Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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

 

For the quarterly period ended June 30, 20192020

or

Transition Report Pursuant to the Section 13 or 15(d) of the Securities Exchange Act of 1934

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

0-1507

71-0633135

(State or other jurisdiction of

incorporation or organization)

(Commission File

Number)

(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

(Former name, former address and former fiscal year, if changed since last report)Common Stock, $.01 par value

PTSI

NASDAQ Global Market

 

Securities registered pursuant to Section 12(b)

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  ☐

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

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

the filing requirements for the past 90 days.

Yes  ☑     No  ☐

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

submit such files).

Yes  ☑            No  ☐

 

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

 

Large accelerated filer ☐

Accelerated filer ☑ 

Non-accelerated filer  ☐  

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  ☑

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 25, 20192020

Common Stock, $.01 Par Value

 

5,757,3185,775,906

 

 

 

 

P.A.M. TRANSPORTATION SERVICES, INC.

Form 10-Q

For Thethe Quarter Ended June 30, 20192020

Table of Contents

 

 

Part I. Financial Information

  

Item 1.

Financial Statements (unaudited).

3
  

 

Condensed Consolidated Balance Sheets as of June 30, 20192020 and December 31, 20182019

3

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 20192020 and 20182019

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 20192020 and 20182019

5

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the Three and Six Months Ended June 30, 20192020 and 20182019

6
  

 

Notes to Condensed Consolidated Financial Statements as of June 30, 20192020

7

 

 

Item 2.

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

16

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk.

22

 

 

Item 4.

Controls and Procedures.

23
  

 

 

Part II. Other Information

 

 

Item 1.

Legal Proceedings.

24
  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

25
  

Item 6.

Exhibits.Exhibits.

26

 

Signatures

27

 

2


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

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

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

June 30,

  

December 31,

  

June 30,

 

December 31,

 
 

2019

  

2018

  

2020

  

2019

 
 

(unaudited)

  

(audited)

  

(unaudited)

 

(audited)

 

ASSETS

                

Current assets:

             

Cash and cash equivalents

 $296  $282  $327  $318 

Accounts receivable-net:

             

Trade, less allowance of $2,440 and $2,224, respectively

  62,692   63,350 

Trade, less current estimated credit loss of $3,309 and $2,952, respectively

 56,362  61,784 

Other

  3,137   3,814  4,995  3,769 

Inventories

  1,301   1,461  1,194  1,327 

Prepaid expenses and deposits

  7,842   10,393  7,285  8,669 

Marketable equity securities

  29,454   27,549  25,654  29,521 

Income taxes refundable

  1,974   1,876   940   504 

Total current assets

  106,696   108,725  96,757  105,892 
         

Property and equipment:

             

Land

  5,596   5,596  16,086  7,246 

Structures and improvements

  19,937   19,547  31,228  20,204 

Revenue equipment

  482,478   457,142  536,510  524,527 

Office furniture and equipment

  10,294   10,040   11,476   11,185 

Total property and equipment

  518,305   492,325  595,300  563,162 

Accumulated depreciation

  (156,061)  (137,738)  (195,142)  (175,887)

Net property and equipment

  362,244   354,587  400,158  387,275 
         

Other assets

  4,077   2,754  4,519  4,842 
             

TOTAL ASSETS

 $473,017  $466,066  $501,434  $498,009 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

             

Accounts payable

 $20,356  $20,002  $29,467  $16,597 

Accrued expenses and other liabilities

  24,204   23,497  43,215  40,610 

Current maturities of long-term debt

  58,738   63,908   64,581   67,637 

Total current liabilities

  103,298   107,407  137,263  124,844 
         

Long-term debt-less current portion

  158,397   157,315  168,492  174,187 

Deferred income taxes

  66,820   61,897  62,621  63,522 

Other long-term liabilities

  1,015   -   1,205   1,481 

Total liabilities

  329,530   326,619   369,581   364,034 
         

STOCKHOLDERS' EQUITY

        

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

  -   - 

Common stock, $.01 par value, 40,000,000 shares authorized; 11,648,785 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 

STOCKHOLDERS' EQUITY

        

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

 -  - 

Common stock, $.01 par value, 40,000,000 shares authorized; 11,692,344 and 11,656,160 shares issued; 5,775,906 and 5,748,897 shares outstanding at June 30, 2020 and December 31, 2019, respectively

 117  117 

Additional paid-in capital

  83,302   82,776  84,014  83,688 

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)

Treasury stock, at cost; 5,916,438 and 5,907,263 shares at June 30, 2020 and December 31, 2019, respectively

 (157,158) (156,837)

Retained earnings

  216,062   199,107   204,880   207,007 

Total stockholders’ equity

  143,487   139,447  131,853  133,975 
             

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $473,017  $466,066  $501,434  $498,009 

 

See notes to condensed consolidated financial statements.

 

3


 

 

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,

 
 

2019

  

2018

  

2019

  

2018

  

2020

  

2019

  

2020

  

2019

 

OPERATING REVENUES:

                         

Revenue, before fuel surcharge

 $112,352  $112,881  $222,696  $211,985  $85,765  $112,352  $197,587  $222,696 

Fuel surcharge

  20,648   22,421   38,990   42,776   7,214   20,648   24,547   38,990 

Total operating revenues

  133,000   135,302   261,686   254,761   92,979   133,000   222,134   261,686 
                 

OPERATING EXPENSES AND COSTS:

                         

Salaries, wages and benefits

  30,603   29,971   61,667   58,610  27,576  30,603  60,374  61,667 

Operating supplies and expenses

  24,520   23,506   48,032   46,176  18,276  24,520  41,991  48,032 

Rent and purchased transportation

  43,353   52,075   87,907   97,992  30,360  43,353  73,287  87,907 

Depreciation

  13,614   12,734   26,801   24,358  14,237  13,614  28,532  26,801 

Insurance and claims

  4,061   4,451   8,175   8,719  2,515  4,061  2,557  8,175 

Other

  3,539   3,067   6,533   5,648  1,967  3,539  7,811  6,533 

Loss (gain) on sale or disposition of equipment

  99   (519)  (327)  (515)  55   99   103   (327)

Total operating expenses and costs

  119,789   125,285   238,788   240,988   94,986   119,789   214,655   238,788 
                 

OPERATING INCOME

  13,211   10,017   22,898   13,773 

OPERATING (LOSS) INCOME

 (2,007) 13,211  7,479  22,898 
                 

NON-OPERATING (EXPENSE)/INCOME

  (197)  632   3,275   (247)

NON-OPERATING INCOME (EXPENSE)

 2,961  (197) (6,115) 3,275 

INTEREST EXPENSE

  (2,059)  (1,355)  (4,099)  (2,515)  (2,179)  (2,059)  (4,391)  (4,099)
                 

INCOME BEFORE INCOME TAXES

  10,955   9,294   22,074   11,011 

(LOSS) INCOME BEFORE INCOME TAXES

 (1,225) 10,955  (3,027) 22,074 
                 

FEDERAL AND STATE INCOME TAX EXPENSE:

                

FEDERAL AND STATE INCOME TAX (BENEFIT) EXPENSE:

         

Current

  107   142   196   177  -  107  -  196 

Deferred

  2,194   1,863   4,923   2,158   (402)  2,194   (900)  4,923 

Total federal and state income tax expense

  2,301   2,005   5,119   2,335 

Total federal and state income tax (benefit) expense

  (402)  2,301   (900)  5,119 
                 

NET INCOME

 $8,654  $7,289  $16,955  $8,676 

NET (LOSS) INCOME

 $(823) $8,654  $(2,127) $16,955 
                 

INCOME PER COMMON SHARE:

                

(LOSS) INCOME PER COMMON SHARE:

                

Basic

 $1.47  $1.18  $2.87  $1.41  $(0.14) $1.47  $(0.37) $2.87 

Diluted

 $1.45  $1.17  $2.84  $1.39  $(0.14) $1.45  $(0.37) $2.84 
                 

AVERAGE COMMON SHARES OUTSTANDING:

                                

Basic

  5,901   6,159   5,911   6,163   5,766   5,901   5,756   5,911 

Diluted

  5,949   6,229   5,962   6,257   5,766   5,949   5,756   5,962 

 

See notes to condensed consolidated financial statements.

