0000798287 PAM TRANSPORTATION SERVICES INC false --12-31 FY 2020 3,482 2,952 0.01 0.01 10,000,000 10,000,000 0 0 0.01 0.01 40,000,000 40,000,000 11,695,719 11,656,160 5,727,895 5,748,897 5,967,824 5,907,263 0 4 0.01 0.01 0 0 3 5,000 5,000 5,000 4 4 0 0 0 0 5 5 Equipment financings consist of installment obligations for revenue equipment purchases, payable in various monthly installments with various maturity dates through September 2026, at a weighted average interest rate of 3.30% as of December 31, 2020 and collateralized by revenue equipment. Short-term lease cost includes leases with a term of twelve months or less and leases with options for early cancellation. Real estate financing consisting of an installment obligation for the purchase of real estate in Laredo, TX, payable in 120 installments at an interest rate of 3.02% and maturing in August 2030. This obligation is collateralized by the underlying real estate and any rental income generated by the underlying real estate. Other comprehensive income for 2020, 2019 and 2018 was $0, $0, and $0, respectively. Line of credit agreement with a bank provides for maximum borrowings of $60.0 million and contains certain restrictive covenants that must be maintained by the Company on a consolidated basis. Borrowings on the line of credit are at an interest rate of LIBOR as of the first day of the month plus 1.25% (1.40% at December 31, 2020) and are secured by our trade accounts receivable. An “unused fee” of 0.25% is charged if average daily borrowings are less than $18.0 million in a given month. Monthly payments of interest are required under this agreement. Also, under the terms of the agreement the Company must maintain a debt to adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization, excluding gains/losses on equity securities and extraordinary items) ratio of less than 4.00:1. The Company was in compliance with all provisions under this agreement throughout 2020. At December 31, 2020, outstanding advances on the line were approximately $18.6 million, including letters of credit totaling $0.3 million, with availability to borrow $41.4 million. 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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the Fiscal Year Ended December 31, 2020

or

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

 

For the transition period from ________to________

 

 

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 Blvd, Tontitown, Arkansas 72770

(Address of principal executive offices) (Zip Code)

 

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

 

N/A

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

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $.01 par value

PTSI

NASDAQ Global Market

 

Securities registered pursuant to section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ☐

No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ☐

No ☑ 

 

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 such 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

 

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

Yes

No ☑ 

 

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant computed by reference to the average of the closing bid and ask prices of the common stock as of the last business day of the registrant's most recently completed second quarter was $55,474,883. Solely for the purposes of this response, the registrant has assumed, without admitting for any purpose, that all executive officers and directors of the registrant, and no other persons, are the affiliates of the registrant at that date.

 

The number of shares outstanding of the registrant’s common stock, as of February 24, 2021: 5,724,939 shares of $.01 par value common stock.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held on May 5, 2021, are incorporated by reference in Part III of this report.

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K (this “Report”) contains forward-looking statements, including statements about our operating and growth strategies, our expected financial position and operating results, industry trends, our capital expenditure and financing plans and similar matters. Such forward-looking statements are found throughout this Report, including under Item 1, Business, Item 1A, Risk Factors, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 7A, Quantitative and Qualitative Disclosures About Market Risk. In those and other portions of this Report, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “project”, “could”, “should”, “would” and similar expressions, as they relate to us, our management, and our industry are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. Actual results may differ materially. Some of the risks, uncertainties and assumptions that may cause actual results to differ from these forward-looking statements 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’ 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’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; the impact of future or pending litigation; 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; and other factors described under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Quantitative and Qualitative Disclosures About Market Risk” of this Report.

 

All forward-looking statements attributable to us, or to persons acting on our behalf, are expressly qualified in their entirety by this cautionary statement.

 

We undertake no obligation to publicly update or revise any 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 in this Report might not transpire.

 

 

 

 

P.A.M. TRANSPORTATION SERVICES, INC.

FORM 10-K

For the fiscal year ended December 31, 2020.

TABLE OF CONTENTS

 

    Page

PART I

Item 1

Business

1

Item 1A

Risk Factors

8

Item 1B

Unresolved Staff Comments

17

Item 2

Properties

17

Item 3

Legal Proceedings

17

Item 4

Mine Safety Disclosures

17

     

PART II

Item 5

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

18

Item 6

Selected Financial Data

20

Item 7

Management's Discussion and Analysis of Financial Condition and Results of Operations

21

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

32

Item 8

Financial Statements and Supplementary Data

33

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

64

Item 9A

Controls and Procedures

64

Item 9B

Other Information

66

     

PART III

Item 10

Directors, Executive Officers and Corporate Governance

66

Item 11

Executive Compensation

66

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

66

Item 13

Certain Relationships and Related Transactions, and Director Independence

66

Item 14

Principal Accounting Fees and Services

67

     

PART IV

Item 15

Exhibits, Financial Statement Schedules

67

     
 

SIGNATURES

70

 

 

 

 

PART I

 

 

Item 1. Business.

 

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

 

We are a truckload dry van carrier transporting general commodities throughout the continental United States, as well as in certain Canadian provinces. We also provide transportation services in Mexico under agreements with Mexican carriers. Our freight consists primarily of automotive parts, expedited goods, consumer goods, such as general retail store merchandise, and manufactured goods, such as heating and air conditioning units.

 

P.A.M. Transportation Services, Inc. is a holding company incorporated under the laws of the State of Delaware in June 1986. We conduct operations principally through the following wholly owned subsidiaries: P.A.M. Transport, Inc., T.T.X., LLC, P.A.M. Cartage Carriers, LLC, Overdrive Leasing, LLC, P.A.M. Logistics Services, Inc., Choctaw Express, LLC, Choctaw Brokerage, Inc., Transcend Logistics, Inc., Decker Transport Co., LLC, East Coast Transport and Logistics, LLC, S & L Logistics, Inc., P.A.M. International, Inc, and P.A.M. Mexico Holdings LLC. Our operating authorities are held by P.A.M. Transport, Inc., P.A.M. Cartage Carriers, LLC, Choctaw Express, LLC, Choctaw Brokerage, Inc., T.T.X., LLC, Decker Transport Co., LLC, and East Coast Transport and Logistics, LLC. Effective on January 1, 2010, the operations of most of the Company’s operating subsidiaries were consolidated under the P.A.M. Transport, Inc. name in an effort to more clearly reflect the Company’s scope and available service offerings.

 

We are headquartered and maintain our primary terminal, maintenance facilities, and our corporate and administrative offices in Tontitown, Arkansas, which is located in northwest Arkansas, a major center for the trucking industry and where the support services for most major truck and trailer equipment manufacturers are readily available.

 

Segment Financial Information

 

The Company's operations are all in the motor carrier segment and are aggregated into a single reporting segment in accordance with the aggregation criteria under Generally Accepted Accounting Principles (“GAAP”).

 

Operations

 

Our operations can generally be classified into 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. Truckload services operating revenues, before fuel surcharges, represented 76.9%, 82.7% and 80.0% of total operating revenues for the years ended December 31, 2020, 2019 and 2018, respectively. The remaining operating revenues, before fuel surcharge, for the same periods were generated by brokerage and logistics services, representing 23.1%, 17.3% and 20.0%, respectively.

 

Approximately 66% of the Company's revenues are derived from domestic shipments while approximately 34% of the Company’s revenues are derived from freight originating from or destined to locations in Mexico or Canada.

 

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Impact of COVID-19

 

The Company’s primary concern during the COVID-19 pandemic has been to do its part to protect its employees, customers, vendors and the general public from the spread of 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 extended through the end of the second quarter, the Company 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 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 increased as industry capacity collectively focused on freight that continued to move during this time. With the return of automotive production in June, the increase in general economic activity as we approached the end of the second quarter, cost reductions implemented in response to the pandemic, and other operational initiatives, we were able to return to normal operations during the third quarter and finished the year with record quarterly revenue and operating income in the fourth quarter.

 

While we believe we are well-positioned for success in 2021 and are optimistic about fully returning to a normal operating and business environment as the year progresses, we continue to monitor ongoing developments with the COVID-19 pandemic. Any future waves or outbreaks of alternative strains of the virus could adversely impact our future operations and financial results. The ultimate extent of the pandemic’s 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, any further government regulations imposed in response to the pandemic, and its continued 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 continue 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.

 

Business and Growth Strategy

 

Our strategy focuses on the following elements:

 

Providing a Full Suite of Complimentary Truckload Transportation Solutions. Our objective is to provide our customers with a comprehensive solution to their truckload transportation needs. Our array of asset-based service offerings consist of dedicated, expedited, automotive, local, regional, and long-haul truckload services. Our brokerage and logistics solutions offer similar services but utilize third-party equipment to expand available capacity. Our area of service includes the continental United States, Mexico and to a lesser degree Canada.

 

Developing Customer Relationships within High Density Traffic Lanes. We strive to maximize utilization and increase revenue per truck while minimizing our time and empty miles between loads. In this regard, we seek to provide equipment to our customers in defined regions and disciplined traffic lanes. This strategy enables us to:

 

maintain more consistent equipment capacity;

 

provide a high level of service to our customers, including time-sensitive delivery schedules;

 

attract and retain drivers; and

 

maintain a sound safety record as drivers travel familiar routes.

 

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Providing Superior and Flexible Customer Service. We strive to provide a very high level of service to our customers, thus creating a level of satisfaction, value and loyalty within our customer base. We closely monitor each shipment for compliance regarding scheduled pickup, delivery and transit times, service levels and customer specific expectations. We provide verbal and electronic updates through various forums to customers to allow visibility of their products as they progress through the transport process.

 

Many of our customers depend on us to deliver shipments on a time-definite basis, meaning that parts or raw materials are scheduled for delivery as they are needed on a manufacturer’s production line. The need for this service is a product of modern manufacturing and assembly methods that are designed to decrease inventory levels and handling costs. Such requirements place a premium on our delivery performance and reliability.

 

Employing Stringent Cost Controls. Throughout our organization, emphasis is placed on gaining efficiency in our processes with the primary goals of decreasing costs and improving customer satisfaction. Maintaining a high level of efficiency and prioritizing our focus on improvements allows us to minimize the number of non-driving personnel we employ and positively influence other overhead costs. Expenses are intensely scrutinized for opportunities for elimination, reduction or to further leverage our purchasing power to achieve more favorable pricing.

 

Industry

 

According to the American Trucking Association’s “American Trucking Trends 2019” report, the trucking industry generated over $791 billion in revenue during 2019 which represented approximately 80% of the total U.S. freight spend. The truckload industry is highly fragmented and is impacted by several economic and business factors, many of which are beyond the control of individual carriers. The state of the economy, coupled with equipment capacity levels, can impact freight rates. Volatility of various operating expenses, such as fuel and insurance, make the predictability of profit levels uncertain. Availability, attraction, retention and compensation of drivers also affect operating costs, as well as equipment utilization. In addition, the capital requirements for equipment, coupled with potential uncertainty of used equipment values, impact the ability of many carriers to expand their operations.

 

The current operating environment is characterized by the following:

 

competition for drivers;

 

competition for freight;

 

price increases by truck and trailer equipment manufacturers;

 

volatile fuel costs; and

 

pressure on less profitable or undercapitalized carriers to consolidate or exit the industry.

 

Competition

 

The trucking industry is highly competitive and includes thousands of carriers, none of which dominates the market in which the Company operates. The Company's market share is less than 1%, and we compete primarily with other medium and long-haul truckload carriers, with private carriage conducted by our existing and potential customers, and, to a lesser extent, with the railroads. We compete on the basis of quality of service and delivery performance, as well as price. Many of the carriers we compete with have substantially greater financial resources, own more equipment or carry a larger total volume of freight as compared to the Company.

 

Marketing and Significant Customers

 

Our marketing emphasis is directed to that portion of the truckload market which is generally service-sensitive, as opposed to being solely price driven. We seek to become a “core carrier” for our customers in order to maintain high utilization and capitalize on recurring revenue opportunities. Our marketing efforts are diversified and designed to gain access to dedicated, expedited, regional, automotive, and long-haul opportunities (including those in Mexico and Canada) and to expand brokerage and logistics offerings.

 

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Our sales efforts are conducted by a staff of ten employees who are located in our major markets and supervised from our headquarters. These individuals work to improve profitability by maintaining an even flow of freight traffic (taking into account the balance between originations and destinations in a given geographical area), high utilization, and minimizing movement of empty equipment.

 

Our five largest customers, for which we provide carrier services covering a number of geographic locations, accounted for approximately 35%, 40% and 42% of our total revenues in 2020, 2019 and 2018, respectively. General Motors Company accounted for approximately 15%, 19% and 13% of our revenues in 2020, 2019 and 2018, respectively. Fiat Chrysler Automobiles accounted for approximately 6%, 9% and 16% of our revenues in 2020, 2019 and 2018, respectively. Ford Motor Company accounted for approximately 5%, 7% and 8% of our revenues in 2020, 2019 and 2018, respectively.

 

We also provide transportation services to other manufacturers who are suppliers for automobile manufacturers. Approximately 30%, 40% and 46% of our revenues were derived from transportation services provided to the automobile industry during 2020, 2019 and 2018, respectively.

