PAMT CORP 10-Q

Item 1 . Financial Statements.   P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands, except share and per share data)       September 3 0 ,     December 31,       20 20     20 19       (unaudited)     (audited)   ASSETS                 Current assets:                 Cash and cash equivalents   $ 328     $ 318   Accounts receivable-net:                 Trade, less current estimated credit loss of $ 3,281 and $ 2,952 , respectively     69,984       61,784   Other     3,650       3,769   Inventories     1,093       1,327   Prepaid expenses and deposits     7,579       8,669   Marketable equity securities     25,157       29,521   Income taxes refundable     860       504   Total current assets     108,651       105,892                     Property and equipment:                 Land     16,086       7,246   Structures and improvements     32,011       20,204   Revenue equipment     556,100       524,527   Office furniture and equipment     11,779       11,185   Total property and equipment     615,976       563,162   Accumulated depreciation     ( 196,931 )     ( 175,887 ) Net property and equipment     419,045       387,275                     Other assets     4,387       4,842                     TOTAL ASSETS   $ 532,083     $ 498,009                     LIABILITIES AND STOCKHOLDERS’ EQUITY                 Current liabilities:                 Accounts payable   $ 42,226     $ 16,597   Accrued expenses and other liabilities     29,495       40,610   Current maturities of long-term debt     63,777       67,637   Total current liabilities     135,498       124,844                     Long-term debt - less current portion     194,753       174,187   Deferred income taxes     64,284       63,522   Other long-term liabilities     1,063       1,481   Total liabilities     395,598       364,034                     STOCKHOLDERS' EQUITY                 Preferred stock, $ .01 par value, 10,000,000 shares authorized; none issued     -       -   Common stock, $ .01 par value, 40,000,000 shares authorized; 11,692,344 and 11,656,160 shares issued; 5,735,326 and 5,748,897 shares outstanding at September 30, 2020 and December 31, 2019, respectively     117       117   Additional paid-in capital     84,118       83,688   Treasury stock, at cost; 5,957,018 and 5,907,263 shares at September 30, 2020 and December 31, 2019, respectively     ( 158,630 )     ( 156,837 ) Retained earnings     210,880       207,007   Total stockholders’ equity     136,485       133,975                     TOTAL LIABILITIES AND S TOCKH OLDERS' EQUITY   $ 532,083     $ 498,009     See notes to condensed consolidated financial statements.   3 Table of Contents     P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (unaudited) (in thousands, except per share data)       Three Months Ended     Nine Months Ended       September 30,     September 30,       20 20     201 9     20 20     201 9   OPERATING REVENUES:                                 Revenue, before fuel surcharge   $ 109,854     $ 110,149     $ 307,441     $ 332,846   Fuel surcharge     12,088       18,845       36,634       57,834   Total operating revenues     121,942       128,994       344,075       390,680                                     OPERATING EXPENSES AND COSTS:                                 Salaries, wages and benefits     30,618       32,920       90,991       94,586   Operating supplies and expenses     20,875       25,455       62,866       73,487   Rent and purchased transportation     41,402       40,740       114,688       128,647   Depreciation     13,403       14,173       41,936       40,974   Insurance and claims     3,145       3,697       5,701       11,872   Other     2,599       3,788       10,411       10,321   (Gain) Loss on sale or disposition of equipment     ( 174 )     688       ( 71 )     362   Total operating expenses and costs     111,868       121,461       326,522       360,249                                     OPERATING INCOME     10,074       7,533       17,553       30,431                                     NON-OPERATING (EXPENSE) INCOME     ( 94 )     490       ( 6,209 )     3,765   INTEREST EXPENSE     ( 2,211 )     ( 2,178 )     ( 6,601 )     ( 6,277 )                                   INCOME BEFORE INCOME TAXES     7,769       5,845       4,743       27,919                                     FEDERAL AND STATE INCOME TAX EXPENSE:                                 Current     106       106       106       302   Deferred     1,663       1,158       763       6,081   Total federal and state income tax expense     1,769       1,264       869       6,383                                     NET INCOME   $ 6,000     $ 4,581     $ 3,874     $ 21,536                                     INCOME PER COMMON SHARE:                                 Basic   $ 1.04     $ 0.80     $ 0.67     $ 3.68   Diluted   $ 1.04     $ 0.79     $ 0.67     $ 3.65                                     AVERAGE COMMON SHARES OUTSTANDING:                                 Basic     5,763       5,756       5,758       5,859   Diluted     5,768       5,799       5,775       5,907     See notes to condensed consolidated financial statements.   4 Table of Contents     P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands)       Nine M onths Ended       September 30 ,       20 20     20 19   OPERATING ACTIVITIES:                 Net income   $ 3,874     $ 21,536   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation     41,936       40,974   Bad debt expense     329       694   Stock compensation-net of excess tax benefits     430       736   Provision for deferred income taxes     763       6,081   Recognized loss / (gain) on marketable equity securities     7,484       ( 2,728 ) (Gain) / loss on sale or disposition of equipment     ( 71 )     362   Changes in operating assets and liabilities:                 Accounts receivable     ( 8,409 )     2,312   Prepaid expenses, deposits, inventories, and other assets     1,064       2,169   Income taxes payable     ( 52 )     ( 299 ) Trade accounts payable     22,112       3,218   Accrued expenses and other liabilities     ( 16,354 )     1,340   Net cash provided by operating activities     53,106       76,395                     INVESTING ACTIVITIES:                 Purchases of property and equipment     ( 39,763 )     ( 68,046 ) Proceeds from disposition of equipment     13,502       12,714   Sales of marketable equity securities     860       1,645   Purchases of marketable equity securities, net of return of capital     ( 3,982 )     ( 128 ) Net cash used in investing activities     ( 29,383 )     ( 53,815 )                   FINANCING ACTIVITIES:                 Borrowings under line of credit     365,263       444,362   Repayments under line of credit     ( 371,182 )     ( 445,318 ) Borrowings of long-term debt     17,640       45,557   Repayments of long-term debt     ( 38,872 )     ( 51,253 ) Borrowings under margin account     7,037       387   Repayments under margin account     ( 1,806 )     ( 2,676 ) Repurchases of common stock     ( 1,793 )     ( 13,616 ) Net cash used in financing activities     ( 23,713 )     ( 22,557 )                   NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH     10       23                     CASH, CASH EQUIVALENTS AND RESTRICTED CASH -Beginning of period     318       282                     CASH, CASH EQUIVALENTS AND RESTRICTED CASH -End of period   $ 328     $ 305                     SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION-                 Cash paid during the period for:                 Interest   $ 6,544     $ 6,258   Income taxes   $ 159     $ 601                     NONCASH INVESTING AND FINANCING ACTIVITIES-                 Purchases of property and equipment included in accounts payable   $ 3,944     $ 5,711     See notes to condensed consolidated financial statements.   5 Table of Contents     P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (unaudited) (in thousands)       Common Stock Shares / Amount     Additional Paid-In Capital     Treasury Stock     Retained Earnings     Total                                                     Balance at January 1, 2020     5,749     $ 117     $ 83,688     $ ( 156,837 )   $ 207,007     $ 133,975                                                     Net Loss     -       -       -       -       ( 1,304 )     ( 1,304 )                                                   Stock awards-shares issued including tax benefits     2       -       -       -       -       -                                                     Treasury stock repurchases     ( 9 )     -       -       ( 321 )     -       ( 321 )                                                   Stock based compensation     -       -       305       -       -       305                                                     Balance at March 31, 2020     5,742     $ 117     $ 83,993     $ ( 157,158 )   $ 205,703     $ 132,655                                                     Net Loss     -       -       -       -       ( 823 )     ( 823 )                                                   Stock awards-shares issued including tax benefits     34       -       -       -       -       -                                                     Treasury stock repurchases     -       -       -       -       -       -                                                     Stock based compensation     -       -       21       -       -       21                                                     Balance at June 30, 2020     5,776     $ 117     $ 84,014     $ ( 157,158 )   $ 204,880     $ 131,853                                                     Net Income     -       -       -       -       6,000       6,000                                                     Stock awards-shares issued including tax benefits     -       -       -       -       -       -                                                     Treasury stock repurchases     ( 41 )     -       -       ( 1,472 )     -       ( 1,472 )                                                   Stock based compensation     -       -       104       -       -       104                                                     Balance at September 30, 2020     5,735     $ 117     $ 84,118     $ ( 158,630 )   $ 210,880     $ 136,485     See notes to condensed consolidated financial statements.   