 

4


 

 

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

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

 

 

Six Months Ended

  

Six Months Ended

 
 

June 30,

  

June 30,

 
 

2019

  

2018

  

2020

  

2019

 

OPERATING ACTIVITIES:

             

Net income

 $16,955  $8,676 

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

        

Net (loss) / income

 $(2,127) $16,955 

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

     

Depreciation

  26,801   24,358  28,532  26,801 

Bad debt expense

  216   389  357  216 

Stock compensation-net of excess tax benefits

  526   395  326  526 

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)

Provision for deferred income (benefit) /taxes

 (900) 4,923 

Recognized loss / (gain) on marketable equity securities

 6,988  (2,593)

Loss / (gain) on sale or disposition of equipment

 103  (327)

Changes in operating assets and liabilities:

             

Accounts receivable

  1,119   (17,258) 3,840  1,119 

Prepaid expenses, deposits, inventories, and other assets

  2,690   3,314  1,266  2,690 

Income taxes (payable) refundable

  (98)  124 

Income taxes payable

 (132) (98)

Trade accounts payable

  1,385   5,361  5,623  1,385 

Accrued expenses and other liabilities

  1,602   1,712   86   1,602 

Net cash provided by operating activities

  53,199   29,524   43,962   53,199 
         

INVESTING ACTIVITIES:

             

Purchases of property and equipment

  (26,912)  (39,768) (22,968) (26,912)

Proceeds from disposition of equipment

  7,760   4,450  7,066  7,760 

Sales of marketable equity securities

  762   -  861  762 

Purchases of marketable equity securities, net of return of capital

  (72)  (2,006)  (3,982)  (72)

Net cash used in investing activities

  (18,462)  (37,324)  (19,023)  (18,462)
         

FINANCING ACTIVITIES:

             

Borrowings under line of credit

  283,704   299,959  225,926  283,704 

Repayments under line of credit

  (283,187)  (274,702) (230,497) (283,187)

Borrowings of long-term debt

  16,386   25,046  -  16,386 

Repayments of long-term debt

  (37,006)  (37,002) (22,550) (37,006)

Borrowings under margin account

  252   2,166  4,004  252 

Repayments under margin account

  (1,431)  (565) (1,492) (1,431)

Repurchases of common stock

  (13,441)  (7,531) (321) (13,441)

Exercise of stock options

  -   468 

Net cash (used in) provided by financing activities

  (34,723)  7,839 

Net cash used in financing activities

  (24,930)  (34,723)
         

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

  14   39   9   14 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period

  282   224   318   282 
         

CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period

 $296  $263  $327  $296 
         

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-

             

Cash paid during the period for:

             

Interest

 $4,102  $2,452  $3,778  $4,102 

Income taxes

 $292  $53  $133  $292 
         

NONCASH INVESTING AND FINANCING ACTIVITIES-

             

Purchases of property and equipment included in accounts payable

 $566  $9,888  $7,672  $566 

 

See notes to condensed consolidated financial statements.

 

5


 

 

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

Condensed Consolidated Statements of Stockholders’

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

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands)

 

  

Common Stock

Shares / Amount

  

Additional

Paid-In Capital

  

Treasury

Stock

  

Retained

Earnings

  

Total

 
                         

Balance at January 1, 2019

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

Net Income

                  8,301   8,301 
                         

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 
  

Common Stock

Shares / Amount

  

Additional

Paid-In Capital

  

Treasury

Stock

  

Retained

Earnings

  

Total

 
                         

Balance at January 1, 2020

  5,749  $117  $83,688  $(156,837) $207,007  $133,975 
                         

Net Loss

                  (1,304)  (1,304)
                         

Exercise of stock awards-shares issued including tax benefits

  2                   - 
                         

Treasury stock repurchases

  (9)          (321)      (321)
                         

Stock based compensation

          305           305 
                         

Balance at March 31, 2020

  5,742  $117  $83,993  $(157,158) $205,703  $132,655 
                         

Net Loss

                  (823)  (823)
                         

Exercise of stock awards-shares issued including tax benefits

  34                   - 
                         

Treasury stock repurchases

                      - 
                         

Stock based compensation

          21           21 
                         

Balance at June 30, 2020

  5,776  $117  $84,014  $(157,158) $204,880  $131,853 

  

Common Stock

Shares / Amount

  

Additional

Paid-In Capital

  

Treasury Stock

  

Retained Earnings

  

Total

 
                         

Balance at January 1, 2019

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

Net Income

                  8,301   8,301 
                         

Exercise of stock awards-shares issued including tax benefits

  1                   - 
                         

Treasury stock repurchases

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

Stock 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 
                         

Exercise of 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-basedshare-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 2018.2019.

 

 

See notes to condensed consolidated financial statements.

See notes to Condensed Consolidated Financial Statements.

 

6


 

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

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 20192020

 

 

 

NOTE A:A:   BASIS OF PRESENTATION

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

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q10-Q and Article 10 of Regulation S-X.S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2018 2019 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-monththree and six-month period ended June 30, 2019 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 2020. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company’s annual report on Form 10-K10-K for the year ended December 31, 2018.2019.

 

 

NOTE B:   RECENT ACCOUNTING PRONOUNCEMENTS

In July 2018, March 2020, the Financial Accounting Standards Board, (“FASB”)FASB issued Accounting Standards Update (“ASU”) No. 2018-09,2020-04, (“ASU 2018-09”2020-04”), Codification Improvements.Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2018-092020-04 was issued to update codificationprovide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on multiple topics, and includes updates for technical corrections, clarifications and other minor improvements.financial reporting. ASU 2018-092020-04 is effective for fiscal years, and interim periods within those years, beginning after as of March 12, 2020 through December 15, 2018, with early adoption permitted. 31, 2022. The adoptionCompany has evaluated the provisions of this standard and determined that it is applicable to our line of credit and investment margin account. The London Interbank Offered Rate “LIBOR” is the basis for interest charges on outstanding borrowings for both our line of credit and investment margin account. The scheduled discontinuation of LIBOR is not expected to materially alter any provisions of either of these debt instruments, except for the identification of a replacement reference rate. The Company has evaluated the new guidance on January 1, 2019 did and does not expect it to have a material impact on the Company’sits financial condition, results of operations, or cash flows.

 

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

In June 2016 the FASB issued ASU No. 2016-13, (“ASU 2016-13”-13”), Accounting for Credit Losses (Topic 326)326). ASU 2016-132016-13 requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to the amortized cost of the securities. For smaller reporting companies, ASU 2016-132016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, 2022, 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 February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update seeks to increase the transparency and comparability among public entities by requiring 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.

The adoption of this guidance on January 1, 2019 2020 did not have a material impact on 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.

 

7

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.

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, 2019, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, that are of significance or potential significance to the Company.

NOTE C:   REVENUE RECOGNITION

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

 

Company revenue is generated from freight transportation services performed utilizing heavy 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-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 Condensed Consolidated Statements of Operations due to their immaterial amounts.

7

 

In fulfilling the Company’s obligation to transport freight from a specified origin to a specified destination, control of freight is transferred to us at the point it has been loaded into the driver’s trailer, the doors are sealed and 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, the responsibility for invoice payment and the 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 earned by performing the same freight transportation services, as discussed further below.

 

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

8

 

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 uponagreed-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 over time as the freight progresses towards its destination and the transportation service obligation is fulfilled. For loads picked up during the reporting period, but delivered in a subsequent reporting period, revenue is allocated to each period based on the transit time in each period as a percentage of total transit time. There are no assets or liabilities recorded in conjunction with revenue recognized, other than Accounts Receivable and Allowance for doubtful accounts.Estimated Credit Losses.

 

 

NOTE D:   MARKETABLE EQUITY SECURITIES

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).income.

 

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

 

The following table sets forth market value, cost, and unrealized gains on equity securities as of June 30, 2019 2020 and December 31, 2018.2019.

 

 

June 30, 2019

  

December 31, 2018

  

June 30, 2020

  

December 31, 2019

 
 

(in thousands)

  

(in thousands)

 

Fair market value

 $29,454  $27,549  $25,654  $29,521 

Cost

  25,714   25,602   26,569   24,156 

Unrealized gain

 $3,740  $1,947 

Unrealized (loss) / gain

 $(915) $5,365 

 

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of June 30, 2019 2020 and December 31, 2018.2019.

