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 June 30, ~~2018~~2019

☐	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)

Securities registered pursuant to Section 12(b) of the Act

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	PTSI	NASDAQ Global Market

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 website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to ~~submit and post such files).~~
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 July ~~27, 2018~~25, 2019
Common Stock, $.01 Par Value		~~6,054,257~~5,757,318

Table of Contents

P.A.M. TRANSPORTATION SERVICES, INC.

Form 10-Q

For The Quarter Ended June 30, ~~2018~~2019

Table of Contents

		Part I. Financial Information

Item 1.	Financial Statements (unaudited).	3

	Condensed Consolidated Balance Sheets as of June 30, ~~2018~~2019 and December 31, ~~2017~~2018	3

	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	4

	~~Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017~~	5

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018	6

	Condensed Consolidated ~~Statements~~Statement of ~~Shareholders’~~Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	7

	Notes to Condensed Consolidated Financial Statements as of June 30, ~~2018~~2019	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	23

Item 4.	Controls and Procedures.	24

	~~Part II. Other Information~~

Part II. Other Information

Item 1.	Legal Proceedings.	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	25

Item 3.6.	Exhibits.	26

Signatures		27

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

Condensed Consolidated Balance Sheets

~~(unaudited)~~

~~(in~~(in thousands, except share and per share data)

	June 30,			December 31,			June 30,			December 31,
	2018			2017			2019			2018
	(unaudited)			(audited)			(unaudited)			(audited)
ASSETS
Current assets:
Cash and cash equivalents	$	263		$	224		$	296		$	282
Accounts receivable-net:
Trade, less allowance of $1,724 and $1,335, respectively		74,971			59,055
Trade, less allowance of $2,440 and $2,224, respectively								62,692			63,350
Other		3,981			3,028			3,137			3,814
Inventories		1,680			1,660			1,301			1,461
Prepaid expenses and deposits		6,724			10,112			7,842			10,393
Marketable equity securities		27,860			26,664			29,454			27,549
Income taxes refundable		1,375			1,499			1,974			1,876
Total current assets		116,854			102,242			106,696			108,725

Property and equipment:
Land		5,374			5,374			5,596			5,596
Structures and improvements		18,880			18,927			19,937			19,547
Revenue equipment		428,840			375,817			482,478			457,142
Office furniture and equipment		9,925			9,761			10,294			10,040
Total property and equipment		463,019			409,879			518,305			492,325
Accumulated depreciation		(144,031	)		(122,935	)		(156,061	)		(137,738	)
Net property and equipment		318,988			286,944			362,244			354,587

Other assets		3,053			2,999			4,077			2,754

TOTAL ASSETS	$	438,895		$	392,185		$	473,017		$	466,066

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,921		$	19,645		$	20,356		$	20,002
Accrued expenses and other liabilities		20,922			17,609			24,204			23,497
Current maturities of long-term debt		72,029			73,641			58,738			63,908
Total current liabilities		124,872			110,895			103,298			107,407

Long-term debt-less current portion		127,562			98,995			158,397			157,315
Deferred income taxes		56,849			54,691			66,820			61,897
Other long-term liabilities								1,015			-
Total liabilities		309,283			264,581			329,530			326,619

SHAREHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 10,000,000 shares authorized; none issued		-			-			-			-
Common stock, $.01 par value, 40,000,000 shares authorized; 11,609,089 and 11,529,124 shares issued; 6,054,257 and 6,160,889 shares outstanding at June 30, 2018 and December 31, 2017, respectively		116			115
Common stock, $.01 par value, 40,000,000 shares authorized; 11,648,785 and 11,612,144 shares issued; 5,757,318 and 5,956,558 shares outstanding at June 30, 2019 and December 31, 2018, respectively								116			116
Additional paid-in capital		82,421			81,559			83,302			82,776
Accumulated other comprehensive income		-			7,444
Treasury stock, at cost; 5,554,832 and 5,368,235 shares at June 30, 2018 and December 31, 2017, respectively		(136,714	)		(129,183	)
Treasury stock, at cost; 5,891,467 and 5,655,586 shares at June 30, 2019 and December 31, 2018, respectively								(155,993	)		(142,552	)
Retained earnings		183,789			167,669			216,062			199,107
Total shareholders’ equity		129,612			127,604
Total stockholders’ equity								143,487			139,447

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	438,895		$	392,185
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY							$	473,017		$	466,066

See notes to condensed consolidated financial statements.

Table of Contents

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

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						June 30,						June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
OPERATING REVENUES:
Revenue, before fuel surcharge	$	112,881		$	93,097		$	211,985		$	186,700		$	112,352		$	112,881		$	222,696		$	211,985
Fuel surcharge		22,421			15,549			42,776			31,350			20,648			22,421			38,990			42,776
Total operating revenues		135,302			108,646			254,761			218,050			133,000			135,302			261,686			254,761

OPERATING EXPENSES AND COSTS:
Salaries, wages and benefits		29,971			25,263			58,610			51,167			30,603			29,971			61,667			58,610
Operating supplies and expenses		23,506			19,410			46,176			39,642			24,520			23,506			48,032			46,176
Rent and purchased transportation		52,075			43,717			97,992			86,839			43,353			52,075			87,907			97,992
Depreciation		12,734			10,485			24,358			21,156			13,614			12,734			26,801			24,358
Insurance and claims		4,451			4,439			8,719			9,135			4,061			4,451			8,175			8,719
Other		3,067			2,304			5,648			4,421			3,539			3,067			6,533			5,648
(Gain) loss on disposition of equipment		(519	)		130			(515	)		130
Loss (gain) on sale or disposition of equipment														99			(519	)		(327	)		(515	)
Total operating expenses and costs		125,285			105,748			240,988			212,490			119,789			125,285			238,788			240,988

OPERATING INCOME		10,017			2,898			13,773			5,560			13,211			10,017			22,898			13,773

NON-OPERATING INCOME/(EXPENSE)		632			650			(247	)		2,702
NON-OPERATING (EXPENSE)/INCOME														(197	)		632			3,275			(247	)
INTEREST EXPENSE		(1,355	)		(935	)		(2,515	)		(1,912	)		(2,059	)		(1,355	)		(4,099	)		(2,515	)

INCOME BEFORE INCOME TAXES		9,294			2,613			11,011			6,350			10,955			9,294			22,074			11,011

FEDERAL AND STATE INCOME TAX EXPENSE:
Current		142			66			177			133			107			142			196			177
Deferred		1,863			938			2,158			2,325			2,194			1,863			4,923			2,158
Total federal and state income tax expense		2,005			1,004			2,335			2,458			2,301			2,005			5,119			2,335

NET INCOME	$	7,289		$	1,609		$	8,676		$	3,892		$	8,654		$	7,289		$	16,955		$	8,676

INCOME PER COMMON SHARE:
Basic	$	1.18		$	0.25		$	1.41		$	0.61		$	1.47		$	1.18		$	2.87		$	1.41
Diluted	$	1.17		$	0.25		$	1.39		$	0.61		$	1.45		$	1.17		$	2.84		$	1.39

AVERAGE COMMON SHARES OUTSTANDING:
Basic		6,159			6,381			6,163			6,390			5,901			6,159			5,911			6,163
Diluted		6,229			6,430			6,257			6,412			5,949			6,229			5,962			6,257

See notes to condensed consolidated financial statements.

Table of Contents

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

Condensed Consolidated Statements of ~~Comprehensive Income~~Cash Flows

(unaudited)

(in thousands)

Three Months Ended

Six Months Ended

June 30

June 30

2018

2017

2018

2017

NET INCOME
$ 7,289 $ 1,609 $ 8,676 $ 3,892

Other comprehensive income, net of tax:

Reclassification adjustment for realized gains on marketable equity securities included in net income (1)(4)
- (143 ) - (1,043 )

Reclassification adjustment for unrealized losses on marketable securities included in net income, net of income taxes (2)(4)
- 17 - 17

Changes in fair value of marketable securities (3)(4)
- (138 ) - (160 )

COMPREHENSIVE INCOME
$ 7,289 $ 1,345 $ 8,676 $ 2,706

	Six Months Ended
	June 30,
	2019			2018
OPERATING ACTIVITIES:
Net income	$	16,955		$	8,676
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		26,801			24,358
Bad debt expense		216			389
Stock compensation-net of excess tax benefits		526			395
Provision for deferred income taxes		4,923			2,158
Recognized (gain) loss on marketable equity securities		(2,593	)		810
Gain on sale or disposition of equipment		(327	)		(515	)
Changes in operating assets and liabilities:
Accounts receivable		1,119			(17,258	)
Prepaid expenses, deposits, inventories, and other assets		2,690			3,314
Income taxes (payable) refundable		(98	)		124
Trade accounts payable		1,385			5,361
Accrued expenses and other liabilities		1,602			1,712
Net cash provided by operating activities		53,199			29,524

INVESTING ACTIVITIES:
Purchases of property and equipment		(26,912	)		(39,768	)
Proceeds from disposition of equipment		7,760			4,450
Sales of marketable equity securities		762			-
Purchases of marketable equity securities, net of return of capital		(72	)		(2,006	)
Net cash used in investing activities		(18,462	)		(37,324	)

FINANCING ACTIVITIES:
Borrowings under line of credit		283,704			299,959
Repayments under line of credit		(283,187	)		(274,702	)
Borrowings of long-term debt		16,386			25,046
Repayments of long-term debt		(37,006	)		(37,002	)
Borrowings under margin account		252			2,166
Repayments under margin account		(1,431	)		(565	)
Repurchases of common stock		(13,441	)		(7,531	)
Exercise of stock options		-			468
Net cash (used in) provided by financing activities		(34,723	)		7,839

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		14			39

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period		282			224

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period	$	296		$	263

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-
Cash paid during the period for:
Interest	$	4,102		$	2,452
Income taxes	$	292		$	53

NONCASH INVESTING AND FINANCING ACTIVITIES-
Purchases of property and equipment included in accounts payable	$	566		$	9,888

~~__________~~

~~(1) Net of deferred income taxes of $0, $(88), $0 and $(638), respectively.~~

~~(2) Net of deferred income taxes of $0, $10, $0 and $10, respectively.~~

~~(3) Net of deferred income taxes of $0, $(82), $0 and $(97), respectively.~~

(4) In accordance with the adoption of ASU 2016-01 on January 1, 2018 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 for periods prior to December 31, 2017 - (see Note B).

