PAM TRANSPORTATION SERVICES INC - Quarter Report: 2021 June (Form 10-Q)

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

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

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

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

Condensed Consolidated Statements of Operations

(unaudited)

(in thousands, except per share data)

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

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)

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

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands)

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

Notes to Condensed Consolidated Financial Statements (unaudited)

June 30, 2021

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, 2020 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 six-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. 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, 2020.

NOTE B: RECENT ACCOUNTING PRONOUNCEMENTS

In March 2020, the FASB (Financial Accounting Standards Board) 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.

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.

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 June 30, 2021 and December 31, 2020.

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of June 30, 2021 and December 31, 2020.

The following table shows the Company’s net realized gains and losses during the three and six months ending on June 30 of 2021 and 2020, respectively, on certain marketable equity securities.

For the quarter ended June 30, 2021, the Company recognized dividends received of approximately $309,000 in non-operating income in its condensed consolidated statements of operations. For the quarter ended June 30, 2020, the Company recognized dividends received of approximately $326,000 in non-operating income in its condensed consolidated statements of operations.

For the six months ended June 30, 2021, the Company recognized dividends received of approximately $660,000 in non-operating income in its condensed consolidated statements of operations. For the six months ended June 30, 2020, the Company recognized dividends received of approximately $631,000 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 June 30, 2021, and December 31, 2020, the Company had outstanding borrowings of approximately $9,855,000 and $9,986,000, respectively, under its margin account. Margin account borrowings are used for the purchase of marketable equity securities and as a source of short-term liquidity and are included in accrued expenses and other liabilities on our balance sheets.

Our marketable equity securities portfolio had a net unrealized pre-tax gain in market value of approximately $1,632,000 during the second quarter of 2021, and a net unrealized pre-tax gain in market value of approximately $2,482,000 during the second quarter of 2020, 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.

During the first six months of 2021, the Company granted 2,500 shares of common stock to certain key employees. These stock awards have grant date fair values of $60.34 per share, based on the closing price of the Company’s stock on the date of grant, and vest in 25% increments over four years, beginning one year from the anniversary date of the grant.

During the first six months of 2021, the Company granted 1,304 shares of common stock to non-employee directors. These stock awards have a grant date fair value of $61.70 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.

The total grant date fair value of stock vested during the first six months of 2021 was approximately $80,000. The total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first six months of 2021, was approximately $253,000 and includes approximately $80,000 recognized as a result of the grant of 163 shares to each non-employee director. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.03 during the first six months of 2021. As of June 30, 2021, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $2,035,000, which is being amortized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize approximately $188,000 in additional compensation expense related to unvested stock awards during the remainder of 2021 and to recognize approximately $408,000, $343,000, $334,000, $363,000, $288,000 and $111,000 in additional compensation expense related to unvested stock awards during the years 2022, 2023, 2024, 2025, 2026 and 2027, respectively.

The total grant date fair value of stock vested during the first six months of 2020 was approximately $636,000. Total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits during the first six months of 2020, was approximately $326,000 and includes approximately $90,000 recognized as a result of the grant of shares to each non-employee director. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.04 during the first six months of 2020. As of June 30, 2020, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $603,000, which is being amortized on a straight-line basis over the remaining vesting period.

A summary of the status of the Company’s non-vested restricted stock as of June 30, 2021 and changes during the six months ended June 30, 2021, is as follows:

NOTE F: SEGMENT INFORMATION

The Company follows the guidance provided by ASC Topic 280, Segment Reporting, in its identification of operating segments. The Company has determined that it has a total of two operating segments whose primary operations can be characterized as either Truckload Services or Brokerage and Logistics Services; however, in accordance with the aggregation criteria provided by FASB ASC Topic 280, the Company has determined that the operations of the two operating segments can be aggregated into a single reporting segment, motor carrier operations. Truckload Services revenues and Brokerage and Logistics Services revenues, each before fuel surcharges, were as follows:

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 June 2011 authorization. During the six months ended June 30, 2021, the Company repurchased 2,956 shares of its common stock at an aggregate cost of approximately $144,000 under this program.

The Company accounts for Treasury stock using the cost method, and as of June 30, 2021, 5,970,780 shares were held in the treasury at an aggregate cost of approximately $159,262,000.

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:

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 2017 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, Accounting for Income Taxes, weighs all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of June 30, 2021, management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was not necessary.