 

  

June 30, 2020

  

December 31, 2019

 
  

(in thousands)

 

Gross unrealized gains

 $4,683  $7,808 

Gross unrealized losses

  5,598   2,443 

Net unrealized (loss) / gain

 $(915) $5,365 

  

June 30, 2019

  

December 31, 2018

 
  

(in thousands)

 

Gross unrealized gains

 $6,803  $5,668 

Gross unrealized losses

  3,063   3,721 

Net unrealized gains

 $3,740  $1,947 
8

 

The following table shows the Company’s net realized gains during the first three and six months respectively, ending on June 30 of 20192020 and 20182019, respectively, on certain marketable equity securities.

 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2019

  

2018

  

2019

  

2018

 
  

(in thousands, except per share data)

 

Sales proceeds

 $762  $-  $762  $- 

Cost of securities sold

  248   -   248   - 

Realized gain

 $514  $-  $514  $- 
                 

Realized gain, net of taxes

 $395  $-  $395  $- 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands, except per share data)

 

Sales proceeds

 $184  $762  $861  $762 

Cost of securities sold

  255   248   1,466   248 

Realized (loss) / gain

 $(71) $514  $(605) $514 

 

For the quarter ended June 30, 2020, the Company recognized dividends received of approximately $326,000 in non-operating income in its consolidated statements of operations. For the quarter ended June 30, 2019, the Company recognized dividends received of approximately $307,000 in non-operating income in its consolidated statements of operations.

For the quartersix months ended June 30, 2018, 2020, the Company recognized dividends received of approximately $254,000$631,000 in non-operating income in its consolidated statements of operations.

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

 

9

The market value of the Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of June 30, 2019 2020, and December 31, 2018, 2019, the Company had outstanding borrowings of approximately $10,103,000$9,986,000 and $11,281,000,$7,474,000, 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.

 

Our marketable equity securities portfolio had a net unrealized pre-tax gain in market value of approximately $2,482,000 during the second quarter of 2020, and a net unrealized pre-tax loss in market value of approximately $589,000 during the second quarter of 2019, and a net unrealized pre-tax gain in market value of approximately $333,000 during the second quarter of 2018, which were reported as Non-operatingnon-operating income (expense) for the 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. Under the Plan, 750,000 shares are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock value under the 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.

 

During In January 2020, the first six months of 2019, 2,058Company granted 7,000 shares of restrictedcommon stock were granted to non-employee directors under the Plan. Thecertain key employees. These stock awarded to non-employee directors hadawards have a grant date weighted average fair value of $48.75$56.45 per share, based on the closing price of the Company’s stock on the date of grant, and vest on the fourth anniversary date in January 2024.

In March 2020, the Company granted 2,608 shares of common stock to non-employee directors. These stock awards have a grant date fair value of $30.75 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.

In April 2020, the Company granted 242 shares of common stock to a new non-employee director upon his election to the board of directors. This stock award has a grant date fair value of $41.40 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 firstsix months of 20192020 was approximately $685,000.$636,000. Total pre-tax stock basedstock-based compensation expense, recognized in Salaries, wages and benefits during the firstsix months of 2020, was approximately $326,000 and includes approximately $90,000 recognized as a result of the grant of shares to each non-employee director. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.04 during the firstsix months of 2020. As of June 30, 2020, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $603,000, which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $109,000 in additional compensation expense related to unvested option awards during the remainder of 2020 and to recognize approximately $215,000, $215,000, $59,000 and $5,000 in additional compensation expense related to unvested option awards during the years 2021,2022,2023 and 2024, respectively.

9

The total grant date fair value of stock vested during the firstsix months of 2019 was approximately $685,000. Total pre-tax stock-based compensation expense recognized in Salaries, wages and benefits during the firstsix 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 firstsix 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 firstsix 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 included approximately $70,000 recognized as a result of the grant of 276 shares to each non-employee director during the first 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 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$1,438,000, which wasis being amortized on a straight-line basis over the remaining vesting period.

 

A summary of the status of the Company’s non-vested restricted stock as of June 30, 2019 2020 and changes during the six months ended June 30, 2019, 2020, is as follows:

 

  

Restricted Stock

 
  

Number of

Shares

  

Weighted-

Average Grant

Date Fair Value

 

Non-vested at January 1, 2019

  100,917  $23.09 

Granted

  2,058   48.75 

Canceled/forfeited/expired

  -   - 

Vested

  (36,641)  18.69 

Non-vested at June 30, 2019

  66,334  $26.31 

__________________________

Cash received from option exercises totaled approximately $0 and $468,000 during the six months ended June 30, 2019 and June 30, 2018, respectively.

  

Restricted Stock

 
  

Number of

Shares

  

Weighted-

Average Grant

Date Fair Value

 

Non-vested at January 1, 2020

  55,459  $24.35 

Granted

  9,850   49.28 

Canceled/forfeited/expired

  (11,714)  41.01 

Vested

  (36,184)  

17.58

 

Non-vested at June 30, 2020

  17,411  $41.30 

 

10

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,

 
 

2019

  

2018

  

2019

  

2018

  

2020

  

2019

  

2020

  

2019

 
 

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

  

Amount

  

%

 
 

(in thousands, except percentage data)

  

(in thousands, except percentage data)

 
                                                 

Truckload Services revenue

 $92,867   82.7  $89,131   79.0  $182,879   82.1  $169,655   80.0  $69,958  81.6  $92,867  82.7  $161,268  81.6  $182,879  82.1 

Brokerage and Logistics Services revenue

  19,485   17.3   23,750   21.0   39,817   17.9   42,330   20.0   15,807   18.4   19,485   17.3   36,319   18.4   39,817   17.9 

Total revenues

 $112,352   100.0  $112,881   100.0  $222,696   100.0  $211,985   100.0  $85,765  100.0  $112,352  100.0  $197,587  100.0  $222,696  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 SeptemberJune 2011 authorization. During the six months ended June 30, 2019, 2020, the Company repurchased 43,1389,175 shares of its common stock at an aggregate cost of approximately $1,800,000$321,000 under this program.

On May 13, 2019, the Company commenced a tender offer to repurchase up to 200,000 shares of the Company’s outstanding common stock at a price of not greater than $60.00 nor less than $55.00 per share. Following the expiration of the tender offer on June 11, 2019, the Company accepted 192,743 shares of its common stock for purchase at $60.00 per share, at an aggregate purchase price of approximately $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, 2019, 5,891,4672020, 5,916,438 shares were held in the treasury at an aggregate cost of approximately $155,993,000.$157,158,000.

 

 

NOTE H:   INCOMEEARNINGS 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 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

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands, except per share data)

 
                 

Net (loss) income

 $(823) $8,654  $(2,127) $16,955 
                 

Basic weighted average common shares outstanding

  5,766   5,901   5,756   5,911 

Dilutive effect of common stock equivalents

  -   48   -   51 

Diluted weighted average common shares outstanding

  5,766   5,949   5,756   5,962 
                 

Basic (loss) earnings per share

 $(0.14) $1.47  $(0.37) $2.87 

Diluted (loss) earnings per share

 $(0.14) $1.45  $(0.37) $2.84 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2019

  

2018

  

2019

  

2018

 
  

(in thousands, except per share data)

 
                 

Net income

 $8,654  $7,289  $16,955  $8,676 
                 

Basic weighted average common shares outstanding

  5,901   6,159   5,911   6,163 

Dilutive effect of common stock equivalents

  48   70   51   94 

Diluted weighted average common shares outstanding

  5,949   6,229   5,962   6,257 
                 

Basic earnings per share

 $1.47  $1.18  $2.87  $1.41 

Diluted earnings per share

 $1.45  $1.17  $2.84  $1.39 
10

 

 

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 20152016 and forward remain open to examination in those jurisdictions.

11

 

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740-10-30,740-10-30, weighs all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of June 30, 2019, 2020, 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, 2019, 2020, an adjustment to the Company’s condensed 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, 2019 2020 and 2018,2019, 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 23.2%29.7% and 21.2%23.2% for the six months ended June 30, 2019 2020 and 2018,2019, respectively. Our effective tax rate for the six months ended June 30, 2019 2020 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 compensation.