See notes to condensed consolidated financial statements.

Table of Contents

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

Condensed Consolidated ~~Statements~~Statements of ~~Cash Flows~~Stockholders’ Equity

(unaudited)

(in thousands)

Six Months Ended

June 30,

2018

2017

OPERATING ACTIVITIES:

Net income
$ 8,676 $ 3,892
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation
24,358 21,156
Bad debt expense
389 118
Stock compensation-net of excess tax benefits
395 284
Provision for deferred income taxes
2,158 2,325
Reclassification of unrealized loss on marketable equity securities
- 27
Recognized loss (gain) on marketable equity securities
810 (2,145 )
(Gain)loss on sale or disposition of equipment
(515 ) 130
Changes in operating assets and liabilities:

Accounts receivable
(17,258 ) (2,103 )
Prepaid expenses, deposits, inventories, and other assets
3,314 3,083
Income taxes refundable
124 27
Trade accounts payable
5,361 (1,938 )
Accrued expenses and other liabilities
1,712 1,403
Net cash provided by operating activities
29,524 26,259

INVESTING ACTIVITIES:

Purchases of property and equipment
(39,768 ) (14,372 )
Proceeds from disposition of equipment
4,450 5,507
Sales of marketable equity securities
- 3,079
Purchases of marketable equity securities, net of return of capital
(2,006 ) 13
Net cash used in investing activities
(37,324 ) (5,773 )

FINANCING ACTIVITIES:

Borrowings under line of credit
299,959 218,678
Repayments under line of credit
(274,702 ) (220,543 )
Borrowings of long-term debt
25,046 7,821
Repayments of long-term debt
(37,002 ) (21,786 )
Borrowings under margin account
2,166 81
Repayments under margin account
(565 ) (3,604 )
Repurchases of common stock
(7,531 ) (1,193 )
Exercise of stock options
468 112
Net cash provided by (used in) financing activities
7,839 (20,434 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
39 52

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period
224 137

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period
$ 263 $ 189

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-

Cash paid during the period for:

Interest
$ 2,452 $ 1,931
Income taxes
$ 53 $ 106

NONCASH INVESTING AND FINANCING ACTIVITIES-

Purchases of property and equipment included in accounts payable
$ 9,888 $ 2,939

	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

Stock awards-shares issued including tax benefits		1												-

Treasury stock repurchases		(40	)						(1,618	)				(1,618	)

Stock based compensation (1)							216							216

Balance at March 31, 2019		5,918		$	116	$	82,992	$	(144,170	)	$	207,408	$	146,346

Net Income												8,654		8,654

Stock awards-shares issued including tax benefits		35					-							-

Treasury stock repurchases		(196	)						(11,823	)				(11,823	)

Stock based compensation							310							310

Balance at June 30, 2019		5,757		$	116	$	83,302	$	(155,993	)	$	216,062	$	143,487

(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.

	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

Net Income															1,387		1,387

Exercise of stock options and vesting of stock awards-shares issued including tax benefits		17					168										168

Treasury stock repurchases		(1	)									(36	)				(36	)

Stock based compensation (1)							162										162

Cumulative effect adjustment – ASU 2016-01									(7,444	)					7,444		-

Balance at March 31, 2018		6,177		$	115	$	81,889		-		$	(129,219	)	$	176,500	$	129,285

Net Income															7,289		7,289

Exercise of stock options and vesting of stock awards-shares issued including tax benefits		63			1		299										300

Treasury stock repurchases		(186	)									(7,495	)				(7,495	)

Stock based compensation (1)							233										233

Balance at June 30, 2018		6,054		$	116	$	82,421		-		$	(136,714	)	$	183,789	$	129,612

(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.

Table of Contents

~~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

Balance at January 1, 2018
6,161 $ 115 $ 81,559 $ 7,444 $ (129,183 ) $ 167,669 $ 127,604

Net Income
8,676 8,676

Exercise of stock options and stock awards-shares issued including tax benefits
80 1 467 468

Treasury stock repurchases
(187 ) (7,531 ) (7,531 )

Share-based compensation
395 395

Cumulative effect adjustment – ASU 2016-01
(7,444 ) 7,444 -

Balance at June 30, 2018
6,054 $ 116 $ 82,421 - $ (136,714 ) $ 183,789 $ 129,612

~~See notes to condensed consolidated financial statements.~~

~~Table of Contents~~

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

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30,, ~~201~~8 2019

NOTE A: BASIS OF PRESENTATION

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-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-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’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 ~~six month~~six-month period ended June 30, ~~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-K for the year ended December 31, ~~2017.~~2018.

NOTE B: RECENT ACCOUNTING PRONOUNCEMENTS

In ~~May 2017,~~July 2018, the ~~FASB~~Financial Accounting Standards Board, (“FASB”) issued ~~ASU~~Accounting Standards Update, (“ASU”) No. ~~2017-09,~~2018-09, (“ASU ~~2017-09”~~2018-09”), ~~Compensation – Stock Compensation (Topic 718)~~ ~~which provides guidance about which changes~~Codification 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~~2018-09 is effective for fiscal years, ~~beginning after December 15, 2017~~ and interim periods within those ~~fiscal~~ years, ~~and~~beginning after December 15, 2018, with 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.~~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 ~~November 2016,~~July 2018, the FASB issued ASU No. ~~2016-18,~~2018-10, (“ASU ~~2016-18”~~2018-10”), ~~Statement of Cash Flows (Topic 230)~~.Codification Improvements to Topic 842, Leases. ASU ~~2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents,~~2018-10 was issued to update codification specific to Topic 842, 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 presentedincludes updates for technical corrections, clarifications and ~~classified in the statement of cash flows.~~other minor improvements. ASU ~~No. 2016-18~~2018-10 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, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Accounting for Credit Losses (Topic 326). ASU 2016-13 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 2016-13 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 ~~March 2016, the FASB issued ASU No. 2016-09, (“ASU 2016-09”),~~ ~~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 material impact on the Company’s financial condition, results of operations, or cash flows.

~~Table of Contents~~

In February 2016, the FASB issued ASU No. 2016-02, ~~(“ASU 2016-02”),~~ Leases (Topic 842). This update seeks to increase the transparency and comparability among public entities by requiring ~~public entities~~filers to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. In transition, lessees and lessors are 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 new standard was effective for public companies for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted.

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 be required to recognize and measure leases at the beginning~~The adoption 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 transitionthis 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 is 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 evaluated the new guidance and doeson January 1, 2019 did not ~~expect it to~~ have a material impact on ~~its~~the Company’s financial condition, results of operations, or cash flows. See Note M - Leases for additional adoption information and disclosures required by Accounting Standards Codification (“ASC”) Topic 842.

Table of Contents

In January 2016, the FASB issued ASU 2016-01, (“ASU 2016-01”), Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure.

The provisions of ASU 2016-01 require, among other things, that 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 is effective 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 adoption of this guidance on January 1, 2018 did not have a material impact on the Company’s financial condition, results of operations, cash flows or internal controls. 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 six months ended June 30, ~~2018,~~2019, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017,~~2018, that are of significance or potential significance to the Company.

~~Table of Contents~~

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 ~~tractor~~truck 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 ~~Statement~~Statements of Operations due to their ~~non-material~~immaterial amounts.

~~We are obligated~~In fulfilling the Company’s obligation to ~~pick up~~transport freight from ~~shippers, transport, and deliver the freight in good condition in~~ a ~~timely manner. Control~~specified origin to a specified destination, control of freight is transferred to us at the point it has been loaded into ~~our~~the driver’s trailer, the doors are sealed and ~~we have~~the 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.

Table of Contents

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 to~~over time as the ~~receiver’s location.~~freight progresses towards its destination and the transportation service obligation is fulfilled. For ~~freight in transit at~~loads picked up during the ~~end of a~~ reporting period, ~~the Company recognizes~~but delivered in a subsequent reporting period, revenue ~~on a pro rata basis that~~ is allocated to each period based on ~~relative~~the transit time ~~completed~~in each period as a ~~portion~~percentage 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.J, below.