The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by taxing authorities, based on the technical merits of the position. As of June 30, 2021, an adjustment to the Company’s condensed consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During the six months ended June 30, 2021 and 2020, 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 26.3% and 29.7% for the six months ended June 30, 2021 and 2020, respectively. Our effective tax rate for the six months ended June 30, 2021 differs from amounts computed by applying the United States federal statutory rates to pre-tax income primarily due to state income taxes, the tax benefits related to stock compensation and non-deductible expenses.

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:

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

At June 30, 2021, the following items are measured at fair value on a recurring basis:

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 June 30, 2021 was as follows:

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

NOTE K: NOTES PAYABLE

During the first six months of 2021, the Company’s subsidiaries entered into installment obligations totaling approximately $13.4 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly installments and are recorded in long term debt and current maturities on the Condensed Consolidated Balance Sheets. The terms of these obligations are for 84 months.

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.

NOTE M: LEASES

Adoption of ASU 2016-02, Leases

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 and yard space to related parties 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 ASC Topic 842.

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 $1.3 million as of June 30, 2021. 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 the lease agreements 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 June 30, 2021.

Scheduled amounts and timing of cash flows arising from future right-of-use operating lease payments at June 30, 2021, are:

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 or six months ended June 30, 2021. Cash paid for amounts included in the present value of operating lease liabilities was $0.1 million during the three months ended June 30, 2021 and is included in operating cash flows. Cash paid for amounts included in the present value of operating lease liabilities was $0.3 million during the six months ended June 30, 2021 and is included in operating cash flows.

Operating Lease Costs

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 June 30, 2021, the gross carrying value of trucks underlying these leases was $55.2 million and accumulated depreciation was $27.1 million. Depreciation is calculated on a straight-line basis over the estimated useful life of the equipment, down to an estimated salvage value. In most cases, the Company has agreements in place with certain manufacturers whereby salvage values are guaranteed by the manufacturer. In other cases, where salvage values are not guaranteed, estimates of salvage value are based on the expected market values of equipment at the time of disposal. During the quarter ended June 30, 2021, the Company incurred $1.7 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.

Lease Revenue

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

Lease Receivables

Future minimum operating lease payments receivable at June 30, 2021:

NOTE N: EFFECT OF COVID-19 PANDEMIC

The rapid spread of COVID-19 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 severely disrupted economic and commercial activity. The resulting impact on domestic and global supply chains caused slowdowns and reduced freight demand for transportation companies such as ours. Because we have a significant concentration of customers within the automotive industry, our freight volumes and revenues were significantly affected by the closure of North American automotive manufacturing facilities beginning in late March of 2020. Our automotive customers resumed operations during the second quarter of 2020. Any future delays or interruptions of automotive production and other consumer activity affecting our customers that could result from the ongoing outbreak of the Delta variant or 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.

NOTE O: NONCASH INVESTING AND FINANCING ACTIVITIES

The Company financed approximately $13.4 million in equipment purchases during the first six months of 2021 utilizing noncash financing.

NOTE P:  SUBSEQUENT EVENTS

On July 13, 2021, the Company’s Board of Directors declared a 2-for-1 forward stock split of its common stock in the form of a 100% stock dividend, payable on August 16, 2021, to stockholders of record on July 30, 2021. Under the terms of the stock split, the Company’s stockholders will receive a dividend of one share for every share held on the record date. The dividend will be paid in authorized but unissued shares of common stock of the Company. The additional shares will be distributed by the Company’s transfer agent, Computershare, and the per share price of the Company’s common stock will adjust accordingly on The Nasdaq Stock Market.

On July 27, 2021, the Company announced the commencement of a modified “Dutch auction” tender offer to purchase up to 200,000 shares (as adjusted for the Company’s previously announced 2-for-1 forward split of its common stock in the form of a 100% stock dividend), or about 1.7%, of its outstanding common stock at a price of not less than $32.00 and not more than $37.00 per share (as adjusted for the Stock Split). The tender offer will expire at 5:00 p.m., Eastern Time, on August 26, 2021, unless extended or withdrawn.

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. In this Quarterly Report, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “project,” “could,” “should,” “would” and similar expressions, as they relate to us, out management, and our industry are intended to identify forward-looking statements. 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; a determination that independent contractors are employees; general risks associated with doing business in Mexico, including, without limitation, potential increased costs and adverse impacts resulting from recent Mexican labor outsourcing law reforms, 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, 2020.