 

 

NOTE J:   FAIR VALUE OF FINANCIAL INSTRUMENTS

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

 

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

 

 

Level 1:

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

 

  

 

 

Level 2:

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

 

 

 

Level 3:

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

     

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

 

At June 30, 2019, 2020, the following items are measured at fair value on a recurring basis:

 

  

Total

  

Level 1

  

Level 2

  

Level 3

 
  

(in thousands)

 
                 

Marketable equity securities

 $29,454  $29,454   -   - 
  

Total

  

Level 1

  

Level 2

  

Level 3

 
  

(in thousands)

 
                 

Marketable equity securities

 $25,654  $25,654   -   - 

 

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.

 

12
11

 

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, 2019 2020 was as follows:

 

  

Carrying

Value

  

Estimated

Fair Value

 
  

(in thousands)

 
         

Long-term debt

 $206,425  $207,816 
  

Carrying

Value

  

Estimated

Fair Value

 
  

(in thousands)

 
         

Long-term debt

 $220,597  $222,235 

 

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

 

 

NOTE K:   NOTES PAYABLE

During the firstsix months of 2019,2020, the Company’s subsidiaries entered into installment obligations totaling approximately $32.4$18.4 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly installments and are recorded in long term debt and current maturities on the consolidated balance sheets.Condensed Consolidated Balance Sheets. The termterms of these obligations rangesrange from 36 months for trucks to 6084 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.

 

We are a defendant in a collective-actioncollective- and class-action lawsuit which was re-filedfiled on December 9, 2016, in the United States District Court for the Western District of Arkansas. The plaintiffs, who areinclude current and former employee drivers who worked for the Company during the period of December 6,9, 2013, through the date of the filing, December 31, 2019, 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 “FailureLaw including “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. On February 18, 2020, the United States District Court for the Western District of Arkansas granted preliminary approval of a $16.5 million settlement reached with the plaintiffs. The lawsuitsettlement is being vigorously defendedsubject to final approval by the court. As of June 30, 2020, the preliminary settlement amount of $16.5 million is reserved in accrued expenses and we cannot reasonably estimate, at this time,other liabilities in the possible loss or range of loss, if any, that may arise from this lawsuit.Company’s condensed consolidated balance sheets. Management has determined that any losses under this claim will not be covered by existing insurance policies.

 

On March 31, 2020, the United States District Court for the Western District of Arkansas dismissed the collective- and class-action lawsuit filed against the company on May 29, 2019 by plaintiffs who were independent contractors alleging violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law. The plaintiffs, through their attorneys, alleged “misclassification as independent contractors, payment on the basis of miles without regard to the number of hours worked, improper deductions, and failure to pay minimum wage.” The dismissal of this lawsuit resulted when the Company and plaintiffs reached a settlement agreement and paid approximately $421,000, plus legal fees. Legal reserve accruals in excess of the amount outlined in the settlement agreement were reversed during the firstsix months of 2020, resulting in a reduction in accrued expenses and other liabilities in the Company’s condensed consolidated balance sheets.

The Company’s participation in the settlements of the above matters does not constitute an admission by the Company of any fault or liability, and the Company does not admit any fault or liability.

 

NOTE M:M:   LEASES

Adoption of ASU 2016-022016-02

 

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 termlong-term leases that become operationally unjustified and to allow the flexibility to pursue more cost effectivecost-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.

12

 

The Company adopted ASU 2016-022016-02 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 linestraight-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 2016-022016-02 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 2016-02,2016-02, the adoption of ASU 2016-022016-02 on January 1, 2019 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.

 

13

2019Right-of-Use Leases

 

In MayFollowing the Company’s adoption of ASU 2016-02 and related amendments on January 1, 2019, the Company entered into an operating lease for shopleases which include initial terms ranging from three to five years and office space for an initial term of five years that does which do not provide include an option for early cancellation. In accordance with the provisions of ASC Topic 842, this lease these leases resulted in the recognition of a right-of-use assetassets and corresponding operating lease liability of $1.3liabilities, respectively valued at $1.8 million as of June 30, 2019. 2020. 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 of the respective dates of lease inception, as the rate implicit in each lease is not readily determinable. The right-of-use asset isassets are 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.Condensed Consolidated Balance Sheet. 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 statementsCondensed Consolidated Statements of operations. TheOperations. While the lease agreement contains a provisionagreements contain provisions to extend after the initial term for an additional five years. The years, the Company is not reasonably certain thethese extension optionoptions will be exercised, and has therefore not includedexercised. Therefore, potential lease payments that might occur under this extension period are not included in amounts recorded in our balance sheetsCondensed Consolidated Balance Sheets as of June 30, 2019.2020.

 

Scheduled amounts and timing of cash flows arising from future right-of-use operating lease payments at June 30, 2019, 2020, are:

 

Maturity of Lease Liabilities

 

(In thousands)

 

2020 (remaining)

 $311 

2021

  627 

2022

  544 

2023

  340 

2024

  114 

Total undiscounted operating lease payments

 $1,936 

Less: Imputed interest

  (109)

Present value of operating lease liabilities

 $1,827 
     

Balance Sheet Classification

    

Right-of-use assets (recorded in other non-current assets)

 $1,827 
     

Current lease liabilities (recorded in other current liabilities)

 $622 

Long-term lease liabilities (recorded in other long-term liabilities)

  1,205 

Total operating lease liabilities

 $1,827 
     

Other Information

    

Weighted-average remaining lease term for operating leases (years)

 

3.27

 

Weighted-average discount rate for operating leases

  3.60%

  

(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%
13

 

Cash Flows

 

ANo new right-of-use asset of $1.3 million wasassets were recognized as a non-cash asset addition that resulted from new operating lease liabilities during the three months ended June 30, 2019. 2020. 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 2020 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 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands)

 
                 

Long-term

 $138  $39  $272  $39 

Short-term

  564   584   1,144   1,086 

Total

 $702  $623  $1,416  $1,125 

 

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.

 

14

As of June 30, 2019,2020, the gross carrying value of trucks underlying these leases was $57.4$59.7 million and accumulated depreciation was $26.7$28.3 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, 2020, the Company incurred $1.6$1.4 million of depreciation expense for these assets.

 

The Company leases dock space to a related party at our Laredo, Texas terminal and warehouse and office space to an unrelated lessee at a second Laredo, Texas terminal. The dock space and the warehouse and office space leased to the related party isare depreciated in conjunction with the structures and improvements for the entire Laredo terminalterminals 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 statementsCondensed Consolidated Statements of operations.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 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(in thousands)

 
                 

Leased truck revenue (recorded in revenue, before fuel surcharge)

 $1,585  $2,332  $3,979  $4,780 

Leased building space revenue (recorded in non-operating income)

  168   39   235   77 

Total lease revenue

 $1,753  $2,371  $4,214  $4,857 

 

Lease Receivables

 

Future minimum operating lease payments receivable at June 30, 2019:2020:

  

(in thousands)

 
     

2020 (remaining)

 $2,736 

2021

  4,022 

2022

  3,217 

2023

  2,093 

2024

  754 

Thereafter

  - 

Total future minimum lease payments receivable

 $12,822 

14

NOTE N:   EFFECT OF COVID-19 PANDEMIC

The rapid spread of COVID-19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns. These measures and the public health concerns resulting from the outbreak have severely disrupted economic and commercial activity. The resulting impact on domestic and global supply chains has caused slowdowns and reduced freight demand for transportation companies such as ours. Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues have been significantly affected by the closure of North American automotive manufacturing facilities beginning in late March. Our automotive customers resumed partial operations during the second quarter; however, the extent to which production will return to pre-pandemic levels remains uncertain. Any additional delays in the resumption of automotive production and other consumer activity affecting our customers, as well as any future wave of the virus or other similar outbreaks could further adversely affect our business. In addition, the implementation of measures to protect the health and safety of our employees, customers, vendors and the general public may disrupt our ability to efficiently manage personnel and operations and to recruit and retain driver and non-driver personnel, which could have a material adverse effect on our operating results. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID-19 or other similar outbreaks could have a material adverse effect on our liquidity and our ability to effectively meet our short- and long-term financial obligations.