The following table sets forth market value, cost, and unrealized gains on equity securities as of June 30, ~~2018~~2019 and December 31, ~~2017.~~ 2018.

June 30, 2018

December 31, 2017

(in thousands)

Fair market value
$ 27,860 $ 26,664
Cost
20,959 16,640
Unrealized gain
$ 6,901 $ 10,024

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.

~~Table of Contents~~

	June 30, 2019		December 31, 2018
	(in thousands)
Fair market value	$	29,454	$	27,549
Cost		25,714		25,602
Unrealized gain	$	3,740	$	1,947

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of June 30, ~~2018~~2019 and December 31, ~~2017.~~2018.

	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(in thousands)				(in thousands)
Gross unrealized gains	$	7,983	$	10,150	$	6,803	$	5,668
Gross unrealized losses		1,082		126		3,063		3,721
Net unrealized gains	$	6,901	$	10,024	$	3,740	$	1,947

The following table shows the Company’s net realized gains during the first three and six months, respectively, of ~~2018~~2019 and ~~2017~~2018 on certain marketable equity securities.

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(in thousands)								(in thousands, except per share data)
Realized gain
Sales proceeds	$	-	$	711	$	-	$	3,079	$	762	$	-	$	762	$	-
Cost of securities sold		-		349		-		934		248		-		248		-
Realized gain	$	-	$	362	$	-	$	2,145	$	514	$	-	$	514	$	-

Realized gain, net of taxes	$	-	$	222	$	-	$	1,314	$	395	$	-	$	395	$	-

For the quarter ended June 30, ~~2018,~~2019, the Company recognized dividends received of approximately ~~$254,000~~$307,000 in non-operating income in its statements of operations. For the quarter ended June 30, ~~2017,~~2018, the Company recognized dividends received of approximately ~~$272,000~~$254,000 in non-operating income in its statements of operations.

For the six months ended June 30, ~~2018,~~2019, the Company recognized dividends received of approximately ~~$472,000~~$586,000 in non-operating income ~~(expense)~~ in its statements of operations. For the six months ended June 30, ~~2017,~~2018, the Company recognized dividends received of approximately ~~$493,000~~$472,000 in non-operating income ~~(expense)~~ in its statements of operations.

Table of Contents

The market value of the Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the Company had outstanding borrowings of approximately ~~$7,504,000~~$10,103,000 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~~Our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $589,000 during the second quarter of ~~2018, our marketable equity securities portfolio had~~2019, and a net unrealized pre-tax gain in market value of approximately $333,000 during the second quarter of 2018, which ~~was~~were reported as Non-operating income (expense) 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 ~~2006~~ Plan, 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~~value under the ~~2014~~ Plan 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 June 30, 2018, vest in increments of 20% to 25% each year and must be exercised within ten years from the date of grant.~~

~~Table of Contents~~

During the first six months of ~~2018, 1,932~~2019, 2,058 shares of ~~common~~restricted stock were granted to non-employee directors under the ~~2014~~ Plan. The stock awarded to non-employee directors had a grant date weighted average fair value of ~~$36.35~~$48.75 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 first six months of 2019 was approximately $685,000. Total pre-tax stock based compensation expense, recognized in Salaries, wages and benefits during the first six months of 2019 was approximately $526,000 and includes approximately $100,000 recognized as a result of the grant of shares to each non-employee director during the first six months of 2019. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.07 during the first six months of 2019. As of June 30, 2019, the Company had stock based compensation plans with total unvested stock-based compensation expense of approximately $1,438,000 which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $420,000 in additional compensation expense related to unvested option awards during the remainder of 2019 and to recognize approximately $430,000, $294,000 and $294,000 in additional compensation expense related to unvested option awards during the years 2020, 2021 and 2022, respectively.

The total grant date fair value of stock vested during the first six months of 2018 was approximately $655,000. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits during the first six months of 2018 was approximately $395,000, and ~~includes~~included approximately $70,000 recognized as a result of the grant of 276 shares to each non-employee director during the first ~~quarter of 2018. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.02 during the second quarter~~six months of 2018. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.05 during the first six months ~~ended June 30,~~ 2018. As of June 30, 2018, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $1,008,000 which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $319,000 in additional compensation expense related to unvested option awards during the remainder of 2018 and to recognize approximately $552,000 and $137,000 in additional compensation expense related to unvested option awards during the years 2019 and 2020, respectively.

The total grant date fair value of stock and stock options vested during the first six months of 2017 was approximately $186,000. Total pre-tax stock-based compensation expense, recognized in Salaries, wages and benefits, during the first six months of 2017 was approximately $284,000, and included approximately $70,000 recognized as a result of the grant of 614 shares to each non-employee director during the first quarter of 2017. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.02 during the second quarter 2017. The recognition of stock-based compensation expense decreased diluted and basic earnings per common share by approximately $0.02 and $0.03, respectively, during the six months ended June 30, 2017. As of June 30, 2017, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $1,663,000 which was being amortized on a straight-line basis over the remaining vesting period.

~~Information related to stock option activity for the six months ended June 30, 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
(43,450 ) 10.78
Cancelled/forfeited/expired
(63 ) 10.90
Outstanding at June 30, 2018
1,555 $ 11.01 3.38 $ 55,911

Exercisable at June 30, 2018
1,555 $ 11.01 3.38 $ 55,911

~~___________________________~~

* 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 June 29, 2018, was $46.97.

~~The Company has no unvested options at June 30, 2018 and a~~A summary of the status of the Company’s non-vested restricted stock as of June 30, ~~2018~~2019 and changes during the six months ended June 30, ~~2018,~~2019, is as follows:

	Restricted Stock					Restricted Stock
	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		1,932			36.35		2,058			48.75
Canceled/forfeited/expired		-			-		-			-
Vested		(36,515	)		17.93		(36,641	)		18.69
Non-vested at June 30, 2018		69,567		$	17.26
Non-vested at June 30, 2019							66,334		$	26.31

~~___________________________~~__________________________

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

~~Table of Contents~~

The number, weighted average exercise price, and weighted average remaining contractual life of options outstanding as of June 30, 2018 and the number and weighted average exercise price of options exercisable as of June 30, 2018 are as follows:

Exercise Price

Shares Under
Outstanding
Options

Weighted-Average
Remaining Contractual
Term

Shares Under
Exercisable
Options

(in years)

$10.90 1,000 3.9 1,000
$11.22 555 2.4 555
1,555 3.4 1,555

Cash received from option exercises totaled approximately ~~$468,000~~$0 and ~~$112,000~~$468,000 during the six months ended June 30, ~~2018~~2019 and June 30, ~~2017,~~2018, respectively. ~~The Company issues new shares upon option exercise.~~

Table of Contents

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 June 30,								Six Months Ended June 30,								Three Months Ended June 30,								Six Months Ended June 30,
	2018				2017				2018				2017				2019				2018				2019				2018
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
	(in thousands, except percentage data)																(in thousands, except percentage data)

Truckload Services revenue	$	89,131		79.0	$	81,656		87.7	$	169,655		80.0	$	164,575		88.1	$	92,867		82.7	$	89,131		79.0	$	182,879		82.1	$	169,655		80.0
Brokerage and Logistics Services revenue		23,750		21.0		11,441		12.3		42,330		20.0		22,125		11.9		19,485		17.3		23,750		21.0		39,817		17.9		42,330		20.0
Total revenues	$	112,881		100.0	$	93,097		100.0	$	211,985		100.0	$	186,700		100.0	$	112,352		100.0	$	112,881		100.0	$	222,696		100.0	$	211,985		100.0

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 six months ended June 30, ~~2018~~2019, the Company repurchased ~~1,000~~43,138 shares of its common stock at an aggregate cost of approximately ~~$36,000~~$1,800,000 under this program.

On May ~~8, 2018,~~13, 2019, the Company commenced a tender offer to repurchase up to ~~100,000~~200,000 shares of the Company’s outstanding common stock at a price of not greater than ~~$43.00~~$60.00 nor less than ~~$39.00~~$55.00 per share. Following the expiration of the tender offer on June ~~7, 2018,~~11, 2019, the Company accepted ~~185,597~~192,743 shares of its common stock for purchase at ~~$40.00~~$60.00 per share, ~~including 85,597 oversubscribed shares tendered,~~ at an aggregate purchase price of approximately ~~$7.4~~$11.6 million, excluding fees and expenses related to the offer. The Company funded the purchase of the accepted shares tendered with available cash, cash equivalents and borrowings available under our existing line of credit and accounted for the repurchase of these shares as treasury stock on the Company’s condensed consolidated balance sheet as of June 30, 2019.

The Company accounts for Treasury stock using the cost method, and as of June 30, ~~2018, 5,554,832~~2019, 5,891,467 shares were held in the treasury at an aggregate cost of approximately ~~$136,714,000.~~$155,993,000.

