PAM TRANSPORTATION SERVICES INC - Quarter Report: 2018 June (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2018

For the transition period from __________to__________

Commission File Number: 0-15057

P.A.M. TRANSPORTATION SERVICES, INC.

(Exact name of registrant as specified in its charter)

297 West Henri De Tonti, Tontitown, Arkansas 72770

(Address of principal executive offices) (Zip Code)

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

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.

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

P.A.M. TRANSPORTATION SERVICES, INC.

Form 10-Q

For The Quarter Ended June 30, 2018

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2018

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

FORWARD-LOOKING INFORMATION

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

CRITICAL ACCOUNTING POLICIES

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the fiscal year ended December 31, 2017.

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. Truckload services include those transportation services in which we utilize company owned trucks or owner-operator owned trucks. Brokerage and logistics services consist of services such as transportation scheduling, routing, mode selection, trans-loading and other value added services related to the transportation of freight which may or may not involve the usage of company owned or owner-operator owned equipment. 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 79.0% and 87.7% of total revenues, excluding fuel surcharges, for the three months ended June 30, 2018 and 2017, respectively. Truckload services revenues, excluding fuel surcharges, represented 80.0% and 88.1% of total revenues, excluding fuel surcharges, for the six months ended June 30, 2018 and 2017, respectively. The remaining revenues, excluding fuel surcharges, were generated from brokerage and logistics services.

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

In discussing our results of operations, we use revenue, before fuel surcharge (and fuel expense, net of fuel surcharge), because management believes that eliminating the impact of this sometimes volatile source of revenue allows a more consistent basis for comparing our results of operations from period to period. During the three months ended June 30, 2018 and 2017, approximately $22.4 million and $15.5 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the six months ended June 30, 2018 and 2017, approximately $42.8 million and $31.3 million, respectively, of the Company’s total revenue was generated from fuel surcharges. We may also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.

RESULTS OF OPERATIONS – TRUCKLOAD SERVICES

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

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

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

Salaries, wages and benefits increased from 30.2% of revenues, before fuel surcharges, in the second quarter of 2017 to 32.5% of revenues, before fuel surcharges, during the second quarter of 2018. The increase relates primarily to a per mile pay increase that went into effect the last week of December 2017. This pay increase raised the average rate per mile paid to company drivers, which increased driver pay by approximately $1.8 million for the second quarter of 2018 compared to the second quarter of 2017. In addition, the proportion of total miles driven by company drivers increased as the number of company drivers increased year-over-year. Also contributing to the increase were salaries, wages and benefits paid to regional and short haul drivers which increased by approximately $1.6 million for the periods compared. This increase occurred as opportunities to expand local dedicated business increased during the second quarter 2018 compared to the second quarter 2017.

Operating supplies and expenses decreased from 4.7% of revenues, before fuel surcharges, during the second quarter of 2017 to 1.2% of revenues, before fuel surcharges, during the second quarter of 2018. The decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel. The average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased as a result of increased fuel surcharge collections from customers. Fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that, during periods of rising fuel prices, fuel surcharge collections increase, while fuel surcharge collections decrease during periods of falling fuel prices. Fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the Rent and purchased transportation category. These categorizations have the effect of reducing our net operating supplies and expenses while increasing the Rent and purchased transportation category, as discussed below.

Rent and purchased transportation decreased from 40.8% of revenues, before fuel surcharges, during the second quarter of 2017 to 34.7% of revenues, before fuel surcharges, during the second quarter of 2018. The decrease was primarily due to a reduction in amounts paid for equipment leases as the scheduled expiration of our final truck operating lease occurred during the first quarter of 2018. Trucks leased under these operating leases were replaced with company owned trucks as the scheduled expirations occurred throughout 2017 and until January of 2018. Also contributing to the decrease was a decrease in the average number of owner-operators under contract from 673 during the second quarter of 2017 to 552 during the second quarter of 2018, partially offset by an increase in the average rate per mile paid during the respective periods.

