See notes to consolidated financial statements.
See notes to consolidated financial statements.
See notes to consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020 (in thousands) |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
90,672 |
|
|
$ |
76,516 |
|
|
$ |
17,827 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
62,806 |
|
|
|
55,012 |
|
|
|
56,168 |
|
Bad debt expense |
|
|
917 |
|
|
|
1,044 |
|
|
|
530 |
|
Stock compensation—net of excess tax benefits |
|
|
715 |
|
|
|
441 |
|
|
|
460 |
|
Provision for deferred income taxes |
|
|
14,541 |
|
|
|
17,832 |
|
|
|
5,362 |
|
Recognized (gain) loss on marketable equity securities |
|
|
(1,129 |
) |
|
|
(8,197 |
) |
|
|
3,463 |
|
(Gain) loss on sale or disposal of equipment |
|
|
(3,250 |
) |
|
|
(1,446 |
) |
|
|
373 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(2,152 |
) |
|
|
(47,132 |
) |
|
|
(17,835 |
) |
Prepaid expenses, deposits, inventories, and other assets |
|
|
(7,257 |
) |
|
|
(865 |
) |
|
|
(1,780 |
) |
Income taxes refundable |
|
|
(5,373 |
) |
|
|
591 |
|
|
|
(60 |
) |
Income taxes payable |
|
|
(4,364 |
) |
|
|
4,364 |
|
|
|
- |
|
Trade accounts payable |
|
|
2,198 |
|
|
|
5,945 |
|
|
|
20,880 |
|
Accrued expenses and other liabilities |
|
|
20,491 |
|
|
|
(2,365 |
) |
|
|
(17,798 |
) |
Net cash provided by operating activities |
|
|
168,815 |
|
|
|
101,740 |
|
|
|
67,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(65,441 |
) |
|
|
(19,144 |
) |
|
|
(48,226 |
) |
Purchase of a business, net of cash acquired |
|
|
(64,317 |
) |
|
|
- |
|
|
|
- |
|
Proceeds from disposition of equipment |
|
|
17,406 |
|
|
|
31,680 |
|
|
|
17,418 |
|
Sales of marketable equity securities |
|
|
- |
|
|
|
3,109 |
|
|
|
2,039 |
|
Purchases of marketable equity securities, net of return of capital |
|
|
(1,175 |
) |
|
|
(6,395 |
) |
|
|
(3,923 |
) |
Net cash (used in) provided by investing activities |
|
|
(113,527 |
) |
|
|
9,250 |
|
|
|
(32,692 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under line of credit |
|
|
945,610 |
|
|
|
654,212 |
|
|
|
517,668 |
|
Repayments under line of credit |
|
|
(945,610 |
) |
|
|
(672,458 |
) |
|
|
(516,468 |
) |
Borrowings of long-term debt |
|
|
74,925 |
|
|
|
21,408 |
|
|
|
26,837 |
|
Repayments of long-term debt |
|
|
(67,335 |
) |
|
|
(75,115 |
) |
|
|
(64,411 |
) |
Borrowings under margin account |
|
|
1,229 |
|
|
|
6,510 |
|
|
|
7,068 |
|
Repayments under margin account |
|
|
(1,529 |
) |
|
|
(16,547 |
) |
|
|
(3,292 |
) |
Repurchases of treasury stock |
|
|
(7,000 |
) |
|
|
(10,828 |
) |
|
|
(2,281 |
) |
Net cash provided by (used in) financing activities |
|
|
290 |
|
|
|
(92,818 |
) |
|
|
(34,879 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
|
55,578 |
|
|
|
18,172 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS—Beginning of year |
|
|
18,509 |
|
|
|
337 |
|
|
|
318 |
|
CASH AND CASH EQUIVALENTS—End of year |
|
$ |
74,087 |
|
|
$ |
18,509 |
|
|
$ |
337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION— |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
7,842 |
|
|
$ |
8,144 |
|
|
$ |
8,798 |
|
Income taxes |
|
$ |
23,342 |
|
|
$ |
3,870 |
|
|
$ |
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES— |
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of revenue equipment included in accounts payable |
|
$ |
431 |
|
|
$ |
383 |
|
|
$ |
9,050 |
|
See notes to consolidated financial statements.
P.A.M. TRANSPORTATION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2022, 2021 AND 2020
Description of Business and Principles of Consolidation– P.A.M. Transportation Services, Inc. (the “Company”), through its subsidiaries, operates as a truckload transportation and logistics company.
The consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiaries: P.A.M. Transport, Inc., P.A.M. Cartage Carriers, LLC, Met Express, Inc., Costar Equipment, Inc., Overdrive Leasing, LLC, Choctaw Express, LLC, Decker Transport Co., LLC, T.T.X., LLC, Transcend Logistics, Inc., and East Coast Transport and Logistics, LLC. The following subsidiaries were inactive during all periods presented: P.A.M. International, Inc., Choctaw Brokerage, Inc., S & L Logistics, Inc. and P.A.M. Mexico Holdings, LLC.
Use of Estimates– The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. The Company periodically reviews these estimates and assumptions. The most significant estimates that affect our financial statements are accrued liabilities for insurance claims, legal reserves, and useful lives and salvage values for property and equipment. The Company's estimates were based on its historical experience and various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.
Cash and Cash Equivalents– The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times cash held at banks may exceed FDIC insured limits.
Accounts Receivable and Current Expected Credit Losses– Accounts receivable are presented in the Company’s consolidated financial statements net of current expected credit losses. Management estimates current expected credit losses based upon an evaluation of the aging of our customer receivables and historical write-offs, as well as other trends and factors surrounding the credit risk of specific customers. The Company continually updates the history it uses to make these estimates so as to reflect the most recent trends, factors and other information available. In order to gather information regarding these trends and factors, the Company also performs ongoing credit evaluations of its customers. Customer receivables are considered to be past due when payment has not been received by the invoice due date. Write-offs occur when management determines an account to be uncollectible and could differ from the current expected credit losses estimate as a result of a number of factors, including unanticipated changes in the overall economic environment or factors and risks surrounding a particular customer. Management believes its methodology for estimating current expected credit losses to be reliable and consistent with prior periods. However, additional credit losses may be incurred if the financial condition of our customers were to deteriorate and could have a material effect on the Company’s consolidated financial statements in future periods.