~~Table of Contents~~

NOTE H: ~~EARNINGS~~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.~~restricted stock. 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				Six Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				June 30,				June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(in thousands, except per share data)								(in thousands, except per share data)

Net income	$	7,289	$	1,609	$	8,676	$	3,892	$	8,654	$	7,289	$	16,955	$	8,676

Basic weighted average common shares outstanding		6,159		6,381		6,163		6,390		5,901		6,159		5,911		6,163
Dilutive effect of common stock equivalents		70		49		94		22		48		70		51		94
Diluted weighted average common shares outstanding		6,229		6,430		6,257		6,412		5,949		6,229		5,962		6,257

Basic earnings per share	$	1.18	$	0.25	$	1.41	$	0.61	$	1.47	$	1.18	$	2.87	$	1.41
Diluted earnings per share	$	1.17	$	0.25	$	1.39	$	0.61	$	1.45	$	1.17	$	2.84	$	1.39

~~As of June 30, 2018 and June 30, 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 ~~2014~~2015 and forward remain open to examination in those jurisdictions.

Table of Contents

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 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 June 30, ~~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 June 30, ~~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 six months ended June 30, ~~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 ~~21.2%~~23.2% and ~~38.7%~~21.2% for the six months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Our effective tax rate for the six months ended June 30, ~~2018~~2019 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state income taxes and the tax benefits related to ~~stock-based~~stock compensation.

~~Table of Contents~~

NOTE J: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 June 30, ~~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
$ 27,860 $ 27,860 - -

	Total		Level 1		Level 2		Level 3
	(in thousands)

Marketable equity securities	$	29,454	$	29,454		-		-

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.

Table of Contents

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 June 30, ~~2018~~2019 was as follows:

Carrying
Value

Estimated
Fair Value

(in thousands)

Long-term debt
$ 174,334 $ 171,562

	Carrying Value		Estimated Fair Value
	(in thousands)

Long-term debt	$	206,425	$	207,816

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

NOTE K: NOTES PAYABLE

During the first six months of ~~2018,~~2019, the Company’s subsidiaries entered into installment obligations totaling approximately ~~$38.7~~$32.4 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly ~~installments.~~installments and are recorded in long term debt and current maturities on the consolidated balance sheets. The term of these obligations ranges from 36 months for trucks to 60 months for trailers.

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.

~~Table of Contents~~

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 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 lawsuit is being vigorously defended 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: LEASES

Adoption of ASU 2016-02

The Company currently leases shop, office and parking spaces in various locations in the United States and Mexico. The initial term for the majority of these leases is one year or less, with an option for early cancellation and an option to renew for subsequent one month periods. These leases can be terminated by either party by providing notice to the other party of the intent to cancel or to not extend. Relatively short lease durations for these properties are intended to provide flexibility to the Company as changing operational needs and shifting opportunities often result in cancellation or non-renewal of these leases by the 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 prefers that leases include early cancellation provisions to prevent becoming locked into long term leases that become operationally unjustified and to allow the flexibility to pursue more cost effective options for similar properties if they become available. These leases often include the option to extend for additional periods, which may or may not be exercised. Based on historical experience, the Company does not always extend these leases, sometimes exercises the option to cancel leases early and sometimes lessors choose to cancel leases or not extend.

The Company adopted ASU 2016-02 and related amendments on January 1, 2019 utilizing the modified retrospective approach and elected to apply the practical expedients outlined above. This election allowed the Company to continue to recognize lease expense for operating leases for which the initial term was twelve months or less, or for which it is reasonably likely that early cancellation provisions will be exercised, on a straight line basis over the remaining term of the leases.

The Company leases trucks to owner-operators under our lease-to-own program. We also lease dock space to a related party at our Laredo, Texas terminal. We have reviewed these operating leases and determined that the adoption of ASU 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, 2019 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.

Table of Contents

2019 Leases

In May 2019, the Company entered into an operating lease for shop and office space for an initial term of five years that does not provide an option for early cancellation. In accordance with the provisions of ASC Topic 842, this lease resulted in the recognition of a right-of-use asset and corresponding operating lease liability of $1.3 million as of June 30, 2019. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate, as the rate implicit in each lease is not readily determinable. The right-of-use asset is recorded in other assets, and the lease liability is recorded in accrued expenses and other liabilities and in other long-term liabilities on our consolidated balance sheet at June 30, 2019. Lease expense is recorded on a straight-line basis over the lease term and is recorded in rent and purchased transportation in our condensed consolidated statements of operations. The lease agreement contains a provision to extend after the initial term for an additional five years. The Company is not reasonably certain the extension option will be exercised, and has therefore not included potential lease payments that might occur under this extension period in amounts recorded in our balance sheets as of June 30, 2019.

Scheduled amounts and timing of cash flows arising from operating lease payments at June 30, 2019, are:

	(In thousands)
Maturity of Lease Liabilities
2019 (remaining)	$	142
2020		286
2021		292
2022		297
2023		302
Thereafter		101
Total undiscounted operating lease payments	$	1,420
Less: Imputed interest		(121	)
Present value of operating lease liabilities	$	1,299

Balance Sheet Classification
Right-of-use assets (recorded in other non-current assets)	$	1,299

Current lease liabilities (recorded in other current liabilities)	$	284
Long-term lease liabilities (recorded in other long-term liabilities)		1,015
Total operating lease liabilities	$	1,299

Other Information
Weighted-average remaining lease term for operating leases (in years)		4.83
Weighted-average discount rate for operating leases		3.8	%

Cash Flows

A right-of-use asset of $1.3 million was recognized as a non-cash asset addition that resulted from new operating lease liabilities during the three months ended June 30, 2019. Cash paid for amounts included in the present value of operating lease liabilities was $0.1 million during the three months ended June 30, 2019 and is included in operating cash flows.

Operating Lease Costs

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)

Long term	$	39	$	-	$	39	$	-
Short term		584		535		1,086	$	966
Total	$	623	$	535	$	1,125	$	966

Lessor Disclosures under ASC Topic 842

The Company leases trucks to owner-operators under operating leases, which generally have a term of up to five years, and include options to purchase the truck at the end of the lease. In the event that an independent contractor defaults on their lease, the Company generally leases the truck to another independent contractor.

Table of Contents

As of June 30, 2019, the gross carrying value of trucks underlying these leases was $57.4 million and accumulated depreciation was $26.7 million. Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment, down to an estimated salvage value. In most cases, the Company has agreements in place with certain manufacturers whereby salvage values are guaranteed by the manufacturer. In other cases, where salvage values are not guaranteed, estimates of salvage value are based on the expected market values of equipment at the time of disposal. During the quarter ended June 30, 2019, the Company incurred $1.6 million of depreciation expense for these assets.

The Company leases dock space to a related party at our Laredo, Texas terminal. The dock space leased to the related party is depreciated in conjunction with the structures and improvements for the entire Laredo terminal on a straight-line basis over the estimated useful life of the assets. Lease income is recorded as a component of non-operating income in our condensed consolidated statements of operations.

Lease Revenue

The Company's operating lease revenue is disclosed in the table below.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2019		2018		2019		2018
	(in thousands)

Leased truck revenue(recorded revenue, before fuel surcharge)	$	2,332	$	1,858	$	4,780	$	3,627
Leased dock space revenue (recorded in non-operating income)		39		39		77		77
Total lease revenue	$	2,371	$	1,897	$	4,857	$	3,704

Lease Receivables

Future minimum operating lease payments receivable at June 30, 2019:

	(In thousands)

2019 (remaining)	$	4,481
2020		6,130
2021		2,521
2022		2,150
2023		1,440
Thereafter		-
Total future minimum lease payments receivable	$	16,722

NOTE N: 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.

NOTE ON: NONCASH INVESTING AND FINANCING ACTIVITIES

The Company financed approximately ~~$13.6~~$16.0 million in equipment purchases during the first six months of ~~2018~~2019 utilizing noncash financing.

1615

Table of Contents

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; our ability to develop and implement suitable information technology systems and prevent failures in or breaches of such systems; litigation, including litigation related to alleged violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law; general risks associated with doing business in Mexico, including, without limitation, exchange rate fluctuations, inflation, import duties, tariffs, quotas, political and economic instability and terrorism; the potential impact of new laws, regulations or policy, including, without limitation, tariffs, import/export, trade and immigration regulations or policies; a significant reduction in or termination of the Company's trucking service by a key customer; losses or fluctuations in the value of our marketable equity securities portfolio; and other factors, including risk factors, included from time to time in filings made by the Company with the Securities and Exchange ~~Commission.~~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 we~~are performed by Company divisions that generally utilize ~~company~~Company owned trucks, long-term contractors, or ~~owner-operator owned trucks. Brokerage~~single-trip contractors to transport loads of freight for customers, while brokerage and logistics services ~~consist~~coordinate or facilitate the transport of ~~services such as transportation scheduling, routing, mode selection, trans-loading and other value added services related to the transportation~~loads of freight ~~which may or may not~~for customers and generally involve the ~~usage~~utilization 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 ~~79.0%~~82.7% and ~~87.7%~~79.0% of total revenues, excluding fuel surcharges, for the three months ended June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Truckload services revenues, excluding fuel surcharges, represented ~~80.0%~~82.1% and ~~88.1%~~80.0% of total revenues, excluding fuel surcharges, for the six months ended June 30, ~~2018~~2019 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 June 30, 2019 and 2018, ~~and 2017,~~ approximately ~~$22.4~~$20.6 million and ~~$15.5~~$22.4 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the six months ended June 30, 2019 and 2018, ~~and 2017,~~ approximately ~~$42.8~~$39.0 million and ~~$31.3~~$42.8 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.