Depreciation increased from 12.8% of revenues, before fuel surcharges, during the second quarter of 2017 to 14.2% of revenues, before fuel surcharges, during the second quarter of 2018. As previously discussed, new tractors were purchased to replace tractors returned under expiring operating leases throughout 2017, and continuing into January of 2018. This transition resulted in the shift of expense from the Rent and purchased transportation category to the Depreciation category as leased tractors were replaced with owned tractors. Also contributing to the increase was an increase in the cost of new trailers and an increase in the size of our trailer fleet. Depreciating a larger quantity of trailers with a higher cost over the same length of time resulted in an increase in depreciation expense during the second quarter of 2018 compared to the second quarter of 2017.

Insurance and claims decreased from 5.4% of revenues, before fuel surcharges, during the second quarter 2017 to 5.0% of revenues, before fuel surcharges, during the second quarter 2018. This decrease as a percentage of revenue, before fuel surcharges, is attributable to the interaction of the increase in revenue with a decrease in total miles driven. Miles driven generally serve as the basis for the majority of our insurance coverage.

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

Gains and losses on sale or disposal of property increased from a net loss of 0.2% of revenues, before fuel surcharges, during the second quarter of 2017 to a net gain of 0.6% of revenues, before fuel surcharges, during the second quarter of 2018. The increase relates primarily to gains from the sale of trucks during the second quarter of 2018 compared to a loss on the sale of trucks during the second quarter of 2017.

Interest expense increased from 1.0% of revenues, before fuel surcharges, during the second quarter 2017 to 1.4% of revenues, before fuel surcharges during the second quarter 2018. This increase is attributable to market increases in interest rates, as well as- increases in amounts financed by the Company for new equipment. The increase in amounts financed was driven by the replacement of trucks operated under equipment leases during the second quarter of 2017 with company owned trucks, as discussed previously, and to overall growth in the number of company owned tractors and trailers operated within our fleet.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 96.8% for the second quarter of 2017 to 90.2% for the second quarter of 2018.

SIX MONTHS ENDED JUNE 30, 2018 VS. SIX MONTHS ENDED JUNE 30, 2017

For the six months ended June 30, 2018, truckload services revenue, before fuel surcharges, increased 3.1% to $169.7 million as compared to $164.6 million for the six months ended June 30, 2017. The increase in revenue was primarily the result of an increase in the average rate per mile charged to our customers during the first six months of 2018 compared to first six months of 2017. The increase in rates was partially offset by a decrease in the total number of tractors operating in our fleet and a decrease in miles driven per tractor for the first six months of 2018 compared to the first six months of 2017.

Salaries, wages and benefits increased from 30.4% of revenues, before fuel surcharges, in the first six months of 2017 to 33.5% of revenues, before fuel surcharges, during the first six months of 2018. The increase relates primarily to a per mile pay increase that went into effect the last week of December 2017. This pay increase raised the average rate per mile paid to company drivers, which increased driver pay by approximately $3.4 million for the first six months of 2018 compared to the first six months of 2017. In addition, the proportion of total miles driven by company drivers increased as the number of company drivers increased year-over-year. Also contributing to the increase were salaries, wages and benefits paid to regional and short haul drivers which increased by approximately $2.4 million for the periods compared. This increase occurred as opportunities to expand local dedicated business increased during the first six months of 2018 compared to the first six months of 2017.

Operating supplies and expenses decreased from 5.0% of revenues, before fuel surcharges, during the first six months of 2017 to 2.0% of revenues, before fuel surcharges, during the first six months of 2018. The decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel. The average surcharge-adjusted fuel price paid per gallon of diesel fuel decreased as a result of increased fuel surcharge collections from customers. Fuel surcharge collections can fluctuate significantly from period to period as they are generally based on changes in fuel prices from period to period so that, during periods of rising fuel prices, fuel surcharge collections increase, while fuel surcharge collections decrease during periods of falling fuel prices. Fuel surcharge revenue generated from transportation services performed by owner-operators is reflected as a reduction in net operating supplies and expenses, while fuel surcharges paid to owner-operators for their services is reported along with their base rate of pay in the Rent and purchased transportation category. These categorizations have the effect of reducing our net operating supplies and expenses while increasing the Rent and purchased transportation category, as discussed below.