Bank Overdrafts– The Company classifies bank overdrafts in current liabilities as accounts payable. Bank overdrafts generally represent checks written in excess of available cash that have not yet cleared the Company’s bank accounts. The majority of the Company’s bank accounts are zero balance accounts that are funded at the time items clear against the account by drawings against a line of credit; therefore, the outstanding checks represent bank overdrafts. Because the recipients of these checks have generally not yet received payment, the Company continues to classify bank overdrafts as accounts payable. Bank overdrafts are classified as changes in accounts payable in the cash flows from operating activities section of the Company’s Consolidated Statement of Cash Flows. There were no bank overdrafts as of December 31, 2022 or 2021.
Accounts Receivable Other– The components of accounts receivable other consist primarily of amounts representing company driver advances, independent contractor advances, and equipment manufacturer warranties. Advances receivable from company drivers as of December 31, 2022 and 2021, were approximately $135,000 and $43,000, respectively. Accounts receivable from independent contractors as of December 31, 2022 and 2021, were approximately $1,379,000 and $1,037,000, respectively. Independent contractors are allowed to purchase items such as fuel, repairs and tolls on Company accounts in order to share in favorable pricing negotiated by the Company. Independent contractors and trip lease carriers are also allowed to receive advances for a portion of the revenue that they expect to receive for loads that they transport for the Company.
Marketable Equity Securities– The Company’s investment in marketable equity securities is accounted for in accordance with ASC Topic 321, (“ASC Topic 321”), Investments - Equity Securities. ASC Topic 321 requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. 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. Realized and unrealized gains and losses, interest and dividends on marketable equity securities are included in non-operating income (expense) in our consolidated statements of operations.
For additional information with respect to marketable equity securities, see Note 4 – Marketable Equity Securities.
Impairment of Long-Lived Assets– The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. An impairment loss would be recognized if the carrying amount of the long-lived asset is not recoverable, and it exceeds its fair value. For long-lived assets classified as held and used, if the carrying value of the long-lived asset exceeds the sum of the future net undiscounted cash flows, it is not recoverable. No impairment losses were recorded during 2022 or 2021.
Property and Equipment– Property and equipment is recorded at historical cost, less accumulated depreciation. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Depreciation is recognized over the estimated asset life, considering the estimated salvage value of the asset. Such salvage values are based on estimates using expected market values for used equipment and the estimated time of disposal which in many cases include guaranteed residual values by the manufacturers. Gains and losses are reflected in the year of disposal. The following is a table reflecting estimated ranges of asset useful lives by major class of depreciable assets:
Asset Class | | Estimated Asset Life (in years) | |
| | | | | |
Service vehicles | | 3 | - | 5 | |
Office furniture and equipment | | 3 | - | 10 | |
Revenue equipment | | 3 | - | 10 | |
Structures and improvements | | 5 | - | 40 | |
The Company’s management periodically evaluates whether changes to estimated useful lives and/or salvage values are necessary to ensure its estimates accurately reflect the economic use of the assets. During 2022, management determined that no material adjustments to the estimated useful lives or salvage values of trucks or trailers were necessary based on such an evaluation.
Inventory– Inventories consist primarily of revenue equipment parts, tires, supplies, and fuel. Inventories are carried at the lower of cost or market with cost determined using the first in, first out method.
Prepaid Tires– Tires purchased with revenue equipment are capitalized as a cost of the related equipment. Replacement tires are included in prepaid expenses and deposits and are amortized over a 24-month period. Amounts paid for the recapping of tires are expensed when incurred.
-
38 -
Advertising Expense– Advertising costs are expensed as incurred and totaled approximately $2,101,000, $1,154,000 and $1,102,000 for the years ended December 31, 2022, 2021 and 2020, respectively.
Repairs and Maintenance– Repairs and maintenance costs are expensed as incurred.
Self-Insurance Liability– A liability is recognized for known health, workers’ compensation, cargo damage, property damage, and auto liability damage claims. An estimate of the incurred but not reported claims for each type of liability is made based on historical claims made, estimated frequency of occurrence, and considering changing factors that contribute to the overall cost of insurance. See Note 6 – Claims Liabilities for more information regarding insurance and claims liability.
Income Taxes– The Company applies the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than not that some or all of the deferred tax assets will not be realized. See Note 12 – Federal and State Income Taxes for more information regarding income taxes.
The application of income tax law to multi-jurisdictional operations such as those performed by the Company is inherently complex. Laws and regulations in this area are voluminous and often ambiguous. As such, we may be required to make subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations may change over time which could cause changes in our assumptions and judgments that could materially affect amounts recognized in the consolidated financial statements.
We recognize the impact of tax positions in our financial statements. These tax positions must meet a more-likely-than-not recognition threshold to be recognized and tax positions that previously failed to meet the more-likely-than-not threshold are recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not threshold are derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.
In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740-10-30, weighs all available evidence, both positive and negative to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of December 31, 2022 and 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.
Revenue Recognition– 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 current expected credit losses.
Earnings Per Share– The Company computes basic earnings per share (“EPS”) by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potential dilution that could occur from stock-based awards and other stock-based commitments using the treasury stock or the as if converted methods, as applicable. The difference between the Company's weighted-average shares outstanding and diluted shares outstanding is due to the dilutive effect of common stock equivalents for all periods presented. See Note 14 – Earnings per Share for more information regarding the computation of diluted EPS.
Fair Value Measurements– Certain financial assets and liabilities are measured at fair value within the financial statements on a recurring basis. Fair value is defined 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. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. For additional information with respect to fair value measurements, see Note 18 – Fair Value of Financial Instruments.
Reportable Segments– The Company's operations are all in the motor carrier segment and are aggregated into a single reportable segment in accordance with the aggregation criteria under United States generally accepted accounting principles (“GAAP”). The Company provides truckload transportation services as well as brokerage and logistics services to customers throughout the United States and portions of Canada and Mexico. Truckload transportation services revenues, excluding fuel surcharges, represented 66.0%, 67.0% and 76.9% of total revenues, excluding fuel surcharges, for the twelve months ended December 31, 2022, 2021 and 2020, respectively. Remaining revenues, excluding fuel surcharges, for each respective year were generated by brokerage and logistics services.
Concentrations of Credit Risk– The Company performs ongoing credit evaluations and generally does not require collateral from its customers. The Company maintains reserves for potential credit losses. In view of the concentration of the Company’s revenues and accounts receivable among a limited number of customers within the automobile industry, the financial health of this industry is a factor in the Company’s overall evaluation of accounts receivable.
Subsequent Events– We have evaluated subsequent events for recognition and disclosure through the date these financial statements were filed with the United States Securities and Exchange Commission and concluded that no subsequent events or transactions have occurred that require recognition or disclosure in our financial statements.