 

Revenue Equipment

 

At December 31, 2020, we operated a fleet of 2,013 trucks, which included 355 independent contractor trucks. At December 31, 2020, our trailer fleet consisted of 6,944 trailers. Our company-owned trucks and leased trucks are late model, well-maintained, premium trucks, which we believe help to attract and retain drivers, maximize fuel efficiency, promote safe operations, minimize maintenance and repair costs, and improve customer service by minimizing service interruptions caused by breakdowns. The average age of our trucks and trailers as of December 31, 2020 was 1.44 years and 4.92 years, respectively. We evaluate our equipment purchasing decisions based on factors such as initial cost, useful life, warranty terms, expected maintenance costs, fuel economy, driver comfort, customer needs, manufacturer support, and resale value.

 

We contract with independent contractors to provide greater flexibility in responding to fluctuations in consumer demand. Independent contractors provide their own trucks and are contractually responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and taxes, among other things. They are also responsible for maintaining compliance with the Federal Motor Carrier Safety Administration regulations.

 

Technology

 

Our trucks are equipped with cellular-based global positioning and communications systems that allow fleet managers to communicate directly with drivers. Drivers provide location, status, and informational updates directly to our computer system which increases productivity, convenience, and customer visibility. This system provides information that allows us to calculate accurate estimated time of arrival information, which helps to optimize planning and customer service levels.

 

Our information systems manage the data provided by our on-board devices to update system information regarding the location and load status of our trucks, which permits us to better manage customer delivery schedules, respond to customer inquiries, and perform optimized equipment to load matching, among various other planning and support functions. In many instances, our systems also directly provide real-time information electronically to our customers regarding the status of freight shipments and anticipated arrival times, adding flexibility and convenience by extending supply chain visibility.

 

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Maintenance

 

We have a strictly-enforced, comprehensive preventive maintenance program for our trucks and trailers. Inspections and various levels of preventive maintenance are performed at set intervals on both trucks and trailers. A maintenance and safety inspection is performed on all vehicles each time they return to a terminal.

 

Our trucks typically carry full warranty coverage for at least three years or 375,000 miles. Extended truck warranties are often negotiated with the truck manufacturers and manufacturers of major components, such as engine, transmission, and differential manufacturers, for up to five years or 575,000 miles. Our trailers carry full warranties by the manufacturer for up to seven years with certain components covered for up to ten years.

 

Human Capital Resources

 

Overview. At December 31, 2020, we employed 2,653 persons, of whom 2,021 were drivers, 170 were employed in maintenance, 267 were employed in operations, 56 were employed in marketing, 78 were employed in safety and personnel, and 61 were employed in general administration and accounting. A total of 2,650 of our employees were employed on a full-time basis as of December 31, 2020. None of our employees are represented by a collective bargaining unit, and we believe that our employee relations are good.

 

At December 31, 2020, we also had 449 drivers for independent contractors under contract who were compensated on a per mile basis. Our drivers are paid for an array of services, including calculated miles driven, loading and unloading, additional stops, detention and layovers, among other things.

 

We contract with independent contractors to supply one or more trucks and drivers for our use. Independent contractors must pay their own truck expenses, fuel, maintenance, insurance, and driver costs. They must meet and operate within our guidelines with respect to safety. We have a lease-purchase program whereby we offer independent contractors the opportunity to lease a truck, with the option to purchase the truck at the end of the lease term. We believe our lease-purchase program has contributed to our ability to attract and retain independent contractors. At December 31, 2020, approximately 305 independent contractors were leasing 393 trucks in this program.

 

Diversity and Inclusion. We believe diversity, equity, and inclusion are critical to our ability to win in the marketplace and enable our workforce and communities to succeed. Specifically, having a diverse and inclusive workplace allows us to attract and retain the best employees to deliver results for our shareholders. A qualified, diverse and inclusive workforce also helps us represent the broad cross-section of ideas, values, and beliefs of our employees, customers, and communities. Our commitment to diversity and inclusion means that we will continue to strive to establish and improve an inclusive workplace environment where employees from all backgrounds can succeed and be heard.

 

Employee Health and Safety. We are committed to being an industry leader in health and safety standards. The physical health, wellbeing, and mental health of our employees is crucial to our success. Most recently, our primary concern during the COVID-19 pandemic has been to do our part to protect our employees, customers, vendors and the general public from the spread of 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.

 

In addition to strict application screening and drug testing, before being permitted to operate a vehicle, our drivers must undergo classroom instruction on our policies and procedures, safety techniques as taught by the Smith System of Defensive Driving, and the proper operation of equipment, and must pass both written and road tests. Instruction in defensive driving and safety techniques continues after hiring, with seminars at several of our terminals. At December 31, 2020, we employed 64 persons on a full-time basis in our driver recruiting, training and safety instruction programs.

 

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Talent Acquisition, Retention and Development. We continually strive to hire, develop and retain the top talent in our industry. Critical to attracting and retaining top talent is employee satisfaction, and we regularly implement programs to increase employee satisfaction. We reward our employees by providing competitive compensation, benefits and incentives throughout all levels in our organization, including for our drivers. Drivers can earn bonuses by recruiting other qualified drivers who become employed by us, and both cash and non-cash prizes are awarded for achieving certain safety and fuel efficiency goals.

 

Intense competition in the trucking industry for qualified drivers has resulted in additional expense to recruit and retain an adequate supply of drivers, and has had a negative impact on the industry. Our operations have also been impacted and from time to time we have experienced under-utilization and increased expenses due to a shortage of qualified drivers. We place a high priority on the recruitment and retention of an adequate supply of qualified drivers.

 

Our fleet averages one and a half years old, keeping our drivers safe, comfortable, and on the road. With many dedicated and over-the-road assignments, we allow our drivers to select routes that fit their lifestyles. We also have programs specifically designed to recruit and retain drivers who are military veterans, including our civilian career transition program called Honor Road, which provides military members and veterans on-the-job training allowing them to build a new career and earn compensation from the Company while receiving benefits from G.I. Bills. We are also proud to offer our Patriot Ride Fleet, in association with The Larson Group/Peterbilt and Bravo3Zero apparel, as a way to honor our uniformed service members past and present. Each unit is designed to pay tribute to a specific branch, and the professional men and women at their helms are veterans of the respective branch. We refer to these drivers as Ambassadors, as they continue to serve their country by safely delivering the goods needed to keep America moving.

 

Available Information

 

The Company maintains a website where additional information concerning its business can be found. The website address is www.pamtransport.com. On our website, under the caption “Investors,” the Company makes available, free of charge, its Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after it electronically files or furnishes such materials to the Securities and Exchange Commission.

 

Seasonality

 

Generally, our revenues do not exhibit a significant seasonal pattern; however, revenue is affected by adverse weather conditions, holidays and the number of business days that occur during a given period because revenue is directly related to the available work days of shippers. Operating expenses are typically higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs associated with inclement weather. In addition, automobile plants for which we transport a large amount of freight typically undergo scheduled shutdowns in July and December, and the volume of automotive freight we ship is reduced during such scheduled plant shutdowns.

 

Regulation

 

We are a common and contract motor carrier regulated by various United States federal and state, Canadian provincial, and Mexican federal agencies. These regulatory agencies have broad powers, generally governing matters such as authority to engage in motor carrier operations, motor carrier registration, driver hours-of-service (“HOS”), drug and alcohol testing of drivers, and safety, size, and weight of transportation equipment. The primary regulatory agencies affecting the Company’s operations include the Federal Motor Carrier Safety Administration (“FMCSA”), the Pipeline and Hazardous Materials Safety Agency, and the Surface Transportation Board, which are all agencies within the U.S. Department of Transportation (“DOT”). We believe that we are in compliance in all material respects with applicable regulatory requirements relating to our business and operate with a “satisfactory” rating (the highest of three rating categories) from the DOT. In addition, we are subject to compliance with cargo-security and transportation regulations issued by the Transportation Security Administration, a component department within the U.S. Department of Homeland Security. To the extent that we conduct operations outside the United States, we are subject to the Foreign Corrupt Practices Act, which generally prohibits U.S. companies and their intermediaries from offering bribes to foreign officials for the purpose of obtaining or retaining favorable treatment.

 

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In December 2011, the FMCSA released new rules regulating HOS that became effective in July 2013. These rules reduced the maximum hours that could be worked in a consecutive seven day period from 82 to 70, required that a driver take a mandatory thirty minute break during each consecutive eight hour driving period, and required that a driver take a 34 hour rest period, or restart, that included two periods between 1:00 a.m. and 5:00 a.m. that could only be used one time every seven calendar days.

 

In July 2012, Congress passed legislation renewing the mandate for electronic logging devices and designated authority to the FMCSA to propose a new rule. In December 2015, the FMCSA amended the Federal Motor Carrier Safety Regulations to establish minimum performance and design standards for HOS electronic logging devices (“ELDs”), requirements for the mandatory use of these devices by drivers currently required to prepare HOS records of duty status, requirements concerning HOS supporting documents, and measures to address concerns about harassment resulting from the mandatory use of ELDs. In May 2018 the FMCSA released a notice that they would allow a motor carrier that installed and required its drivers to use an Automatic on Board Recording Device (“AOBRD”) before December 18, 2017 and who uses registered ELD capable devices that run compliant AOBRD software to continue to do so until December 16, 2019. The Company was an early adopter of ELD capable devices, requiring the devices to be installed on its entire fleet and requiring its drivers to use AOBRD’s since 2010. These rulings affect the majority of carriers, including us, and the Company’s ELD devices were in compliance with FMCA requirements prior to the December 16, 2019 deadline.

 

The FMCSA administers carrier safety compliance and enforcement through its Compliance, Safety, Accountability (“CSA”) program that became effective in December 2010. CSA is designed to measure and evaluate the safety performance of carriers and drivers through categorization of inspection and crash results into Behavior Analysis and Safety Improvement Categories (“BASICs”) including unsafe/fatigued driving, driver fitness, controlled substances and alcohol, maintenance, cargo, and crashes. BASIC scores are evaluated relative to carrier peer groups to determine carriers that exceed certain thresholds, identifying them for intervention. Intervention status might include targeted roadside inspections, onsite investigations and the development of cooperative safety plans, among other things. Ongoing compliance with CSA may result in additional expenses to the Company or a reduction in the pool of drivers eligible for us to hire. In addition to FMCSA action, a BASIC score that exceeds an intervention threshold might have a negative impact on our ability to attract customers and drivers.

 

The Environmental Protection Agency (“EPA”) and the National Highway Traffic Safety Administration (“NHTSA”) jointly developed new standards for various vehicles, including heavy duty trucks, that were adopted in August 2011 and cover model years 2014 through 2018. The standard adopted for heavy duty trucks was intended to achieve a reduction in CO2 and fuel consumption ranging from 7% to 20% by model year 2017. In August 2016, the EPA and NHTSA finalized the second phase of these standards which will further reduce GHG emissions and fuel consumption for heavy duty trucks through model year 2027. Compliance with these federal and state requirements has increased the cost of our equipment and may further increase the cost of replacement equipment in the future.

 

The FMCSA Commercial Driver’s License (“CDL”) Drug and Alcohol Clearinghouse (“Clearinghouse”) became effective January 6, 2020. This new database contains information pertaining to violations of the U.S. Department of Transportation controlled substances and alcohol testing program for holders of CDL’s. The Clearinghouse rules requires FMCSA regulated employers, among others, to report to the Clearinghouse information related to violations of the drug and alcohol regulations. Further, the rules require that FMCSA regulated employers query current and prospective employees’ drug and alcohol violations before permitting those employees to operate a commercial motor vehicle on public roads, and to recheck each employee annually. The system is intended to remove the ability of prospective employees to fail to disclose past drug and alcohol violations at previous employers to potential employers. We anticipate enforcement of the Clearinghouse will remove certain drivers from the pool of drivers available to the industry and increase competition and related costs to attract and retain the remaining qualified drivers.

 

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Our motor carrier operations are also subject to environmental laws and regulations, including laws and regulations dealing with the transportation of hazardous materials and other environmental matters, and our operations involve certain inherent environmental risks. These laws and regulations have the effect of increasing the costs, risks and liabilities associated with our applicable operations. If current regulatory requirements become more stringent or new environmental laws and regulations are introduced, we could be required to make significant expenditures or abandon certain activities. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. We have instituted programs to monitor and control environmental risks and assure compliance with applicable environmental laws. As part of our safety and risk management program, we periodically perform internal environmental reviews so that we can achieve environmental compliance and avoid environmental risk. We transport a minimal amount of environmentally hazardous substances and, to date, have experienced no significant claims for hazardous materials shipments. If we should fail to comply with applicable regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

 

As global warming issues become more prevalent, federal, state and local governments, as well as some of our customers, have made efforts to respond to these issues. This increased focus on sustainability may result in new legislation or regulations and customer requirements that could negatively affect us as we may incur additional costs or be required to make changes to our operations in order to comply with any new regulations or customer requirements. Legislation or regulations that potentially impose restrictions, caps, taxes, or other controls on emissions of greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels such as those used in the Company’s trucks, could adversely affect our operations and financial results. More specifically, legislative or regulatory actions relating to climate change could adversely impact the Company by increasing our fuel costs and reducing fuel efficiency and could result in the creation of substantial additional capital expenditures and operating costs in the form of taxes, emissions allowances, or required equipment upgrades.