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 67.5% and 81.6% of total revenues, excluding fuel surcharges, for the three months ended June 30, 2021 and 2020, respectively. Truckload services revenues, excluding fuel surcharges, represented 67.2% and 81.6% of total revenues, excluding fuel surcharges, for the six months ended June 30, 2021 and 2020, 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, 2021 and 2020, approximately $16.1 million and $7.2 million, respectively, of the Company’s total revenue was generated from fuel surcharges. During the six months ended June 30, 2021 and 2020, approximately $29.8 million and $24.5 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 has been to do its part to protect its employees, customers, vendors and the general public from the spread of COVID-19 while continuing to serve the vital role of supplying essential goods to the nation. Where feasible, our employees are working remotely from their homes. For essential functions, including our driving professionals, we distribute cleaning and protective supplies to various terminals so that they are available to those that need them. We provide 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.

While we and most of our customers have returned to normal operations and economic activity continued to increase during the first six months of 2021, we continue to monitor ongoing developments with the COVID-19 pandemic. Any future waves or outbreaks of alternative strains of the virus could adversely impact our future operations and financial results. The ultimate extent of the pandemic’s impact on the Company’s financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its continued severity, and further government regulations imposed in response to the pandemic, and its continued effect on the economy and transportation demand.

While operating cash flows may be negatively impacted by the pandemic, the Company believes we will be able to continue to finance our near-term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources.

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, 2021 VS. THREE MONTHS ENDED JUNE 30, 2020

During the second quarter of 2021, truckload services revenue, before fuel surcharges, increased 40.1% to $98.0 million as compared to $70.0 million during the second quarter of 2020. The increase in revenue was primarily the result of favorable market conditions and improved rates for freight experienced during the second quarter of 2021 compared to the second quarter of 2020.

Salaries, wages and benefits decreased from 38.1% of revenues, before fuel surcharges, in the second quarter of 2020 to 32.3% of revenues, before fuel surcharges, during the second quarter of 2021. The percentage-based decrease is primarily a result of the interaction of expenses with fixed-cost characteristics, such as general and administrative wages, maintenance wages, operations wages, and payroll taxes with a increase in revenues for the periods compared. On a dollar basis, salaries, wages and benefits increased from $26.6 million during the second quarter 2020 to $31.7 million during the second quarter of 2021 due to an increase in both our non-driver and driver employee counts as well as an increase in the number of miles generated by company drivers.

Operating supplies and expenses decreased from 15.7% of revenues, before fuel surcharges, during the second quarter of 2020 to 9.1% of revenues, before fuel surcharges, during the second quarter of 2021. The decrease relates primarily to a decrease in the average surcharge-adjusted fuel price paid per gallon of diesel fuel, which was 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.

Depreciation decreased from 20.2% of revenues, before fuel surcharges, during the second quarter of 2020 to 14.5% of revenues, before fuel surcharges, during the second quarter of 2021. This decrease is primarily the result of favorable market conditions and improved rates for freight experienced during the second quarter of 2021 compared to the second quarter of 2020, as well as a moderate decrease in the average number of trucks within our fleet for the second quarter of 2021 compared to the second quarter of 2020. Due to the fixed nature of depreciation, an increase in operating revenues, before fuel surcharge, without a corresponding proportional increase in depreciation decreases depreciation expense as a percentage of operating revenues.

Non-operating income decreased from 3.8% of revenues, before fuel surcharges, during the second quarter of 2020 to 1.8% of revenues, before fuel surcharges, during the second quarter of 2021. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $1.6 million increase in the market values of our marketable equity securities in non-operating income during the second quarter of 2021, compared to a $2.5 million increase in the market value of our marketable equity securities during the second quarter of 2020.

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 103.9% for the second quarter of 2020 to 84.0% for the second quarter of 2021.