 

  

(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 NO:   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 O: NONCASH INVESTING AND FINANCING ACTIVITIES

The Company financed approximately $16.0$18.4 million in equipment purchases during the firstsix months of 20192020 utilizing noncash financing.

 

15

 

 

Item 2. Management’s Discussion and Analysis of FinancialConditionFinancialCondition and Results of Operations.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, prospects, plans 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, ongoing and potential future economic, business and operational disruptions and uncertainties due to the COVID-19 pandemic or other public health crises; excess capacity in the trucking industry; surplus inventories; recessionary economic cycles and downturns in customers’customers' business cycles; increases or rapid fluctuations in fuel prices, interest rates, fuel taxes, tolls, and license and registration fees; the resale value of the Company’sCompany's used equipment and the price of new equipment; increases in compensation for and difficulty in attracting and retaining qualified drivers and owner-operators; increases in insurance premiums and deductible amounts relating to accident, cargo, workers' compensation, health, and other claims; unanticipated increases in the number or amount of claims for which the Company is self-insured; inability of the Company to continue to secure acceptable financing arrangements; seasonal factors such as harsh weather conditions that increase operating costs; competition from trucking, rail, and intermodal competitors including reductions in rates resulting from competitive bidding; the ability to identify acceptable acquisition candidates, consummate acquisitions, and integrate acquired operations; 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 (“SEC”).Commission. The Company undertakes no obligation to publicly update or clarifyrevise forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed above and in company filings might not transpire.

 

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, 2018.2019.

 

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 are performed by Company divisions that generally utilize Company owned trucks, long-term contractors, or single-trip contractors to transport loads of freight for customers, while brokerage and logistics services coordinate or facilitate the transport of loads of freight for customers and generally involve the utilization of single-trip contractors. Both our truckload operations and our brokerage and logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this 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 82.7%81.6% and 79.0%82.7% of total revenues, excluding fuel surcharges, for the three months ended June 30, 20192020 and 2018,2019, respectively. Truckload services revenues, excluding fuel surcharges, represented 82.1%81.6% and 80.0%82.1% of total revenues, excluding fuel surcharges, for the six months ended June 30, 20192020 and 2018,2019, 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.

 

16

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, 2020 and 2019, and 2018, approximately $20.6$7.2 million and $22.4$20.6 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the six months ended June 30, 2020 and 2019, and 2018, approximately $39.0$24.5 million and $42.8$39.0 million, respectively, of the Company’s total revenue was generated from fuel surcharges. We may also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.

 

16

Table

IMPACT OF COVID-19

The Company’s primary concern during the COVID-19 pandemic is to do its part to protect its employees, customers, vendors and the general public from the spread of Contents

COVID-19 while continuing to serve the vital role of supplying essential goods to the nation. Where possible, our employees are working remotely from their homes. For essential functions, including our driving professionals, we have distributed cleaning and protective supplies to various terminals so that they are available to those that need them, increased cleaning frequency and coverage, and provided employees direction on precautionary measures, such as sanitizing truck interiors, personal hygiene, and social distancing. We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers.

As the escalation of the COVID-19 pandemic has extended through the end of the second quarter, the Company has experienced the increasing effects of weakening economic conditions, most notably the late March COVID-19 related shutdown of automotive customers, representing approximately 45% of the Company’s revenue. While we have vigorously sought to replace lost automotive revenue with freight from customers supporting the effort to supply essential goods to the nation, competition for this freight has increased as industry capacity has collectively focused on freight that has continued to move during this time. The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its continued severity, government regulations imposed in response to the pandemic, and its general effect on the economy and transportation demand.

While operating cash flows may be negatively impacted by the pandemic, the Company 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.

 

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

  

Three Months Ended

 

Six Months Ended

 
 

June 30,

  

June 30,

  

June 30,

 

June 30,

 
 

2019

  

2018

  

2019

  

2018

  

2020

  

2019

  

2020

  

2019

 
 

(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

  31.8   32.5   32.5   33.5  38.1  31.8  36.2  32.5 

Operating supplies and expenses

  4.1   1.2   4.9   2.0  15.7  4.1  10.7  4.9 

Rent and purchased transportation

  28.7   34.7   29.5   35.5  23.7  28.7  25.5  29.5 

Depreciation

  14.6   14.2   14.5   14.3  

20.2

  14.6  17.6  14.5 

Insurance and claims

  4.3   5.0   4.4   5.1  3.6  4.3  1.6  4.4 

Other

  3.5   3.2   3.3   3.1  2.5  3.5  4.4  3.3 

(Gain) loss on sale or disposal of property

  0.1   (0.6)  (0.1)  (0.3)

Loss (gain) on sale or disposal of property

  0.1   0.1   0.1   (0.1)

Total operating expenses

  87.1   90.2   89.0   93.2   103.9   87.1   96.1   89.0 

Operating income

  12.9   9.8   11.0   6.8 

Non-operating (expense) income

  (0.1)  0.6   1.6   (0.1)

Operating (loss) income

 (3.9) 12.9  3.9  11.0 

Non-operating income (expense)

 3.8  (0.1) (3.4) 1.6 

Interest expense

  (2.0)  (1.4)  (2.0)  (1.3)  (2.8)  (2.0)  (2.4)  (2.0)

Income before income taxes

  10.8   9.0   10.6   5.4 

(Loss) income before income taxes

  (2.9)  10.8   (1.9)  10.6 

17

 

THREE MONTHS ENDED JUNE 30, 20192020 VS. THREE MONTHS ENDED JUNE 30, 20182019

 

During the second quarter of 2019,2020, truckload services revenue, before fuel surcharges, increased 4.2%decreased 24.7% to $92.9$70.0 million as compared to $89.1$92.9 million during the second quarter of 2018.2019. The increasedecrease in revenue was primarily the result of increasesunfavorable market conditions experienced when more than 50% of the Company’s customers imposed COVID-19 related shutdowns during the quarter. This interruption in our average fleet size and average rate per mile charged to our customers during the second quarter 2019 compared to the second quarter 2018. These increases were partially offset by a decreaseregular sources of freight, particularly in the total numberautomotive sector, forced the Company to seek alternative revenue sources, much of miles drivenwhich was from the spot market. These factors combined to be the primary cause of the reduction in revenue, before fuel surcharges, for the second quarter of 20192020 compared to the second quarter of 2018.2019.

 

Salaries, wages and benefits decreasedincreased from 32.5%31.8% of revenues, before fuel surcharges, in the second quarter of 20182019 to 31.8%38.1% of revenues, before fuel surcharges, during the second quarter of 2019. This decrease2020. The percentage-based increase is primarily attributable to a decrease in group health insurance claims forresult of the second quarterinteraction of 2019 compared to the second quarter of 2018. To a lesser degree, the effect of higher revenues without a corresponding increase in those wagesexpenses with fixed costfixed-cost characteristics, such as general and administrative wages, also contributed tomaintenance wages, operations wages, and payroll taxes with a decrease in revenues for the decrease inperiods compared. On a dollar basis, salaries, wages and benefits as a percentagedecreased from $29.5 million during the second quarter 2019 to $26.6 million during the second quarter of revenues, before fuel surcharges.2020.

 

Operating supplies and expenses increased from 1.2% of revenues, before fuel surcharges, during the second quarter of 2018 to 4.1% of revenues, before fuel surcharges, during the second quarter of 2019.2019 to 15.7% of revenues, before fuel surcharges, during the second quarter of 2020. The increase relates primarily to an increase in the average surcharge-adjusted fuel price paid per gallon of diesel 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 increased aswhich was a result of lowerdecreased 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. Also contributing to the increase was an increase in the proportion of total miles driven by company drivers for the quarter ended June 30, 2020 compared to June 30, 2019. This increase in miles driven by company drivers has the effect of increasing our net operating supplies and expenses while decreasing the rent and purchased transportation category, as 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.

 

Rent and purchased transportation decreased from 34.7% of revenues, before fuel surcharges, during the second quarter of 2018 to 28.7% of revenues, before fuel surcharges, during the second quarter of 2019.2019 to 23.7% of revenues, before fuel surcharges, during the second quarter of 2020. The decrease was primarily due to a decrease in the number of loads transported by third partythird-party carriers during the second quarter 20192020 compared to the second quarter 2018.2019. This decrease occurred as the average number of company ownedcompany-owned trucks increased for the second quarter 20192020 compared to the second quarter 2018,2019, providing additional company-owned capacity and diminishing some of the need to utilize third partythird-party carriers.