 

Company operations are often conducted in industrial areas, where truck terminals and other industrial activities are conducted, and where groundwater or other forms of environmental contamination have occurred, which could potentially expose us to claims that we contributed to the environmental contamination.

 

We believe we are currently in material compliance with applicable laws and regulations and that the cost of compliance has not materially affected results of operations.

 

Item 1A. Risk Factors.

 

Set forth below, and elsewhere in this Report and in other documents we file with the SEC, are risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Report.

 

Risks Related to Our Industry

 

Our business is subject to general economic and business factors that are largely beyond our control, any of which could have a material adverse effect on our operating results.

 

Our business is dependent upon a number of general economic and business factors that may adversely affect our results of operations. These factors include significant increases or rapid fluctuations in fuel prices, excess capacity in the trucking industry, surpluses in the market for used equipment, interest rates, fuel taxes, license and registration fees, insurance premiums, self-insurance levels, and difficulty in attracting and retaining qualified drivers, independent contractors, and third-party carriers.

 

We operate in a highly competitive and fragmented industry, and our business may suffer if we are unable to adequately address any downward pricing pressures or other factors that may adversely affect our ability to compete with other carriers.

 

Further, we are affected by recessionary economic cycles and downturns in customers’ business cycles, particularly in market segments and industries, such as the automotive industry, where we have a significant concentration of customers. Economic conditions may also adversely affect our customers and their ability to pay for our services.

 

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Deterioration in the United States and/or world economies could exacerbate any difficulties experienced by our customers and suppliers in obtaining financing, which, in turn, could materially and adversely impact our business, financial condition, results of operations and cash flows.

 

We may be adversely impacted by fluctuations in the price and availability of diesel fuel.

 

Diesel fuel represents a significant operating expense for the Company and we do not currently hedge against the risk of diesel fuel price increases. An increase in diesel fuel prices or diesel fuel taxes, or any change in federal or state regulations that results in such an increase, could have a material adverse effect on our operating results to the extent we are unable to recoup such increases from customers in the form of increased freight rates or through fuel surcharges. Historically, we have been able to offset, to a certain extent, diesel fuel price increases through fuel surcharges to our customers, but we cannot be certain that we will be able to do so in the future. We continuously monitor the components of our pricing, including base freight rates and fuel surcharges, and address individual account profitability issues with our customers when necessary.

 

Difficulty in attracting drivers and independent contractors could affect our profitability and ability to grow.

 

The transportation industry often experiences significant difficulty in attracting and retaining qualified drivers and independent contractors. This shortage is exacerbated by several factors, including demand from competing industries, such as manufacturing, construction and farming, demand from other transportation companies, and the impact of regulations, including CSA and hours of service rules, the temporary closure of commercial driver schools during the COVID-19 outbreak, and other difficulties attracting and training new drivers in the current socially distanced environment. Economic conditions affecting operating costs such as fuel, insurance, equipment and maintenance costs can negatively impact the number of qualified independent contractors available to us. We have from time to time experienced under-utilization and increased expenses due to a shortage of qualified drivers. If we are unable to attract drivers or contract with independent contractors when needed, we could be required to further adjust our driver compensation packages, increase driver recruiting efforts, or let trucks sit idle, any of which could adversely affect our growth and profitability.

 

Purchase price increases for new revenue equipment and/or decreases in the value of used revenue equipment could have an adverse effect on our results of operations, cash flows and financial condition.

 

Over the past decade, the purchase price of new revenue equipment has increased significantly as equipment manufacturers recover increased materials and engine design costs resulting from compliance with increasingly stringent EPA engine emission standards, government tariffs on raw materials and other factors beyond the Company’s control. Additional EPA emission mandates, tariff increases on raw materials, or other factors that increase material or manufacturing costs of new equipment in the future could increase the purchase price paid by the Company for new revenue equipment and could result in higher than anticipated depreciation expenses. If we were unable to offset any such increase in expenses with freight rate increases, our cash flows and results of operations could be adversely affected. If the market price for used revenue equipment declines, we could incur substantial losses upon disposition of our revenue equipment which could adversely affect our results of operations and financial condition.

 

We have significant ongoing capital requirements that could affect our liquidity and profitability if we are unable to generate sufficient cash from operations or obtain sufficient financing on favorable terms.

 

The trucking industry is capital intensive. If we are unable to generate sufficient cash from operations in the future, we may have to limit our growth, enter into unfavorable financing arrangements, or operate our revenue equipment for longer periods, any of which could have a material adverse effect on our profitability.

 

We operate in a highly regulated industry and increased costs of compliance with, or liability for violation of, existing or future regulations could have a material adverse effect on our business.

 

Our operations are authorized and regulated by various federal and state agencies in the United States, Mexico and Canada that generally govern such activities as authorization to engage in motor carrier operations, safety, and financial reporting. Specific standards and regulations such as equipment dimensions, engine emissions, maintenance, drivers’ hours of service, drug and alcohol testing, and hazardous materials are regulated by the Department of Transportation, Federal Motor Carrier Safety Administration, the Environmental Protection Agency and various other state and federal agencies. We may become subject to new or more restrictive regulations imposed by these authorities which could significantly impair equipment and driver productivity and increase operating expenses.

 

- 9 -

 

The FMCSA administers carrier safety compliance and enforcement through its CSA program, which places carriers in peer groups and assigns each carrier a relative ranking compared to their peers in various categories. Carriers that exceed allowable thresholds in a particular category are placed in “intervention” status by the FMCSA until the score improves to a level below the threshold. If future roadside inspections or crashes were to result in the Company being placed in intervention status, we may incur additional operating costs to improve our safety program in deficient categories, experience increased roadside inspections, or have onsite visits by the FMCSA. If the intervention category is not remedied, it could affect our ability to attract and retain drivers and customers as they seek competitive carriers with scores below intervention thresholds. In addition, the CSA program could increase competition and related compensation and recruitment costs for drivers and independent contractors by reducing the pool of qualified drivers if existing drivers exit the profession, become disqualified due to low scores or as carriers focus recruiting efforts on drivers with the best relative safety scores.

 

The EPA and the NHTSA jointly developed standards for various vehicles, including heavy duty trucks, that were adopted in August 2011 and cover model years 2014 through 2018. These standards are designed to reduce GHG emissions and improve fuel economy for heavy duty trucks. In August 2016, the EPA and NHTSA finalized the second phase of these standards which will further reduce GHG emissions and fuel consumption for heavy duty trucks through model year 2027. Compliance with these federal and state requirements has increased the cost of our equipment and may further increase the cost of replacement equipment in the future.

 

The Regulation section in Item 1 of Part I of this Annual Report on Form 10-K discusses several proposed and final regulations that could materially impact our business and operations.

 

A determination that independent contractors are employees could expose us to various liabilities and additional costs.

 

Federal and state legislation as well as tax and other regulatory authorities often seek to assert that independent contractors in the transportation service industry are employees rather than independent contractors. An example of such legislation recently enacted in California is currently under a judicial stay with respect to trucking companies while a legal challenge to the law is pending. There can be no assurance that interpretations that support the independent contractor status will not change, that other federal or state legislation will not be enacted or that various authorities will not successfully assert a position that re-classifies independent contractors to be employees. If our independent contractors are determined to be our employees, that determination could materially increase our exposure under a variety of federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits. In addition, such changes may be applied retroactively, and if so, we may be required to pay additional amounts to compensate for prior periods. Any of the above increased costs would adversely affect our business and operating results.

 

We may incur additional operating expenses or liabilities as a result of potential future requirements to address climate change issues.

 

As global warming issues become more prevalent, federal, state and local governments, as well as some of our customers, have made efforts to respond to these issues. This increased focus on sustainability may result in new legislation or regulations and customer requirements that could negatively affect us as we may incur additional costs or be required to make changes to our operations in order to comply with any new regulations or customer requirements. Legislation or regulations that potentially impose restrictions, caps, taxes, or other controls on emissions of greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels such as those used in the Company’s trucks, could adversely affect our operations and financial results. More specifically, legislative or regulatory actions relating to climate change could adversely impact the Company by increasing our fuel costs and reducing fuel efficiency and could result in the creation of substantial additional capital expenditures and operating costs in the form of taxes, emissions allowances, or required equipment upgrades. Any of these factors could impair our operating efficiency and productivity and result in higher operating costs. In addition, revenues could decrease if we are unable to meet regulatory or customer sustainability requirements. These additional costs, changes in operations, or loss of revenues could have a material adverse effect on our business, financial condition and results of operations.

 

- 10 -

 

Risks Related to Our Business

 

The ongoing impact of the COVID-19 pandemic, or other similar outbreaks in the future, could negatively impact our financial condition, liquidity, results of operations, and cash flows.

 

The outbreak of the novel coronavirus (COVID-19) pandemic in early 2020 materially and adversely affected our operating results and cash flows during 2020. The ongoing impacts of the pandemic and any other outbreaks of contagious diseases or other adverse public health developments could have a further 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 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 were significantly affected by the closure of North American automotive manufacturing facilities beginning in late March. Our automotive customers have since resumed operations; however, 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.

 

Numerous competitive factors could impair our ability to operate at an acceptable profit. These factors include, but are not limited to, the following:

 

we compete with many other truckload carriers of varying sizes and, to a lesser extent, with less-than-truckload carriers and railroads, some of which have more equipment and greater capital resources than we do;

 

some of our competitors periodically reduce their freight rates to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase freight rates, maintain our margins or maintain significant growth in our business;

 

many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved service providers, and in some instances we may not be selected;

 

many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress freight rates or result in the loss of some of our business to competitors;

 

the trend toward consolidation in the trucking industry may create other large carriers with greater financial resources and other competitive advantages relating to their size and with whom we may have difficulty competing;

 

advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher freight rates to cover the cost of these investments;

 

competition from Internet-based and other logistics and freight brokerage companies may adversely affect our customer relationships and freight rates; and

 

economies of scale that may be passed on to smaller carriers by procurement aggregation providers may improve their ability to compete with us.

 

- 11 -

 

We are highly dependent on our major customers, the loss of one or more of which could have a material adverse effect on our business.

 

A significant portion of our revenue is generated from our major customers. For 2020, our top five customers, based on revenue, accounted for approximately 35% of our revenue, and our three largest customers, General Motors Company, Fiat Chrysler Automobiles, and Ford Motor Company accounted for approximately 15%, 6% and 5% of our revenue, respectively. We also provide transportation services to other manufacturers who are suppliers for automobile manufacturers. As a result, the concentration of our business within the automobile industry is greater than the concentration in a single customer. Approximately 30% of our revenues for 2020 were derived from transportation services provided to the automobile industry.

 

Generally, we do not have long-term contractual relationships with our major customers, and we cannot assure that our customer relationships will continue as presently in effect. Our business and profitability was materially and adversely affected by the closure of North American automotive manufacturing facilities during the spring of 2020 due to the COVID-19 outbreak and is currently being adversely impacted by similar production slowdowns and closures within the automotive manufacturing industry due to shortages of microprocessors and other computer chips essential for new vehicle production. Any sustained or future reduction in or termination of our services by our major customers could have a further material adverse effect on our business and operating results.

 

A significant labor dispute involving one or more of our customers could reduce our revenues and harm our profitability.

 

A substantial number of the employees of our largest customers are members of industrial trade unions and are employed under the terms of collective bargaining agreements. Future labor disputes involving our customers could affect our operations. If the UAW and our automotive customers and their suppliers are unable to negotiate new contracts in the future and our customers’ plants experience slowdowns or closures as a result, our revenue and profitability could be negatively impacted. A labor dispute involving another supplier to our customers that results in a slowdown or closure of our customers’ plants to which we provide services could also have a material adverse effect on our business.

 

Ongoing insurance and claims expenses could significantly reduce our earnings.

 

Our future insurance and claims expenses might exceed historical levels, which could reduce our earnings. The Company is self-insured for a material portion of auto liability claims in excess of two million dollars and for health and workers’ compensation insurance up to certain limits. The actual cost to settle self-insured claims can differ from amounts reserved due to various uncertainties, including the ultimate severity of the claims and potential amounts required to defend and settle claims. If claims costs increase, or if the severity or number of claims increase, and if we are unable to offset the resulting increases in expenses with higher freight rates, our earnings could be materially and adversely affected. Healthcare legislation and inflationary cost increases could also have a negative effect on our results.

 

We may be subject to litigation claims that could result in significant expenditures.

 

By the nature of our operations we are exposed to the potential for a variety of litigation, including personal injury claims, vehicular collisions and accidents, alleged violations of federal and state labor and employment laws, such as class-action lawsuits alleging wage and hour violations and improper pay, commercial and contract disputes, cargo loss and property damage claims. While we purchase insurance coverage at levels we deem adequate, future litigation may exceed our insurance coverage or may not be covered by insurance. We accrue a provision for a litigation matter according to applicable accounting standards based on the ongoing assessment of the strengths and weaknesses of the litigation, its likelihood of success, and an evaluation of the possible range of loss. Our inability to defend ourselves against a significant litigation claim could have a material adverse effect on our financial results.