SIX MONTHS ENDED JUNE 30, 2021 VS. SIX MONTHS ENDED JUNE 30, 2020

For the six months ended June 30, 2021, truckload services revenue, before fuel surcharges, increased 16.8% to $188.4 million as compared to $161.3 million for the six months ended June 30, 2020. The increase in revenue was primarily the result of favorable market conditions and improved rates for freight experienced during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Salaries, wages and benefits decreased from 36.2% of revenues, before fuel surcharges, in the first six months of 2020 to 33.5% of revenues, before fuel surcharges, during the first six months of 2021. 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, operations wages, and payroll taxes with an increase in revenues for the periods compared. On a dollar basis, salaries, wages and benefits increased from $58.3 million during the first six months of 2020 to $63.1 million during the first six months of 2021 due to an increase in both our non-driver and driver employee counts as well as an increase in the number of miles generated by company drivers.

Rent and purchased transportation decreased from 25.5% of revenues, before fuel surcharges, during the first six months of 2020 to 22.9% of revenues, before fuel surcharges, during the first six months of 2021. The decrease was primarily due to a decrease in the percentage of loads transported by third-party carriers during the first six months 2021 compared to the first six months 2020.

Depreciation decreased from 17.6% of revenues, before fuel surcharges, during the first six months of 2020 to 15.1% of revenues, before fuel surcharges, during the first six months of 2021. This decrease is primarily the result of favorable market conditions and improved rates for freight experienced during first six months of 2021 compared to the first six months of 2020, as well as a moderate decrease in the average number of trucks within our fleet for the first six months of 2021 compared to the first six months of 2020. Due to the fixed nature of depreciation, an increase in operating revenues, before fuel surcharge, without a corresponding proportional increase in depreciation decreases depreciation expense as a percentage of operating revenues.

Insurance and claims expense increased from 1.6% of revenues, before fuel surcharges, during the first six months of 2020 to 3.4% of revenues before fuel surcharges, during the first six months of 2021. This increase is largely due to the settlement, during the first six months of 2020, of a lawsuit brought against the Company by individuals who asserted they were misclassified as owner-operators. The amount of the settlement was less than the amount previously reserved for the suit, which resulted in a credit to expense during the first six months of 2020.

Non-operating income (expense) increased from an expense of (3.4%) of revenues, before fuel surcharges, during the first six months of 2020 income of 2.9% of revenues, before fuel surcharges, during the first six months of 2021. This increase primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $5.8 million increase in the market value of our marketable equity securities in non-operating income (expense) during the first six months of 2021, compared to a $6.3 million decrease in the market value of our marketable equity securities during the first six months of 2020.

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 96.1% for the first six months of 2020 to 86.9% for the first six months of 2021.

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, 2021 VS. THREE MONTHS ENDED JUNE 30, 2020

During the second quarter of 2021, logistics and brokerage services revenue, before fuel surcharges, increased 198.2% to $47.1 million as compared to $15.8 million during the second quarter of 2020. The increase is due to the onboarding of new business and to increases in average rates charged to customers during the second quarter of 2021 as compared to the second quarter of 2020.

Salaries, wages and benefits decreased from 6.0% of revenues, before fuel surcharges, in the second quarter of 2020 to 4.6% of revenues, before fuel surcharges, during the second quarter of 2021. The percentage-based decrease is primarily a result of 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 87.0% of revenues, before fuel surcharges, during the second quarter of 2020 to 82.7% of revenues, before fuel surcharges, during the second quarter of 2021. The decrease resulted from paying third-party carriers a smaller percentage of customer revenue.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 95.2% for the second quarter of 2020 to 88.7% for the second quarter of 2021.

SIX MONTHS ENDED JUNE 30, 2021 VS. SIX MONTHS ENDED JUNE 30, 2020

During the first six months of 2021, logistics and brokerage services revenue, before fuel surcharges, increased 153.1% to $91.9 million as compared to $36.3 million during the first six months of 2020. The increase is due to the onboarding of new business and to increases in average rates charged during the first six months of 2021 as compared to the first six months of 2020.

Salaries, wages and benefits decreased from 5.7% of revenues, before fuel surcharges, in the first six months of 2020 to 4.5% of revenues, before fuel surcharges, during the first six months of 2021. The percentage-based decrease is primarily a result of 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 88.3% of revenues, before fuel surcharges, during the first six months of 2020 to 83.2% of revenues, before fuel surcharges, during the first six months of 2021. The decrease resulted from paying third-party carriers a smaller percentage of customer revenue.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, improved from 96.5% for the first six months of 2020 to 89.1% for the first six months of 2021.