Rent and purchased transportation decreased from 40.6% of revenues, before fuel surcharges, during the first six months of 2017 to 35.5% of revenues, before fuel surcharges, during the first six months of 2018. The decrease was primarily due to a decrease in the average number of owner-operators under contract from 652 during the first six months of 2017 to 551 during the first six months of 2018, partially offset by an increase in the average rate per mile paid during the respective periods. Also contributing to the decrease was a reduction in amounts paid for equipment leases as the scheduled expiration of our final truck operating lease occurred during the first quarter of 2018. Trucks leased under these operating leases were replaced with company owned trucks as the scheduled expirations occurred throughout 2017 and until January of 2018.

Depreciation increased from 12.8% of revenues, before fuel surcharges, during the first six months of 2017 to 14.3% of revenues, before fuel surcharges, during the first six months of 2018. As discussed previously, new tractors were purchased to replace tractors returned under expiring operating leases throughout 2017, and continuing into January of 2018. This transition resulted in the shift of expense from the Rent and purchased transportation classification to Depreciation as leased tractors were replaced with owned tractors. Also contributing to the increase was an increase in the cost of new trailers and an increase in the size of our trailer fleet. Depreciating a larger quantity of trailers with a higher cost over the same length of time resulted in an increase in depreciation expense during the first six months of 2018 compared to the first six months of 2017.

Insurance and claims decreased from 5.5% of revenues, before fuel surcharges, during the first six months of 2017 to 5.1% of revenues, before fuel surcharges, during the first six months of 2018. This decrease as a percentage of revenue, before fuel surcharges, is attributable to the interaction of the increase in revenue with a decrease in total miles driven. Miles driven generally serve as the basis for the majority of our insurance coverage.

Other expenses increased from 2.6% of revenues, before fuel surcharges, during the first six months of 2017 to 3.1% of revenues, before fuel surcharges, during the first six months of 2018. This increase is primarily attributable to an increase in legal fees associated with the defense of a collective-action lawsuit filed against the Company (see Note L to the condensed consolidated financial statements).

Gains and losses on sale or disposal of property increased from a net loss of 0.1% of revenues, before fuel surcharges, during the first six months of 2017 to a net gain of 0.3% of revenues, before fuel surcharges, during the first six months of 2018. The increase relates primarily to gains from the sale of trucks during the first six months of 2018 compared to a loss on the sale of trucks during the first six months of 2017.

Non-operating income (expense) decreased from 1.5% of revenues, before fuel surcharges, during the first six months of 2017 to (0.1%) of revenues, before fuel surcharges, during the first six months of 2018. This decrease resulted primarily from the adoption of ASU 2016-01. As discussed in Note B, this standard requires that equity investments be adjusted to market value each period with current period gains and losses in value recorded in net income. Previous guidance generally required that unrealized gains and losses be reported in Accumulated Other Comprehensive Income. During the first six months of 2017, equity investments were sold with pre-tax realized gains of approximately $2,177,000. For the first six months of 2018, our marketable equity securities portfolio had a net unrealized pre-tax loss in market value of approximately $877,000 which was reported as Non-operating expense for the period.

Interest expense increased from 1.1% of revenues, before fuel surcharges, during the first six months of 2017 to 1.3% of revenues, before fuel surcharges during the first six months of 2018. This increase is attributable to market increases in interest rates, as well as, increases in amounts financed by the Company for new equipment. The increase in amounts financed was driven by the replacement of trucks operated under equipment leases during the second quarter of 2017 with company owned trucks, as discussed previously, and to overall growth in the number of company owned tractors and trailers operated within our fleet.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 97.0% for the first six months of 2017 to 93.2% for the first six months of 2018.