 

- 12 -

 

We have a substantial amount of debt, which could restrict our growth, place us at a competitive disadvantage or otherwise materially adversely affect our financial health. Our substantial debt levels could have important consequences such as the following:

 

impair our ability to obtain additional future financing for working capital, capital expenditures, acquisitions or general corporate expenses;

 

limit our ability to use operating cash flow in other areas of our business due to the necessity of dedicating a substantial portion of these funds for payments on our indebtedness;

 

limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

 

make it more difficult for us to satisfy our obligations;

 

increase our vulnerability to general adverse economic and industry conditions; and

 

place us at a competitive disadvantage compared to our competitors.

 

Our ability to make scheduled payments on, or to refinance, our debt and other obligations will depend on our financial and operating performance, which, in turn, is subject to our ability to implement our strategic initiatives, prevailing economic conditions and certain financial, business and other factors beyond our control. If our cash flow and capital resources are insufficient to fund our debt service and other obligations, we may be forced to reduce or delay expansion plans and capital expenditures, sell material assets or operations, obtain additional capital or restructure our debt. We cannot provide any assurance that our operating performance, cash flow and capital resources will be sufficient to pay our debt obligations when they become due. We also cannot provide assurance that we would be able to dispose of material assets or operations or restructure our debt or other obligations if necessary or, even if we were able to take such actions, that we could do so on terms that are acceptable to us.

 

Discontinuation, reform or replacement of LIBOR may adversely affect our variable rate debt.

 

Borrowings under our credit facilities are at variable rates of interest, primarily based on London Interbank Offered Rate (“LIBOR”). LIBOR tends to fluctuate based on general interest rates, rates set by the U.S. Federal Reserve Board and other central banks, the supply of and demand for credit in the London interbank market, and general economic conditions. In July 2017, the Financial Conduct Authority in the U.K. announced a desire to phase out LIBOR as a benchmark by the end of 2021. Financial industry working groups are developing replacement rates and methodologies to transition existing agreements that depend on LIBOR as a reference rate; however, we can provide no assurance that market-accepted rates and transition methodologies will be available and finalized at the time of LIBOR cessation. If clear market standards and transition methodologies have not been developed by the time LIBOR becomes unavailable, we may have difficulty reaching agreement on acceptable replacement rates under our credit facilities. If we are unable to negotiate replacement rates on favorable terms, it could have a material adverse effect on our earnings and cash flows.

 

Disruptions in the credit markets may adversely affect our business, including the availability and cost of short-term funds for liquidity requirements and our ability to meet long-term commitments, which could adversely affect our results of operations, cash flows and financial condition.

 

If cash from operations is not sufficient, we may be required to rely on the capital and credit markets to meet our financial commitments and short-term liquidity needs. Disruptions in the capital and credit markets could adversely affect our ability to draw on our bank revolving credit facility. Our access to funds under the credit facility is dependent on the ability of banks to meet their funding commitments. A bank may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests from other borrowers within a short period of time.

 

Longer term disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation, reduced alternatives, or failures of significant financial institutions could adversely affect our access to liquidity needed for our business. Any disruption could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged, which could adversely affect our growth and profitability.

 

- 13 -

 

We are subject to certain risks arising from doing business in Mexico.

 

As we continue to grow our business in Mexico, we are subject to greater risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of Mexico, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and U.S. export and import laws, and social, political, and economic instability. We also face additional risks associated with our Mexico business, including potential restrictive trade policies and imposition of any import or export taxes, duties, fees, etc. If we are unable to address business concerns related to our international operations in a timely and cost efficient manner, our financial position, results of operations or cash flows could be adversely affected. Additionally, approximately 34% of the freight we haul crosses the border between the United States and Mexico. In past years, we have experienced delays in Mexico border-crossings due to weather events, immigration-related issues and the reallocation of border agents to other border areas. Any future shutdowns or disruptions of Mexico border-crossings, particularly at the Laredo, Texas border, could materially and adversely impact our operations, cash flows and profitability. The agreement permitting cross-border movements for both United States and Mexican-based carriers in the United States and Mexico presents additional risks in the form of potential increased competition and the potential for increased congestion in our lanes that cross the border between countries.

 

Our results of operations may be affected by seasonal factors.

 

Our productivity may decrease during the winter season when severe winter weather impedes operations. Also, some shippers may reduce their shipments after the winter holiday season. At the same time, operating expenses may increase and fuel efficiency may decline due to engine idling during periods of inclement weather. Harsh weather conditions generally also result in higher accident frequency, increased freight claims, and higher equipment repair expenditures. In addition, automobile plants for which we transport a large amount of freight typically undergo scheduled shutdowns in July and December, which reduces the volume of automotive freight we ship during these plant shutdowns.

 

Our business may be disrupted by natural disasters and severe weather conditions causing supply chain disruptions.

 

Natural disasters such as earthquakes, tsunamis, hurricanes, tornadoes, floods or other adverse weather and climate conditions, whether occurring in the United States or abroad, could disrupt our operations or the operations of our customers or could damage or destroy infrastructure necessary to transport products as part of the supply chain. Specifically, these events may damage or destroy our assets, disrupt fuel supplies, increase fuel costs, disrupt freight shipments or routes, and affect regional economies. As a result, these events could make it difficult or impossible for us to provide logistics and transportation services; disrupt or prevent our ability to perform functions at the corporate level; and/or otherwise impede our ability to continue business operations in a continuous manner consistent with the level and extent of business activities prior to the occurrence of the unexpected event, which could adversely affect our business and results of operations or make our results more volatile.

 

Our operations are subject to various environmental laws and regulations, the violation of which could result in substantial fines or penalties.

 

We are subject to various environmental laws and regulations dealing with the handling of hazardous materials, underground fuel storage tanks, and discharge and retention of storm-water. We operate in industrial areas, where truck terminals and other industrial activities are located, and where groundwater or other forms of environmental contamination could occur. We also maintain bulk fuel storage and fuel islands at one of our facilities. Our operations may involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. If we are involved in a spill or other accident involving hazardous substances, or if we are found to be in violation of applicable laws or regulations, it could have a materially adverse effect on our business and operating results. If we should fail to comply with applicable environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

 

- 14 -

 

Our information technology systems are subject to certain cyber security and disaster risks that are beyond our control.

 

We depend heavily on the proper functioning and availability of our information, communications, and data processing systems, including operating and financial reporting systems, in operating our business. Our operating system is critical in meeting customer expectations, effectively tracking, maintaining and operating our equipment, directing and compensating our employees, and interfacing with our financial reporting system. Our financial reporting system receives, processes, controls and reports information for operating our business and for tabulation into our financial statements.

 

While we are not aware of a breach that has resulted in significant lost productivity or exposure of sensitive information to date, we are aware that our systems are targeted by various viruses and cyber-attacks and expect these efforts to continue. Our systems and those of our technology and communications providers are vulnerable to interruptions caused by natural disasters, power loss, telecommunication and internet failures, cyber-attack, and other events beyond our control. Accordingly, information security and the continued development and enhancement of the controls and processes designed to protect our systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for us and we maintain information security processes and policies to protect our systems and data from cyber security events and threats.

 

Although we have processes, policies and procedures in place and our information systems are protected through physical and software security as well as redundant backup systems, they remain susceptible to cyber security risks. Some of our software systems are utilized by third parties who provide outsourced processing services which may increase the risk of a cyber-security incident.

 

A successful cyber-attack or catastrophic natural disaster could significantly affect our operating and financial systems and could temporarily disrupt our ability to provide required services to our customers and impact our ability to manage our operations and perform vital financial processes, any of which could have a materially adverse effect on our business. In addition, regulatory and enforcement focus on data protection in the U.S. and failure to comply with applicable U.S. data protection regulations or other data protection standards may expose us to litigation, fines, sanctions or other penalties, which could harm our reputation and adversely impact our business, results of operations and financial condition.

 

We have substantial fixed costs and, as a result, our operating income fluctuates disproportionately with changes in our net sales.

 

A significant portion of our expenses are fixed costs that neither increase nor decrease proportionately with sales. There can be no assurance that we would be able to reduce our fixed costs proportionately in response to a decline in our sales, and therefore our competitiveness could be significantly impacted. As a result, a decline in our sales would result in a higher percentage decline in our income from operations and net income.

 

If our employees were to unionize, our operating costs would increase and our ability to compete would be impaired.

 

None of our employees are currently represented by a collective bargaining agreement. However, we can offer no assurance that our employees will not unionize in the future, particularly if legislation is passed that facilitates unionization. If our employees were to unionize, our operating costs would increase and our profitability could be adversely affected.

 

Our business may be harmed by terrorist attacks, future war or anti-terrorism measures.

 

In order to prevent terrorist attacks, federal, state and municipal authorities have implemented and continue to follow various security measures, including checkpoints and travel restrictions on large trucks. Our international operations in Canada and Mexico may be affected significantly if there are any disruptions or closures of border traffic due to security measures. Such measures may have costs associated with them, which, in connection with the transportation services we provide, we or our independent contractors could be forced to bear. Further, a terrorist attack, war, or risk of such an event, also may have an adverse effect on the economy. A decline in economic activity could adversely affect our revenue or restrict our future growth. Instability in the financial markets as a result of a health pandemic, terrorism or war also could affect our ability to raise capital. In addition, the insurance premiums charged for some or all of the coverage currently maintained by us could increase dramatically or such coverage could be unavailable in the future.

 

- 15 -

 

Risks Related to Our Common Stock

 

The Chairman of our board of directors holds a controlling interest in the Company; therefore, the influence of our public shareholders over significant corporate actions is limited, and we are not subject to certain corporate governance standards that apply to other publicly traded companies.

 

Matthew T. Moroun, the Chairman of our Board of Directors, and a trust of which Mr. Moroun is a co-trustee together own approximately 68.0% of our outstanding common stock. As a result, Mr. Moroun has the power to:

 

control all matters submitted to our shareholders;

 

elect our directors;

 

adopt, extend or remove any anti-takeover provisions that are available to us; and

 

exercise control over our business, policies and affairs.

 

This concentration of ownership could limit the price that some investors might be willing to pay for shares of our common stock, and our ability to engage in significant transactions, such as a merger, acquisition or liquidation, will require the consent of Mr. Moroun. Conflicts of interest could arise between us and Mr. Moroun, and any conflict of interest may be resolved in a manner that does not favor us. Accordingly, Mr. Moroun could cause us to enter into transactions or agreements of which our other shareholders would not approve or make decisions with which they may disagree. Because of Mr. Moroun’s level of ownership, we have elected to be treated as a controlled company in accordance with the rules of the NASDAQ Stock Market. Accordingly, we are not required to comply with NASDAQ Stock Market rules which would otherwise require a majority of our Board to be comprised of independent directors and require our Board to have a compensation committee and a nominating and corporate governance committee comprised of independent directors.

 

Mr. Moroun may continue to retain control of the Company for the foreseeable future and may decide not to enter into a transaction in which shareholders would receive consideration for our common stock that is much higher than the then-current market price of our common stock. In addition, Mr. Moroun could elect to sell a controlling interest in us to a third-party and our other shareholders may not be able to participate in such transaction or, if they are able to participate in such a transaction, such shareholders may receive less than the then-current fair market value of their shares. Any decision regarding ownership of us that Mr. Moroun may make at some future time will be in his absolute discretion, subject to applicable laws and fiduciary duties.

 

Our stock trading volume may not provide adequate liquidity for investors.

 

Although shares of our common stock are traded on the NASDAQ Global Market, the average daily trading volume in our common stock is less than that of other larger transportation and logistics companies. A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control. Given the daily average trading volume of our common stock, significant sales of the common stock in a brief period of time, or the expectation of these sales, could cause a decline in the price of our common stock. Additionally, low trading volumes may limit a stockholder’s ability to sell shares of our common stock.

 

We currently do not intend to pay future dividends on our common stock.

 

We currently do not anticipate paying future cash dividends on our common stock. Any determination to pay future dividends and other distributions in cash, stock, or property by the Company in the future will be at the discretion of our Board of Directors and will be dependent on then-existing conditions, including our financial condition and results of operations and contractual restrictions. Therefore, stockholders should not rely on future dividend income from shares of our common stock.

 

- 16 -

 

Item 1B. Unresolved Staff Comments.

 

None.

 

Item 2. Properties.

 

Our executive offices and primary terminal facilities, which we own, are located in Tontitown, Arkansas. These facilities are located on approximately 46.3 acres and consist of 134,581 square feet of office space and maintenance and storage facilities.