1716

Table of Contents

RESULTS OF OPERATIONS – TRUCKLOAD SERVICES

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2018

2017

2018

2017

(percentages)

Operating revenues, before fuel surcharge
100.0 100.0 100.0 100.0

Operating expenses:

Salaries, wages and benefits
32.5 30.2 33.5 30.4
Operating supplies and expenses
1.2 4.7 2.0 5.0
Rent and purchased transportation
34.7 40.8 35.5 40.6
Depreciation
14.2 12.8 14.3 12.8
Insurance and claims
5.0 5.4 5.1 5.5
Other
3.2 2.7 3.1 2.6
(Gain) loss on sale or disposal of property
(0.6 ) 0.2 (0.3 ) 0.1
Total operating expenses
90.2 96.8 93.2 97.0
Operating income
9.8 3.2 6.8 3.0
Non-operating income (expense)
0.6 0.7 (0.1 ) 1.5
Interest expense
(1.4 ) (1.0 ) (1.3 ) (1.1 )
Income before income taxes
9.0 2.9 5.4 3.4

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

(percentages)

Operating revenues, before fuel surcharge
100.0 100.0 100.0 100.0

Operating expenses:

Salaries, wages and benefits
31.8 32.5 32.5 33.5
Operating supplies and expenses
4.1 1.2 4.9 2.0
Rent and purchased transportation
28.7 34.7 29.5 35.5
Depreciation
14.6 14.2 14.5 14.3
Insurance and claims
4.3 5.0 4.4 5.1
Other
3.5 3.2 3.3 3.1
(Gain) loss on sale or disposal of property
0.1 (0.6 ) (0.1 ) (0.3 )
Total operating expenses
87.1 90.2 89.0 93.2
Operating income
12.9 9.8 11.0 6.8
Non-operating (expense) income
(0.1 ) 0.6 1.6 (0.1 )
Interest expense
(2.0 ) (1.4 ) (2.0 ) (1.3 )
Income before income taxes
10.8 9.0 10.6 5.4

THREE MONTHS ENDED JUNE 30~~, 2018~~30, 2019 VS. THREE MONTHS ENDED JUNE 30, ~~2017~~2018

During the second quarter of ~~2018,~~2019, truckload services revenue, before fuel surcharges, increased ~~9.2%~~4.2% to ~~$89.1~~$92.9 million as compared to ~~$81.7~~$89.1 million during the second quarter of ~~2017.~~2018. The increase in revenue was primarily the result of ~~an increase~~increases in ~~the~~our average fleet size and average rate per mile charged to our customers during the second quarter ~~2018~~2019 compared to the second quarter ~~2017. The increase in rates was~~2018. These increases were partially offset by a decrease in the total number of ~~tractors in our fleet and a related decrease in~~ miles driven ~~per tractor~~ for the second quarter ~~2018~~of 2019 compared to the second quarter ~~2017.~~of 2018.

Salaries, wages and benefits ~~increased~~decreased from ~~30.2%~~32.5% of revenues, before fuel surcharges, in the second quarter of ~~2017~~2018 to ~~32.5%~~31.8% of revenues, before fuel surcharges, during the second quarter of ~~2018. The increase relates~~2019. This decrease is primarily attributable to a per mile pay increase that went into effect the last week of December 2017. This pay increase raised the average rate per mile paid to company drivers, which increased driver pay by approximately $1.8 milliondecrease in group health insurance claims for the second quarter of ~~2018~~2019 compared to the second quarter of ~~2017. In addition,~~2018. To a lesser degree, the ~~proportion~~effect of ~~total miles driven by company drivers increased~~higher revenues without a corresponding increase in those wages with fixed cost characteristics, such as ~~the number of company drivers increased year-over-year. Also contributing~~general and administrative wages, also contributed to the ~~increase were~~decrease in salaries, wages and benefits ~~paid to regional and short haul drivers which increased by approximately $1.6 million for the periods compared. This increase occurred~~ as ~~opportunities to expand local dedicated business increased during the second quarter 2018 compared to the second quarter 2017.~~a percentage of revenues, before fuel surcharges.

Operating supplies and expenses ~~decreased~~increased from ~~4.7% of revenues, before fuel surcharges, during the second quarter of 2017 to~~ 1.2% of revenues, before fuel surcharges, during the second quarter of ~~2018.~~2018 to 4.1% of revenues, before fuel surcharges, during the second quarter of 2019. The ~~decrease~~increase relates primarily to ~~a decrease~~an increase in the average surcharge-adjusted fuel price paid per gallon of diesel ~~fuel.~~fuel and to an increase in the average number of company owned trucks during the second quarter 2019 compared to the second quarter 2018. The average surcharge-adjusted fuel price paid per gallon of diesel fuel ~~decreased~~increased as a result of ~~increased~~lower 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 ~~40.8% of revenues, before fuel surcharges, during the second quarter of 2017 to~~ 34.7% of revenues, before fuel surcharges, during the second quarter of ~~2018. The decrease was primarily due~~2018 to a reduction in amounts paid for equipment leases as the scheduled expiration of our final truck operating lease occurred during the first quarter of 2018. Trucks leased under these operating leases were replaced with company owned trucks as the scheduled expirations occurred throughout 2017 and until January of 2018. Also contributing to the decrease was a decrease in the average number of owner-operators under contract from 673 during the second quarter of 2017 to 552 during the second quarter of 2018, partially offset by an increase in the average rate per mile paid during the respective periods.
18
~~Table of Contents~~
~~Depreciation increased from 12.8%~~28.7% of revenues, before fuel surcharges, during the second quarter of ~~2017~~2019. The decrease was primarily due to a decrease in the number of loads transported by third party carriers during the second quarter 2019 compared to the second quarter 2018. This decrease occurred as the average number of company owned trucks increased for the second quarter 2019 compared to the second quarter 2018, providing additional company-owned capacity and diminishing some of the need to utilize third party carriers.
Depreciation increased from 14.2% of revenues, before fuel surcharges, during the second quarter of ~~2018. As previously discussed, new tractors were purchased~~2018 to replace tractors returned under expiring operating leases throughout 2017, and continuing into January of 2018. This transition resulted in the shift of expense from the Rent and purchased transportation category to the Depreciation category as leased tractors were replaced with owned tractors. Also contributing to the increase was an increase in the cost of new trailers and an increase in the size of our trailer fleet. Depreciating a larger quantity of trailers with a higher cost over the same length of time resulted in an increase in depreciation expense during the second quarter of 2018 compared to the second quarter of 2017.
~~Insurance and claims decreased from 5.4%~~14.6% of revenues, before fuel surcharges, during the second quarter ~~2017~~of 2019. This increase is primarily the result of an increase in the average number of trucks and trailers within our fleet for the second quarter of 2019 compared to the second quarter of 2018.
Insurance and claims expense decreased from 5.0% of revenues, before fuel surcharges, during the second quarter ~~2018.~~of 2018 to 4.3% of revenues before fuel surcharges, during the second quarter of 2019. This decrease primarily resulted from our decision to become self-insured for property damage on company owned trucks. During the second quarter 2018, the Company was insured for property damage insurance coverage for company owned trucks through a third party insurance carrier. Effective September 1, 2018, the Company became self-insured for property damage. Also contributing to the decrease as a percentage of revenue, before fuel surcharges, is ~~attributable to~~ the interaction of the increase in revenue with athe decrease in total miles driven. Miles driven generally serve as the premium basis for the majority of our insurance coverage.

~~Other expenses increased from 2.7%~~
17
Table of revenues, before fuel surcharges, during the second quarter 2017 to 3.2% of revenues, before fuel surcharges, during the second quarter 2018. This increase is primarily attributable to an increase in legal fees associated with the defense of a collective-action lawsuit filed against the Company (see Note L to the condensed consolidated financial statements).
Contents

~~Gains and losses on sale or disposal of property increased~~Non-operating (expense)/income decreased from ~~a net loss of 0.2% of revenues, before fuel surcharges, during the second quarter of 2017 to a net gain of~~ 0.6% of revenues, before fuel surcharges, during the second quarter of ~~2018. The increase relates primarily~~2018 to ~~gains from the sale of trucks during the second quarter of 2018 compared to a loss on the sale of trucks during the second quarter of 2017.~~
~~Interest expense increased from 1.0%~~(0.1%) of revenues, before fuel surcharges, during the second quarter ~~2017~~of 2019. This decrease primarily resulted from a decrease in income related to the change in market values of equity securities. An approximate $0.6 million loss in the market value of our marketable equity securities was recorded in non-operating income during the second quarter of 2019, compared to approximately $0.3 million gain in the market value of our equity securities recorded in non-operating income during the second quarter of 2018.
Interest expense increased from 1.4% of revenues, before fuel surcharges, during the second quarter ~~2018.~~2018 to 2.0% of revenues, before fuel surcharges during the second quarter 2019. This increase is attributable to market increases in interest rates, as well as- increases in amounts financed by the Company for new equipment. The increase in amounts financed was driven by the replacement of trucks operated under equipment leases during the second quarter of 2017 with company owned trucks, as discussed previously, and to overall growth in the number of company owned tractors and trailers operated within our fleet.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 ~~96.8% for the second quarter of 2017 to~~ 90.2% for the second quarter of ~~2018.~~2018 to 87.1% for the second quarter of 2019.