Risks and Uncertainties (COVID-19)– In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of the pandemic and the continuously evolving responses to combat it have had an increasingly negative impact on the global economy. In view of the rapidly changing business environment, unprecedented market volatility and heightened degree of uncertainty resulting from COVID-19, we are currently unable to fully determine its future impact on our business. We continue to monitor the progression of the pandemic, further government responses and development of treatments and vaccines and the resulting potential effect on our financial position, results of operations, cash flows and liquidity. These events could have an impact in future periods on certain estimates used in the preparation of our financial results, including, but not limited to impairment of long-lived assets, income tax provision and recoverability of certain receivables. Should the pandemic continue for an even further extended period of time, the impact on our operations could have a material adverse effect on our financial condition, results of operations, cash flows and liquidity.
Foreign Currency Transactions– The functional currency of the Company’s foreign branch office in Mexico is the U.S. dollar. The Company remeasures the monetary assets and liabilities of this branch office, which are maintained in the local currency ledgers, at the rates of exchange in effect at the end of the reporting period. Revenues and expenses recorded in the local currency during the period are remeasured using average exchange rates for each period. Non-monetary assets and liabilities are remeasured using historical rates. Any resulting exchange gain or loss from the remeasurement process is included in non-operating income in the Company’s consolidated statements of operations.
Business Combinations– The purchase price of an acquired businesses, or the purchase of substantially all of the assets of a business, is allocated to the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition. The calculation of the fair value of assets acquired, liabilities assumed and the potential value of any intangible assets involves many factors, some of which require estimates and judgement. In certain cases, valuation specialists may be engaged to assist in the determination of the fair value calculations. During 2022, we engaged valuation specialists to assist us in fair value determination for our acquisition of substantially all of the assets of Metropolitan Trucking, Inc. and related entities.
Recent Accounting Pronouncements– In March 2020, the FASB issued Accounting Standards Update No. 2020-04, (“ASU 2020-04”), Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The adoption of this guidance on January 1, 2022 did not have a material impact on the Company’s financial condition, results of operations, or cash flows.
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 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 the Company 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, responsibility for invoice payment, and pickup and delivery locations. The Company’s revenue is generated, and our customer receives benefit, as the freight progresses towards delivery locations. In the event the Company’s customer cancels the shipment at some point prior to the final delivery location and re-consigns the shipment to an alternate delivery location, the Company is 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. The Company’s 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 current estimated credit losses.
3. | TRADE ACCOUNTS RECEIVABLE |
The Company's receivables result primarily from the sale of transportation and logistics services. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for accounts receivable. Accounts receivable, which consist of both billed and unbilled receivables, are presented net of current estimated credit losses. Accounts outstanding longer than contractual payment terms are considered past due and are reviewed individually for collectability. Accounts receivable balances consist of the following components as of December 31, 2022 and 2021:
| | 2022 | | | 2021 | |
| | (in thousands) | |
| | | | | | | | |
Billed | | $ | 119,552 | | | $ | 105,992 | |
Unbilled | | | 20,568 | | | | 20,388 | |
Current estimated credit losses | | | (5,381 | ) | | | (4,526 | ) |
| | | | | | | | |
Total accounts receivable—net | | $ | 134,739 | | | $ | 121,854 | |
An analysis of changes in current estimated credit losses for the years ended December 31, 2022, 2021, and 2020 follows:
| | 2022 | | | 2021 | | | 2020 | |
| | (in thousands) | |
| | | | | | | | | | | | |
Balance—beginning of year | | $ | 4,526 | | | $ | 3,482 | | | $ | 2,952 | |
Provision for bad debts | | | 917 | | | | 1,044 | | | | 530 | |
Charge-offs | | | (62 | ) | | | - | | | | - | |
Recoveries | | | - | | | | - | | | | - | |
Balance—end of year | | $ | 5,381 | | | $ | 4,526 | | | $ | 3,482 | |
4. | MARKETABLE EQUITY SECURITIES |
The Company accounts for its marketable securities in accordance with ASC Topic 321, Investments - Equity Securities. ASC Topic 321 requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income (expense).
Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets. See Note 18 – Fair Value of Financial Instruments for additional information regarding the valuation of marketable equity securities.
The following table sets forth cost, market value and unrealized gain on equity securities classified as available-for-sale as of December 31, 2022 and 2021.
| | 2022 | | | 2021 | |
| | (in thousands) | |
Available-for-sale securities: | | | | | | | | |
Fair market value | | $ | 41,728 | | | $ | 39,424 | |
Cost | | | 30,350 | | | | 29,385 | |
Unrealized gain | | $ | 11,378 | | | $ | 10,039 | |
The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities as of December 31, 2022 and 2021.
| | 2022 | | | 2021 | |
| | (in thousands) | |
Available-for-sale securities: | | | | | | | | |
Gross unrealized gains | | $ | 13,478 | | | $ | 12,458 | |
Gross unrealized losses | | | 2,100 | | | | 2,419 | |
Net unrealized gains | | $ | 11,378 | | | $ | 10,039 | |
For the years ended December 31, 2022, 2021 and 2020, the Company recognized dividends of approximately $1,539,000, $1,448,000, and $1,266,000 in non-operating income in its consolidated statements of operations, respectively.
The following table shows the Company’s net realized (losses) gains during 2022, 2021 and 2020 on certain marketable equity securities.
| | 2022 | | | 2021 | | | 2020 | |
| | (in thousands) | |
Realized (losses) gains: | | | | | | | | | | | | |
Sale proceeds | | $ | - | | | $ | 3,109 | | | $ | 2,039 | |
Cost of securities sold | | | - | | | | 3,199 | | | | 2,216 | |
| | | | | | | | | | | | |
Realized (losses) / gains | | $ | - | | | $ | (90 | ) | | $ | (177 | ) |
At December 31, 2022, the Company’s investments’ approximate fair value of securities in a loss position and related gross unrealized losses were $7,875,000 and $2,100,000, respectively. At December 31, 2021, the Company’s investments’ approximate fair value of securities in a loss position and related gross unrealized losses were $7,373,000 and $2,419,000, respectively.
The market value of the Company’s equity securities are periodically used as collateral against any outstanding margin account borrowings. As of December 31, 2022 and 2021, the Company had outstanding borrowings of $914,000 and $1,214,000 under its margin account, respectively, which is reflected in accrued expenses. The interest rates on margin account borrowings were 4.92% and 0.68% as of December 31, 2022 and 2021, respectively.