 

Our subsidiaries lease facilities in Fort Wayne and Indianapolis, Indiana; Romulus, Michigan; Memphis, Tennessee; and Monterrey, Mexico. Our terminal facilities in North Little Rock, Arkansas; North Jackson, Ohio; Willard, Ohio; and Irving and Laredo, Texas are owned. The leased facilities are leased primarily on contractual terms typically ranging from one to five years and have provisions for early cancellation if we so choose. As of December 31, 2020, the following table provides a summary of the ownership and types of activities conducted at each location:

 

Location

Own/

Lease

Dispatch

Office

Maintenance

Facility

Safety

Training

Tontitown, Arkansas

Own

Yes

Yes

Yes

North Little Rock, Arkansas

Own

No

Yes

Yes

Indianapolis, Indiana

Lease

No

Yes

No

Romulus, Michigan

Lease

No

Yes

No

North Jackson, Ohio

Own

Yes

Yes

Yes

Willard, Ohio

Own

Yes

Yes

No

Memphis, Tennessee

Lease

No

Yes

No

Irving, Texas

Own

Yes

Yes

Yes

Laredo, Texas

Own

Yes

Yes

Yes

Monterrey, Mexico

Lease

No

No

No

Fort Wayne, Indiana

Lease

Yes

Yes

No

 

We also have access to trailer drop and relay stations in various other locations across the country. We lease certain of these facilities on a month-to-month basis from affiliates of our largest stockholder.

 

We believe that all of the properties that we own or lease are suitable for their purposes and adequate to meet our needs.

 

Item 3. Legal Proceedings.

 

We are involved in certain claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. On September 1, 2019, we elected to become self-insured for certain layers of auto liability claims in excess of $1.0 million for which we previously maintained auto liability insurance coverage. On September 1, 2020, we elected to become self-insured for certain layers of auto liability claims in excess of $2.0 million. We currently specifically reserve for claims that are expected to exceed $2.0 million when fully developed, based on the facts and circumstances of those claims. Based on our knowledge of the facts, and in certain cases, opinions of outside counsel, we believe the resolution of such claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

- 17 -

 

PART II

 

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Our common stock is traded on the NASDAQ Global Market under the symbol PTSI. As of February 24, 2021, there were approximately 62 holders of record of our common stock.

 

Dividends

 

The Company paid cash dividends of $1.00 per common share during each of the months of April 2012 and December 2012. No dividends were paid during any year prior to 2012 or subsequent to 2012. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors. Currently, the Company does not intend to pay dividends in the foreseeable future.

 

Repurchases of Equity Securities by the Issuer

 

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 331,565 shares of its common stock under this repurchase program.

 

In addition, during 2019 and 2018 the Company repurchased 192,743 shares and 185,597 shares, respectively, through publicly announced Dutch auction tender offers. See “Item 8. Financial Statements and Supplementary Data, Note 9 to the Consolidated Financial Statements – Capital Stock” for additional information regarding these tender offers. The Company did not engage in any tender offers during 2020.

 

The following table summarizes the Company’s common stock repurchases during the fourth quarter of 2020. No shares were purchased during the quarter other than through the repurchase program described above, and all purchases were made by or on behalf of the Company and not by any “affiliated purchaser.”

 

   

Total

number of

shares

   

Average

price paid

   

Total number of

shares purchased as

part of publicly

announced plans or

   

Maximum number of

shares that may yet

be purchased under

the plans or

 

Period

  purchased     per share     programs     programs(1)  

October 1-31, 2020

    983       37.86       --       178,258  

November 1-30, 2020

    --       --       --       178,258  

December 1-31, 2020

    9,823       45.91       --       168,435  

Total

    10,806     $ 45.18       --          

 

(1)

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

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for a presentation of compensation plans under which equity securities of the Company are authorized for issuance.

 

- 18 -

 

Performance Graph

 

Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on our common stock against the cumulative total return of the NASDAQ OMX Index for the NASDAQ Stock Market (U.S. companies) and the NASDAQ OMX Index for the NASDAQ Trucking and Transportation Stocks for the period of five years commencing December 31, 2015 and ending December 31, 2020. The graph assumes that the value of the investment in our common stock and in each index was $100 on December 31, 2015 and that all dividends were reinvested.

 

 

COMPARISON OF CUMULATIVE TOTAL RETURN AMONG OUR COMMON STOCK,

THE NASDAQ OMX INDEX FOR THE NASDAQ STOCK MARKET (U.S. COMPANIES)

AND THE NASDAQ TRUCKING AND TRANSPORTATION STOCKS INDEX THROUGH DECEMBER 31, 2020

 

 

graph1.jpg

 

- 19 -

 

Item 6. Selected Financial Data.

 

The following selected financial and operating data should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Report.

 

   

Year Ended December 31,

 
   

2020

   

2019

   

2018

   

2017

   

2016

 
   

(in thousands, except per share amounts)

 

Statement of Operations Data:

                                       

Operating revenues:

                                       

Operating revenues, before fuel surcharge

  $ 438,987     $ 439,511     $ 445,855     $ 373,523     $ 382,737  

Fuel surcharge

    47,838       74,666       87,406       64,315       50,115  

Total operating revenues

    486,825       514,177       533,261       437,838       432,852  
                                         

Operating expenses:

                                       

Salaries, wages and benefits

    124,098       129,738       119,819       102,227       112,235  

Operating supplies and expenses

    84,275       98,420       93,130       79,505       82,993  

Rent and purchased transportation

    165,984       168,399       201,455       174,477       158,298  

Depreciation

    56,168       55,107       49,387       42,274       39,114  

Insurance and claims

    8,866       35,622       17,191       17,484       16,632  

Other

    13,138       13,761       11,983       9,249       8,352  

Loss (gain) on sale or disposal of property

    373       583       (1,306 )     (58 )     (4,700 )

Total operating expenses

    452,902       501,630       491,659       425,158       412,924  

Operating income

    33,923       12,547       41,602       12,680       19,928  

Non-operating (expense) income

    (1,699 )     6,222       (4,016 )     5,853       1,485  

Interest expense

    (8,815 )     (8,654 )     (6,245 )     (3,902 )     (3,641 )

Income before income taxes

    23,409       10,115       31,341       14,631       17,772  

Income tax expense (benefit)

    5,582       2,215       7,347       (24,268 )     6,671  

Net income

  $ 17,827     $ 7,900     $ 23,994     $ 38,899     $ 11,101  
                                         

Earnings per common share:

                                       

Basic

  $ 3.10     $ 1.35     $ 3.94     $ 6.14     $ 1.68  

Diluted

  $ 3.09     $ 1.34     $ 3.90     $ 6.08     $ 1.67  
                                         

Average common shares outstanding – Basic

    5,752       5,832       6,083       6,331       6,627  

Average common shares outstanding – Diluted (1)

    5,768       5,880       6,159       6,398       6,649  
                                         

Cash dividends declared per common share

  $ -     $ -     $ -     $ -     $ -  

__________

 

(1)

Diluted income per share for 2020, 2019, 2018, 2017, and 2016 assumes the exercise/vesting of stock to purchase an aggregate of 20,611, 25,545, 25,516, 50,177, and 39,093 shares of common stock, respectively.

 

- 20 -

 

   

At December 31,

 
   

2020

   

2019

   

2018

   

2017

   

2016

 

Balance Sheet Data:

 

(in thousands)

 

Total assets

  $ 578,592     $ 498,009     $ 466,066     $ 392,185     $ 380,066  

Long-term debt, excluding current portion

    228,330       174,187       157,315       98,995       124,391  

Stockholders' equity

    149,981       133,975       139,447       127,604       94,158  

 

   

Year Ended December 31,

 
   

2020

   

2019

   

2018

   

2017

   

2016

 

Operating Data:

                                       

Operating ratio (1)

    92.3 %     97.1 %     90.7 %     96.6 %     94.8 %

Average number of truckloads per week

    6,859       8,405       8,420       7,134       6,827  

Average miles per trip

    553       499       521       635       684  

Total miles traveled (in thousands)

    193,481       213,048       222,738       229,392       237,266  

Average miles per truck

    96,532       102,674       117,169       125,009       125,471  

Average revenue, before fuel surcharge per truck per day

  $ 863     $ 834     $ 923     $ 805     $ 797  

Average revenue, before fuel surcharge per loaded mile

  $ 1.91     $ 1.84     $ 1.71     $ 1.51     $ 1.53  

Empty mile factor

    8.8 %     7.3 %     6.3 %     6.8 %     6.8 %
                                         

At end of period:

                                       

Total company-owned/leased trucks (2)

    2,013       2,130       2,031       1,721       1,855  

Average age of company-owned trucks (in years)

    1.44       1.46       1.20       1.49       1.49  

Total company-owned/leased trailers (3)

    7,220       7,081       6,397       5,795       5,699  

Average age of company-owned trailers (in years)

    4.92       4.18       3.54       3.38       2.71  

Number of employees and independent contract drivers

    2,996       3,242       3,345       2,969       3,216  

__________

 

(1)

Total operating expenses, net of fuel surcharge as a percentage of operating revenues, before fuel surcharge.

 

(2)

Includes the following numbers of independent contractor trucks: 355 in 2020, 553 in 2019, 597 in 2018, 560 in 2017, and 578 in 2016.

 

(3)

Includes the following numbers of leased trailers: 0 in 2020, 56 in 2019, 43 in 2018, zero in 2017, and 232 in 2016.

 

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

Business Overview

 

The Company's administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through our wholly owned subsidiaries based in various locations around the United States, 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/logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this Report. All of the Company's operations are in the motor carrier segment.

 

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 76.9%, 82.7% and 80.0% of total revenues, excluding fuel surcharges for the twelve months ended December 31, 2020, 2019 and 2018, respectively.

 

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

 

- 21 -

 

In discussing our results of operations we use revenue, before fuel surcharge (and operating supplies and 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 2020, 2019 and 2018, approximately $47.8 million, $74.7 million and $87.4 million, respectively, of the Company's total revenue was generated from fuel surcharges. We also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the high variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.

 

Results of Operations - Truckload Services

 

The following table sets forth, for truckload services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Operating supplies and expenses are shown net of fuel surcharges.

 

   

Years Ended December 31,

 
   

2020

   

2019

   

2018

 

Operating revenues, before fuel surcharge

    100.0 %     100.0 %     100.0 %

Operating expenses:

                       

Salaries, wages and benefits

    35.3       34.5       32.4  

Operating supplies and expenses, net of fuel surcharge

    10.7       6.5       1.5  

Rent and purchased transportation

    23.2       28.3       34.4  

Depreciation

    16.5       15.0       13.7  

Insurance and claims

    2.6       9.8       4.8  

Other

    3.6       3.6       3.0  

Gain on sale or disposal of property

    0.1       0.0       (0.1 )

Total operating expenses

    92.0       97.7       89.7  

Operating income

    8.0       2.3       10.3  

Non-operating (expense) income

    (0.5 )     1.5       (1.0 )

Interest expense

    (2.2 )     (2.1 )     (1.6 )

Income before income taxes

    5.3 %     1.7 %     7.7 %

 

2020 Compared to 2019

 

For the year ended December 31, 2020, truckload services revenue, before fuel surcharges, decreased 7.2% to $337.5 million as compared to $363.6 million for the year ended December 31, 2019. The decrease relates primarily to temporary plant shutdowns in early 2020 experienced by some of our major customers due to COVID-19, and to a decrease in the average number of trucks in service from 2,075 during 2019 to 2,004 during 2020. These decreases were partially offset by a 3.9% increase in our rate per loaded mile, from $1.84 for the year ended December 31, 2019 to $1.91 for the year ended December 31, 2020

 

Salaries, wages and benefits increased from 34.5% of revenues, before fuel surcharges, during 2019 to 35.3% of revenues, before fuel surcharges, during 2020. The percentage-based increase relates primarily to an increase in amounts expensed for group health insurance expense and workers compensation claims expense. Also contributing to the percentage-based increase was the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, maintenance wages, and operations wages with a decrease in revenues for the periods compared. In addition, the proportion of total miles driven by company drivers increased as the number of company drivers increased year-over-year.

 

Operating supplies and expenses increased from 6.5% of revenues, before fuel surcharges, during 2019 to 10.7% of revenues, before fuel surcharges, during 2020. The increase relates primarily to an increase in the proportion of total miles driven by company drivers for the year ended December 31, 2020 compared to December 31, 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.

 

- 22 -

 

Rent and purchased transportation decreased from 28.3% of revenues, before fuel surcharges, during 2019 to 23.2% of revenues, before fuel surcharges, during 2020. The decrease was primarily due to a reduction in the proportion of total miles driven by owner-operators for the year ended December 31, 2020 compared to the year ended December 31, 2019.

 

Depreciation increased from 15.0% of revenues, before fuel surcharges, during 2019 to 16.5% of revenues, before fuel surcharges, during 2020. The increase relates primarily to the interaction of a decrease in operating revenues with the fixed-cost nature of depreciation expense. Also contributing to the increase was an increase in the average number of trailers owned by the company and to a general increase in truck and trailer replacement costs. During 2020, the average number of company-owned trailers increased by 634 as compared to 2019. The Company uses a three-year replacement cycle for trucks it intends to trade back or sell and a five-year life cycle for tractors it intends to place in its lease to own program. Trailers are on a seven-year replacement cycle. The cost of new trucks and trailers have increased significantly over the previous three-year and seven-year periods and depreciating higher cost equipment over the same length of time will result in an increase in depreciation expense during the respective period.