SIX MONTHS ENDED JUNE 30, ~~201~~82019 VS. SIX MONTHS ENDED JUNE 30, ~~2017~~2018

For the six months ended June 30, ~~2018,~~2019, truckload services revenue, before fuel surcharges, increased ~~3.1%~~7.8% to ~~$169.7~~$182.9 million as compared to ~~$164.6~~$169.7 million for the six months ended June 30, ~~2017.~~2018. The increase in revenue was primarily the result of ~~an increase~~increases in ~~the~~our average fleet size and average rate per mile charged to our customers during the ~~first six months of 2018~~second quarter 2019 compared to ~~first six months of 2017. The increase in rates was~~the second quarter 2018. These increases were partially offset by a decrease in the total number of ~~tractors operating in our fleet and a decrease in~~ miles driven ~~per tractor~~and by there being one less business day for the ~~first six months~~second quarter of ~~2018~~2019 compared to the ~~first six months~~second quarter of ~~2017.~~2018.

Salaries, wages and benefits ~~increased~~decreased from ~~30.4%~~33.5% of revenues, before fuel surcharges, in the first six months of ~~2017~~2018 to ~~33.5%~~32.5% of revenues, before fuel surcharges, during the first six months of ~~2018. The increase relates~~2019. This decrease is primarily attributable to a per mile pay increase that went into effect the last week of December 2017. This pay increase raised the average rate per mile paid to company drivers, which increased driver pay by approximately $3.4 milliondecreases in worker’s compensation and group health insurance claims for the first six months of ~~2018~~2019 compared to the first six months of ~~2017. In addition,~~2018. To a lesser degree, the ~~proportion~~effect of ~~total miles driven by company drivers increased~~higher revenues without a corresponding increase in those wages with fixed cost characteristics, such as ~~the number of company drivers increased year-over-year. Also contributing~~general and administrative wages, also contributed to the ~~increase were~~decrease in salaries, wages and benefits ~~paid to regional and short haul drivers which increased by approximately $2.4 million for the periods compared. This increase occurred~~ as ~~opportunities to expand local dedicated business increased during the first six months~~a percentage of ~~2018 compared to the first six months of 2017.~~revenues, before fuel surcharges.

Operating supplies and expenses ~~decreased~~increased from ~~5.0% of revenues, before fuel surcharges, during the first six months of 2017 to~~ 2.0% of revenues, before fuel surcharges, during the first six months of ~~2018.~~2018 to 4.9% of revenues, before fuel surcharges, during the first six months of 2019. The ~~decrease~~increase relates primarily to ~~a decrease~~an increase in the average surcharge-adjusted fuel price paid per gallon of diesel ~~fuel.~~fuel and to an increase in the average number of company owned trucks during the first six months of 2019 compared to the first six months of 2018. The average surcharge-adjusted fuel price paid per gallon of diesel fuel ~~decreased~~increased as a result of ~~increased~~lower 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.
19
~~Table of Contents~~

Rent and purchased transportation decreased from ~~40.6% of revenues, before fuel surcharges, during the first six months of 2017 to~~ 35.5% of revenues, before fuel surcharges, during the first six months of ~~2018. The decrease was primarily due~~2018 to a decrease in the average number of owner-operators under contract from 652 during the first six months of 2017 to 551 during the first six months of 2018, partially offset by an increase in the average rate per mile paid during the respective periods. Also contributing to the decrease was a reduction in amounts paid for equipment leases as the scheduled expiration of our final truck operating lease occurred during the first quarter of 2018. Trucks leased under these operating leases were replaced with company owned trucks as the scheduled expirations occurred throughout 2017 and until January of 2018.
~~Depreciation increased from 12.8%~~29.5% of revenues, before fuel surcharges, during the first six months of ~~2017~~2019. The decrease was primarily due to a decrease in the number of loads transported by third party carriers during the first six months 2019 compared to the first six months 2018. This decrease occurred as the average number of company owned trucks increased for the first six months 2019 compared to the first six months 2018, providing additional company-owned capacity and diminishing some of the need to utilize third party carriers.
Depreciation increased from 14.3% of revenues, before fuel surcharges, during the first six months of ~~2018. As discussed previously, new tractors were purchased~~2018 to replace tractors returned under expiring operating leases throughout 2017, and continuing into January of 2018. This transition resulted in the shift of expense from the Rent and purchased transportation classification to Depreciation as leased tractors were replaced with owned tractors. Also contributing to the increase was an increase in the cost of new trailers and an increase in the size of our trailer fleet. Depreciating a larger quantity of trailers with a higher cost over the same length of time resulted in an increase in depreciation expense during the first six months of 2018 compared to the first six months of 2017.
~~Insurance and claims decreased from 5.5%~~14.5% of revenues, before fuel surcharges, during the first six months of ~~2017~~2019. This increase is primarily the result of an increase in the average number of trucks and trailers within our fleet for the first six months of 2019 compared to the first six months of 2018.
Insurance and claims expense decreased from 5.1% of revenues, before fuel surcharges, during the first six months of ~~2018.~~2018 to 4.4% of revenues before fuel surcharges, during the first six months of 2019. This decrease primarily resulted from our decision to become self-insured for property damage on company owned trucks. During the second quarter 2018, the Company was insured for property damage insurance coverage for company owned trucks through a third party insurance carrier. Effective September 1, 2018 the Company became self-insured for property damage. Also contributing to the decrease as a percentage of revenue, before fuel surcharges, is ~~attributable to~~ the interaction of the increase in revenue with athe decrease in total miles driven. Miles driven generally serve as the premium basis for the majority of our insurance coverage.

~~Other expenses~~Non-operating income/(expense) increased from 2.6% of revenues, before fuel surcharges, during the first six months of 2017 to 3.1% of revenues, before fuel surcharges, during the first six months of 2018. This increase is primarily attributable to an increase in legal fees associated with the defense of a collective-action lawsuit filed against the Company (see Note L to the condensed consolidated financial statements).
Gains and losses on sale or disposal of property increased from a net loss of 0.1% of revenues, before fuel surcharges, during the first six months of 2017 to a net gain of 0.3% of revenues, before fuel surcharges, during the first six months of 2018. The increase relates primarily to gains from the sale of trucks during the first six months of 2018 compared to a loss on the sale of trucks during the first six months of 2017.
~~Non-operating income (expense) decreased from 1.5% of revenues, before fuel surcharges, during the first six months of 2017 to~~ (0.1%) of revenues, before fuel surcharges, during the first six months of ~~2018. This decrease resulted primarily from the adoption of ASU 2016-01. As discussed in Note B, this standard requires that equity investments be adjusted~~2018 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. During the first six months of 2017, equity investments were sold with pre-tax realized gains of approximately $2,177,000. For the first six months of 2018, our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $877,000 which was reported as Non-operating expense for the period.
~~Interest expense increased from 1.1%~~1.6% of revenues, before fuel surcharges, during the first six months of ~~2017~~2019. This increase primarily resulted from an increase in income related to the change in market values of equity securities. An approximate $2.6 million increase in the market value of our marketable equity securities was recorded in non-operating income during the first six months of 2019, compared to an approximate $0.8 million loss in the market value of our equity securities recorded in non-operating income during the first six months of 2018.
18
Table of Contents
Interest expense increased from 1.3% of revenues, before fuel surcharges, during the first six months of ~~2018.~~2018 to 2.0% of revenues, before fuel surcharges during the first six months of 2019. This increase is attributable to market increases in interest rates, as well as, increases in amounts financed by the Company for new equipment. The increase in amounts financed was driven by the replacement of trucks operated under equipment leases during the second quarter of 2017 with company owned trucks, as discussed previously, and to overall growth in the number of company owned tractors and trailers operated within our fleet.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 ~~97.0% for the first six months of 2017 to~~ 93.2% for the first six months of ~~2018.~~2018 to 89.0% for the first six months of 2019.

20
~~Table of Contents~~
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

Six Months Ended

Three Months Ended

Six Months Ended

June 30,

June 30,

June 30,

June 30,

2018

2017

2018

2017

2019

2018

2019

2018

(percentages)

(percentages)

Operating revenues, before fuel surcharge
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Operating expenses:

Salaries, wages and benefits
4.1 4.8 4.2 5.1 5.5 4.1 6.4 4.2
Rent and purchased transportation
89.3 91.5 89.6 90.9 86.0 89.3 85.5 89.6
Other
1.0 1.1 1.0 1.0 2.4 1.0 1.2 1.0
Total operating expenses
94.4 97.4 94.8 97.0 93.9 94.4 93.1 94.8
Operating income
5.6 2.6 5.2 3.0 6.1 5.6 6.9 5.2
Non-operating income (expense)
0.3 0.4 (0.1 ) 0.8
Non-operating (expense) income
(0.1 ) 0.3 0.8 (0.1 )
Interest expense
(0.6 ) (0.6 ) (0.6 ) (0.6 ) (1.0 ) (0.6 ) (1.0 ) (0.6 )
Income before income taxes
5.3 2.4 4.5 3.2 5.0 5.3 6.7 4.5

THREE MONTHS ENDED JUNE 30,~~, 2018~~ 2019 VS. THREE MONTHS ENDED JUNE 30, ~~2017~~2018

During the second quarter of ~~2018,~~2019, logistics and brokerage services revenue, before fuel surcharges, ~~increased 107.6%~~decreased 18.0% to ~~$23.7~~$19.5 million as compared to ~~$11.4~~$23.7 million during the second quarter of ~~2017.~~2018. The ~~increase~~decrease relates to ~~an increase~~a decrease in the number of loads and to ~~an increase~~a decrease in average rates charged during the second quarter of ~~2018~~2019 as compared to the second quarter of ~~2017.~~2018.