6 Table of Contents   P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (unaudited) (in thousands)       Common Stock Shares / Amount     Additional Paid-In Capital     Treasury Stock     Retained Earnings     Total                                                     Balance at January 1, 2019     5,957     $ 116     $ 82,776     $ ( 142,552 )   $ 199,107     $ 139,447                                                     Net Income     -       -       -       -       8,301       8,301                                                     Stock awards-shares issued including tax benefits     1       -       -       -       -       -                                                     Treasury stock repurchases     ( 40 )     -       -       ( 1,618 )     -       ( 1,618 )                                                   Stock based compensation (1)     -       -       216       -       -       216                                                     Balance at March 31, 2019     5,918     $ 116     $ 82,992     $ ( 144,170 )   $ 207,408     $ 146,346                                                     Net Income     -       -       -       -       8,654       8,654                                                     Stock awards-shares issued including tax benefits     35       -       -       -       -       -                                                     Treasury stock repurchases     ( 196 )     -       -       ( 11,823 )     -       ( 11,823 )                                                   Stock based compensation     -       -       310       -       -       310                                                     Balance at June 30, 2019     5,757     $ 116     $ 83,302     $ ( 155,993 )   $ 216,062     $ 143,487                                                     Net Income     -       -       -       -       4,581       4,581                                                     Stock awards-shares issued including tax benefits     -       -       -       -       -       -                                                     Treasury stock repurchases     ( 3 )     -       -       ( 174 )     -       ( 174 )                                                   Stock based compensation     -       -       210       -       -       210                                                     Balance at September 30, 2019     5,754     $ 116     $ 83,512     $ ( 156,167 )   $ 220,643     $ 148,104       (1) Approximately $90,000 was accrued as share-based compensation at March 31, 2019 for restricted stock earned by non-employee directors but for which shares were not issued until April 2019.   See notes to condensed consolidated financial statements.   7 Table of Contents   P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) September 30, 20 20       NOTE A: BASIS OF PRESENTATION Unless the context otherwise requires, all references in this Quarterly Report on Form 10 -Q to “P.A.M.,” the “Company,” “we,” “our,” or “us” mean P.A.M. Transportation Services, Inc. and its subsidiaries.   The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10 -Q and Article 10 of Regulation S- X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included. The consolidated balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the three and nine -month period ended September 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. For further information, refer to the consolidated financial statements and the footnotes thereto included in the Company’s annual report on Form 10 -K for the year ended December 31, 2019.     NOTE B : RECENT ACCOUNTING PRONOUNCEMENTS In March 2020, the FASB issued Accounting Standards Update No. 2020 - 04, (“ASU 2020 - 04” ), Reference Rate Reform (Topic 848 ): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020 - 04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. ASU 2020 - 04 is effective as of March 12, 2020 through December 31, 2022. The Company has evaluated the provisions of this standard and determined that it is applicable to our line of credit and investment margin account. The London Interbank Offered Rate (“LIBOR”) is the basis for interest charges on outstanding borrowings for both our line of credit and investment margin account. The scheduled discontinuation of LIBOR is not expected to materially alter any provisions of either of these debt instruments, except for the identification of a replacement reference rate. The Company has evaluated the new guidance and does not expect it to have a material impact on its financial condition, results of operations, or cash flows.   In June 2016, the FASB issued ASU No. 2016 - 13, (“ASU 2016 - 13” ), Accounting for Credit Losses (Topic 326 ). ASU 2016 - 13 requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to the amortized cost of the securities. For smaller reporting companies, ASU 2016 - 13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2022, with early adoption permitted. The adoption of this guidance on January 1, 2020 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.     NOTE C: REVENUE RECOGNITION The Company has a single performance obligation, to transport our customer’s freight from a specified origin to a specified destination. The Company has the discretion to choose to self-transport or to arrange for alternate transportation to fulfill the performance obligation. Where the Company decides to self-transport the freight, the Company classifies the service as truckload services, and where the Company arranges for alternate transportation of the freight, the Company classifies the service as brokerage and logistics services. In either case, the Company is paid a rate to transport freight from its origin location to a specified destination. Because the primary factors influencing revenue recognition, including performance obligation, customer base, and timing of revenue recognition, are the same for both of its service categories, the Company utilizes the same revenue recognition method throughout its operations.   Company revenue is generated from freight transportation services performed utilizing heavy truck trailer combinations. While various ownership arrangements may exist for the equipment utilized to perform these services, including Company owned or leased, owner-operator owned, and third -party carriers, revenue is generated from the same base of customers. Contracts with these customers establish rates for services performed, which are predominantly rates that will be paid to pick up, transport and drop off freight at various locations. In addition to transportation, revenue is also awarded for various accessorial services performed in conjunction with the base transportation service. The Company also has other revenue categories that are not discussed in this note or broken out in our condensed consolidated statements of operations due to their immaterial amounts.   8 Table of Contents   In fulfilling the Company’s obligation to transport freight from a specified origin to a specified destination, control of freight is transferred to us at the point it has been loaded into the driver’s trailer, the doors are sealed and the driver has signed a bill of lading, which is the basic transportation agreement that establishes the nature, quantity and condition of the freight loaded, the responsibility for invoice payment and the pickup and delivery locations. Our revenue is generated, and our customer receives benefit, as the freight progresses towards delivery locations. In the event our customer cancels the shipment at some point prior to the final delivery location and re-consigns the shipment to an alternate delivery location, we are entitled to receive payment for services performed for the partial shipment. Shipments are generally conducted over a relatively short time span, generally one to three days; however, freight is sometimes stored temporarily in our trailer at one of our drop yard locations or at a location designated by a customer. Our revenue is categorized as either Freight Revenue or Fuel Surcharge Revenue, and both are earned by performing the same freight transportation services, as discussed further below.   