 

Insurance and claims decreased from 9.8% of revenues, before fuel surcharges, during 2019 to 2.6% of revenues, before fuel surcharges, during 2020. This decrease relates primarily to the negative impact, recognized in 2019, of the settlement of a lawsuit which claimed that the Company was in violation of minimum wage laws with regard to certain activities performed by employee drivers and for a lawsuit brought against the Company by certain individuals who asserted that they were misclassified as owner-operators. In addition, the Company became self-insured for certain lower layers of auto liability claims commencing September 1, 2019. During the first nine months of 2019, the Company paid for auto liability insurance coverage in these lower levels through various third-party insurance carriers. The decision to self-insure these layers reduced insurance premium costs from that point through to the annual renewal date of September 1, 2020.

 

Non-operating income decreased from a gain of 1.5% of revenues, before fuel surcharges, during 2019 to a loss of 0.5% of revenues, before fuel surcharges, during 2020. This decrease resulted primarily from a decrease in the market value of our marketable equity securities portfolio at December 31, 2020 as compared to December 31, 2019.

 

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 97.7% for 2019 to 92.0% for 2020.

 

2019 Compared to 2018

 

For the year ended December 31, 2019, truckload services revenue, before fuel surcharges, increased 2.0% to $363.6 million as compared to $356.6 million for the year ended December 31, 2018. The increase related primarily to a 7.8% increase in our rate per loaded mile, from $1.71 for the year ended December 31, 2018 to $1.84 for the year ended December 31, 2019, and to an increase in the average number of trucks in service from 1,901 during 2018 to 2,075 during 2019. These increases were partially offset by a decrease in the average number of miles travelled per day by our trucks in 2019 compared to 2018, which was a result of a decrease in the average length of haul of shipments offered by our customers.

 

Salaries, wages and benefits increased from 32.4% of revenues, before fuel surcharges, during 2018 to 34.5% of revenues, before fuel surcharges, during 2019. The increase related primarily to an increase in company driver wages paid during 2019 compared to 2018. The increase in driver wages related primarily to route specific raises that were phased in throughout 2019 and to an increase in wages and benefits paid to regional and short-haul drivers. In addition, the proportion of total miles driven by company drivers increased as the number of company drivers increased year-over-year.

 

- 23 -

 

Operating supplies and expenses increased from 1.5% of revenues, before fuel surcharges, during 2018 to 6.5% of revenues, before fuel surcharges, during 2019. The increase related primarily to an increase in the average surcharge-adjusted fuel price paid per gallon of diesel fuel, which was a result of decreased 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 year ended December 31, 2019 compared to December 31, 2018. 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 34.4% of revenues, before fuel surcharges, during 2018 to 28.3% of revenues, before fuel surcharges, during 2019. The decrease was primarily due to a reduction in the proportion of total miles driven by owner-operators for the year ended December 31, 2019 compared to the year ended December 31, 2018.

 

Depreciation increased from 13.7% of revenues, before fuel surcharges, during 2018 to 15.0% of revenues, before fuel surcharges, during 2019. This increase was primarily the result of an increase in the average number of trucks and trailers owned by the company. During 2019, the average number of company-owned trucks and trailers increased by 199 and 503, respectively, compared to 2018. The Company uses a three-year replacement cycle for trucks it intends to trade back or sell and a five-year life cycle for tractors it intends to place in its lease to own program. Trailers are on a seven-year replacement cycle. The cost of new trucks and trailers had increased significantly over the previous three-year and seven-year periods. Depreciating higher cost equipment over the same length of time will result in an increase in depreciation expense during the respective period.

 

Insurance and claims increased from 4.8% of revenues, before fuel surcharges, during 2018 to 9.8% of revenues, before fuel surcharges, during 2019. This increase was primarily the result of the negative impact of estimated amounts reserved for the settlement of a lawsuit which claims that the Company was in violation of minimum wage laws with regard to certain activities performed by employee drivers and for a similar suit brought against the Company by certain individuals who assert that they were misclassified as owner-operators. This increase was partially offset by decreases in insurance premiums resulting from the election to become self-insured for certain categories of property damage and liability risk. The Company became self-insured for property damage on company-owned trucks commencing on September 1, 2018. Prior to this, the Company paid insurance premiums and was insured for property damage insurance coverage for company-owned trucks through a third-party insurance carrier. In addition, 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 nine months of 2019, and for the entire year of 2018, the Company paid for auto liability insurance coverage for claims in excess of $1.0 million through various third-party insurance carriers.

 

Other expenses increased from 3.0% of revenues, before fuel surcharges, during 2018 to 3.6% of revenues, before fuel surcharges, during 2019. This increase related primarily to an increase in amounts expensed for legal fees and other supplies and expenses. This increase was partially offset by a decrease for amounts expensed for uncollectible revenue.

 

Non-operating income increased from a loss of 1.0% of revenues, before fuel surcharges, during 2018 to 1.5% of revenue, before fuel surcharges, during 2019. This increase resulted primarily from an increase in the market value of our marketable equity securities portfolio at December 31, 2019 compared to December 31, 2018. The unrealized pre-tax gain in market value for 2019 was approximately $3,698,000 compared to a net unrealized pre-tax loss in market value of approximately $5,763,000 reported as Non-operating expense for 2018.

 

Interest expense increased from 1.6% of revenues, before fuel surcharges, during 2018 to 2.1% of revenues, before fuel surcharges, during 2019. This increase was attributable to market increases in interest rates and to increases in amounts financed by the Company for new equipment. The increase in amounts financed was the result of growth in the number of company-owned trucks and trailers operated within our fleet.

 

- 24 -

 

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased from 89.7% for 2018 to 97.7% for 2019.

 

Results of Operations - Logistics and Brokerage Services

 

The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Brokerage operations occur specifically in certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially similar economic characteristics. Rent and purchased transportation, which includes costs paid to third-party carriers, are shown net of fuel surcharges.

 

   

Years Ended December 31,

 
   

2020

   

2019

   

2018

 

Operating revenues, before fuel surcharge

    100.0 %     100.0 %     100.0 %

Operating expenses:

                       

Salaries, wages and benefits

    5.0       5.8       4.6  

Rent and purchased transportation

    86.5       86.4       88.1  

Insurance and claims

    0.1       0.1       0.1  

Other

    1.7       2.4       1.6  

Total operating expenses

    93.3       94.7       94.4  

Operating income

    6.7       5.3       5.6  

Non-operating (expense) income

    0.0       0.8       (0.5 )

Interest expense

    (1.1 )     (1.1 )     (0.7 )

Income before income taxes

    5.6 %     5.0 %     4.4 %

 

2020 Compared to 2019

 

For the year ended December 31, 2020, logistics and brokerage services revenues, before fuel surcharges, increased 33.6% to $101.5 million as compared to $75.9 million for the year ended December 31, 2019. The increase was primarily related to a 36.0% increase in the number of loads carried for customers during 2020 as compared to 2019.

 

Salaries, wages and benefits decreased from 5.8% of revenues, before fuel surcharges, in 2019 to 5.0% of revenues, before fuel surcharges, in 2020. The decrease relates primarily to the effect of higher revenues without a corresponding increase in those wages with fixed cost characteristics, such as general and administrative wages.

 

Rent and purchased transportation increased from 86.4% of revenues, before fuel surcharges, in 2019 to 86.5% of revenues, before fuel surcharges, in 2020. The increase results from paying third-party carriers a larger percentage of customer revenue.

 

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 94.7% for 2019 to 93.3% for 2020.

 

2019 Compared to 2018

 

For the year ended December 31, 2019, logistics and brokerage services revenues, before fuel surcharges, decreased 15.0% to $75.9 million as compared to $89.3 million for the year ended December 31, 2018. The decrease was primarily the result of a decrease in freight rates charged to customers during 2019 as compared to 2018.

 

Salaries, wages and benefits increased from 4.6% of revenues, before fuel surcharges, in 2018 to 5.8% of revenues, before fuel surcharges, in 2019. The increase related primarily to the effect of lower revenues without a corresponding decrease in those wages with fixed cost characteristics, such as general and administrative wages.

 

Rent and purchased transportation decreased from 88.1% of revenues, before fuel surcharges, in 2018 to 86.4% of revenues, before fuel surcharges, in 2019. The decrease results from paying third-party carriers a smaller percentage of customer revenue.

 

- 25 -

 

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, increased from 94.4% for 2018 to 94.7% for 2019.

 

Results of Operations - Combined Services

 

2020 Compared to 2019

 

Income tax expense was approximately $5.6 million in 2020, resulting in an effective rate of 23.8%, as compared to approximately $2.2 million, or an effective tax rate of 21.9% in 2019. The effective tax rate is impacted by the existence of partially non-deductible meal and incidental expense per-diem payments to company drivers. Per-diem payments may cause a significant difference in the Company’s effective tax rate from period-to-period as the proportion of non-deductible expenses to pre-tax net income increases or decreases.

 

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of Accounting Standards Codification (“ASC”) 740-10-30, weighs all available evidence, both positive and negative to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of December 31, 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 December 31, 2020, an adjustment to the Company’s consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During 2020 and 2019, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.

 

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 we operate generally provide for a deficiency assessment statute of limitation period of three years and as a result, the Company’s tax years 2017 and forward remain open to examination in those jurisdictions.

 

The combined net income for all divisions was $17.8 million, or 4.1% of revenues, before fuel surcharge, for 2020 as compared to the combined net income for all divisions of $7.9 million or 1.8% of revenues, before fuel surcharge, for 2019. Diluted earnings per share increased from $1.34 for the year ended December 31, 2019 to $3.09 for the year ended December 31, 2020.

 

2019 Compared to 2018

 

Income tax expense was approximately $2.2 million in 2019, resulting in an effective rate of 21.9%, as compared to approximately $7.3 million, or an effective tax rate of 23.4% in 2018. The effective tax rate is impacted by the existence of partially non-deductible meal and incidental expense per-diem payments to company drivers. Per-diem payments may cause a significant difference in the Company’s effective tax rate from period-to-period as the proportion of non-deductible expenses to pre-tax net income increases or decreases.

 

- 26 -

 

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

 

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by taxing authorities, based on the technical merits of the position. As of December 31, 2019, an adjustment to the Company’s consolidated financial statements for uncertain tax positions was not 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 2019 and 2018, the Company did not recognize or accrued any interest or penalties related to uncertain income tax positions.

 

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 we operate generally provide for a deficiency assessment statute of limitation period of three years and as a result, as of December 31, 2019, the Company’s tax years 2016 and forward remained open to examination in those jurisdictions.

 

The combined net income for all divisions was $7.9 million, or 1.8% of revenues, before fuel surcharge, for 2019 as compared to the combined net income for all divisions of $24.0 million or 5.4% of revenues, before fuel surcharge, for 2018. Diluted earnings per share decreased from $3.90 for the year ended December 31, 2018 to $1.34 for the year ended December 31, 2019.

 

Quarterly Results of Operations

 

The following table presents selected consolidated financial information for each of our last eight fiscal quarters through December 31, 2020. The information has been derived from unaudited consolidated financial statements that, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the quarterly information.

 

   

Quarter Ended

 
   

Mar. 31,

2020

   

June 30,

2020

   

Sept. 30,

2020

   

Dec. 31,

2020

   

Mar. 31,

2019

   

June 30,

2019

   

Sept. 30,

2019

   

Dec. 31,

2019

 
   

(unaudited)

 
   

(in thousands, except earnings per share data)

 

Operating revenues

  $ 129,155     $ 92,979     $ 121,942     $ 142,750     $ 128,686     $ 133,000     $ 128,994     $ 123,497  

Total operating expenses

    119,669       94,986       111,868       126,380       118,999       119,789       121,461       141,381  

Operating income (loss)

    9,486       (2,007 )     10,074       16,370       9,687       13,211       7,533       (17,884 )

Net (loss) income

    (1,304 )     (823 )     6,000       13,953       8,301       8,654       4,581       (13,636 )

(Loss) income per common share:

                                                               

Basic

  $ (0.23 )   $ (0.14 )   $ 1.04     $ 2.43     $ 1.40     $ 1.47     $ 0.80     $ (2.37 )

Diluted

  $ (0.23 )   $ (0.14 )   $ 1.04     $ 2.43     $ 1.39     $ 1.45     $ 0.79     $ (2.37 )

 

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

 

- 27 -

 

During 2020, we generated $67.6 million in cash from operating activities compared to $84.3 million and $82.3 million in 2019 and 2018, respectively. Investing activities used $32.7 million in cash during 2020 compared to $62.3 million and $55.3 million in 2019 and 2018, respectively. The cash used for investing activities in all three years related primarily to the purchase of revenue equipment such as trucks and trailers and related equipment such as auxiliary power units. Financing activities used $34.9 million in cash during 2020 compared to using $22.0 million during 2019 and $27.0 million during 2018. See the Consolidated Statements of Cash Flows in Item 8 of this Report.

 

Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing lines of credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations to finance capital expenditures and repay long-term debt. During 2020 and 2019, we utilized cash on hand, installment notes, and our lines of credit to finance revenue equipment purchases of approximately $106.9 million and $100.1 million, respectively.

 

We often finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 84 months. At December 31, 2020, the Company’s subsidiaries had combined outstanding indebtedness under such installment notes of $250.6 million. These installment notes are payable in monthly installments, ranging from 36 monthly installments to 84 monthly installments, at a weighted average interest rate of 3.30%. At December 31, 2019, the Company’s subsidiaries had combined outstanding indebtedness under such installment notes of $224.8 million. These installment notes were payable in monthly installments, ranging from 36 to 84 months at a weighted average interest rate of 3.65%.