Salaries, wages and benefits ~~decreased~~increased from ~~4.8%~~4.1% of revenues, before fuel surcharges, in the second quarter of ~~2017~~2018 to ~~4.1%~~5.5% of revenues, before fuel surcharges, during the second quarter of ~~2018.~~2019. The ~~decrease~~increase relates primarily to ~~increases in brokerage revenue outpacing the~~an increase in ~~employee resources assigned to~~ the number of employees utilized by logistics and brokerage ~~division during the second quarter of 2018 as compared~~service operations and to the ~~second quarter~~effect of ~~2017. The percentage-based~~lower revenues without a corresponding decrease ~~reflects the interaction of expenses~~in those wages with ~~fixed-cost~~fixed cost characteristics, such as general and administrative ~~wages, operations wages, and payroll taxes with an increase in revenues for the periods compared.~~wages.

Rents and purchased transportation decreased from ~~91.5% of revenues, before fuel surcharges, during the second quarter of 2017 to~~ 89.3% of revenues, before fuel surcharges, during the second quarter of ~~2018.~~2018 to 87.0% of revenues, before fuel surcharges, during the second quarter of 2019. The decrease results from paying third party carriers a smaller percentage of customer revenue.
Non-operating (expense)/income decreased from 0.3% of revenues, before fuel surcharges, during the second quarter of 2018 to (0.1%) of revenues, before fuel surcharges, during the second quarter of 2019. This decrease primarily resulted from a decrease in ~~amounts paid~~income related to ~~third party carriers.~~the change in market values of equity securities. An approximate $0.6 million decrease in the market value of our marketable equity securities was recorded in non-operating income during the second quarter of 2019, compared to approximately $0.3 million gain in the market value of our equity securities recorded in non-operating income during the second quarter of 2018.
Interest expense increased from 0.6% of revenues, before fuel surcharges, during the second quarter of 2018 to 1.0% of revenues, before fuel surcharges during the second quarter of 2019. This increase is attributable to market increases in interest rates.

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 ~~97.4% for the second quarter of 2017 to~~ 94.4% for the second quarter of ~~2018.~~2018 to 93.9% for the second quarter of 2019.

19
Table of Contents

SIX MONTHS ENDED JUNE 30, ~~201~~82019 VS. SIX MONTHS ENDED JUNE 30, ~~201~~72018

During the first six months of ~~2018,~~2019, logistics and brokerage services revenue, before fuel surcharges, ~~increased 91.3%~~decreased 5.9% to ~~$42.3~~$39.8 million as compared to ~~$22.1~~$42.3 million during the first six months of ~~2017.~~2018. The ~~increase~~decrease relates to ~~an increase in the number of loads hauled and to an increase~~a decrease in average rates charged during the first six months of ~~2018~~2019 as compared to the first six months of ~~2017.~~2018.

Salaries, wages and benefits ~~decreased~~increased from ~~5.1%~~4.2% of revenues, before fuel surcharges, in the first six months of 2018 to 6.4% of revenues, before fuel surcharges, during the first six months of ~~2017 to 4.2% of revenues, before fuel surcharges, during the first six months of 2018.~~2019. The ~~decrease~~increase relates primarily to ~~increases in brokerage revenue outpacing the~~an increase in ~~employee resources assigned to~~ the number of employees utilized by logistics and brokerage ~~division during the first six months of 2018 as compared~~service operations and to the ~~first six months~~effect of ~~2017. The percentage-based~~lower revenues without a corresponding decrease ~~reflects the interaction of expenses~~in those wages with ~~fixed-cost~~fixed cost characteristics, such as general and administrative ~~wages, operations wages, and payroll taxes with an increase in revenues for the periods compared.~~wages.

Rents and purchased transportation decreased from ~~90.9% of revenues, before fuel surcharges, during the first six months of 2017 to~~ 89.6% of revenues, before fuel surcharges, during the first six months of ~~2018.~~2018 to 85.5% of revenues, before fuel surcharges, during the first six months of 2019. The decrease results from paying third party carriers a smaller percentage of customer revenue.
Non-operating income/(expense) increased from (0.1%) of revenues, before fuel surcharges, during the first six months of 2018 to 0.8% of revenues, before fuel surcharges, during the first six months of 2019. This increase primarily resulted from ~~a decrease~~an increase in ~~amounts paid~~income related to ~~third party carriers.~~the change in market values of equity securities. An approximate $2.6 million increase in the market value of our marketable equity securities was recorded in non-operating income during the first six months of 2019, compared to an approximate $0.8 million loss in the market value of our equity securities recorded in non-operating income during the first six months of 2018.

21
~~Table~~
Interest expense increased from 0.6% of ~~Contents~~
revenues, before fuel surcharges, during the first six months of 2018 to 1.0% of revenues, before fuel surcharges during the first six months of 2019. This increase is attributable to market increases in interest rates.

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 ~~97.0% for the first six months of 2017 to~~ 94.8% for the first six months of ~~2018.~~2018 to 93.1% for the first six months of 2019.

RESULTS OF OPERATIONS – COMBINED SERVICES

THREE MONTHS ENDED JUNE 30~~, 2018~~ 30, 2019 VS. THREE MONTHS ENDED JUNE 30, ~~2017~~2018

Net income for all divisions was approximately $8.7 million, or 7.7% of revenues, before fuel surcharges for the second quarter of 2019 as compared to net income of $7.3 million, or 6.5% of revenues, before fuel surcharges for the second quarter of ~~2018 as compared to net income of $1.6 million, or 1.7% of revenues, before fuel surcharges for the second quarter of 2017.~~2018. The increase in net income resulted in diluted earnings per share of ~~$1.17~~$1.45 for the second quarter of ~~2018~~2019 as compared to diluted earnings per share of ~~$0.25~~$1.17 for the second quarter of ~~2017.~~2018.

SIX MONTHS ENDED JUNE 30, ~~201~~82019 VS. SIX MONTHS ENDED JUNE 30, ~~201~~72018

Net income for all divisions was approximately $17.0 million, or 7.6% of revenues, before fuel surcharges for the first six months of 2019 as compared to net income of $8.7 million, or 4.1% of revenues, before fuel surcharges for the first six months of ~~2018 as compared to~~2018. The increase in net income resulted in diluted earnings per share of ~~$3.9 million, or 2.1% of revenues, before fuel surcharges~~$2.84 for the first six months of ~~2017. The decrease in net income resulted in~~2019 as compared to diluted earnings per share of $1.39 for the first six months of ~~2018 as compared to diluted earnings per share of $0.61 for the first six months 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 six months of ~~2018,~~2019, we generated ~~$29.5~~$53.2 million in cash from operating activities. Investing activities used ~~$37.3~~$18.5 million in cash in the first six months of ~~2018.~~2019. Financing activities ~~generated $7.8~~used $34.7 million in cash in the first six 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 six months of ~~2018,~~2019, we utilized cash on hand, installment notes, and our ~~lines~~line of credit to finance purchases of revenue equipment and other assets of approximately ~~$39.8~~$42.9 million.
20
Table of Contents

We commonly finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 84 months. During the first six months of ~~2018,~~2019, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately ~~$38.7~~$32.4 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly installments.

During the remainder of ~~2018,~~2019, we expect to purchase approximately ~~510~~320 new trucks and ~~560~~350 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately ~~$63.0~~$43.6 million. Management believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability of additional capital will depend upon prevailing market conditions, the market price of our common stock and several other factors over which we have limited control, as well as our financial condition and results of operations. Nevertheless, based on our recent operating results, current cash position, anticipated future cash flows, and sources of financing that we expect will be available to us, we do not expect that we will experience any significant liquidity constraints in the foreseeable future.

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

During the first six months of ~~2018,~~2019, we maintained a ~~$40.0 million~~ revolving line of credit. ~~Amounts~~On 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% (3.48%~~1.25% (3.69% at June 30, ~~2018)~~2019), are secured by our trade accounts receivable and mature on July 1, ~~2019.~~2022. The amended credit facility also establishes an “unused fee” of 0.25% if average borrowings are less than $18.0 million. At June 30, ~~2018~~2019 outstanding advances on the line of credit were approximately ~~$26.0~~$11.3 million, including approximately ~~$0.7~~$0.6 million in letters of credit, with availability to borrow ~~$14.0~~$48.7 million.
Trade accounts receivable increased from $59.1 million at December 31, 2017 to $75.0 million at June 30, 2018. The increase relates to a 38% increase in freight revenues, which flow through the accounts receivable account, during June 2018 as compared to December 2017.
22
~~Table of Contents~~
Other accounts receivable increased from $3.0 million at December 31, 2017 to $4.0 million at June 30, 2018 primarily due to increases in amounts owed by owner-operators and third party carriers for payment advances not charged at the end of the periods compared. Outstanding payment advances fluctuate depending on the timing of settlement dates compared to the end of the period and to the volume of freight transported by these methods in each period.