Freight Revenue – revenue generated by the performance of the freight transportation service, including any accessorial service, provided to customers.   Fuel Surcharge Revenue – revenue designed to adjust freight revenue rates to an agreed-upon base cost for diesel fuel. Diesel fuel prices can fluctuate widely during the term of a contract with a customer. At the point that freight revenue rates are negotiated with customers, a sliding scale is agreed upon that approximately adjusts diesel fuel costs to an agreed-upon base amount. In general, as fuel prices increase, revenue from fuel surcharge increases, so that diesel fuel cost is adjusted to the approximate base amount agreed upon.   Revenue is recognized over time as the freight progresses towards its destination and the transportation service obligation is fulfilled. For loads picked up during the reporting period, but delivered in a subsequent reporting period, revenue is allocated to each period based on the transit time in each period as a percentage of total transit time. There are no assets or liabilities recorded in conjunction with revenue recognized, other than Accounts Receivable and Estimated Credit Losses.     NOTE D: MARKETABLE EQUITY SECURITIES The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income.   Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note J.   The following table sets forth market value, cost, and unrealized gains on equity securities as of September 30, 2020 and December 31, 2019.       September 30, 2020     December 31, 2019       (in thousands)   Fair market value   $ 25,157     $ 29,521   Cost     26,551       24,156   Unrealized (loss) / gain   $ ( 1,394 )   $ 5,365     The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of September 30, 2020 and December 31, 2019.       September 30, 2020     December 31, 2019       (in thousands)   Gross unrealized gains   $ 5,310     $ 7,808   Gross unrealized losses     6,704       2,443   Net unrealized (loss) / gain   $ ( 1,394 )   $ 5,365     9 Table of Contents   The following table shows the Company’s net realized gains during the three and nine months ending on September 30, 2020 and 2019, respectively, on certain marketable equity securities.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2020     2019     2020     2019       (in thousands, except per share data)   Sales proceeds   $ -     $ 883     $ 861     $ 1,645   Cost of securities sold     -       557       1,466       805   Realized gain / (loss)   $ -     $ 326     $ ( 605 )   $ 840     For the quarter ended September 30, 2020, the Company recognized dividends received of approximately $ 314,000 in non-operating income in its condensed consolidated statements of operations. For the quarter ended September 30, 2019, the Company recognized dividends received of approximately $ 348,000 in non-operating income in its condensed consolidated statements of operations.   For the nine months ended September 30, 2020, the Company recognized dividends received of approximately $ 946,000 in non-operating income in its condensed consolidated statements of operations. For the nine months ended September 30, 2019, the Company recognized dividends received of approximately $ 931,000 in non-operating income in its condensed consolidated statements of operations.   The Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2020, and December 31, 2019, the Company had outstanding borrowings of approximately $ 12,705,000 and $ 7,474,000 , respectively, under its margin account. Margin account borrowings are used for the purchase of marketable equity securities and as a source of short-term liquidity and are included in accrued expenses and other liabilities on our balance sheets.   Our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $ 498,000 during the third quarter of 2020, and a net unrealized pre-tax gain in market value of approximately $ 133,000 during the third quarter of 2019, which were reported as non-operating income for the respective periods.     NOTE E : STOCK - BASED COMPENSATION The Company maintains a stock incentive plan (the “Plan”) under which incentive and nonqualified stock options and other stock awards may be granted. Under the Plan, 750,000 shares are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock value under the Plan shall not be less than 85 % of the fair market value of the Company’s common stock on the date the award is granted. The fair market value is determined by the closing price of the Company’s common stock, on its primary exchange, on the same date that the option or award is granted.   In January 2020, the Company granted 7,000 shares of common stock to certain key employees. These stock awards have a grant date fair value of $ 56.45 per share, based on the closing price of the Company’s stock on the date of grant, and vest on the fourth anniversary date in January 2024.   In March 2020, the Company granted 2,608 shares of common stock to non-employee directors. These stock awards have a grant date fair value of $ 30.75 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.   In April 2020, the Company granted 242 shares of common stock to a new non-employee director upon his election to the board of directors. This stock award has a grant date fair value of $ 41.40 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.   In August 2020, the Company granted 13,332 shares of common stock to certain key employees. These stock awards have a grant date fair value of $ 30.25 per share, based on the closing price of the Company’s stock on the date of grant, and vests on the fourth anniversary date in August 2024. During August 2020, the Company also granted 40,000 shares of common stock to the Company’s Chief Executive Officer which have a grant date fair value of $ 35.37 per share, based on the closing price of the Company’s stock on the date of grant. This award will vest in installments of 5,000 shares each in 2022, 2023, 2024 and 2027, and 10,000 shares each in 2025 and 2026.   10 Table of Contents   The total grant date fair value of stock vested during the first nine months of 2020 was approximately $ 636,000 . Total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first nine months of 2020, was approximately $ 430,000 and includes approximately $ 90,000 recognized as a result of the grant of shares to each non-employee director. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ 0.06 during the first nine months of 2020. As of September 30, 2020, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ 2,318,000 , which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $ 130,000 in additional compensation expense related to unvested stock awards during the remainder of 2020 and to recognize approximately $ 513,000 , $ 513,000 , $ 358,000 , $ 271,000 , $ 200,000 , $ 200,000 and $ 133,000 in additional compensation expense related to unvested stock awards during the years 2021, 2022, 2023, 2024, 2025, 2026 and 2027, respectively.   The total grant date fair value of stock vested during the first nine months of 2019 was approximately $ 685,000 . Total pre-tax stock-based compensation expense recognized in salaries, wages and benefits during the first nine months of 2019 was approximately $ 736,000 and includes approximately $ 100,000 recognized as a result of the grant of shares to each non-employee director during the first nine months of 2019. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $ 0.09 during the first nine months of 2019. As of September 30, 2019, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $ 1,228,000 , which was being amortized on a straight-line basis over the remaining vesting period.   A summary of the status of the Company’s non-vested restricted stock as of September 30, 2020 and changes during the nine months ended September 30, 2020, is as follows:       Restricted Stock       Number of Shares     Weighted- Average Grant Date Fair Value   Non-vested at January 1, 2020     55,459     $ 24.35   Granted     63,182       36.46   Canceled/forfeited/expired     ( 11,714 )     41.01   Vested     ( 36,184 )     17.58   Non-vested at September 30, 2020     70,743     $ 35.86       NOTE F : SEGMENT INFORMATION The Company follows the guidance provided by ASC Topic 280, S egment Reporting, in its identification of operating segments. The Company has determined that it has a total of two operating segments whose primary operations can be characterized as either Truckload Services or Brokerage and Logistics Services; however, in accordance with the aggregation criteria provided by FASB ASC Topic 280, the Company has determined that the operations of the two operating segments can be aggregated into a single reporting segment, motor carrier operations. Truckload Services revenues and Brokerage and Logistics Services revenues, each before fuel surcharges, were as follows:       Three Months Ended September 30,     Nine Months Ended September 30,       2020     2019     2020     2019       Amount     %     Amount     %     Amount     %     Amount     %       (in thousands, except percentage data)                                                                     Truckload Services revenue   $ 82,949       75.5     $ 92,443       83.9     $ 244,217       79.4     $ 275,323       82.7   Brokerage and Logistics Services revenue     26,905       24.5       17,706       16.1       63,224       20.6       57,523       17.3   Total revenues   $ 109,854       100.0     $ 110,149       100.0     $ 307,441       100.0     $ 332,846       100.0       NOTE G : TREASURY STOCK The Company’s stock repurchase program has been extended and expanded several times, most recently in April 2017, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. During the nine months ended September 30, 2020, the Company repurchased 49,755 shares of its common stock at an aggregate cost of approximately $ 1,793,134 under this program.   