Non-operating income (expense) increased from an expense of (2.0%) of revenues, before fuel surcharges, during the first six months of 2020 to income of 1.4% of revenues, before fuel surcharges, during the first six months of 2021. This decrease primarily resulted from the change in the market values of our portfolio of marketable equity securities. The Company recorded a $5.8 million increase in the market value of our marketable equity securities in non-operating income (expense) during the first six months of 2021, compared to a $6.3 million decrease in the market value of our marketable equity securities during the first six months of 2020.

RESULTS OF OPERATIONS – COMBINED SERVICES

THREE MONTHS ENDED JUNE 30, 2021 VS. THREE MONTHS ENDED JUNE 30, 2020

Net income for all divisions was approximately $15.3 million, or 10.6% of revenues, before fuel surcharges for the second quarter of 2021 as compared to a net loss of $0.8 million, or 1.0% of revenues, before fuel surcharges for the second quarter of 2020. The increase in net income resulted in diluted earnings per share of $2.66 for the second quarter of 2021 as compared to a diluted loss per share of $0.14 for the second quarter of 2020.

SIX MONTHS ENDED JUNE 30, 2021 VS. SIX MONTHS ENDED JUNE 30, 2020

Net income for all divisions was approximately $27.3 million, or 9.7% of revenues, before fuel surcharges for the first six months of 2021 as compared to a net loss of $2.1 million, or 1.1% of revenues, before fuel surcharges for the first six months of 2020. The increase in net income resulted in diluted earnings per share of $4.74 for the first six months of 2021 as compared to a diluted loss per share of $0.37 for the first six months of 2020.

LIQUIDITY AND CAPITAL RESOURCES

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

During the first six months of 2021, we generated $51.3 million in cash from operating activities. Investing activities generated $21.5 million in cash in the first six months of 2021. Financing activities used $50.1 million in cash in the first six months of 2021.

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 2021, we utilized cash on hand, installment notes, and our line of credit to finance purchases of revenue equipment and other assets of approximately $13.4 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 2021, the Company’s subsidiary, P.A.M. Transport, Inc., entered into installment obligations totaling approximately $13.4 million for the purpose of purchasing revenue equipment. These obligations are payable in monthly installments.

During the remainder of 2021, we expect to purchase approximately 405 new trucks while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $20.3 million. Additionally, on July 27, 2021, we commenced a tender offer to purchase up to 200,000 shares of our common stock at a price not greater than $37.00 per share nor less than $32.00 per share, for a total purchase price of up to approximately $7.4 million. The number of shares subject to the tender offer and the per share price range of the offer have been adjusted to reflect our previously announced 2-for-1 forward split of our common stock in the form of a 100% stock dividend payable on August 16, 2021, to stockholders of record on July 30, 2021. Subject to certain limitations and legal requirements, the terms of the tender offer permit us to accept for payment up to an additional 2% of our outstanding shares (or approximately 229,050 additional shares, as adjusted for the stock split). Assuming that an additional amount of shares above the maximum of 200,000 shares are tendered in the offer and we accept an additional number of shares up to 2% of our outstanding shares, the aggregate purchase price will be up to approximately $15.9 million. We anticipate that we will pay for the shares tendered in the offer, as well as paying related fees and expenses, from our cash and cash equivalents, but we may utilize funds borrowed under our existing line of credit.

Management believes we will be able to finance our near-term needs for working capital over the next twelve months, the purchase of our shares in the tender offer, 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 2021, 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% (1.35% at June 30, 2021), 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 June 30, 2021 outstanding advances on the line of credit were approximately $0.40 million, including approximately $0.40 million in letters of credit, with availability to borrow $59.6 million.

Trade accounts receivable increased from $77.7 million at December 31, 2020 to $88.2 million at June 30, 2021. The increase resulted from an increase in freight revenues, which flow through accounts receivable, during the second quarter of 2021 as compared to the fourth quarter of 2020.

Prepaid expenses and deposits decreased from $10.2 million at December 31, 2020 to $7.8 million at June 30, 2021. The decrease relates to the normal amortization of items prepaid as of December 31, 2020.

Marketable equity securities increased from $27.9 million at December 31, 2020 to $33.0 million at June 30, 2021. The $5.1 million increase was due to the increase in the market value of held marketable equity securities of $5.8 million, the purchase of marketable equity securities with a combined market value of approximately $0.7 million and the sale of marketable equity securities with a combined market value of $1.4 million during the first six months of 2020.