5. | ACCRUED EXPENSES AND OTHER LIABILITIES |
Accrued expenses and other liabilities at December 31 are summarized as follows:
| | 2022 | | | 2021 | |
| | (in thousands) | |
| | | | | | | | |
Payroll | | $ | 1,995 | | | $ | 1,529 | |
Accrued vacation | | | 983 | | | | 877 | |
Taxes—other than income | | | 3,369 | | | | 2,674 | |
Interest | | | 283 | | | | 196 | |
Driver escrows | | | 1,271 | | | | 1,643 | |
Margin account borrowings | | | 914 | | | | 1,214 | |
Self-insurance claims and legal reserves | | | 22,709 | | | | 5,437 | |
Current portion of Right-of-Use liability | | | 340 | | | | 544 | |
Other liabilities | | | 2,369 | | | | - | |
| | | | | | | | |
Total accrued expenses and other liabilities | | $ | 34,233 | | | $ | 14,114 | |
The Company’s accounts payable of $48,917,000 includes $431,000 in payables for purchases of revenue equipment.
The Company maintains cargo insurance coverage to protect it from certain business risks. This policy has a per occurrence deductible of $10,000.
Since September 1, 2020, the Company has been self-insured for certain layers of auto liability claims in excess of $2.0 million. Between September 1, 2019 and August 31, 2020, the Company was self-insured for certain layers of auto liability claims in excess of $1.0 million. Prior to September 1, 2019, the Company maintained auto liability insurance coverage for these layers. The Company currently specifically reserves for claims that are expected to exceed $2.0 million when fully developed, based on the facts and circumstances of those claims.
The Company maintains workers’ compensation coverage in Arkansas, Florida, Ohio, Oklahoma, and Mississippi with a $0.5 million self-insured retention and a $0.5 million per occurrence excess policy. The Company has elected to opt out of workers’ compensation coverage in Texas and is providing coverage through the P.A.M. Texas Injury Plan. The Company has accrued for estimated losses to pay such claims as well as claims incurred but not yet reported. The Company has not experienced any adverse trends involving differences in claims experienced versus claims estimates for workers’ compensation claims. Letters of credit aggregating approximately $0.3 million and certificates of deposit totaling $0.3 million are held by banks as security for workers’ compensation claims. The Company self-insures for employee health claims with a stop loss of $0.4 million per covered employee per year and estimates its liability for claims outstanding and claims incurred but not reported. See Note 5 – Accrued Expenses and Other Liabilities for additional information regarding self-insurance claims liabilities.
Long-term debt at December 31, consists of the following:
| | 2022 | | | 2021 | |
| | (in thousands) | |
Line of credit with a bank—due July 1, 2024, and collateralized by accounts receivable (1) | | | - | | | | - | |
Equipment financing (2) | | | 216,875 | | | | 206,539 | |
Real estate financing (3) | | | 47,406 | | | | 15,738 | |
Total long-term debt | | | 264,281 | | | | 222,277 | |
Less current maturities | | | (58,815 | ) | | | (49,544 | ) |
| | | | | | | | |
Long-term debt—net of current maturities | | $ | 205,466 | | | $ | 172,733 | |
| (1) | Line of credit agreement with a bank provides for maximum borrowings of $60.0 million and contains certain restrictive covenants that must be maintained by the Company on a consolidated basis. Borrowings on the line of credit are at an interest rate of Term SOFR as of the first day of the month plus 1.35%, (5.65% at December 31, 2022) and are secured by our trade accounts receivable. An “unused fee” of 0.25% is charged if average daily borrowings are less than $18.0 million in a given month. Monthly payments of interest are required under this agreement. Also, under the terms of the agreement the Company must maintain a debt to adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization, excluding gains/losses on equity securities and extraordinary items) ratio of less than 4.00:1. The Company was in compliance with all provisions under this agreement throughout 2022. At December 31, 2022, outstanding advances on the line were approximately $0.4 million, including letters of credit totaling $0.3 million, with availability to borrow $59.6 million. At December 31, 2021, outstanding advances on the line were approximately $0.4 million, including letters of credit totaling $0.3 million. |
| (2) | Equipment financings consist of installment obligations for revenue equipment purchases, payable in various monthly installments with various maturity dates through March 2028, at a weighted average interest rate of 3.16% as of December 31, 2022 and collateralized by revenue equipment. |
| (3) | Real estate financing consisting of an installment obligation for the purchase of real estate in Laredo, TX, payable in 120 installments at an interest rate of 3.02% and maturing in August 2030, and an installment obligation for the financing of various company-owned terminals and office buildings payable in 120 installments at an interest rate of 3.62% and maturing in March 2032. These obligations are collateralized by the underlying real estate and any rental income generated by the underlying real estate. |
The Company has provided letters of credit to third parties totaling approximately $310,000 at December 31, 2022 and December 31, 2021, respectively. The letters are held by these third parties to assist such parties in collection of any amounts due by the Company should the Company default in its commitments to the parties.
Scheduled annual maturities on long-term debt outstanding at December 31, 2022, are:
2023 | | $ | 58,815 | |
2024 | | | 62,490 | |
2025 | | | 53,038 | |
2026 | | | 34,801 | |
2027 | | | 32,491 | |
Thereafter | | | 22,646 | |
| | | | |
Total | | $ | 264,281 | |
8. | NONCASH INVESTING AND FINANCING ACTIVITIES |
The Company financed approximately $22.2 million and $36.1 million in equipment purchases during 2022 and 2021, respectively, utilizing noncash financing.
The Company's authorized capital stock consists of 50,000,000 shares of common stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01 per share. At December 31, 2022, there were 22,293,687 shares of our common stock issued and 22,166,450 shares outstanding. At December 31, 2021, there were 34,574,807 shares of our common stock issued and 22,348,022 shares outstanding. No shares of our preferred stock were issued or outstanding at December 31, 2022 or 2021.
Common Stock
The holders of our common stock, subject to such rights as may be granted to any preferred stockholders, elect all directors and are entitled to one vote per share. All shares of common stock participate equally in dividends when and as declared by the Board of Directors and in net assets on liquidation. The shares of common stock have no preference, conversion, exchange, preemptive, or cumulative voting rights.