The Company accounts for Treasury stock using the cost method. As of September 30, 2020, 5,957,018 shares were held in the treasury at an aggregate cost of approximately $ 158,630,000 .   11 Table of Contents     NOTE H : EARNINGS PER SHARE Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by adjusting the weighted average number of shares of common stock outstanding by common stock equivalents attributable to dilutive restricted stock. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The computations of basic and diluted earnings per share were as follows:       Three Months Ended     Nine Months Ended       September 30,     September 30,       2020     2019     2020     2019       (in thousands, except per share data)                                     Net income   $ 6,000     $ 4,581     $ 3,874     $ 21,536                                     Basic weighted average common shares outstanding     5,763       5,756       5,758       5,859   Dilutive effect of common stock equivalents     5       43       17       48   Diluted weighted average common shares outstanding     5,768       5,799       5,775       5,907                                     Basic earnings per share   $ 1.04     $ 0.80     $ 0.67     $ 3.68   Diluted earnings per share   $ 1.04     $ 0.79     $ 0.67     $ 3.65       NOTE I : INCOME TAXES The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which the Company operates generally provide for a deficiency assessment statute of limitation period of three years, and as a result, the Company’s tax years 2016 and forward remain open to examination in those jurisdictions.   In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740 - 10 - 30, 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 September 30, 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 September 30, 2020, an adjustment to the Company’s condensed consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During the nine months ended September 30, 2020 and 2019, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.   The Company’s effective income tax rates were 18.33 % and 22.9 % for the nine months ended September 30, 2020 and 2019, respectively. Our effective tax rate for the nine months ended September 30, 2020 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state income taxes and the tax benefits related to stock compensation.   12 Table of Contents     NOTE J: FAIR VALUE OF FINANCIAL INSTRUMENTS The Company’s financial instruments consist of cash and cash equivalents, marketable equity securities, accounts receivable, trade accounts payable, and borrowings.   The Company follows the guidance for financial assets and liabilities measured on a recurring basis. This guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:     Level 1:   Quoted market prices in active markets for identical assets or liabilities.            Level 2:   Inputs other than Level 1 inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable; or other inputs not directly observable, but derived principally from, or corroborated by, observable market data.           Level 3:   Unobservable inputs that are supported by little or no market activity.       The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.   At September 30, 2020, the following items are measured at fair value on a recurring basis:       Total     Level 1     Level 2     Level 3       (in thousands)                                     Marketable equity securities   $ 25,157     $ 25,157       -       -     The Company’s investments in marketable securities are recorded at fair value based on quoted market prices. The carrying value of other financial instruments, including cash, accounts receivable, accounts payable, and accrued liabilities approximate fair value due to their short maturities.   The carrying amount for the line of credit approximates fair value because the line of credit interest rate is adjusted frequently.   For long-term debt other than the lines of credit, the fair values are estimated using discounted cash flow analyses, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The carrying value and estimated fair value of this other long-term debt at September 30, 2020 was as follows:       Carrying Value     Estimated Fair Value       (in thousands)                     Long-term debt   $ 247,401     $ 248,711     The Company has not elected the fair value option for any of its financial instruments.     NOTE K : NOTES PAYABLE During the first nine months of 2020, the Company’s subsidiaries entered into installment obligations totaling approximately $ 43.9 million for the purpose of purchasing revenue equipment and $ 17.6 million for the purchase of a terminal. These obligations are payable in monthly installments and are recorded in long term debt and current maturities on the condensed consolidated balance sheets. The terms of these obligations vary from 36 months for trucks, to 84 months for trailers, and to 10 years for the terminal.   13 Table of Contents     NOTE L : LITIGATION The Company is not currently a party to any pending legal proceeding which management believes to be material to the financial statements of the Company. The Company maintains liability insurance against risks arising out of the normal course of its business.   We were a defendant in a collective- and class-action lawsuit which was filed on December 9, 2016, in the United States District Court for the Western District of Arkansas. The plaintiffs, who included current and former employee drivers who worked for the Company during the period of December 9, 2013, through December 31, 2019, alleged violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law including “failure to pay minimum wage during orientation, failure to pay minimum wage to team drivers after initial orientation, failure to pay minimum wage to solo-drivers after initial orientation, failure to pay for compensable travel time, Comdata card fees, unlawful deductions, and breach of contract.” The plaintiffs were seeking actual and liquidated damages to include court costs and legal fees. During July 2020, the United States District Court for the Western District of Arkansas granted final approval of a $ 16.5 million settlement reached with the plaintiffs and the settlement payment was disbursed by the Company during August 2020. Management has determined that the loss under this claim will not be covered by existing insurance policies.   On March 31, 2020, the United States District Court for the Western District of Arkansas dismissed the collective- and class-action lawsuit filed against the Company on May 29, 2019 by plaintiffs who were independent contractors alleging violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law. The plaintiffs, through their attorneys, alleged “misclassification as independent contractors, payment on the basis of miles without regard to the number of hours worked, improper deductions, and failure to pay minimum wage.” The dismissal of this lawsuit resulted when the Company and plaintiffs reached a settlement agreement and the Company paid approximately $ 421,000 , plus legal fees. Legal reserve accruals in excess of the amount outlined in the settlement agreement were reversed during the first nine months of 2020, resulting in a reduction in accrued expenses and other liabilities in the Company’s condensed consolidated balance sheets.   The Company’s participation in the settlements of the above matters does not constitute an admission by the Company of any fault or liability, and the Company does not admit any fault or liability.     NOTE M: LEASES Adoption of ASU 2016 - 02   The Company currently leases shop, office and parking spaces in various locations in the United States and Mexico. The initial term for the majority of these leases is one year or less, with an option for early cancellation and an option to renew for subsequent one - month periods. These leases can be terminated by either party by providing notice to the other party of the intent to cancel or to not extend. Relatively short lease durations for these properties are intended to provide flexibility to the Company as changing operational needs and shifting opportunities often result in cancellation or non-renewal of these leases by the Company or the lessor.   