Accounts payable decreased from $46.1 million at December 31, 2020 to $35.8 million at June 30, 2021. This decrease was primarily attributable to a reduction in the amount accrued for equipment purchases. As of December 31, 2020, equipment was received and payment accrued, which was financed under notes during the first six months of 2021.

Long-term debt and current maturities of long term-debt are reviewed on an aggregate basis, as the classification of amounts in each category are typically affected merely by the passage of time. Long-term debt and current maturities of long-term debt, on an aggregate basis, decreased from $286.1 million at December 31, 2020 to $250.9 million at June 30, 2021. The decrease was primarily related to note payments made during the first six months of 2021, partially offset by the addition of $13.4 million in equipment installment notes entered into during the first six months of the year.

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 impact of these risks are discussed below. While the Company has used derivative financial instruments in the past to manage its interest rate and commodity price risks, the Company does not currently enter into such instruments for risk management purposes or for speculation or trading.

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 $33.0 million at June 30, 2021 from $27.9 million at December 31, 2020. 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 $3.3 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 or a change to an index rate other than LIBOR, will affect the interest rate on, and therefore our costs under, the line of credit. Assuming $12.5 million of variable rate debt was outstanding under our line of credit for a full fiscal year; a hypothetical 100 basis point increase in LIBOR would result in approximately $125,000 of additional interest expense.

Commodity Price Risk

Prices and availability of all petroleum products are subject to political, economic, and market factors that are generally outside of our control. Accordingly, the price and availability of diesel fuel, as well as other petroleum products, can be unpredictable. Because our operations are dependent upon diesel fuel, significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our 2020 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $3.7 million.

Foreign Currency Exchange Rate Risk

We are exposed to foreign currency exchange rate risk related to the activities of our branch office located in Mexico. Currently, we do not hedge our exchange rate exposure through any currency forward contracts, currency options, or currency swaps as all of our revenues, and substantially all of our expenses and capital expenditures, are transacted in U.S. dollars. However, certain operating expenditures and capital purchases related to our Mexico branch office are incurred in or exposed to fluctuations in the exchange rate between the U.S. dollar and the Mexican peso. Based on 2020 expenditures denominated in pesos, a 10% increase in the exchange rate would increase our annual operating expenses by $208,000.

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, 2021, 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, 2021 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.

Item 1A. Risk Factors.

Except as noted below, there have been no material changes to the Company’s risk factors as previously disclosed in Item 1A to Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

As we continue to grow our business in Mexico, we are subject to greater risks of doing business internationally, including fluctuations in foreign currencies, changes in the economic strength of Mexico, difficulties in enforcing contractual obligations and intellectual property rights, burdens of complying with a wide variety of international and U.S. export and import laws, and social, political, and economic instability. We also face additional risks associated with our Mexico business, including potential restrictive trade policies and imposition of any import or export taxes, duties, fees, etc. If we are unable to address business concerns related to our international operations in a timely and cost-efficient manner, our financial position, results of operations or cash flows could be adversely affected. Additionally, approximately 40% of the freight we haul crosses the border between the United States and Mexico. In past years, we have experienced delays in Mexico border-crossings due to weather events, immigration-related issues and the reallocation of border agents to other border areas. Any future shutdowns or disruptions of Mexico border-crossings, particularly at the Laredo, Texas border, could materially and adversely impact our operations, cash flows and profitability. The agreement permitting cross-border movements for both United States and Mexican-based carriers in the United States and Mexico presents additional risks in the form of potential increased competition and the potential for increased congestion in our lanes that cross the border between countries.

On April 23, 2021, a decree was published that reforms various laws in Mexico regarding labor outsourcing. Under this new decree, operating companies will no longer be able to source their labor resources used to carry out core business functions from services entities or third-party providers and could be subject to the loss of tax deductions and value-added tax credits on payments to outsourced personnel and certain penalties for failing to comply with the new requirements. The Company is currently evaluating the new decree and its potential implications. While the overall impact of the new decree and its provisions continue to be assessed, the new law could result in increased costs to our operations in Mexico and could have a material adverse impact on our business and financial results.

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 334,521 shares of its common stock under this repurchase program.

No shares were repurchased under the Company’s stock repurchase program during the second quarter of 2021.

Item 6. 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.