 

Depreciation increased from 14.2% of revenues, before fuel surcharges, during the second quarter of 2018 to 14.6% of revenues, before fuel surcharges, during the second quarter of 2019.2019 to 20.2% of revenues, before fuel surcharges, during the second quarter of 2020. 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 20192020 compared to the second quarter of 2018.2019. Due to the fixed nature of depreciation, a decrease in operating revenues, before fuel surcharge, without a corresponding proportional decrease in depreciation increases depreciation expense as a percentage of operating revenues.

 

Insurance and claims expense decreased from 5.0% of revenues, before fuel surcharges, during the second quarter of 2018 to 4.3% of revenues, before fuel surcharges, during the second quarter of 2019. This decrease primarily resulted from our decision2019 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 the interaction of the increase in revenue with the decrease in total miles driven. Miles driven generally serve as the premium basis for the majority of our insurance coverage.

17

Table of Contents

Non-operating (expense)/income decreased from 0.6%3.6% of revenues, before fuel surcharges, during the second quarter of 2018 to (0.1%)2020. This decrease primarily resulted from a reduction in auto liability insurance premiums, as the Company became self-insured for certain layers of auto liability claims in excess of $1.0 million commencing September 1, 2019. During the second quarter of 2019, the Company paid for auto liability insurance coverage for claims in excess of $1.0 million through various third-party insurance carriers.

Non-operating income / (expense) decreased from (0.1)% of revenues, before fuel surcharges, during the second quarter of 2019.2019 to 3.8% of revenues, before fuel surcharges, during the second quarter of 2020. This decrease primarily resulted from a decrease in income related to the change in the market values of our portfolio of marketable equity securities. An approximateThe Company recorded a $2.5 million increase in the market values of our marketable equity securities in non-operating income / (expense) during the second quarter of 2020, compared to a $0.6 million lossdecrease 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 2018.2019.

 

InterestOther expense increaseddecreased from 1.4%3.5% of revenues, before fuel surcharges, during the second quarter 20182019 to 2.0%2.5% of revenues, before fuel surcharges, during the second quarter 2019.2020. This increasedecrease is primarily attributable to market increasesa decrease in interest rates.legal fees incurred in our defense against certain litigation described in Note L to our condensed consolidated financial statements.

 

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improvedincreased from 90.2% for the second quarter of 2018 to 87.1% for the second quarter of 2019.2019 to 103.9% for the second quarter of 2020.

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SIX MONTHS ENDED JUNE 30, 2020 VS. SIX MONTHS ENDED JUNE 30, 2019 VS. SIX MONTHS ENDED JUNE 30, 20201819

 

For the six months ended June 30, 2019,2020, truckload services revenue, before fuel surcharges, increased 7.8%decreased 11.8% to $182.9$161.3 million as compared to $169.7$182.9 million for the six months ended June 30, 2018.2019. The increasedecrease in revenue was primarily the result of increases in our average fleet size and average rate per mile charged to ourunfavorable market conditions experienced when more than 50% of the Company’s customers imposed COVID-19 related shutdowns during the second quarter 2019of 2020. This interruption in our regular sources of freight, particularly in the automotive sector, forced the Company to seek alternative revenue sources, much of which was from the spot market. These factors combined to be the primary cause of the reduction in revenue, before fuel surcharges, for the six months ended June 30, 2020 compared to the second quarter 2018. These increases were partially offset by a decrease in the total number of miles driven and by there being one less business day for the second quarter of 2019 compared to the second quarter of 2018.six months ended June 30, 2019.

 

Salaries, wages and benefits decreasedincreased from 33.5%32.5% of revenues, before fuel surcharges, in the first six months of 20182019 to 32.5%36.2% of revenues, before fuel surcharges, during the first six months of 2019. This decrease2020. The percentage-based increase is primarily attributable to decreases in worker’s compensation and group health insurance claims fora result of the first six monthsinteraction of 2019 compared to the first six months of 2018. To a lesser degree, the effect of higher revenues without a corresponding increase in those wagesexpenses with fixed costfixed-cost characteristics, such as general and administrative wages, also contributed tomaintenance wages, operations wages, and payroll taxes with a decrease in revenues for the decrease inperiods compared. On a dollar basis, salaries, wages and benefits as a percentagedecreased from $59.5 million during the second quarter 2019 to $58.3 million during the second quarter of revenues, before fuel surcharges.2020.

 

Operating supplies and expenses increased from 2.0% of revenues, before fuel surcharges, during the first six months of 2018 to 4.9% of revenues, before fuel surcharges, during the first six months of 2019.2019 to 10.7% of revenues, before fuel surcharges, during the first six months of 2020. The increase relates primarily to an increase in the average surcharge-adjusted fuel price paid per gallon of diesel 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 increased aswhich was a result of lowerdecreased 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. Also contributing to the increase was an increase in the proportion of total miles driven by company drivers for the six months ended June 30, 2020 compared to June 30, 2019. This increase in miles driven by company drivers has the effect of increasing our net operating supplies and expenses while decreasing the rent and purchased transportation category, as 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.

 

Rent and purchased transportation decreased from 35.5% of revenues, before fuel surcharges, during the first six months of 2018 to 29.5% of revenues, before fuel surcharges, during the first six months of 2019.2019 to 25.5% of revenues, before fuel surcharges, during the first six months of 2020. The decrease was primarily due to a decrease in the number of loads transported by third partythird-party carriers during the first six months 20192020 compared to the first six months 2018.2019. This decrease occurred as the average number of company ownedcompany-owned trucks increased for the first six months 20192020 compared to the first six months 2018,2019, providing additional company-owned capacity and diminishing some of the need to utilize third partythird-party carriers.

 

Depreciation increased from 14.3% of revenues, before fuel surcharges, during the first six months of 2018 to 14.5% of revenues, before fuel surcharges, during the first six months of 2019.2019 to 17.6% of revenues, before fuel surcharges, during the first six months of 2020. 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 20192020 compared to the first six months of 2018.2019. Due to the fixed nature of depreciation, a decrease in operating revenues, before fuel surcharge, without a corresponding proportional decrease in depreciation increases depreciation expense as a percentage of operating revenues.

 

Insurance and claims expense decreased from 5.1% of revenues, before fuel surcharges, during the first six months of 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 the interaction of the increase in revenue with the decrease in total miles driven. Miles driven generally serve as the premium basis for the majority of our insurance coverage.

Non-operating income/(expense) increased from (0.1%) of revenues, before fuel surcharges, during the first six months of 20182019 to 1.6% of revenues before fuel surcharges, during the first six months of 2019.2020. This increasedecrease primarily resulted from an increasea reduction in auto liability insurance premiums, as the Company became self-insured for certain layers of auto liability claims in excess of $1.0 million commencing September 1, 2019. During the first three months of 2019, the Company paid for auto liability insurance coverage for claims in excess of $1.0 million through various third-party insurance carriers. Also contributing to the decrease was the first quarter 2020 settlement of a lawsuit brought against the Company by individuals who asserted they were misclassified as owner-operators. The amount of the settlement was less than the amount previously reserved for the suit.

Non-operating income related/ (expense) decreased from 1.6% of revenues, before fuel surcharges, during the first six months of 2019 to (3.4%) of revenues, before fuel surcharges, during the first six months of 2020. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. An approximateThe Company recorded a $6.3 million decrease in the market value of our marketable equity securities in non-operating income / (expense) during the first six months of 2020, compared to a $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.

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Interest expense increased from 1.3% of revenues, before fuel surcharges, during the first six months of 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.

 

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improvedincreased from 93.2% for the first six months of 2018 to 89.0% for the first six months of 2019.2019 to 96.1% for the first six months of 2020.