 

In order to maintain our truck and trailer fleet count, it is often necessary to purchase replacement units and place them in service before trade units are removed from service. The timing of this process often requires the Company to pay for new units without any reduction in price for trade units. In this situation, the Company later receives payment for the trade units as they are delivered to the equipment vendor and have passed vendor inspection. During the twelve months ended December 31, 2020 and 2019, the Company received approximately $14.8 million and $11.2 million, respectively, for units delivered for trade.

 

During 2020, we maintained a revolving line of credit with a borrowing limit of $60.0 million. Under this credit facility, amounts outstanding under the line bear interest at LIBOR (determined as of the first day of each month) plus 1.25% (1.40% at December 31, 2020), are secured by our trade accounts receivable and mature on July 1, 2022. The credit facility also establishes an “unused fee” of 0.25% if average borrowings are less than $18.0 million. At December 31, 2020 outstanding advances on the line of credit were approximately $18.6 million, including approximately $0.3 million in letters of credit, with availability to borrow $41.4 million.

 

During 2020, we borrowed $17.6 million under a ten-year term loan to refinance our purchase during the first quarter of 2020 of a terminal in Laredo, Texas, which was initially financed using funds from our line of credit. The term loan bears interest at a fixed rate of 3.02% and is secured by a mortgage and assignment of rents on the Laredo terminal property.

 

Trade accounts receivable increased from $61.8 million at December 31, 2019 to $77.7 million at December 31, 2020. The increase relates to a general increase in freight revenue and fuel surcharge revenue, which flows through the accounts receivable account, during the fourth quarter of 2020 as compared to the freight revenue and fuel surcharge revenue generated during the fourth quarter of 2019.

 

Prepaid expenses and deposits increased from $8.7 million at December 31, 2019 to $10.2 million at December 31, 2020. The increase primarily relates to an increase in prepaid taxes and licenses.

 

- 28 -

 

Marketable equity securities at December 31, 2020 decreased approximately $1.6 million as compared to December 31, 2019. The decrease resulted from sales of marketable equity securities of approximately $2.0 million and a decrease in the market value of the remaining portfolio of approximately $3.5 million, offset by purchases of marketable equity securities of $3.9 million. At December 31, 2020, the remaining marketable equity securities have a combined cost basis of approximately $25.8 million and a combined fair market value of approximately $27.9 million. The Company has developed a strategy to invest in securities from which it expects to receive dividends that qualify for favorable tax treatment, as well as appreciate in value. During 2020, the Company received dividends of approximately $1.3 million. The holding term of these securities depends largely on the general economic environment, the equity markets, borrowing rates, and the Company's cash requirements.

 

Land increased from $7.2 million at December 31, 2019 to $18.5 million at December 31, 2020. The increase relates primarily to the purchase of an additional terminal location in Laredo, Texas for approximately $20 million, of which $8.8 million was allocated to land. In addition, we purchased $2.5 million of land in Nuevo Laredo, Mexico for future growth in our cross border business.

 

Structures and improvements increased from $20.2 million at December 31, 2019 to $32.3 million at December 31, 2020. The increase relates primarily to the purchase of an additional terminal location in Laredo, Texas for approximately $20 million, of which $10.9 million was allocated to the terminal buildings.

 

Revenue equipment at December 31, 2020, which generally consists of trucks, trailers, and revenue equipment accessories such as Qualcomm™ satellite tracking units and auxiliary power units, increased approximately $67.9 million as compared to December 31, 2019. The increase relates primarily to overall fleet growth of company-owned trucks and trailers utilized by the company at December 31, 2020 compared to December 31, 2019 and to the higher purchase price of new trucks and trailers compared to the trucks and trailers which are being replaced and sold. Also contributing to the increase was a delay in the surrender of trade trucks in exchange for the new replacement trucks. These delayed trades will be surrendered when payment is received during 2021 which will reduce the balance in both the Revenue equipment and Accumulated depreciation category.

 

Accounts payable increased from $16.6 million at December 31, 2019 to $46.1 million at December 31, 2020. This increase was primarily attributable to extended payment terms with certain suppliers. Also contributing to the increase was a $8.7 million increase in amounts accrued for fixed asset purchases from $0.4 million at the end of 2019 to $9.1 million at the end of 2020. In addition, $5.0 million of the increase was related to an increase in bank overdrafts outstanding, from $2.6 million at December 31, 2019 to $7.6 million at December 31, 2020. Accounts payable accruals can vary significantly at the end of each reporting period depending on the timing of the actual date of payment in relation to the last day of the reporting period.

 

Accrued expenses and other liabilities decreased from $40.6 million at December 31, 2019 to $26.6 million at December 31, 2020. The decrease was primarily related to the payment of certain litigation settlements recorded during 2019 and paid for during 2020. See “Item 3. Legal Proceedings” for more information regarding litigation.

 

Current maturities of long term-debt and long-term debt fluctuations are reviewed on an aggregate basis as the classification of amounts in each category are typically affected merely by the passage of time. Current maturities of long-term debt and long-term debt, on an aggregate basis, at December 31, 2020, increased approximately $44.3 million as compared to December 31, 2019. The increase was related to additional borrowings on our revolving line of credit and under installment notes entered into during 2020, net of the principal portion of scheduled installment note payments made during 2020.

 

- 29 -

 

For 2021, we expect to purchase 125 new trucks while continuing to sell or trade equipment that has reached the end of its life cycle, which we expect to result in net capital expenditures of approximately $20.5 million. Management believes we will be able to finance our existing needs for working capital over the next twelve months, as well as acquisitions of revenue equipment and any other asset acquisitions or capital transactions 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 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.

 

Contractual Obligations and Commercial Commitments

 

The following table sets forth the Company's contractual obligations and commercial commitments as of December 31, 2020:

 

   

Payments due by period

(in thousands)

 
   

Total

   

Less than

1 Year

   

1 to 3

Years

   

3 to 5

Years

   

More than

5 Years

 
                                         

Long-term debt (1)

  $ 288,676     $ 66,068     $ 125,985     $ 86,119     $ 10,504  

Operating leases (2)

    1,840       842       884       114       -  

Total

  $ 290,516     $ 66,910     $ 126,869     $ 86,233     $ 10,504  

 

 

(1)

Including interest.

 

(2)

Represents building, facilities, and drop yard operating leases.

 

Inflation

 

Inflation has an impact on most of our operating costs. Over the past three years, the effect of inflation has been minimal.

 

Adoption of Accounting Policies

 

See “Item 8. Financial Statements and Supplementary Data, Note 1 to the Consolidated Financial Statements – Accounting Policies, Recent Accounting Pronouncements.”

 

Critical Accounting Policies

 

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates that impact the amounts reported in our consolidated financial statements and accompanying notes. Therefore, the reported amounts of assets, liabilities, revenue, expenses, and associated disclosures of contingent assets and liabilities are affected by judgments and estimates. In many cases, there are alternative assumptions, policies, or estimation techniques that could be used. Management evaluates its assumptions, policies, and estimates on an ongoing basis, utilizing historical experience, and other methods considered reasonable in the particular circumstances. Nevertheless, actual results may differ significantly from our estimates and assumptions, and it is possible that materially different amounts would be reported using differing estimates or assumptions. Management considers our critical accounting policies to be those that require more significant judgments and estimates when we prepare our consolidated financial statements. Our critical accounting policies include the following:

 

- 30 -

 

Accounts receivable and current expected credit losses. Accounts receivable are presented in the Company’s consolidated financial statements net of current expected credit losses. Management estimates expected credit losses based upon an evaluation of the aging of our customer receivables and historical write-offs, as well as other trends and factors surrounding the credit risk of specific customers. The Company continually updates the history it uses to make these estimates so as to reflect the most recent trends, factors and other information available. In order to gather information regarding these trends and factors, the Company also performs ongoing credit evaluations of its customers. Customer receivables are considered to be past due when payment has not been received by the invoice due date. Write-offs occur when we determine an account to be uncollectible and could differ from the current expected credit losses estimate as a result of a number of factors, including unanticipated changes in the overall economic environment or factors and risks surrounding a particular customer. Management believes its methodology for estimating current expected credit losses to be reliable; however, additional credit losses may be incurred if the financial condition of our customers were to deteriorate and could have a material effect on the Company’s consolidated financial statements.

 

Depreciation of trucks and trailers. Depreciation of trucks and trailers is calculated by the straight-line method over the assets’ estimated useful lives, which range from three to seven years, down to an estimated salvage value at the end of the assets’ estimated useful lives. Management must use its judgment in the selection of estimated useful lives and salvage values for purposes of this calculation. In some 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.

 

The depreciation of trucks and trailers over their estimated useful lives and the determination of any salvage value also require management to make judgments about future events. Therefore, the Company’s management periodically evaluates whether changes to estimated useful lives or salvage values are necessary to ensure these estimates accurately reflect the economic reality of the assets. This periodic evaluation may result in changes in the estimated lives and/or salvage values used by the Company to depreciate its assets, which can affect the amount of periodic depreciation expense recognized and, ultimately, the gain or loss on the disposal of an asset. Future changes in our estimated useful life or salvage value estimates, or fluctuations in market value that are not reflected in current estimates, could have a material effect on the Company’s consolidated financial statements.

 

Impairment of long-lived assets. Long-lived assets are reviewed for impairment in accordance with ASC Topic 360, “Property, Plant, and Equipment.” This authoritative guidance provides that whenever there are certain significant events or changes in circumstances, the value of long-lived assets or groups of assets must be tested to determine if their value can be recovered from their future cash flows. In the event that undiscounted cash flows expected to be generated by the asset are less than the carrying amount, the asset or group of assets must be evaluated for impairment. Impairment exists if the carrying value of the asset exceeds its fair value.

 

Significantly all of the Company’s cash flows from operations are generated by trucks and trailers, and as such, the cost of other long-lived assets are funded by those operations. Therefore, management tests for the recoverability of all of the Company’s long-lived assets as a single group at the entity level and examines the forecasted future cash flows generated by trucks and trailers, including their eventual disposition, to determine if those cash flows exceed the carrying value of the long-lived assets. Forecasted cash flows are estimated using assumptions about future operations. To the extent that facts and circumstances change in the future, our estimates of future cash flows may also change either positively or negatively. In light of the Company’s market capitalization during 2020 and net operating profits of the Company for the years ended December 31, 2020 and 2019, no impairment indicators existed which required management to test the Company’s long-lived assets for recoverability as of December 31, 2020. As such, no impairment losses were recorded during 2020.

 

- 31 -

 

Claims accruals. The Company is self-insured for health and workers' compensation benefits up to certain stop-loss limits. Such costs are accrued based on known claims and an estimate of incurred but not reported (IBNR) claims. IBNR claims are estimated using historical lag information and other data either provided by outside claims administrators or developed internally. Actual claims payments may differ from management’s estimates as a result of a number of factors, including evaluation of severity, increases in legal or medical costs, and other case-specific factors. The actual claims payments are charged against the Company’s recorded accrued claims liabilities and have been historically reasonable with respect to the estimates of the liabilities made under the Company’s methodology. However, the estimation process is generally subjective, and to the extent that future actual results materially differ from original estimates made by management, adjustments to recorded accruals may be necessary which could have a material effect on the Company’s consolidated financial statements. Based upon our 2020 health and workers' compensation expenses, a 10% increase in both claims incurred and IBNR claims would increase our annual health and workers' compensation expenses by approximately $0.6 million.

 

On September 1, 2020, the Company elected to become self-insured for certain layers of auto liability claims in excess of $2.0 million. The Company specifically reserves for claims that are expected to exceed $2.0 million when fully developed, based on the facts and circumstances of those claims.

 

Revenue recognition. Revenue is recognized over time as 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. See “Item 8. Financial Statements and Supplementary Data, Note 2 to the Consolidated Financial Statements – Revenue Recognition.”

 

Income Taxes. The Company’s deferred tax assets and liabilities represent items that will result in taxable income or a tax deduction in future years for which the Company has already recorded the related tax expense or benefit in its consolidated statements of operations. Deferred tax accounts arise as a result of timing differences between when items are recognized in the Company’s consolidated financial statements compared to when they are recognized in the Company’s tax returns. In establishing the Company’s deferred income tax assets and liabilities, management makes judgments and interpretations based on the enacted tax laws and published tax guidance that are applicable to its operations. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

 

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740-10-30, weighs all available evidence, both positive and negative to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. Significant management judgment is required as it relates to future taxable income, future capital gains, tax settlements, valuation allowances, and the Company’s ability to utilize tax loss and credit carryforwards. As of December 31, 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.

 

Management believes that future tax consequences have been adequately provided for based on the current facts and circumstances and current tax law. However, should current circumstances change or the Company’s tax positions be challenged, different outcomes could result which could have a material effect on the Company’s consolidated financial statements.

 

Item 7A. 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 are 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.