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

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

Salaries, wages and benefits decreased from 4.8% of revenues, before fuel surcharges, in the second quarter of 2017 to 4.1% of revenues, before fuel surcharges, during the second quarter of 2018. The decrease relates primarily to increases in brokerage revenue outpacing the increase in employee resources assigned to the logistics and brokerage division during the second quarter of 2018 as compared to the second quarter of 2017. The percentage-based decrease reflects the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, operations wages, and payroll taxes with an increase in revenues for the periods compared.

Rents and purchased transportation decreased from 91.5% of revenues, before fuel surcharges, during the second quarter of 2017 to 89.3% of revenues, before fuel surcharges, during the second quarter of 2018. The decrease resulted from a decrease in amounts paid to third party carriers.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 97.4% for the second quarter of 2017 to 94.4% for the second quarter of 2018.

SIX MONTHS ENDED JUNE 30, 2018 VS. SIX MONTHS ENDED JUNE 30, 2017

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

Salaries, wages and benefits decreased from 5.1% of revenues, before fuel surcharges, during the first six months of 2017 to 4.2% of revenues, before fuel surcharges, during the first six months of 2018. The decrease relates primarily to increases in brokerage revenue outpacing the increase in employee resources assigned to the logistics and brokerage division during the first six months of 2018 as compared to the first six months of 2017. The percentage-based decrease reflects the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, operations wages, and payroll taxes with an increase in revenues for the periods compared.

Rents and purchased transportation decreased from 90.9% of revenues, before fuel surcharges, during the first six months of 2017 to 89.6% of revenues, before fuel surcharges, during the first six months of 2018. The decrease resulted from a decrease in amounts paid to third party carriers.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 97.0% for the first six months of 2017 to 94.8% for the first six months of 2018.

RESULTS OF OPERATIONS – COMBINED SERVICES

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

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

SIX MONTHS ENDED JUNE 30, 2018 VS. SIX MONTHS ENDED JUNE 30, 2017

Net income for all divisions was approximately $8.7 million, or 4.1% of revenues, before fuel surcharges for the first six months of 2018 as compared to net income of $3.9 million, or 2.1% of revenues, before fuel surcharges for the first six months of 2017. The decrease in net income resulted in diluted earnings per share of $1.39 for the first six months of 2018 as compared to diluted earnings per share of $0.61 for the first six months of 2017.

LIQUIDITY AND CAPITAL RESOURCES

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

During the first six months of 2018, we generated $29.5 million in cash from operating activities. Investing activities used $37.3 million in cash in the first six months of 2018. Financing activities generated $7.8 million in cash in the first six months of 2018.

Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing line of credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations to finance capital expenditures and repay long-term debt. During the first six months of 2018, we utilized cash on hand, installment notes, and our lines of credit to finance purchases of revenue equipment and other assets of approximately $39.8 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 six months of 2018, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately $38.7 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly installments.

During the remainder of 2018, we expect to purchase approximately 510 new trucks and 560 new trailers while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $63.0 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 six months of 2018, we maintained a $40.0 million revolving line of credit. Amounts outstanding under the line of credit bear interest at LIBOR (determined as of the first day of each month) plus 1.50% (3.48% at June 30, 2018), are secured by our accounts receivable and mature on July 1, 2019. At June 30, 2018 outstanding advances on the line of credit were approximately $26.0 million, including approximately $0.7 million in letters of credit, with availability to borrow $14.0 million.

Trade accounts receivable increased from $59.1 million at December 31, 2017 to $75.0 million at June 30, 2018. The increase relates to a 38% increase in freight revenues, which flow through the accounts receivable account, during June 2018 as compared to December 2017.

Other accounts receivable increased from $3.0 million at December 31, 2017 to $4.0 million at June 30, 2018 primarily due to increases in amounts owed by owner-operators and third party carriers for payment advances not charged at the end of the periods compared. Outstanding payment advances fluctuate depending on the timing of settlement dates compared to the end of the period and to the volume of freight transported by these methods in each period.