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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

 
  

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

  5.5   4.1   6.4   4.2 

Rent and purchased transportation

  86.0   89.3   85.5   89.6 

Other

  2.4   1.0   1.2   1.0 

Total operating expenses

  93.9   94.4   93.1   94.8 

Operating income

  6.1   5.6   6.9   5.2 

Non-operating (expense) income

  (0.1)  0.3   0.8   (0.1)

Interest expense

  (1.0)  (0.6)  (1.0)  (0.6)

Income before income taxes

  5.0   5.3   6.7   4.5 

  

Three Months Ended

  

Six Months Ended

 
  

June 30,

  

June 30,

 
  

2020

  

2019

  

2020

  

2019

 
  

(percentages)

 
                 

Operating revenues, before fuel surcharge

  100.0   100.0   100.0   100.0 
                 

Operating expenses:

                

Salaries, wages and benefits

  6.0   5.5   5.7   6.4 

Rent and purchased transportation

  87.0   86.0   88.3   85.5 

Other

  2.2   2.4   2.5   1.2 

Total operating expenses

  95.2   93.9   96.5   93.1 

Operating income

  4.8   6.1   3.5   6.9 

Non-operating income (expense)

  2.1   (0.1)  (2.0)  0.8 

Interest expense

  (1.7)  (1.0)  (1.4)  (1.0)

Income before income taxes

  5.2   5.0   0.1   6.7 

 

THREE MONTHS ENDED JUNE 30, 20192020 VS. THREE MONTHS ENDED JUNE 30, 20182019

 

During the second quarter of 2019,2020, logistics and brokerage services revenue, before fuel surcharges, decreased 18.0%18.9% to $19.5$15.8 million as compared to $23.7$19.5 million during the second quarter of 2018.2019. The decrease relates to a decrease in the number of loads and to a decrease in average rates charged during the second quarter of 20192020 as compared to the second quarter of 2018.2019.

 

Salaries, wages and benefits increased from 4.1%5.5% of revenues, before fuel surcharges, in the second quarter of 20182019 to 5.5%6.0% of revenues, before fuel surcharges, during the second quarter of 2019.2020. The increase relates primarily to an increase in the number of employees utilized by logistics and brokerage service operations and to the effect of lower revenues without a corresponding decrease in those wages with fixed cost characteristics, such as general and administrative wages.

Rents and purchased transportation decreased from 89.3% of revenues, before fuel surcharges, during the second quarter of 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 income related to 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, improvedincreased from 94.4% for the second quarter of 2018 to 93.9% for the second quarter of 2019.2019 to 95.2% for the second quarter of 2020.

 

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Table

Non-operating income/(expense) increased from (0.1%) of Contents

revenues, before fuel surcharges, during the second quarter of 2020 to 2.1% of revenues, before fuel surcharges, during the second quarter of 2020. This increase primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $2.5 million increase in the market values of our marketable equity securities in non-operating income / (expense) during the second quarter of 2020, compared to a $0.6 million decrease in the market value of our marketable equity securities during the second quarter of 2019.

 

SIX MONTHS ENDED JUNE 30, 2020 VS. SIX MONTHS ENDED JUNE 30, 2019 VS. SIX MONTHS ENDED JUNE 30, 20201819

 

During the first six months of 2019,2020, logistics and brokerage services revenue, before fuel surcharges, decreased 5.9%8.8% to $39.8$36.3 million as compared to $42.3$39.8 million during the first six months of 2018.2019. The decrease relates to a decrease in average rates charged during the first six months of 20192020 as compared to the first six months of 2018.2019.

 

Salaries, wages and benefits increaseddecreased from 4.2%6.4% of revenues, before fuel surcharges, in the first six months of 20182019 to 6.4%5.7% of revenues, before fuel surcharges, during the first six months of 2019.2020. The increasedecrease relates primarily to an increasea decrease in the average number of employees utilized by logistics and brokerage service operations and to the effect of lower revenues without a corresponding decrease in those wages with fixed cost characteristics, such as general and administrative wages.operations.

 

Rents and purchased transportation decreasedincreased from 89.6% of revenues, before fuel surcharges, during the first six months of 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%)2019 to 88.3% 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. This2020. The increase primarily resulted from an increase in income related to the change in market valuespaying third-party carriers a larger percentage 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.

Interest expense increased from 0.6% of 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.customer revenue.

 

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improvedincreased from 94.8%93.1% for the first six months of 20182019 to 93.1%96.5% for the first six months of 2020.

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Non-operating income / (expense) decreased from 0.8% of revenues, before fuel surcharges, during the first six months of 2019 to (2.0%) of revenues, before fuel surcharges, during the first six months of 2020. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $6.3 million decrease in the market value of our marketable equity securities in non-operating income / (expense) during the first six months of 2020, compared to a $2.6 million increase in the market value of our marketable equity securities during the first six months of 2019.

 

RESULTS OF OPERATIONS – COMBINED SERVICES

 

THREE MONTHS ENDED JUNE 30, 20192020 VS. THREE MONTHS ENDED JUNE 30, 20182019

 

Net incomeloss for all divisions was approximately $0.8 million, or 1.0% of revenues, before fuel surcharges for the second quarter of 2020 as compared to net income of $8.7 million, or 7.7% of revenues, before fuel surcharges for the second quarter of 2019 as compared to2019. The decrease in net income resulted in diluted loss per share of $7.3 million, or 6.5% of revenues, before fuel surcharges$0.14 for the second quarter of 2018. The increase in net income resulted in2020 as compared to diluted earnings per share of $1.45 for the second quarter of 2019 as compared to diluted earnings per share of $1.17 for the second quarter of 2018.2019.

 

SIX MONTHS ENDED JUNE 30, 2020 VS. SIX MONTHS ENDED JUNE 30, 2019 VS. SIX MONTHS ENDED JUNE 30, 20201819

 

Net incomeloss for all divisions was approximately $2.1 million, or 1.1% of revenues, before fuel surcharges for the first six months of 2020 as compared to net income of $17.0 million, or 7.6% of revenues, before fuel surcharges for the first six months of 2019 as compared to2019. The decrease in net income resulted in a diluted loss per share of $8.7 million, or 4.1% of revenues, before fuel surcharges$0.37 for the first six months of 2018. The increase in net income resulted in2020 as compared to diluted earnings per share of $2.84 for the first six months of 2019 as compared to diluted earnings per share of $1.39 for the first six months of 2018.2019.

 

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, and borrowings under our lines of credit, installment notes, and our investment margin account.

 

During the first six months of 2019,2020, we generated $53.2$44.0 million in cash from operating activities. Investing activities used $18.5$19.0 million in cash in the first six months of 2019.2020. Financing activities used $34.7$24.9 million in cash in the first six months of 2019.2020.

 

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 2019,2020, we utilized cash on hand, installment notes, and our line of credit to finance purchases of revenue equipment and other assets of approximately $42.9$41.4 million.

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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 2019,2020, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately $32.4$18.4 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly installments.

 

During the remainder of 2019,2020, we expect to purchase approximately 320350 new trucks and 350250 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $43.6$34.6 million. Management believes we will be able to finance our near termnear-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 2019,2020, we maintained a revolving line of credit. 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, amountsAmounts outstanding under the line bear interest at LIBOR (determined as of the first day of each month) plus 1.25% (3.69%(1.43% at June 30, 2019)2020), are secured by our trade accounts receivable and mature on July 1, 2022. The amended credit facility also establishes anAn “unused fee” of 0.25% is charged if average borrowings are less than $18.0 million. At June 30, 20192020 outstanding advances on the line of credit were approximately $11.3$12.9 million, including approximately $0.6$0.4 million in letters of credit, with availability to borrow $48.7$47.1 million.

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Trade accounts receivable decreased from $61.8 million at December 31, 2019 to $56.4 million at June 30, 2020. The decrease resulted from a decrease in freight revenues, which flow through accounts receivable, during the second quarter of 2020 as compared to the fourth quarter of 2019.

 

Prepaid expenses and deposits decreased from $10.4$8.7 million at December 31, 20182019 to $7.8$7.3 million at June 30, 2019.2020. The decrease relates to the normal amortization of items prepaid as of December 31, 2018.2019.

 

Marketable equity securities increaseddecreased from $27.5$29.5 million at December 31, 20182019 to $29.5$25.7 million at June 30, 2019.2020. The $2.0$3.8 million increasedecrease was due to an increasea decrease in the market value of held marketable equity securities of $2.6$6.9 million, the purchase of marketable equity securities with a combined market value of approximately $0.1$3.9 million partially offset by salesand the sale of marketable equity securities with a combined market value of $0.7$0.8 million during the first six months of 2019.2020.