Preferred Stock
Preferred stock may be issued from time to time by our Board of Directors, without stockholder approval, in such series and with such preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications or other provisions, as may be fixed by the Board of Directors in the resolution authorizing their issuance. The issuance of preferred stock by the Board of Directors could adversely affect the rights of holders of shares of common stock; for example, the issuance of preferred stock could result in a class of securities outstanding that would have certain preferences with respect to dividends and in liquidation over the common stock, and that could result in a dilution of the voting rights, net income per share and net book value of the common stock. As of December 31, 2022, we have no agreements or understandings for the issuance of any shares of preferred stock.
Treasury Stock
In July 2021, our Board of Directors authorized the repurchase of up to 200,000 shares (as adjusted for the Company’s 2-for-1 forward split of its common stock in the form of a 100% stock dividend paid on August 16, 2021), of our common stock through a Dutch auction tender offer (the “2021 tender offer”). Subject to certain limitations and legal requirements, the Company could repurchase up to an additional 2.0% of its outstanding shares. The 2021 tender offer commenced on July 27, 2021, and expired on August 26, 2021. Through this tender offer, the Company’s shareholders had the opportunity to tender some or all of their shares at a price within the range of $32.00 to $37.00 per share (as adjusted for the 2021 stock split). Upon expiration, 272,405 shares were purchased through this offer at a final purchase price of $37.00 per share for a total of approximately $10.1 million, excluding fees and commission. The repurchase was settled on August 31, 2021. The Company accounted for the repurchase of these shares as treasury stock on the Company’s consolidated balance sheet as of December 31, 2022.
The Company’s stock repurchase program has been extended and expanded several times, most recently in November 2021, when the Board of Directors reauthorized 500,000 shares of common stock for repurchase under the initial September 2011 authorization. The Company repurchased 168,847 shares and 18,732 shares of its common stock under this program during 2022 and 2021, respectively.
The Company accounts for Treasury stock using the cost method, and as of December 31, 2022, 127,237 shares were held in the treasury at an aggregate cost of approximately $4,000,000.
10. | SEGMENT INFORMATION, SIGNIFICANT CUSTOMERS, INDUSTRY CONCENTRATION AND GEOGRAPHIC AREAS |
The Company's revenues for 2022, 2021 and 2020 were all generated from operations in the motor carrier segment and are aggregated into a single reporting segment in accordance with the aggregation criteria under GAAP.
The table below presents revenue dollars and percentages by geographic area:
| | Year Ended December 31, | |
| | 2022 | | | 2021 | | | 2020 | |
| | (in thousands) | |
| | Amount | | | Percent | | | Amount | | | Percent | | | Amount | | | Percent | |
United States - domestic shipments | | $ | 629,921 | | | | 66.5 | | | $ | 474,291 | | | | 67.9 | | | $ | 316,542 | | | | 66.1 | |
Shipments to or from Mexico | | | 313,885 | | | | 33.2 | | | | 223,315 | | | | 32.0 | | | | 161,412 | | | | 33.7 | |
Shipments to or from Canada | | | 3,056 | | | | 0.3 | | | | 891 | | | | 0.1 | | | | 1,156 | | | | 0.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total | | $ | 946,862 | | | | 100 | % | | $ | 698,497 | | | | 100 | % | | $ | 479,110 | | | | 100 | % |
Our five largest customers, for which we provide carrier services covering a number of geographic locations, accounted for approximately 39%, 33% and 35% of our total revenues in 2022, 2021 and 2020, respectively. General Motors Company accounted for approximately 13%, 11% and 15% of our revenues in 2022, 2021 and 2020, respectively.
We also provide transportation services to other manufacturers who are suppliers for automobile manufacturers. Approximately 31%, 27% and 30% of our revenues were derived from transportation services provided to the automobile industry during 2022, 2021 and 2020, respectively.
Accounts receivable from the three largest customers totaled approximately $36,622,000 and $31,049,000 at December 31, 2022 and 2021, respectively.
The Company has paid cash dividends in the past; however, the Company currently intends to retain future earnings and does not anticipate paying cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Board and will depend on the Company’s financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends, and other factors the Board deems relevant.
12. | FEDERAL AND STATE INCOME TAXES |
Under GAAP, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax reporting purposes.
Significant components of the Company’s deferred tax liabilities and assets at December 31 are as follows:
| | 2022 | | | 2021 | |
| | (in thousands) | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Property and equipment | | $ | 102,169 | | | $ | 84,081 | |
Unrealized gains on securities | | | 2,894 | | | | 2,580 | |
Prepaid expenses and other | | | 3,836 | | | | 2,783 | |
| | | | | | | | |
Total deferred tax liabilities | | | 108,899 | | | | 89,444 | |
| | | | | | | | |
Deferred tax assets: | | | | | | | | |
Current expected credit losses | | | 1,385 | | | | 1,165 | |
Compensated absences | | | 215 | | | | 185 | |
Self-insurance allowances | | | 5,746 | | | | 1,207 | |
Other | | | 108 | | | | 172 | |
| | | | | | | | |
Total deferred tax assets | | | 7,454 | | | | 2,729 | |
| | | | | | | | |
Net deferred tax liability | | $ | 101,445 | | | $ | 86,715 | |
The reconciliation between the effective income tax rate and the statutory Federal income tax rate for the years ended December 31, 2022, 2021 and 2020 is presented in the following table:
| | 2022 | | | 2021 | | | 2020 | |
| | (in thousands) | |
| | Amount | | | Percent | | | Amount | | | Percent | | | Amount | | | Percent | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Federal income tax at statutory rate | | $ | 24,991 | | | | 21.0 | | | $ | 21,526 | | | | 21.0 | | | $ | 4,916 | | | | 21.0 | |
Nondeductible per diem and meals | | | - | | | | - | | | | - | | | | - | | | | 321 | | | | 1.4 | |
State income taxes/other, net | | | 3,344 | | | | 2.8 | | | | 4,463 | | | | 4.4 | | | | 345 | | | | 1.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total income tax expense | | $ | 28,335 | | | | 23.8 | | | $ | 25,989 | | | | 25.4 | | | $ | 5,582 | | | | 23.9 | |
The provision (benefit) for income taxes consisted of the following:
| | 2022 | | | 2021 | | | 2020 | |
| | (in thousands) | |
Current: | | | | | | | | | | | | |
Federal | | $ | 10,673 | | | $ | 6,314 | | | $ | (62 | ) |
State | | | 3,121 | | | | 1,843 | | | | 282 | |
Total current income tax provision | | | 13,794 | | | | 8,157 | | | | 220 | |
Deferred: | | | | | | | | | | | | |
Federal | | | 12,920 | | | | 13,720 | | | | 4,860 | |
State | | | 1,621 | | | | 4,112 | | | | 502 | |
Total deferred income tax provision | | | 14,541 | | | | 17,832 | | | | 5,362 | |
| | | | | | | | | | | | |
Total income tax provision expense | | $ | 28,335 | | | $ | 25,989 | | | $ | 5,582 | |
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48 -
In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC 740-10-30, weighs all available evidence, both positive and negative to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of December 31, 2022 and 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 December 31, 2022, an adjustment to the Company’s consolidated financial statements for uncertain tax positions has not been required as management believes that the Company’s tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws. The Company recognizes interest and penalties related to uncertain income tax positions, if any, in income tax expense. During 2022 and 2021, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions.