The initial lease term for certain shop and office locations is for periods ranging from one to five years with early cancellation options. The Company prefers that leases include early cancellation provisions to prevent becoming locked into long-term leases that become operationally unjustified and to allow the flexibility to pursue more cost-effective options for similar properties if they become available. These leases often include the option to extend for additional periods, which may or may not be exercised. Based on historical experience, the Company does not always extend these leases, sometimes exercises the option to cancel leases early and sometimes lessors choose to cancel leases or not extend.   The Company adopted ASU 2016 - 02 and related amendments on January 1, 2019 utilizing the modified retrospective approach and elected to apply the practical expedients outlined above. This election allowed the Company to continue to recognize lease expense for operating leases for which the initial term was twelve months or less, or for which it is reasonably likely that early cancellation provisions will be exercised, on a straight-line basis over the remaining term of the leases.   The Company leases trucks to owner-operators under our lease-to-own program. We also lease dock space to a related party at our Laredo, Texas terminal. We have reviewed these operating leases and determined that the adoption of ASU 2016 - 02 did not require a change to our financial statements, as our method of accounting for related assets and lease revenue is consistent with the provisions of the new standard.   Because the Company’s historical method of accounting for leases is consistent with the provisions of ASU 2016 - 02, the adoption of ASU 2016 - 02 on January 1, 2019 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.   14 Table of Contents   Right-of-Use Leases   Following the Company’s adoption of ASU 2016 - 02 and related amendments on January 1, 2019, the Company entered into operating leases which include initial terms ranging from three to five years and which do not include an option for early cancellation. In accordance with the provisions of ASC Topic 842, these leases resulted in the recognition of right-of-use assets and corresponding operating lease liabilities, respectively, valued at $ 1.7 million as of September 30, 2020. These assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date, using the Company’s incremental borrowing rate as of the respective dates of lease inception, as the rate implicit in each lease is not readily determinable. The right-of-use assets are recorded in other assets, and the lease liability is recorded in accrued expenses and other liabilities and in other long-term liabilities on our condensed consolidated balance sheet. Lease expense is recorded on a straight-line basis over the lease term and is recorded in rent and purchased transportation in our condensed consolidated statements of operations. While these lease agreements may contain provisions to extend after the initial term for an additional five years, the Company is not reasonably certain these extension options will be exercised. Therefore, potential lease payments that might occur under this extension period are not included in amounts recorded in our condensed consolidated balance sheets as of September 30, 2020.   Scheduled amounts and timing of cash flows arising from future right-of-use operating lease payments at September 30, 2020, are:   Maturity of Lease Liabilities   (In thousands)   2020 (remaining)   $ 155   2021     627   2022     544   2023     340   2024     114   Total undiscounted operating lease payments   $ 1,780   Less: Imputed interest     ( 93 ) Present value of operating lease liabilities   $ 1,687             Balance Sheet Classification         Right-of-use assets (recorded in other non-current assets)   $ 1,687             Current lease liabilities (recorded in other current liabilities)   $ 624   Long-term lease liabilities (recorded in other long-term liabilities)     1,063   Total operating lease liabilities   $ 1,687             Other Information         Weighted-average remaining lease term for operating leases (years)     3.04   Weighted-average discount rate for operating leases     3.60 %   Cash Flows   No new right-of-use assets were recognized as a non-cash asset addition that resulted from new operating lease liabilities during the three months ended September 30, 2020. Cash paid for amounts included in the present value of operating lease liabilities was $ 0.1 million during the three months ended September 30, 2020 and is included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities was $ 0.4 million during the nine months ended September 30, 2020 and is included in operating cash flows.   Operating Lease Costs       Three Months Ended     Nine Months Ended       September 30,     September 30,       20 20     201 9     20 20     20 19       (in thousands)                                     Long-term   $ 140     $ 67     $ 412     $ 106   Short-term     527       563       1,671       1,649   Total   $ 667     $ 630     $ 2,083     $ 1,755     15 Table of Contents   Lessor Disclosures under ASC Topic 842   The Company leases trucks to owner-operators under operating leases, which generally have a term of up to five years and include options to purchase the truck at the end of the lease. In the event that an independent contractor defaults on their lease, the Company generally leases the truck to another independent contractor.   As of September  30, 2020, the gross carrying value of trucks underlying these leases was $ 53.4 million and accumulated depreciation was $ 24.6 million. Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment, down to an estimated salvage value. In most cases, the Company has agreements in place with certain manufacturers whereby salvage values are guaranteed by the manufacturer. In other cases, where salvage values are not guaranteed, estimates of salvage value are based on the expected market values of equipment at the time of disposal. During the quarter ended September 30, 2020, the Company incurred $ 1.4 million of depreciation expense for these assets. During the nine months ended September 30, 2020, the Company incurred $ 4.9 million of depreciation expense for these assets.   The Company leases dock space to a related party at our Laredo, Texas terminal and warehouse and office space to an unrelated lessee at a second Laredo, Texas terminal. The dock space and the warehouse and office space leased are depreciated in conjunction with the structures and improvements for the entire Laredo terminals on a straight-line basis over the estimated useful life of the assets. Lease income is recorded as a component of non-operating income in our condensed consolidated statements of operations. As of September 30, 2020, the gross carrying value of the buildings underlying these leases was $ 13.7 million and accumulated depreciation was $ 1.2 million. During the quarter ended September 30, 2020, the Company incurred $ 0.1 million of depreciation expense for the portions of these buildings that are subject to lease. During the nine months ended September 30, 2020, the Company incurred $ 0.2 million of depreciation expense for the portions of these buildings that are subject to lease.   Lease Revenue   The Company's operating lease revenue is disclosed in the table below.       Three Months Ended     Nine Months Ended       September 30,     September 30,       20 20     20 19     20 20     20 19       (in thousands)                                     Leased truck revenue (recorded in revenue, before fuel surcharge)   $ 1,322     $ 2,244     $ 5,302     $ 7,024   Leased building space revenue (recorded in non-operating income)     169       39       404       116   Total lease revenue   $ 1,491     $ 2,283     $ 5,706     $ 7,140     Lease Receivables   Future minimum operating lease payments receivable at September 30, 2020:       (i n thousands)             2020 (remaining)   $ 1,525   2021     5,019   2022     3,912   2023     2,735   2024     1,030   Thereafter     1   Total future minimum lease payments receivable   $ 14,222       NOTE N: EFFECT OF COVID- 19 PANDEMIC The rapid spread of COVID- 19 has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, increased border and port controls and closures, and shutdowns. These measures and the public health concerns resulting from the outbreak have severely disrupted economic and commercial activity. The resulting impact on domestic and global supply chains has caused slowdowns and reduced freight demand for transportation companies such as ours. Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues have been significantly affected by the closure of North American automotive manufacturing facilities beginning in late March. Our automotive customers resumed operations during the second quarter; however, the extent to which production will return to pre-pandemic levels remains uncertain. Any additional delays or interruptions of automotive production and other consumer activity affecting our customers, as well as any future wave of the virus or other similar outbreaks could further adversely affect our business. In addition, the implementation of measures to protect the health and safety of our employees, customers, vendors and the general public may disrupt our ability to efficiently manage personnel and operations and to recruit and retain driver and non-driver personnel, which could have a material adverse effect on our operating results. Further, negative financial results, an economic downturn or uncertainty, or a tightening of credit markets caused by COVID- 19 or other similar outbreaks could have a material adverse effect on our liquidity and our ability to effectively meet our short- and long-term financial obligations.   16 Table of Contents     NOTE O : NONCASH INVESTING AND FINANCING ACTIVITIES The Company financed approximately $ 43.9 million in equipment purchases during the first nine months of 2020 utilizing noncash financing.     Item 2 . Management’s Discussion and Analysis of Financial Condition and Results of Operations .   FORWARD-LOOKING INFORMATION Certain information included in this Quarterly Report on Form 10-Q constitutes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to expected future financial and operating results, prospects, plans or events, and are thus prospective. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, ongoing and potential future economic, business and operational disruptions and uncertainties due to the COVID-19 pandemic or other public health crises; excess capacity in the trucking industry; surplus inventories; recessionary economic cycles and downturns in customers' 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 pending or future 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, including risk factors, included from time to time in filings made by the Company with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed above and in company filings might not transpire.   CRITICAL ACCOUNTING POLICIES There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the fiscal year ended December 31, 2019.   BUSINESS OVERVIEW The Company’s administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through wholly-owned subsidiaries based in various locations around the United States and in Mexico and Canada. The operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics services. This designation is based primarily on the ownership of the asset that performed the freight transportation service. Truckload services are performed by Company divisions that generally utilize Company-owned trucks, long-term contractors, or single-trip contractors to transport loads of freight for customers, while brokerage and logistics services coordinate or facilitate the transport of loads of freight for customers and generally involve the utilization of single-trip contractors. Both our truckload operations and our brokerage and logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this report.   For both operations, substantially all of our revenue is generated by transporting freight for customers and is predominantly affected by the rates per mile received from our customers, equipment utilization, and our percentage of non-compensated miles. These aspects of our business are carefully managed, and efforts are continuously underway to achieve favorable results. Truckload services revenues, excluding fuel surcharges, represented 75.5% and 83.9% of total revenues, excluding fuel surcharges, for the three months ended September 30, 2020 and 2019, respectively. Truckload services revenues, excluding fuel surcharges, represented 79.4% and 82.7% of total revenues, excluding fuel surcharges, for the nine months ended September 30, 2020 and 2019, respectively. The remaining revenues, excluding fuel surcharges, were generated from brokerage and logistics services.   The main factors that impact our profitability on the expense side are costs incurred in transporting freight for our customers. Currently, our most challenging costs include fuel, driver recruitment, training, wage and benefits costs, independent broker costs (which we record as purchased transportation), insurance, maintenance and capital equipment costs.   17 Table of Contents   In discussing our results of operations, we use revenue, before fuel surcharge (and fuel expense, net of fuel surcharge), because management believes that eliminating the impact of this sometimes volatile source of revenue allows a more consistent basis for comparing our results of operations from period to period. During the three months ended September 30, 2020 and 2019, approximately $12.1 million and $18.8 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the nine months ended September 30, 2020 and 2019, approximately $36.6 million and $57.8 million, respectively, of the Company’s total revenue was generated from fuel surcharges. We may also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.   IMPACT OF COVID-19 The Company’s primary concern during the COVID-19 pandemic is to do its part to protect its employees, customers, vendors and the general public from the spread of 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.   During the nine months ended September 30, 2020, the Company has experienced the 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 other customers, competition for freight increased as industry capacity collectively focused on freight that was considered essential. Our automotive customers resumed operations during the second quarter; however, the extent to which production will return to pre-pandemic levels remains uncertain. Any additional delays or interruptions in automotive production and other consumer activity affecting our customers, as well as any future wave of the virus or other similar outbreaks could further adversely affect our business. The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operating results, will be determined by the length of time the pandemic continues, its continued severity, government regulations imposed in response to the pandemic, and its general effect on the economy and transportation demand.   While operating cash flows may be negatively impacted by the pandemic, the Company believes we will be able to finance our near-term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources.   RESULTS OF OPERATIONS – TRUCKLOAD SERVICES The following table sets forth, for truckload services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Fuel costs are reported net of fuel surcharges.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2020     2019     2020     2019       (percentages)                                     Operating revenues, before fuel surcharge     100.0       100.0       100.0       100.0                                     Operating expenses:                                 Salaries, wages and benefits     35.4       34.5       35.9       33.2   Operating supplies and expenses     10.5       7.1       10.7       5.6   Rent and purchased transportation     21.3       27.3       24.1       28.8   Depreciation     16.1       15.2       17.1       14.8   Insurance and claims     3.8       4.0       2.3       4.3   Other     2.8       3.8       3.9       3.4   (Gain) loss on sale or disposal of property     (0.2 )     0.7       0.0       0.1   Total operating expenses     89.7       92.6       94.0       90.2   Operating income     10.3       7.4       6.0       9.8   Non-operating (expense) income     (0.1 )     0.5       (2.2 )     1.2   Interest expense     (2.3 )     (2.2 )     (2.4 )     (2.0 ) Income before income taxes     7.9       5.7       1.4       9.0     18 Table of Contents   THREE MONTHS ENDED SEPTEMBER 30, 20 20 VS. THREE MONTHS ENDED SEPTEMBER 3 0 , 201 9   During the third quarter of 2020, truckload services revenue, before fuel surcharges, decreased 10.3% to $82.9 million as compared to $92.4 million during the third quarter of 2019. The decrease in revenue was primarily the result of approximately 10% fewer trucks operating within our fleet, primarily due to a reduction in our independent contractor fleet, and of less favorable market conditions caused by the impact of the pandemic on general economic activity.   Salaries, wages and benefits increased from 34.5% of revenues, before fuel surcharges, in the third quarter of 2019 to 35.4% of revenues, before fuel surcharges, during the third quarter of 2020. This percentage-based increase is primarily a result of 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. On a dollar basis, salaries, wages and benefits decreased from $31.9 million during the third quarter 2019 to $29.3 million during the third quarter of 2020.   Operating supplies and expenses increased from 7.1% of revenues, before fuel surcharges, during the third quarter of 2019 to 10.5% of revenues, before fuel surcharges, during the third quarter of 2020. The increase relates 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 during the third quarter of 2020 compared to the third quarter 2019. This increase in miles driven by company drivers has the effect of increasing our net operating supplies and expenses while decreasing the rent and purchased transportation category, as fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the rent and purchased transportation category.   