 

- 32 -

 

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

 

Equity Price Risk

 

We hold certain actively traded marketable equity securities, which subjects the Company to fluctuations in the fair market value of its investment portfolio based on current market price. The recorded value of marketable equity securities decreased to $27.9 million at December 31, 2020 from $29.5 million at December 31, 2019. The decrease resulted from sales of marketable equity securities of approximately $2.0 million and a decrease in market value of the portfolio of approximately $3.5 million, partially offset by purchases of marketable equity securities of approximately $3.9 million. A 10% decrease in the market price of our marketable equity securities would cause a corresponding 10% decrease in the carrying amounts of these securities, or approximately $2.8 million. For additional information with respect to the marketable equity securities, see “Item 8. Financial Statements and Supplementary Data, Note 4 to the Consolidated Financial Statements – Marketable Equity Securities.”

 

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 $18.0 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 $180,000 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 2020 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by approximately $3.7 million.

 

Foreign Currency Exchange Rate Risk

 

We are exposed to foreign currency exchange rate risk related to the activities of our branch office located in Mexico. Currently, we do not hedge our exchange rate exposure through any currency forward contracts, currency options, or currency swaps as all of our revenues, and substantially all of our expenses and capital expenditures are transacted in U.S. dollars. However, certain operating expenditures and capital purchases related to our Mexico branch office are incurred within or exposed to fluctuations in the exchange rate between the U.S. dollar and the Mexican peso. Based on 2020 expenditures denominated in pesos, a 10% decrease in the exchange rate would increase our annual operating expenses by approximately $208,000. Foreign currency exchange rates did not have a material impact to our financial condition, results of operations or cash flows for the years ended December 31, 2020 or 2019.

 

Item 8. Financial Statements and Supplementary Data.

 

The following statements are filed with this report:

 

Report of Independent Registered Public Accounting Firm – Grant Thornton LLP

Consolidated Balance Sheets - December 31, 2020 and 2019

Consolidated Statements of Operations - Years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income - Years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity - Years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Cash Flows - Years ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

 

- 33 -

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Board of Directors and Stockholders

P.A.M. Transportation Services, Inc.

 

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of P.A.M. Transportation Services, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013 Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 5, 2021 expressed an unqualified opinion.

 

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Claims Liabilities

As described further in Note 6 to the consolidated financial statements, the Company is self-insured for a portion of its risk related to auto liability and workers’ compensation. Self-insurance results when the Company insures itself by maintaining funds to cover possible losses rather than by purchasing an insurance policy. The Company accrues for the cost of the self-insured portion of unpaid claims by evaluating the nature and severity of individual claims and by estimating future claims development based upon historical development trends. The actual cost to settle self-insured claim liabilities may differ from the Company’s reserve estimates due to legal costs, claims that have been incurred but not reported, and various other uncertainties.

 

- 34 -

 

We identified the estimation of auto liability and workers’ compensation claims accruals subject to exposure at claim dollar value layers ranging from $1.0 to $2.0 million depending on the specific coverages for auto liability, workers' compensation claims subject to self-insurer retention of $0.5 million, as a critical audit matter. Auto liability and workers’ compensation unpaid claim liabilities are determined by projecting the estimated loss related to a claim, less actual costs paid to date. These estimates rely on the assumption that historical claim patterns are an accurate representation for future claims that have been incurred but not completely paid. The principal considerations for assessing auto liability and workers’ compensation claims as a critical audit matter are the high level of estimation uncertainty related to determining the severity of these types of claims, as well as the inherent subjectivity in management’s judgment in estimating the total costs to settle or dispose of these claims.

 

Our audit procedures related to this critical audit matter included the following, among others:

 

 

We tested the design and operating effectiveness of controls over auto liability and workers’ compensation claims, including the completeness and accuracy of claim expenses and payments.

 

 

We tested management’s process for determining the auto liability and workers’ compensation accrual, including evaluating the reasonableness of the methods and assumptions used in estimating the ultimate claim losses with the assistance of an internal specialist.

 

 

We tested the claims data used in the reserve calculation by inspecting source documents to test key attributes of the claims data.

 

 

/s/ GRANT THORNTON LLP

 

We have served as the Company’s auditor since 2005.

 

Tulsa, Oklahoma

March 5, 2021

 

- 35 -

 

 

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

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2020 AND 2019

(in thousands, except share and per share data)

 

 

ASSETS

 

2020

  

2019

 
         

CURRENT ASSETS:

        

Cash and cash equivalents

 $337  $318 

Accounts receivable—net:

        

Trade, less current estimated credit loss of $3,482 and $2,952, respectively

  77,731   61,784 

Other

  5,127   3,769 

Inventories

  1,345   1,327 

Prepaid expenses and deposits

  10,172   8,669 

Marketable equity securities

  27,941   29,521 

Income taxes refundable

  868   504 
         

Total current assets

  123,521   105,892 
         

PROPERTY AND EQUIPMENT:

        

Land

  18,486   7,246 

Structures and improvements

  32,275   20,204 

Revenue equipment

  592,476   524,527 

Office furniture and equipment

  10,439   11,185 
         

Total property and equipment

  653,676   563,162 
         

Accumulated depreciation

  (202,851)  (175,887)
         

Net property and equipment

  450,825   387,275 
         

OTHER ASSETS

  4,246   4,842 
         

TOTAL ASSETS

 $578,592  $498,009 

 

(Continued)

 

See notes to consolidated financial statements.

 

- 36 -

 

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2020 AND 2019

(in thousands, except share and per share data)

 

 

  2020  2019 

LIABILITIES AND STOCKHOLDERS' EQUITY

        
         

CURRENT LIABILITIES:

        

Accounts payable

 $46,102  $16,597 

Accrued expenses and other liabilities

  26,601   40,610 

Current maturities of long-term debt

  57,776   67,637 
         

Total current liabilities

  130,479   124,845 
         

Long-term debt—less current portion

  228,330   174,187 

Deferred income taxes

  68,883   63,522 

Other long-term liabilities

  919   1,481 
         

Total liabilities

  428,611   364,034 
         

COMMITMENTS AND CONTINGENCIES (Note 16)

          
         

STOCKHOLDERS’ EQUITY

        

Preferred stock, $.01 par value, 10,000,000 shares

authorized; none issued

  -   - 

Common stock, $.01 par value, 40,000,000 shares authorized; 11,695,719 and 11,656,160 shares issued; 5,727,895 and 5,748,897 shares outstanding at December 31, 2020 and 2019, respectively

  117   117 

Additional paid-in capital

  84,148   83,688 

Accumulated Other Comprehensive Income

  -   - 

Treasury stock, at cost; 5,967,824 and 5,907,263 shares at December 31, 2020 and 2019, respectively

  (159,118)  (156,837)

Retained earnings

  224,834   207,007 
         

Total stockholders’ equity

  149,981   133,975 
         

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 $578,592  $498,009 

 

(Concluded)

See notes to consolidated financial statements.

 

- 37 -

 

 

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

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(in thousands, except per share data)

 

  

2020

  

2019

  

2018

 

OPERATING REVENUES:

            

Revenue, before fuel surcharge

 $438,987  $439,511  $445,855 

Fuel surcharge

  47,838   74,666   87,406 
             

Total operating revenues

  486,825   514,177   533,261 
             

OPERATING EXPENSES AND COSTS:

            

Salaries, wages and benefits

  124,098   129,738   119,819 

Operating supplies and expenses

  84,275   98,420   93,130 

Rents and purchased transportation

  165,984   168,399   201,455 

Depreciation

  56,168   55,107   49,387 

Insurance and claims

  8,866   35,622   17,191 

Other

  13,138   13,761   11,983 

Loss (gain) on disposition of equipment

  373   583   (1,306)
             

Total operating expenses and costs

  452,902   501,630   491,659 
             

OPERATING INCOME

  33,923   12,547   41,602 
             

NON-OPERATING (EXPENSE) INCOME

  (1,699)  6,222   (4,016)

INTEREST EXPENSE

  (8,815)  (8,654)  (6,245)
             

INCOME BEFORE INCOME TAXES

  23,409   10,115   31,341 
             

FEDERAL & STATE INCOME TAX EXPENSE:

            

Current

  220   590   141 

Deferred

  5,362   1,625   7,206 
             

Total federal & state income tax expense

  5,582   2,215   7,347 
             

NET INCOME

 $17,827  $7,900  $23,994 
             

EARNINGS PER COMMON SHARE:

            

Basic

 $3.10  $1.35  $3.94 

Diluted

 $3.09  $1.34  $3.90 
             

AVERAGE COMMON SHARES OUTSTANDING:

            

Basic

  5,752   5,832   6,083 

Diluted

  5,768   5,880   6,159 

 

See notes to consolidated financial statements.

 

- 38 -

 

 

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(in thousands)

 

  

2020

  

2019

  

2018

 
             

NET INCOME

 $17,827  $7,900  $23,994 
             

Other comprehensive income, net of tax:

            
             

Other comprehensive income (1)

  -   -   - 
             

COMPREHENSIVE INCOME

 $17,827  $7,900  $23,994 

 

_______________

(1) Other comprehensive income for 2020, 2019 and 2018 was $0, $0, and $0, respectively.

 

See notes to consolidated financial statements.

 

- 39 -

 

 

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

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(in thousands, except per share data)

  

Common Stock

Shares / Amount

  

Additional

Paid-In

Capital

  

Accumulated

Other

Comprehensive

Income

  

Treasury

Stock

  

Retained

Earnings

  

Total

 
                             

BALANCE— January 1, 2018

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

Net income

                      23,994   23,994 

Exercise of stock options-shares issued including tax benefits

  45   1   485               486 

Restricted stock issued

  38                         

Treasury stock repurchases

  (287)              (13,369)      (13,369)

Share-based compensation

          732               732 

Cumulative effect adjustment – ASU 2016-01

              (7,444)      7,444   - 
                             

BALANCE— December 31, 2018

  5,957  $116  $82,776  $0  $(142,552) $199,107  $139,447 
                             

Net income

                     7,900   7,900 

Restricted stock issued

  44   1                   1 

Treasury stock repurchases

  (252)              (14,285)      (14,285)

Share-based compensation

          912               912 
                             

BALANCE— December 31, 2019

  5,749  $117  $83,688  $0  $(156,837) $207,007  $133,975 
                             

Net income

                      17,827   17,827 

Restricted stock issued

  40                         

Treasury stock repurchases

  (61)              (2,281)      (2,281)

Share-based compensation

          460               460 
                             

BALANCE— December 31, 2020

  5,728  $117  $84,148  $0  $(159,118) $224,834  $149,981 

 

See notes to consolidated financial statements.

 

- 40 -

 

 

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

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018

(in thousands)

  

2020

  

2019

  

2018

 

OPERATING ACTIVITIES:

            

Net income

 $17,827  $7,900  $23,994 

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

            

Depreciation

  56,168   55,107   49,387 

Bad debt expense

  530   728   889 

Stock compensation—net of excess tax benefits

  460   912   732 

Provision for deferred income taxes

  5,362   1,625   7,206 

Recognized loss (gain) on marketable equity securities

  3,463   (4,753)  5,388 

Loss (gain) on sale or disposal of equipment

  373   583   (1,306)

Changes in operating assets and liabilities:

            

Accounts receivable

  (17,835)  884   (5,970)

Prepaid expenses, deposits, inventories, and other assets

  (1,780)  1,865   (137)

Income taxes refundable

  (60)  1,372   (76)

Trade accounts payable

  20,880   (2,233)  1,731 

Accrued expenses and other liabilities

  (17,798)  20,307   509 

Net cash provided by operating activities

  67,590   84,297   82,347 
             

INVESTING ACTIVITIES:

            

Purchases of property and equipment

  (48,226)  (79,354)  (73,882)

Proceeds from disposition of equipment

  17,418   14,263   24,904 

Sales of marketable equity securities

  2,039   2,984   1,045 

Purchases of marketable equity securities, net of return of capital

  (3,923)  (203)  (7,318)

Net cash used in investing activities

  (32,692)  (62,310)  (55,251)
             

FINANCING ACTIVITIES:

            

Borrowings under line of credit

  517,668   590,902   615,612 

Repayments under line of credit

  (516,468)  (584,047)  (605,419)

Borrowings of long-term debt

  26,837   60,203   52,717 

Repayments of long-term debt

  (64,411)  (70,917)  (82,442)

Borrowings under margin account

  7,068   527   7,584 

Repayments under margin account

  (3,292)  (4,334)  (2,206)

Repurchases of treasury stock

  (2,281)  (14,285)  (13,369)

Proceeds from exercise of stock options

  -   -   485 

Net cash used in financing activities

  (34,879)  (21,951)  (27,038)
             

NET INCREASE IN CASH AND CASH EQUIVALENTS

  19   36   58 
             

CASH AND CASH EQUIVALENTS—Beginning of year

  318   282   224 

CASH AND CASH EQUIVALENTS—End of year

 $337  $318  $282 
             

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION—

            

Cash paid during the period for:

            

Interest

 $8,798  $8,612  $6,095 

Income taxes

 $281  $671  $217 
             

NONCASH INVESTING AND FINANCING ACTIVITIES—

            

Purchases of revenue equipment included in accounts payable

 $9,050  $366  $1,597 

 

See notes to consolidated financial statements.

 

- 41 -

 

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

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018


 

 

1.

ACCOUNTING POLICIES