The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which 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 2019 and forward remain open to examination in those jurisdictions.
13. | STOCK-BASED COMPENSATION |
The Company maintains a stock incentive plan under which incentive and nonqualified stock options and other stock awards may be granted. On March 13, 2014, the Company’s Board of Directors adopted, and on May 29, 2014 our shareholders approved, the 2014 Amended and Restated Stock Option and Incentive Plan (the “Plan”) which amended and restated the Company’s 2006 Stock Option Plan. Under the Plan, 3,000,000 shares (as adjusted for the Company’s 2-for-1 forward split of its common stock paid in August 2021 and the Company’s 2-for-1 forward split of its common stock paid in March 2022) are reserved for the issuance of stock awards to directors, officers, key employees, and others. The stock option exercise price and the restricted stock purchase price under the 2014 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.
The Company granted unrestricted shares of its common stock to its non-employee directors and granted restricted shares of common stock to certain key employees during all periods presented. All share and per share amounts set forth below have been adjusted to reflect the impact of the 2-for-1 forward stock split in both August 2021 and March 2022.
During February 2022, the Company granted 29,120 shares of common stock to certain key employees. These stock awards had grant date fair values of $38.80 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 May 2022, the Company granted 1,855 shares of common stock to non-employee directors. These stock awards had a grant date fair value of $29.60 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.
During June 2022, the Company granted 3,500 shares of common stock to a key employee. This stock award had a grant date fair value of $27.68 per share, based on the closing price of the Company’s stock on the date of grant, and vests in 25% increments over four years, beginning one year from the anniversary date of the grant.
In March 2021, the Company granted 5,216 shares of common stock to non-employee directors. These restricted stock awards have a grant date fair value of $15.43 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.
In April 2021, the Company granted 10,000 shares of common stock to a certain key employee. These stock awards have a grant date fair value of $15.09 per share, based on the closing price of the Company’s stock on the date of grant, and vests in 25% increments over four years, beginning one year from the anniversary date of the grant.
In January 2020, the Company granted 28,000 shares of common stock to certain key employees. These restricted stock awards have a grant date fair value of $14.11 per share, based on the closing price of the Company’s stock on the date of grant, and vest on the four year anniversary date of the award.
In March 2020, the Company granted 10,432 shares of common stock to non-employee directors. These stock awards have a grant date fair value of $7.69 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.
In April 2020, the Company granted 968 shares of common stock to a non-employee director. This stock award has a grant date fair value of $10.35 per share, based on the closing price of the Company’s stock on the date of grant, and vested immediately.
In August 2020, the Company granted 160,000 restricted shares of common stock to the Company’s Chief Executive Officer. This restricted stock award has a grant date fair value of $8.84, based on the closing price of the Company’s stock on the date of grant, and will vest in increments of 20,000 shares each in 2022, 2023, 2024 and 2027 and 40,000 shares each in 2025 and 2026.
In August 2020, the Company granted 53,328 shares of common stock to certain key employees. These restricted stock awards have a grant date fair value of $7.56 per share, based on the closing price of the Company’s stock on the date of grant, and vest on the four year anniversary date of the award.
During 2022 and 2021, there were no grants of stock options and there were no outstanding stock options at December 31, 2022 or December 31, 2021. At December 31, 2022, approximately 716,000 shares were available for granting future options or restricted stock.
The grant date fair value of stock and stock options vested during 2022, 2021 and 2020 was approximately $392,000, $203,000 and $759,000, respectively. Total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits was approximately $715,000 during 2022 and includes approximately $55,000 recognized as a result of the grant of a total of 1,855 shares of stock to four non-employee directors during the second quarter of 2022. The Company recognized a total income tax benefit of approximately $170,000 related to stock-based compensation expense during 2022. The recognition of stock-based compensation expense decreased diluted earnings per common share by $0.03 and basic earnings per common share by approximately $0.02 during 2022. As of December 31, 2022, the Company had stock-based compensation plans with total unvested stock-based compensation expense of approximately $2,414,000 which is being amortized over the remaining vesting period. As a result, the Company expects to recognize the following approximate amounts of additional compensation expense related to unvested restricted stock awards during each of the years indicated:
2023 | | $ | 649,000 | |
2024 | | $ | 641,000 | |
2025 | | $ | 670,000 | |
2026 | | $ | 343,000 | |
2027 | | $ | 111,000 | |
Total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits was approximately $441,000 during 2021 and includes approximately $80,000 recognized as a result of the grant of 652 shares of stock to eight non-employee directors during the first quarter of 2021. The Company recognized a total income tax benefit of approximately $110,000 related to stock-based compensation expense during 2021. The recognition of stock-based compensation expense decreased diluted earnings per common share by $0.03 and basic earnings per common share by approximately $0.02 during 2021.
Total pre-tax stock-based compensation expense, recognized in salaries, wages and benefits was approximately $461,000 during 2020 and includes approximately $90,000 recognized as a result of the grant of 1,304 shares of stock to eight non-employee directors during the first quarter of 2020 and 968 shares of stock to one non-employee director during the second quarter of 2020. The Company recognized a total income tax benefit of approximately $100,000 related to stock-based compensation expense during 2020. The recognition of stock-based compensation expense decreased both diluted and basic earnings per common share by approximately $0.06 during 2020.
There were no options granted during 2022, 2021, or 2020.