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

Marketable equity securities increased from $26.7 million at December 31, 2017 to $27.9 million at June 30, 2018. The $1.2 million increase was due to the purchase of marketable equity securities with a combined market value of approximately $2.1 million offset by a net decline in market value of approximately $0.9 million during the first six months of 2018.

Accounts payable increased from $19.6 million at December 31, 2017 to $31.9 million at June 30, 2018. This increase was primarily attributable to an increase in accrued revenue equipment purchases from $2.9 million at December 31, 2017 to $9.9 million at June 30, 2018 and to increases in direct expenses such as fuel, purchased transportation and insurance that increase in direct correlation to increases in miles and revenue.

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 $172.6 million at December 31, 2017 to $199.6 million at June 30, 2018. The increase was primarily related to the addition of $38.7 million in equipment installments notes, partially offset by note payments made during the first six months of 2018.

NEW ACCOUNTING PRONOUNCEMENTS

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Our primary market risk exposures include equity price risk, interest rate risk, commodity price risk (the price paid to obtain diesel fuel for our trucks), and foreign currency exchange rate risk. The potential adverse impacts of these risks and the general strategies we employ to manage such risks are discussed below.

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

Equity Price Risk

We hold certain actively traded marketable equity securities, which subjects the Company to fluctuations in the fair market value of its investment portfolio based on the current market price of such securities. The recorded value of marketable equity securities increased to $27.9 million at June 30, 2018 from $26.7 million at December 31, 2017. 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 Note D to our condensed consolidated financial statements.

Interest Rate Risk

Our line of credit bears interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR, which are affected by changes in interest rates, will affect the interest rate on, and therefore our costs under, the line of credit. Assuming $25.3 million of variable rate debt was outstanding, a hypothetical 100 basis point increase in LIBOR for a one year period would result in approximately $2.5 million of additional interest expense.

Commodity Price Risk

Prices and availability of all petroleum products are subject to political, economic, and market factors that are generally outside of our control. Accordingly, the price and availability of diesel fuel, as well as other petroleum products, can be unpredictable. Because our operations are dependent upon diesel fuel, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our 2017 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $4.1 million.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk related to the activities of our branch office located in Mexico. Currently, we do not hedge our exchange rate exposure through any currency forward contracts, currency options, or currency swaps as all of our revenues, and substantially all of our expenses and capital expenditures, are transacted in U.S. dollars. However, certain operating expenditures and capital purchases related to our Mexico branch office are incurred in or exposed to fluctuations in the exchange rate between the U.S. dollar and the Mexican peso. Based on 2017 expenditures denominated in pesos, a 10% increase in the exchange rate would increase our annual operating expenses by $57,000.

Item 4. Controls and Procedures.

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

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

Based on management’s evaluation, our chief executive officer and chief financial officer concluded that, as of June 30, 2018, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

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

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

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

The Company’s stock repurchase program has been extended and expanded several times, most recently in April 2017, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. Since the reauthorization, the Company has repurchased 111,316 shares of its common stock under this repurchase program.

On May 8, 2018, the Company commenced a tender offer to repurchase up to 100,000 shares of the Company’s outstanding common stock at a price of up to $43.00 per share. Following the expiration of the tender offer on June 7, 2018, the Company accepted 185,597 shares of its common stock for purchase at $40.00 per share, including 85,597 oversubscribed shares tendered, at an aggregate purchase price of approximately $7.4 million, excluding fees and expenses related to the offer. The Company funded the purchase of the accepted shares tendered with available cash and accounted for the repurchase of these shares as treasury stock on the Company’s condensed consolidated balance sheet as of June 30, 2018.

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

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

(2)     Consists of shares purchased pursuant to the 2018 tender offer.

Item 3. Exhibits.

SIGNATURES

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

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