Rent and purchased transportation decreased from 27.3% of revenues, before fuel surcharges, during the third quarter of 2019 to 21.3% of revenues, before fuel surcharges, during the third quarter of 2020. The decrease was primarily due to a decrease in the number of loads transported by third-party carriers during the third quarter of 2020 compared to the third quarter of 2019.   Depreciation increased from 15.2% of revenues, before fuel surcharges, during the third quarter of 2019 to 16.1% of revenues, before fuel surcharges, during the third quarter of 2020. This percentage-based increase is primarily a result of the interaction of a decrease in operating revenues with the fixed-cost nature of depreciation expense. On a dollar basis, depreciation expense decreased from $14.1 million during the third quarter 2019 to $13.3 million during the third quarter of 2020.   Insurance and claims expense decreased from 4.0% of revenues, before fuel surcharges, during the third quarter of 2019 to 3.8% of revenues, before fuel surcharges, during the third quarter of 2020. This decrease primarily resulted from a reduction in auto liability insurance premiums, as the Company became self-insured for certain layers of auto liability claims in excess of $1.0 million commencing September 1, 2019. During the third quarter of 2019, the Company paid for auto liability insurance coverage for claims in excess of $1.0 million through various third-party insurance carriers.   Other expense decreased from 3.8% of revenues, before fuel surcharges, during the third quarter 2019 to 2.8% of revenues, before fuel surcharges, during the third quarter 2020. This decrease is primarily attributable to a decrease in legal fees incurred in our defense against certain litigation described in Note L to our condensed consolidated financial statements.   Non-operating income / (expense) decreased from income of 0.5% of revenues, before fuel surcharges, during the third quarter of 2019 to expense of 0.1% of revenues, before fuel surcharges, during the third quarter of 2020. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $0.5 million decrease in the market values of our marketable equity securities in non-operating income / (expense) during the third quarter of 2020, compared to a $0.1 million increase in the market value of our marketable equity securities during the third quarter of 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 92.6% for the third quarter of 2019 to 89.7% for the third quarter of 2020.   NINE MONTHS ENDED SEPTEMBER 30, 20 20 VS. NINE MONTHS ENDED SEPTEMBER 30, 20 19   For the nine months ended September 30, 2020, truckload services revenue, before fuel surcharges, decreased 11.3% to $244.2 million as compared to $275.3 million for the nine months ended September 30, 2019. The decrease in revenue was primarily the result of unfavorable market conditions experienced when more than 50% of the Company’s customers imposed COVID-19 related shutdowns during the second quarter of 2020. This interruption in our regular sources of freight, particularly in the automotive sector, forced the Company to seek alternative revenue sources, much of which was from the spot market. Also contributing to the decrease was a reduction in our independent contractor fleet during the first nine months of 2020 as compared to the first nine months of 2019.   19 Table of Contents   Salaries, wages and benefits increased from 33.2% of revenues, before fuel surcharges, in the first nine months of 2019 to 35.9% of revenues, before fuel surcharges, during the first nine months of 2020. The percentage-based increase is primarily a result of 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. On a dollar basis, salaries, wages and benefits decreased from $91.4 million during the nine months ended September 30, 2019 to $87.7 million during the nine months ended September 30, 2020.   Operating supplies and expenses increased from 5.6% of revenues, before fuel surcharges, during the first nine months of 2019 to 10.7% of revenues, before fuel surcharges, during the first nine months of 2020. The increase relates 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 during the first nine months of 2020 compared to the first nine months of 2019. This increase in miles driven by company drivers has the effect of increasing our net operating supplies and expenses while decreasing the rent and purchased transportation category, as fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the rent and purchased transportation category.   Rent and purchased transportation decreased from 28.8% of revenues, before fuel surcharges, during the first nine months of 2019 to 24.1% of revenues, before fuel surcharges, during the first nine months of 2020. The decrease was primarily due to a decrease in the number of loads transported by third-party carriers during the first nine months of 2020 compared to the first nine months of 2019. This decrease occurred as the average number of company-owned trucks increased for the first nine months 2020 compared to the first nine months 2019, providing additional company-owned capacity which diminished the need to utilize as many third-party carriers.   Depreciation increased from 14.8% of revenues, before fuel surcharges, during the first nine months of 2019 to 17.1% of revenues, before fuel surcharges, during the first nine months of 2020. This increase is primarily the result of an increase in the average number of company-owned trucks and trailers within our fleet for the first nine months of 2020 compared to the first nine months of 2019. Due to the fixed nature of depreciation, a decrease in operating revenues, before fuel surcharge, without a corresponding proportional decrease in depreciation, increases depreciation expense as a percentage of operating revenues.   Insurance and claims expense decreased from 4.3% of revenues, before fuel surcharges, during the first nine months of 2019 to 2.3% of revenues before fuel surcharges, during the first nine months of 2020. This decrease primarily resulted from a reduction in auto liability insurance premiums, as the Company became self-insured for certain layers of auto liability claims in excess of $1.0 million commencing September 1, 2019. During the first eight months of 2019, the Company paid for auto liability insurance coverage for claims in excess of $1.0 million through various third-party insurance carriers. Also contributing to the decrease was the settlement of a lawsuit in the first quarter of 2020 for an amount less than the amount reserved by the Company during the fourth quarter of 2019.   Non-operating income / (expense) decreased from income of 1.2% of revenues, before fuel surcharges, during the first nine months of 2019 to expense of 2.2% of revenues, before fuel surcharges, during the first nine months of 2020. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $7.4 million decrease in the market value of our marketable equity securities in non-operating income / (expense) during the first nine months of 2020, compared to a $2.7 million increase in the market value of our marketable equity securities during the first nine months of 2019.   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 90.2% for the first nine months of 2019 to 94.0% for the first nine months of 2020.   20 Table of Contents   RESULTS OF OPERATIONS – LOGISTICS AND BROKERAGE SERVICES The following table sets forth, for logistics and brokerage services, the percentage relationship of expense items to operating revenues, before fuel surcharges, for the periods indicated. Brokerage service operations occur specifically in certain divisions; however, brokerage operations occur throughout the Company in similar operations having substantially similar economic characteristics.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2020     2019     2020     2019       (percentages)                                     Operating revenues, before fuel surcharge     100.0       100.0       100.0       100.0                                     Operating expenses:                                 Salaries, wages and benefits     4.7       5.9       5.3       5.6   Rent and purchased transportation     88.8       88.5       89.0       87.0   Other     0.8       1.6       1.3       1.4   Total operating expenses     94.3       96.0       95.6       94.0   Operating income     5.7       4.0       4.4       6.0   Non-operating income (expense)     (0.1 )     0.3       (1.2 )     0.7   Interest expense     (1.2 )     (1.1 )     (1.3 )     (1.1 ) Income before income taxes     4.4       3.2       1.9       5.6     THREE MONTHS ENDED SEPTEMBER 30, 20 20 VS. THREE MONTHS ENDED SEPTEMBER 3 0 , 20 19   During the third quarter of 2020, logistics and brokerage services revenue, before fuel surcharges, increased 52.0% to $26.9 million as compared to $17.7 million during the third quarter of 2019. The increase relates to an increase in in the number of loads serviced and to an increase in the average rates charged to customers during the third quarter of 2020 as compared to the third quarter of 2019.   