A summary of the status of the Company’s non-vested restricted stock as of December 31, 2022 and changes during the year ended December 31, 2022, is presented below:
| | Restricted Stock | |
| | Number of Shares | | | Weighted- Average Grant Date Fair Value | |
Nonvested—January 1, 2022 | | | 239,212 | | | $ | 9.25 | |
Granted | | | 34,475 | | | | 37.18 | |
Canceled/forfeited/expired | | | - | | | | - | |
Vested | | | (37,855 | ) | | | 10.36 | |
Nonvested—December 31, 2022: | | | 235,832 | | | $ | 13.15 | |
Basic earnings per common share was computed by dividing net income by the weighted average number of shares outstanding (on a stock split adjusted basis) during the period. Diluted earnings per common share was calculated as follows:
| | For the Year Ended December 31, | |
| | 2022 | | | 2021 | | | 2020 | |
| | (in thousands, except per share data) | |
| | | | | | | | | | | | |
Net income | | $ | 90,672 | | | $ | 76,516 | | | $ | 17,827 | |
| | | | | | | | | | | | |
Basic weighted average common shares outstanding(1) | | | 22,246 | | | | 22,715 | | | | 23,008 | |
Dilutive effect of common stock equivalents | | | 190 | | | | 149 | | | | 64 | |
| | | | | | | | | | | | |
Diluted weighted average common shares outstanding(1) | | | 22,436 | | | | 22,864 | | | | 23,072 | |
| | | | | | | | | | | | |
Basic earnings per share | | $ | 4.08 | | | $ | 3.37 | | | $ | 0.77 | |
| | | | | | | | | | | | |
Diluted earnings per share | | $ | 4.04 | | | $ | 3.35 | | | $ | 0.77 | |
(1) As adjusted for the Company’s 2-for-1 forward stock splits paid in August 2021 and March 2022, respectively.
The Company sponsors a benefit plan for the benefit of all eligible employees. The plan qualifies under Section 401(k) of the Internal Revenue Code thereby allowing eligible employees to make tax-deductible contributions to the plan. The plan provides for employer matching contributions of 50% of each participant’s voluntary contribution up to 3% of the participant’s compensation and vests at the rate of 20% each year until fully vested after five years. Total employer matching contributions to the plan were approximately $212,000, $190,000 and $190,000 in 2021, 2021 and 2020, respectively.
16. | COMMITMENTS AND CONTINGENCIES |
We were named a defendant in a putative class action lawsuit filed on August 6, 2021, in the United States District Court for the Western District of Arkansas. The complaint alleged failure to pay over-the-road drivers minimum wage under the Fair Labor Standards Act and the Arkansas Minimum Wage Act, violations of the Electronic Funds Transfer Act (EFTA), violations of the Arkansas Wage Payment Law (discharge pay and unlawful, usurious advance fees), violations of the Arkansas Common Law, and violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). We denied liability on all claims. On August 5, 2022, the parties filed a Joint Motion for Preliminary Approval of a Collective and Class Action Settlement. On October 7, 2022, the parties submitted to the court an executed Settlement Agreement and Release, to resolve and release all claims asserted in the litigation from January 1, 2020 through July 31, 2022 for $4,750,000. We did not admit liability for any claim. The District Court granted preliminary approval of the settlement on November 14, 2022. Notice of the settlement has been sent to class and collective action members. A final fairness hearing on the settlement is scheduled to be held by the District Court on April 5, 2023. Management has determined that any losses under this claim will not be covered by existing insurance policies. This loss has been accrued and is included in Insurance and Claims in our consolidated statement of operations.
We are involved in certain claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. On September 1, 2019, we elected to become self-insured for certain layers of auto liability claims in excess of $1.0 million for which we previously maintained auto liability insurance coverage. Since September 1, 2020, we have been self-insured for certain layers of auto liability claims in excess of $2.0 million. We currently specifically reserve for claims that are expected to exceed $2.0 million when fully developed, based on the facts and circumstances of those claims. Based on our knowledge of the facts, and in certain cases, opinions of outside counsel, we believe the resolution of such claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.
Right-of-Use Leases
During 2019, the Company entered into operating leases which include initial terms of approximately five years and which do not include an option for early cancellation. During 2022 and 2021, the Company did not enter into any new leases with similar provisions. 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 approximately $0.4 million as of December 31, 2022. 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 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 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 consolidated balance sheets as of December 31, 2022.
Scheduled amounts and timing of cash flows arising from operating lease payments at December 31, 2022, are:
| | (in thousands) | |
Maturity of Lease Liabilities | | | | |
2023 | | $ | 340 | |
2024 | | | 114 | |
2025 | | | - | |
2026 | | | - | |
2027 and Thereafter | | | - | |
Total undiscounted operating lease payments | | $ | 454 | |
Less: Imputed interest | | | (10 | ) |
Present value of operating lease liabilities | | $ | 444 | |
| | | | |
Balance Sheet Classification | | | | |
Right-of-use assets (recorded in other non-current assets) | | $ | 444 | |
| | | | |
Current lease liabilities (recorded in other current liabilities) | | $ | 340 | |
Long-term lease liabilities (recorded in other long-term liabilities) | | | 104 | |
Total operating lease liabilities | | $ | 444 | |
| | | | |
Other Information | | | | |
Weighted-average remaining lease term for operating leases (in years) | | | 1.33 | |
Weighted-average discount rate for operating leases | | | 3.74 | % |
Cash Flows
No new right-of-use assets were recognized as non-cash asset additions that resulted from new operating lease liabilities during the years ended December 31, 2022 and December 31, 2021, respectively. Cash paid for amounts included in the present value of right-of-use lease liabilities was $0.5 and $0.6 million during the years ended December 31, 2022 and December 31, 2021, respectively, and is included in operating cash flows.
Cash Paid for Operating Leases
| | Twelve Months Ended | |
| | December 31, | |
| | 2022 | | | 2021 | |
| | (in thousands) | |
Right-of-Use leases | | $ | 515 | | | $ | 583 | |
Short-term leases (1) | | | 2,393 | | | | 2,173 | |
Total | | $ | 2,908 | | | $ | 2,756 | |
(1) Short-term lease cost includes leases with a term of twelve months or less and leases with options for early cancellation.
Lease Revenue
The Company has a lease-purchase program whereby we offer independent contractors the opportunity to lease a Company-owned truck. The terms associated with these operating eases require weekly lease payments over the term of the leases which range from 5 to 60 months. The cost and carrying amount of Company-owned trucks in this program at December 31, 2022 were approximately $58,227,000 and $22,960,000, respectively. The cost and carrying amount of the Company-owned trucks in this program at December 31, 2021 were approximately $55,986,000 and $28,951,000, respectively. Payments under this program are classified in the Company’s financial statements under the consolidated statement of operations category Revenue.