The Company purchased a 51.6-acre terminal in Laredo, TX which includes office, shop, and yard space during the six months ended June 30, 2020. This transaction resulted in an increase of $8.8 million in land and $10.9 million in structures and improvements recorded in our Condensed Consolidated Balance Sheet as of June 30, 2020.

Accounts payable increased from $16.6 million at December 31, 2019 to $29.5 million at June 30, 2020. This increase was primarily attributable to extended payment terms with certain suppliers.

 

Long-term debt and current maturities of long term-debt are reviewed on an aggregate basis, as the classification of amounts in each category are typically affected merely by the passage of time. Long-term debt and current maturities of long-term debt, on an aggregate basis, decreased from $221.2$241.8 million at December 31, 20182019 to $217.1$233.1 million at June 30, 2019.2020. The decrease was primarily related to the net effect of installment note payments made during the first six months of 2019,2020, partially offset by $32.4the addition of $18.4 million of additional borrowings receivedin equipment installment notes entered into during the first six months of 2019.the year.

 

NEW ACCOUNTING PRONOUNCEMENTS

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

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

 

Our primary market risk exposures include equity price risk, interest rate risk, commodity price risk (the price paid to obtain diesel fuel for our trucks), and foreign currency exchange rate risk. The potential adverse impact of these risks isare discussed below. While the 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 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.

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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 increaseddecreased to $29.5$25.7 million at June 30, 20192020 from $27.5$29.5 million at December 31, 2018.2019. 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 $2.9$2.6 million. For additional information with respect to the marketable equity securities, see Note D to our condensed consolidated financial statements.Condensed Consolidated Financial Statements.

 

Interest Rate Risk

Our line of credit bears interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR, which are affected by changes in interest rates, will affect the interest rate on, and therefore our costs under, the line of credit. Assuming $10.7$12.5 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 would result in approximately $107,000$125,000 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 20182019 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $5.2$5.1 million.

 

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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 20182019 expenditures denominated in pesos, a 10% increase in the exchange rate would increase our annual operating expenses by $267,000.$860,000.

 

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, 2019,2020, 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, 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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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-actioncollective- and class-action lawsuit which was re-filedfiled on December 9, 2016, in the United States District Court for the Western District of Arkansas. The plaintiffs, who areinclude current and former employee drivers who worked for the Company during the period of December 6,9, 2013, through the date of the filing,December 31, 2019, 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 “FailureLaw including “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. On February 18, 2020, the United States District Court for the Western District of Arkansas granted preliminary approval of a $16.5 million settlement reached with the plaintiffs. The lawsuitsettlement is being vigorously defendedsubject to final approval by the court. As of June 30, 2020, the preliminary settlement amount of $16.5 million is reserved in accrued expenses and we cannot reasonably estimate, at this time,other liabilities in the possible loss or range of loss, if any, that may arise from this lawsuit.Company’s consolidated balance sheets. Management has determined that any losses under this claim will not be covered by existing insurance policies.

 

On March 31, 2020, the United States District Court for the Western District of Arkansas dismissed the collective- and class-action lawsuit filed against the company on May 29, 2019 by plaintiffs, who were independent contractors alleging violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law. The plaintiffs, through their attorneys, alleged “misclassification as independent contractors, payment on the basis of miles without regard to the number of hours worked, improper deductions, and failure to pay minimum wage.” The dismissal of this lawsuit resulted when the Company and plaintiffs reached a settlement agreement and paid approximately $421,000, plus legal fees. Legal reserve accruals in excess of the amount outlined in the settlement agreement were reversed during the six months ended June 30, 2020, resulting in a reduction in accrued expenses and other liabilities in the Company’s consolidated balance sheets.

The Company’s participation in the settlements of the above matters does not constitute an admission by the Company of any fault or liability, and the Company does not admit any fault or liability.

Item 1A.Risk Factors.

Except as noted below, there have been no material changes to the Company’s risk factors as previously disclosed in Item 1A to Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

The coronavirus outbreak or other similar outbreaks could negatively impact our financial condition, liquidity, results of operations, and cash flows.

The recent outbreak of the novel coronavirus (COVID-19), and any other outbreaks of contagious diseases or other adverse public health developments, could have a materially adverse effect on our financial condition, liquidity, results of operations, and cash flows. The rapid spread of COVID-19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns. These measures and the public health concerns resulting from the outbreak have severely disrupted economic and commercial activity. The resulting impact on domestic and global supply chains has caused slowdowns and reduced freight demand for transportation companies such as ours. Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues have been significantly affected by the closure of North American automotive manufacturing facilities beginning in late March. Our automotive customers resumed partial operations during the second quarter, however the extent to which production will return to pre-pandemic levels remains uncertain. Any additional delays in the resumption of automotive production and other consumer activity affecting our customers as well as any future wave of the virus or other similar outbreaks could further adversely affect our business. In addition, the implementation of measures to protect the health and safety of our employees, customers, vendors and the general public may disrupt our ability to efficiently manage personnel and operations and to recruit and retain driver and non-driver personnel, which could have a material adverse effect on our operating results. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID-19 or other similar outbreaks could have a material adverse effect on our liquidity and our ability to effectively meet our short- and long-term financial obligations.

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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 255,208280,179 shares of its common stock under this repurchase program.

 

On May 13, 2019, the Company commenced a tender offer to repurchase up to 200,000No shares ofwere repurchased under the Company’s outstanding common stock at a price of not greater than $60.00 nor less than $55.00 per share. Following the expiration of the tender offer on June 11, 2019, the Company accepted 192,743 shares of its common stock for purchase at $60.00 per share, at an aggregate purchase price of approximately $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 following table summarizes the Company’s common stock repurchasesprogram during the second quarter of 2019. No shares were purchased during the quarter other than through this program or through the 2019 tender offer, and all purchases were made by or on behalf of the Company and not by any “affiliated purchaser.”2020.

Issuer Purchases of Equity Securities

                
Period 

Total number

of shares

purchased

  

Average

price paid

per share

  

Total number of

shares purchased

as part of publicly

announced plans or

programs

  

Maximum number

of shares that may

yet be purchased

under the plans or

programs(1)

 

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

  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 2019 tender offer.

 

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Item 6. 6. Exhibits.

 

Exhibit

Number

Exhibit Description

   

3.1

 

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

3.2Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Registrant, filed with the Secretary of State of the State of Delaware on April 30, 2020 (incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed on May 1, 2020.)

3.23.3

 

Amended and Restated By-Laws of the Registrant (incorporated by reference to Exhibit 3.2 of the Company's Form 8-K filed on December 11, 2007.)

4.13.4

 

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

4.2

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 4.23.2 of the Company’s Form 8-K filed on January 31, 2019.7, 2020.)

4.3

3.5
 

Second Amendment to the Amended and Restated Loan Agreement, dated January 25, 2019 by and among P.A.M. Transport, Inc., First Tennessee Bank National Association andBy-Laws of the CompanyRegistrant (incorporated by reference to Exhibit 4.33.3 of the Company’s Form 8-K filed on January 31, 2019.August 5, 2020.)

4.4

Fifth Amended and Restated Consolidated Revolving Credit Note, dated January 25, 2019, by P.A.M. Transport, Inc. in favor of First Tennessee Bank National Association (incorporated by reference to Exhibit 4.4 of the Company’s Form 8-K filed on January 31, 2019.)

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.)

4.6

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 January 25, 2019, in favor of First Tennessee Bank National Association (incorporated by reference to Exhibit 4.7 of the Company’s Form 8-K filed on January 31, 2019.)

31.1

 

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

31.2

 

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

32.1

 

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

101.INS

 

Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document).

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

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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 2, 20194, 2020

By: /s/ Daniel H. CushmanMatthew T. Moroun

 

Daniel H. CushmanMatthew T. Moroun

 

President and Chief Executive Officer

 

(principal executive officer)

  

Dated: August 2, 20194, 2020

By: /s/ Allen W. West

 

Allen W. West

 

Vice President-Finance, Chief Financial

 

Officer, Secretary and Treasurer

 

(principal accounting and financial officer)

 

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