of installment note payments made during the first three months of 2018,2019, partially offset by additional borrowings received during the first three months of 2018.2019.

 

NEW ACCOUNTING PRONOUNCEMENTS

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Our primary market risk exposures include equity price risk, interest rate risk, commodity price risk (the price paid to obtain diesel fuel for our trucks), and foreign currency exchange rate risk. The potential adverse impact of these risks andare discussed below. While the general strategies we employCompany has used derivative financial instruments in the past to manage its interest rate and commodity price risks, the Company does not currently enter into such risks are discussed below.instruments for risk management purposes or for speculation or trading.

 

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

 

Equity Price Risk

We hold certain actively traded marketable equity securities, which subjects the Company to fluctuations in the fair market value of its investment portfolio based on the current market price of such securities. The recorded value of marketable equity securities decreasedincreased to $26.1$30.8 million at March 31, 20182019 from $26.7$27.5 million at December 31, 2017.2018. 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 $2.6$3.1 million. For additional information with respect to the marketable equity securities, see Note D to our condensed consolidated financial statements.

 

Interest Rate Risk

Our line of credit bears interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR, which are affected by changes in interest rates, will affect the interest rate on, and therefore our costs under, the line of credit. Assuming $4.6$8.1 million of variable rate debt was outstanding under our line of credit for a full fiscal year; a hypothetical 100 basis point increase in LIBOR for a one year period would result in approximately $46,000$81,000 of additional interest expense.

 

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 20172018 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $4.1$5.2 million.

 

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk related to the activities of our branch office located in Mexico. Currently, we do not hedge our exchange rate exposure through any currency forward contracts, currency options, or currency swaps as all of our revenues, and substantially all of our expenses and capital expenditures, are transacted in U.S. dollars. However, certain operating expenditures and capital purchases related to our Mexico branch office are incurred in or exposed to fluctuations in the exchange rate between the U.S. dollar and the Mexican peso. Based on 20172018 expenditures denominated in pesos, a 10% increase in the exchange rate would increase our annual operating expenses by $57,000.$267,000.

 

 

Item 4. Controls and Procedures.

 

Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the

fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of March 31, 2018,2019, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in internal controls over financial reporting. We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 20182019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The nature of our business routinely results in litigation, primarily involving claims for personal injuries and property damage incurred in the transportation of freight. We believe that all such routine litigation is adequately covered by insurance and that adverse results in one or more of those cases would not have a material adverse effect on our financial condition.

 

We are a defendant in a collective-action lawsuit which was re-filed on December 9, 2016, in the United States District Court for the Western District of Arkansas. The plaintiffs, who are former drivers who worked for the Company during the period of December 6, 2013, through the date of the filing, allege unsubstantiated violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law. The plaintiffs, through their attorneys, have filed causes of action alleging “Failure to pay minimum wage during orientation, failure to pay minimum wage to team drivers after initial orientation, failure to pay minimum wage to solo-drivers after initial orientation, failure to pay for compensable travel time, Comdata card fees, unlawful deductions, and breach of contract.” The plaintiffs are seeking actual and liquidated damages to include court costs and legal fees. The lawsuitrelated litigation is being vigorously defendedongoing and we cannot reasonably estimate, at this time, the possible loss or range of loss, if any, that may arise from this lawsuit. Management has determined that any losses under this claim will not be covered by existing insurance policies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

The Company’s stock repurchase program has been extended and expanded several times, most recently in April 2017, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. Since the reauthorization, the Company has repurchased 111,316251,718 shares of its common stock under this repurchase program.

 

The following table summarizes the Company’s common stock repurchases during the first quarter of 20182019 made pursuant to the stock repurchase program. 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”.purchaser.”

 

Issuer Purchases of Equity Securities

                                
Period  

Total number

of shares purchased

  

Average price

paid per share

  

Total number of shares purchased as part of publicly announced plans or programs

  

Maximum number of shares that may yet be purchased under the plans or programs (1)

  

Total number

of shares

purchased

  

Average

price paid

per share

  

Total number of

shares purchased

as part of publicly

announced plans or

programs

  

Maximum number

of shares that may

yet be purchased

under the plans or

programs (1)

 

January 1-31, 2018

  -  $-   -   389,684 

February 1-28, 2018

  -   -   -   389,684 

March 1-31, 2018

  1,000   36.24   1,000   388,684 

January 1-31, 2019

  39,644  $40.78   39,644   248,286 

February 1-28, 2019

  4   49.95   4   248,282 

March 1-31, 2019

  -   -   -   248,282 

Total

  1,000  $36.24   1,000       39,648  $40.78   39,648     

 

(1)

The Company’s stock repurchase program does not have an expiration date.

 

 

Item 6. Exhibits.

 

Exhibit

Number

 

Exhibit Description

   

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 8-K filed on December 11, 2007.)

4.1

 

Amended and Restated Loan Agreement, dated March 28, 2016, by and among P.A.M. Transport, Inc., First Tennessee Bank National Association and the Company (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on April 1, 2016.)

4.2

 

FourthAmendment to Amended and Restated Loan Agreement, dated July 27, 2017, by and among P.A.M. Transport, Inc., First Tennessee Bank National Association and the Company (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed on January 31, 2019.)

4.3

Second Amendment to Amended and Restated Loan Agreement, dated January 25, 2019 by and among P.A.M. Transport, Inc., Frist Tennessee Bank National Association and the Company (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K filed on January 31, 2019.)

4.4

Fifth Amended and Restated Consolidated Revolving Credit Note, dated March 28, 2016,January 25, 2019, by P.A.M. Transport, Inc. in favor of First Tennessee Bank National Association (incorporated by reference to Exhibit 4.24.4 of the Company’s Form 8-K filed on April 1, 2016.January 31, 2019.)

4.34.5

 

Amended and Restated Security Agreement, dated March 28, 2016, by and between P.A.M. Transport, Inc. and First Tennessee Bank National Association (incorporated by reference to Exhibit 4.3 of the Company’s Form 8-K filed on April 1, 2016.)

4.44.6

 

FourthFirst Amendment to Amended and Restated Security Agreement, dated January 25, 2019, by and between P.A.M. Transport, Inc. and First Tennessee Bank National Association (incorporated by reference to Exhibit 4.6 of the Company’s Form 8-k filed on January 31, 2019.)

4.7

Fifth Amended and Restated Guaranty Agreement of the Company, dated March 28, 2016,January 25, 2019, in favor of First Tennessee Bank National Association (incorporated by reference to Exhibit 4.44.7 of the Company’s Form 8-K filed on April 1, 2016.January 31, 2019.)

10.1

Employment Agreement between the Company and Allen W. West, dated March 7, 2019 (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on March 11, 2019.)

31.1

 

Rule 13a-14(a) Certification of Principal Executive Officer

31.2

 

Rule 13a-14(a) Certification of Principal Financial Officer

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema Document

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document

 

 

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: April 25, 20182019

By: /s/ Daniel H. Cushman

 

Daniel H. Cushman

 

President and Chief Executive Officer

 

(principal executive officer)

  

Dated: April 25, 20182019

By: /s/ Allen W. West

 

Allen W. West

 

Vice President-Finance, Chief Financial

 

Officer, Secretary and Treasurer

 

(principal accounting and financial officer)

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