Prepaid expenses and deposits decreased from ~~$10.1~~$10.4 million at December 31, ~~2017~~2018 to ~~$6.7~~$7.8 million at June 30, ~~2018.~~2019. The decrease relates to the normal amortization of items prepaid as of December 31, ~~2017.~~2018.

Marketable equity securities increased from ~~$26.7~~$27.5 million at December 31, ~~2017~~2018 to ~~$27.9~~$29.5 million at June 30, ~~2018.~~2019. The ~~$1.2~~$2.0 million increase was due to an increase in the market value of held marketable equity securities of $2.6 million, the purchase of marketable equity securities with a combined market value of approximately ~~$2.1~~$0.1 million partially offset by sales of marketable equity securities with a ~~net decline in~~combined market value of ~~approximately $0.9~~$0.7 million during the first six months of ~~2018.~~
Accounts payable increased from $19.6 million at December 31, 2017 to $31.9 million at June 30, 2018. This increase was primarily attributable to an increase in accrued revenue equipment purchases from $2.9 million at December 31, 2017 to $9.9 million at June 30, 2018 and to increases in direct expenses such as fuel, purchased transportation and insurance that increase in direct correlation to increases in miles and revenue.2019.

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, ~~increased~~decreased from ~~$172.6~~$221.2 million at December 31, ~~2017~~2018 to ~~$199.6~~$217.1 million at June 30, ~~2018.~~2019. The ~~increase~~decrease was primarily related to the ~~addition~~net effect of ~~$38.7 million in equipment installments notes, partially offset by~~installment note payments made during the first six months of ~~2018.~~2019, partially offset by $32.4 million of additional borrowings received during the first six months of 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. 3. Quantitative and Qualitative Disclosures about Market ~~Risk~~.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 ~~impacts~~impact of these risks ~~and~~is discussed below. While the ~~general strategies we employ~~Company 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.

21
Table of Contents
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 increased to ~~$27.9~~$29.5 million at June 30, ~~2018~~2019 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 ~~$2.8~~$2.9 million. For additional information with respect to the marketable equity securities, see Note D to our condensed consolidated financial statements.

I~~nterest~~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 ~~$25.3~~$10.7 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 ~~$2.5 million~~$107,000 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 ~~2017~~2018 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.
23
~~Table of Contents~~

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 ~~2017~~2018 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 June 30, ~~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 June 30, ~~2018~~2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

2422
Table of Contents

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 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 lawsuit is being vigorously defended 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 ~~111,316~~255,208 shares of its common stock under this repurchase program.

On May ~~8, 2018,~~13, 2019, the Company commenced a tender offer to repurchase up to ~~100,000~~200,000 shares of the Company’s outstanding common stock at a price of ~~up to $43.00~~not greater than $60.00 nor less than $55.00 per share. Following the expiration of the tender offer on June ~~7, 2018,~~11, 2019, the Company accepted ~~185,597~~192,743 shares of its common stock for purchase at ~~$40.00~~$60.00 per share, ~~including 85,597 oversubscribed shares tendered,~~ at an aggregate purchase price of approximately ~~$7.4~~$11.6 million, excluding fees and expenses related to the offer. The Company funded the purchase of the accepted shares tendered with available cash, cash equivalents and borrowings available under our existing line of credit and accounted for the repurchase of these shares as treasury stock on the Company’s condensed consolidated balance sheet as of June 30, ~~2018.~~2019.

The following table summarizes the Company’s common stock repurchases during the second quarter of ~~2018.~~2019. No shares were purchased during the quarter other than through this program or through the ~~2018~~2019 tender offer, and all purchases were made by or on behalf of the Company and not by any “affiliated ~~purchaser”.~~purchaser.”

Issuer Purchases of Equity Securities

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⁾
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⁾

April 1-30, 2018

185,597
(2)
$40.00

185,597
(2)
388,684
May 1-31, 2018

--

--

--

388,684
June 1-30, 2018

--

--

--

388,684
April 1-30, 2019
2,489 $ 52.93 2,489 245,793
May 1-31, 2019
1,001 49.82 1,001 244,792
June 1-30, 2019
192,743 (2) 60.00 192,743 (2) 244,792
Total

185,597

$40.00

185,597

196,233 $ 59.86 196,233

(1) ~~The Company’s stock repurchase program does not have an expiration date.~~
~~(2) Consists of shares purchased pursuant to the 2018 tender offer.~~
The Company’s stock repurchase program does not have an expiration date.
(2)
Consists of shares purchased pursuant to the 2019 tender offer.

2523
Table of Contents

Item 36. 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 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 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

~~Fourth~~Amendment 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., First 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 ~~4.2~~4.4 of the Company’s Form 8-K filed on ~~April 1, 2016.~~January 31, 2019.)
~~4.3~~4.5

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.)
~~4.4~~4.6

~~Fourth~~First 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 ~~4.4~~4.7 of the Company’s Form 8-K filed on ~~April 1, 2016.~~January 31, 2019.)
~~10.1~~ Consulting Agreement between the Registrant and Manuel J. Moroun, dated December 6, 2007 (incorporated by reference to Exhibit 10.10 of the Company’s Form 10-K for the year ended December 31, 2007, filed on March 14, 2008.)
~~10.2~~ Amendment No. 1 to Consulting Agreement between the Registrant and Manuel J. Moroun, dated April 25, 2018 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 30, 2018.)
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

2624
Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

P.A.M. TRANSPORTATION SERVICES, INC.

Dated: August ~~3, 2018~~2, 2019
By: /s/ Daniel H. Cushman

Daniel H. Cushman

President and Chief Executive Officer

(principal executive officer)

Dated: August ~~3, 2018~~2, 2019
By: /s/ Allen W. West

Allen W. West

Vice President-Finance, Chief Financial

Officer, Secretary and Treasurer

(principal accounting and financial officer)

2725

	Three Months Ended					Six Months Ended
	June 30					June 30
	2018		2017			2018		2017

NET INCOME	$	7,289	$	1,609		$	8,676	$	3,892

Other comprehensive income, net of tax:

Reclassification adjustment for realized gains on marketable equity securities included in net income (1)(4)		-		(143	)		-		(1,043	)

Reclassification adjustment for unrealized losses on marketable securities included in net income, net of income taxes (2)(4)		-		17			-		17

Changes in fair value of marketable securities (3)(4)		-		(138	)		-		(160	)

COMPREHENSIVE INCOME	$	7,289	$	1,345		$	8,676	$	2,706

	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		(43,450	)		10.78
Cancelled/forfeited/expired		(63	)		10.90
Outstanding at June 30, 2018		1,555		$	11.01		3.38	$	55,911

Exercisable at June 30, 2018		1,555		$	11.01		3.38	$	55,911

Exercise Price	Shares Under Outstanding Options		Weighted-Average Remaining Contractual Term	Shares Under Exercisable Options
			(in years)
$10.90		1,000	3.9		1,000
$11.22		555	2.4		555
		1,555	3.4		1,555

Issuer Purchases of Equity Securities
	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⁾
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⁾
April 1-30, 2018	185,597	(2)	$40.00	185,597	(2)	388,684
May 1-31, 2018	--		--	--		388,684
June 1-30, 2018	--		--	--		388,684
April 1-30, 2019								2,489		$	52.93		2,489			245,793
May 1-31, 2019								1,001			49.82		1,001			244,792
June 1-30, 2019								192,743	(2)		60.00		192,743	(2)		244,792
Total	185,597		$40.00	185,597				196,233		$	59.86		196,233

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 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 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	~~Fourth~~Amendment 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., First 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 ~~4.2~~4.4 of the Company’s Form 8-K filed on ~~April 1, 2016.~~January 31, 2019.)
~~4.3~~4.5	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.)
~~4.4~~4.6	~~Fourth~~First 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 ~~4.4~~4.7 of the Company’s Form 8-K filed on ~~April 1, 2016.~~January 31, 2019.)
~~10.1~~	Consulting Agreement between the Registrant and Manuel J. Moroun, dated December 6, 2007 (incorporated by reference to Exhibit 10.10 of the Company’s Form 10-K for the year ended December 31, 2007, filed on March 14, 2008.)
~~10.2~~	Amendment No. 1 to Consulting Agreement between the Registrant and Manuel J. Moroun, dated April 25, 2018 (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 30, 2018.)
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

	P.A.M. TRANSPORTATION SERVICES, INC.


Dated: August ~~3, 2018~~2, 2019	By: /s/ Daniel H. Cushman
	Daniel H. Cushman
	President and Chief Executive Officer
	(principal executive officer)

Dated: August ~~3, 2018~~2, 2019	By: /s/ Allen W. West
	Allen W. West
	Vice President-Finance, Chief Financial
	Officer, Secretary and Treasurer
	(principal accounting and financial officer)