Salaries, wages and benefits decreased from 5.9% of revenues, before fuel surcharges, in the third quarter of 2019 to 4.7% of revenues, before fuel surcharges, during the third quarter of 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.   The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 96.0% for the third quarter of 2019 to 94.3% for the third quarter of 2020.   Non-operating income / (expense) decreased from income of 0.3% of revenues, before fuel surcharges, during the third quarter of 2019 to expense of 0.1% of revenues, before fuel surcharges, during the third quarter of 2020. This increase primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $0.5 million decrease in the market values of our marketable equity securities in non-operating income / (expense) during the third quarter of 2020, compared to a $0.1 million increase in the market value of our marketable equity securities during the third quarter of 2019.   NINE MONTHS ENDED SEPTEMBER 30, 20 20 VS. NINE MONTHS ENDED SEPTEMBER 30, 20 19   During the first nine months of 2020, logistics and brokerage services revenue, before fuel surcharges, increased 9.9% to $63.2 million as compared to $57.5 million during the first nine months of 2019. The increase relates to an increase in the average rates charged to customers during the first nine months of 2020 as compared to the first nine months of 2019.   Salaries, wages and benefits decreased from 5.6% of revenues, before fuel surcharges, in the first nine months of 2019 to 5.3% of revenues, before fuel surcharges, during the first nine months of 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.   Rents and purchased transportation increased from 87.0% of revenues, before fuel surcharges, during the first nine months of 2019 to 89.0% of revenues, before fuel surcharges, during the first nine months of 2020. The increase resulted 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, increased from 94.0% for the first nine months of 2019 to 95.6% for the first nine months of 2020.   21 Table of Contents   Non-operating income / (expense) decreased from income of 0.7% of revenues, before fuel surcharges, during the first nine months of 2019 to expense of 1.2% of revenues, before fuel surcharges, during the first nine months of 2020. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $7.4 million decrease in the market value of our marketable equity securities in non-operating income / (expense) during the first nine months of 2020, compared to a $2.7 million increase in the market value of our marketable equity securities during the first nine months of 2019.   RESULTS OF OPERATIONS – COMBINED SERVICES   THREE MONTHS ENDED SEPTEMBER 30, 20 20 VS. THREE MONTHS ENDED SEPTMEBER 30 , 20 19   Net income for all divisions was approximately $6.0 million, or 5.5% of revenues, before fuel surcharges for the third quarter of 2020 as compared to net income of $4.6 million, or 4.2% of revenues, before fuel surcharges for the third quarter of 2019. The increase in net income resulted in diluted earnings per share of $1.04 for the third quarter of 2020 as compared to diluted earnings per share of $0.79 for the third quarter of 2019.   NINE MONTHS ENDED SEPTEMBER 30, 20 20 VS. NINE MONTHS ENDED SEPTEMBER 30, 20 19   Net income for all divisions was approximately $3.9 million, or 1.3% of revenues, before fuel surcharges for the first nine months of 2020 as compared to net income of $21.5 million, or 6.5% of revenues, before fuel surcharges for the first nine months of 2019. The decrease in net income resulted in a diluted earnings per share of $0.67 for the first nine months of 2020 as compared to diluted earnings per share of $3.65 for the first nine months of 2019.   LIQUIDITY AND CAPITAL RESOURCES Our business has required, and will continue to require, a significant investment in new revenue equipment. Our primary sources of liquidity have been funds provided by operations, proceeds from the sales of revenue equipment, and borrowings under our credit facilities, installment notes, and investment margin account.   During the first nine months of 2020, we generated $53.1 million in cash from operating activities. Investing activities used $29.4 million in cash in the first nine months of 2020. Financing activities used $23.7 million in cash in the first nine months of 2020.   Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing line of credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations to finance capital expenditures and repay long-term debt. During the first nine months of 2020, we utilized cash on hand, installment notes, and our line of credit to finance purchases of revenue equipment and other assets of approximately $83.7 million.   We commonly finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 36 to 84 months. During the first nine months of 2020, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately $61.5 million for the purpose of purchasing revenue equipment and other assets. These obligations are payable in monthly installments.   During the remainder of 2020, we expect to purchase approximately 300 new trucks and 500 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $38.0 million. Management believes we will be able to finance our near-term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability of additional capital will depend upon prevailing market conditions, the market price of our common stock and several other factors over which we have limited control, as well as our financial condition and results of operations. Nevertheless, based on our recent operating results, current cash position, anticipated future cash flows, and sources of financing that we expect will be available to us, we do not expect that we will experience any significant liquidity constraints in the foreseeable future.   We currently intend to retain our future earnings to finance our growth and do not anticipate paying cash dividends in the foreseeable future.   During the first nine months of 2020, we maintained a revolving line of credit. Amounts outstanding under the line bear interest at LIBOR (determined as of the first day of each month) plus 1.25% (1.41% at September 30, 2020), are secured by our trade accounts receivable and mature on July 1, 2022. An “unused fee” of 0.25% is charged if average borrowings are less than $18.0 million. At September 30, 2020 outstanding advances on the line of credit were approximately $11.4 million, including approximately $0.3 million in letters of credit, with availability to borrow $48.6 million.   22 Table of Contents   During the third quarter of 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 3.021% 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 $70.0 million at September 30, 2020. The increase resulted from an increase in freight revenues, which flow through accounts receivable, during the third quarter of 2020 as compared to the fourth quarter of 2019.   Prepaid expenses and deposits decreased from $8.7 million at December 31, 2019 to $7.6 million at September 30, 2020. The decrease relates to the normal amortization of items prepaid as of December 31, 2019.   Marketable equity securities decreased from $29.5 million at December 31, 2019 to $25.2 million at September 30, 2020. The $4.3 million decrease was due to a decrease in the market value of held marketable equity securities of $7.4 million, the purchase of marketable equity securities with a combined purchase cost of approximately $3.9 million and the sale of marketable equity securities with a combined market value of $0.8 million during the first nine months of 2020.   The Company’s purchase during the first quarter of 2020 of a 51.6-acre terminal in Laredo, Texas which includes office, shop, and yard space resulted in an increase of $8.8 million in land and $10.9 million in structures and improvements recorded in our condensed consolidated balance sheet as of September 30, 2020.   Accounts payable increased from $16.6 million at December 31, 2019 to $42.2 million at September 30, 2020. This increase was primarily attributable to extended payment terms with certain suppliers.   Long-term debt and current maturities of long term-debt are reviewed on an aggregate basis, as the classification of amounts in each category are typically affected merely by the passage of time. Long-term debt and current maturities of long-term debt, on an aggregate basis, increased from $241.8 million at December 31, 2019 to $258.5 million at September 30, 2020. The increase was primarily related to the financing of additional revenue equipment during the first nine months of 2020 and to the financing of the Laredo, Texas terminal purchase which occurred earlier this year. Additional financings were partially offset by note payments made during the first nine months of 2020.   NEW ACCOUNTING PRONOUNCEMENTS See Note B to the condensed consolidated financial statements for a description of the most recent accounting pronouncements and their impact, if any, on the Company.