Leases in our lease-purchase program expire at various dates through 2026. Future minimum lease receipts related to these operating leases at December 31, 2022 and 2021 were approximately $11,549,000 and $15,907,000, respectively. 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 year ended December 31, 2022, the Company incurred $7.0 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. At December 31, 2022, the cost and carrying amount of the facilities leased were approximately $13,738,000 and $11,674,000, respectively. Future minimum lease receipts related to this operating lease at December 31, 2022 are approximately $32,100. See Note 19 – Related Party Transactions for additional information regarding the Company’s transactions with related persons.
The Company's operating lease revenue is disclosed in the table below.
| | Twelve Months Ended | |
| | December 31, | |
| | 2022 | | | 2021 | |
| | | | | | | | |
Leased truck revenue (recorded in revenue, before fuel surcharge) | | $ | 8,705 | | | $ | 7,747 | |
Leased building space revenue (recorded in non-operating income) | | | 525 | | | | 735 | |
Total lease revenue | | $ | 9,230 | | | $ | 8,482 | |
Lease Receivable
Future minimum operating lease payments receivable at December 31, 2022:
2023 | | $ | 7,637 | |
2024 | | | 3,683 | |
2025 | | | 221 | |
2026 | | | 40 | |
2027 | | | - | |
Thereafter | | | - | |
Total future minimum lease payments receivable | | $ | 11,581 | |
Lease Payments to Related Parties
Payments to related parties of $1,780,813 were made for real estate leases during 2022 which include maintenance facilities in one state and trailer drop yards in eleven states. The leases are generally month to month leases with automatic monthly renewal provisions.
During 2022 the Company leased office, shop and parking spaces from various lessors, including a related party. The initial term for the majority of these leases is one year, 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 minimum operating lease payable under these arrangements was approximately $232,000 as of December 31, 2022.
The Company leases office and shop facilities to a related party. At December 31, 2022, the cost and carrying amount of the facilities leased were approximately $13,738,000 and $11,674,000, respectively. Future minimum lease receipts related to this lease at December 31, 2022 were approximately $32,100.
18. | 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. The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair value:
| Level 1: | Quoted market prices in active markets for identical assets or liabilities. |
| | |
| Level 2: | Inputs other than Level 1 inputs that are either directly or indirectly observable such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable; or other inputs not directly observable, but derived principally from, or corroborated by, observable market data. |
| | |
| Level 3: | Unobservable inputs that are supported by little or no market activity. |
The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
At December 31, 2022 and 2021, the following items are measured at fair value on a recurring basis:
| | 2022 | | | 2021 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Marketable equity securities | | $ | 41,728 | | | $ | 41,728 | | | | - | | | | - | | | $ | 39,424 | | | $ | 39,424 | | | | - | | | | - | |
During 2022 and 2021, there were no transfers of marketable securities between levels of fair value measurement.
The Company’s investments in marketable equity securities are recorded at fair value based on quoted market prices. The carrying value of cash and cash equivalents, accounts receivable, trade 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 values and estimated fair values of this other long-term debt at December 31, 2022 and 2021 are summarized as follows:
| | 2022 | | | 2021 | |
| | Carrying Value | | | Estimated Fair Value | | | Carrying Value | | | Estimated Fair Value | |
| | (in thousands) | |
Long-term debt | | $ | 264,281 | | | $ | 253,762 | | | $ | 222,277 | | | $ | 224,191 | |
The Company has not elected the fair value option for any of our financial instruments.
19. | RELATED PARTY TRANSACTIONS |
In the normal course of business, transactions for transportation and repair services, equipment, property leases and other services are conducted between the Company and companies affiliated with our Chairman and controlling stockholder. The Company recognized approximately $1,363,000, $8,085,000 and $9,897,000 in operating revenue and approximately $21,438,000, $11,103,000 and $6,791,000 in operating expenses in 2022, 2021, and 2020, respectively from related party transactions.
The Company purchased auto liability and workers’ compensation insurance through an insurance company affiliated with our Chairman and controlling stockholder. Premiums for auto liability coverage during 2022, 2021, and 2020 were approximately $11,437,000, $9,851,000, and $8,516,000, respectively. Premiums for workers’ compensation coverage during 2022, 2021, and 2020 were approximately $338,000, $300,000 and $299,000, respectively.
Amounts owed to the Company by these affiliates were approximately $723,000 and $636,000 at December 31, 2022 and 2021, respectively. Of the accounts receivable at December 31, 2022 and 2021, approximately $382,000 and $448,000 represent freight transportation and approximately $341,000 and $188,000 represent revenue resulting from other services performed for related parties. Amounts payable to affiliates at December 31, 2022 and 2021 were approximately $1,290,000 and $1,276,000 respectively.
20. | Acquisition of Assets from Metropolitan Trucking, Inc. |
On June 14, 2022, subsidiaries of the Company, Met Express, Inc. and Costar Equipment, Inc. (collectively, the “Buyer”), entered into an Asset Purchase Agreement with Metropolitan Trucking, Inc., and related subsidiaries. Metropolitan Trucking, Inc. was a truckload carrier headquartered in Saddle Brook, New Jersey, providing asset-based dry van truckload transportation services, including local, regional, and dedicated services. The acquisition has been determined to be a business combination.
Pursuant to the Asset Purchase Agreement, the Buyer acquired substantially all the assets and assumed certain specified liabilities of Metropolitan Trucking, Inc., and its related entities (the “Transaction”). The Buyer paid $79.9 million of total consideration, including cash and certain assumed indebtedness of Metropolitan Trucking, Inc., and its related entities. The Transaction closed on June 14, 2022., subject to working capital adjustments.
Total cash paid of $64.3 million was funded out of the Company’s available cash. The Transaction included the assumption of $12.6 million of indebtedness and $2.9 million of other current liabilities. The Asset Purchase Agreement contains customary representations, warranties, covenants, escrow, and indemnification provisions.
The results of the acquired business have been included in the consolidated financial statements since the date of acquisition and represented 14.1% of consolidated total assets as of December 31, 2022 and represented 5.7% of revenues excluding fuel surcharge for the year ended December 31, 2022. Acquisition related expenses of $0.4 million are included in the condensed consolidated statements of operations for the year ended December 31, 2022.
The assets and liabilities associated with the acquisition were recorded at their fair values as of the acquisition date and the amounts are as follows:
| | (in thousands) | |
| | | | |
Trade and other accounts receivable | | $ | 10,821 | |
Other current assets | | | 316 | |
Property and equipment | | | 68,722 | |
Total assets | | | 79,859 | |
Accounts payable | | | (2,915 | ) |
Long-term debt | | | (12,627 | ) |
Total cash paid | | $ | 64,317 | |