form10k_2009.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the Fiscal Year Ended December 31, 2009
or
o
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________to________

Commission File No. 0-15057


P.A.M. TRANSPORTATION SERVICES, INC.
(Exact name of registrant as specified in its charter)

Delaware
 
71-0633135
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

297 West Henri De Tonti Blvd, Tontitown, Arkansas 72770
 
(Address of principal executive offices) (Zip Code)

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

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

Title of each class
 
Name of each exchange on which registered
Common Stock, $.01 par value
 
NASDAQ Global Market
 
 
Securities registered pursuant to section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes  o
 
No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes  o
 
No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  þ
 
No  o


 
 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)  during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  o
 
No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
 
Accelerated filer þ
 
       
Non-accelerated filer o
 
Smaller reporting company o
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes  o
 
No  þ

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant computed by reference to the average of the closing bid and asked prices of the common stock as of the last business day of the registrant's most recently completed second quarter was $24,788,119. Solely for the purposes of this response, executive officers, directors and beneficial owners of more than five percent of the registrant’s common stock are considered the affiliates of the registrant at that date.

The number of shares outstanding of the registrant’s common stock, as of March 1, 2010: 9,413,607 shares of $.01 par value common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders to be held in June 2010 are incorporated by reference in answer to Part III of this report, with the exception of information regarding executive officers required under Item 10 of Part III, which information is included in Part I, Item 1. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year ended December 31, 2009.


FORWARD-LOOKING STATEMENTS

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

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

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this Report might not transpire.

 
 

 


P.A.M. TRANSPORTATION SERVICES, INC.
FORM 10-K
For the fiscal year ended December 31, 2009
TABLE OF CONTENTS


 
PART I
Page
Item 1
1
Item 1A
8
Item 1B
11
Item 2
12
Item 3
12
Item 4
12
     
 
PART II
 
Item 5
 
13
Item 6
15
Item 7
 
16
Item 7A
29
Item 8
30
Item 9
 
56
Item 9A
56
Item 9B
57
     
 
PART III
 
Item 10
58
Item 11
58
Item 12
 
58
Item 13
59
Item 14
59
     
 
PART IV
 
Item 15
59
     
 
62
     
 
63


 
 


PART I

Item 1. Business.

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

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

P.A.M. Transportation Services, Inc. is a holding company incorporated under the laws of the State of Delaware in June 1986 and has historically conducted operations through the following wholly owned subsidiaries: P.A.M. Transport, Inc., T.T.X., Inc., P.A.M. Dedicated Services, Inc., P.A.M. Logistics Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc., Transcend Logistics, Inc., Allen Freight Services, Inc., Decker Transport Co., Inc., East Coast Transport and Logistics, LLC, S & L Logistics, Inc., P.A.M. International, Inc. and P.A.M. Canada, Inc. Our operating authorities are held by P.A.M. Transport, Inc., P.A.M. Dedicated Services, Inc., Choctaw Express, Inc., Choctaw Brokerage, Inc., Allen Freight Services, Inc., T.T.X., Inc., Decker Transport Co., Inc., and East Coast Transport and Logistics, LLC. However, effective January 1, 2010, the operations of most of the Company’s operating subsidiaries have been consolidated under the P.A.M. Transport, Inc. name in a effort to more clearly reflect the Company’s scope and available service offerings.

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

Segment Financial Information

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

Operations

Our operations can generally be classified into truckload services or brokerage and logistics services. Truckload services include those transportation services in which we utilize company owned trucks or owner-operator owned trucks for the pickup and delivery of freight. The brokerage and logistics services consists of services such as transportation scheduling, routing, mode selection, transloading and other value added services related to the transportation of freight which may or may not involve the use of company owned or owner-operator owned equipment. Both our truckload operations and our brokerage and logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this Report. Truckload services operating revenues, before fuel surcharges represented 85.3%, 89.6%, and 90.4% of total operating revenues for the years ended December 31, 2009, 2008, and 2007, respectively. The remaining operating revenues, before fuel surcharge for the same periods were generated by brokerage and logistics services, representing 14.7%, 10.4%, and 9.6%, respectively. Approximately 99% of the Company's revenues are generated by operations conducted in the United States and all of the Company's assets are located or based in the United States.


 
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Business and Growth Strategy

Our strategy focuses on the following elements:

Providing a Full Suite of Complimentary Truckload Transportation Solutions. Our objective is to provide our customers with a comprehensive solution to their truckload transportation needs. Our asset-based service offerings consist of dedicated, expedited, regional, automotive, and long-haul truckload services with non-asset based supply chain management, logistics , brokerage and intermodal solutions rounding out our service offerings. Our range of service offerings also include our complete range of asset-based and non-asset based services to Mexico and Canada.

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

 
·
maintain more consistent equipment capacity;

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

 
·
attract and retain drivers; and

 
·
maintain a sound safety record as drivers travel familiar routes.

Providing Superior and Flexible Customer Service. Our wide range of services includes dedicated fleet services, logistics services, time-definite delivery, two-man driving teams, cross-docking and consolidation programs, specialized trailers, and Internet-based customer access to delivery status. These services allow us to quickly and reliably respond to the diverse needs of our customers, and provide an advantage in securing new business. We also maintain ISO 9002 certification to ensure that we operate in accordance with approved quality assurance standards.

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

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



 
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Industry

According to the American Trucking Association’s “American Trucking Trends 2009-2010” report, the trucking industry transported approximately 69% of the total volume of freight transported in the United States during 2008, which equates to 10.2 billion tons and $660 billion in revenue. The truckload industry is highly fragmented and is impacted by several economic and business factors, many of which are beyond the control of individual carriers. The state of the economy, coupled with equipment capacity levels, can impact freight rates. Volatility of various operating expenses, such as fuel and insurance, make the predictability of profit levels uncertain. Availability, attraction, retention and compensation for drivers also affect operating costs, as well as equipment utilization. In addition, the capital requirements for equipment, coupled with potential uncertainty of used equipment values, impact the ability of many carriers to expand their operations. The current operating environment is characterized by the following:

·
Price increases by truck and trailer equipment manufacturers, volatile fuel costs, and intense competition for freight.

·
In recent years, many less profitable or undercapitalized carriers have been forced to consolidate or to exit the industry.

Competition

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

Marketing and Significant Customers

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

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

Our five largest customers, for which we provide carrier services covering a number of geographic locations, accounted for approximately 42%, 49% and 56% of our total revenues in 2009, 2008 and 2007, respectively. General Motors Corporation accounted for approximately 25%, 31% and 38% of our revenues in 2009, 2008 and 2007, respectively.

We also provide transportation services to other manufacturers who are suppliers for automobile manufacturers. Approximately 31%, 40% and 49% of our revenues were derived from transportation services provided to the automobile industry during 2009, 2008 and 2007, respectively.


 
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Revenue Equipment

At December 31, 2009, we operated a fleet of 1,731 trucks and 4,630 trailers. We operate late-model, well-maintained premium trucks to help attract and retain drivers, promote safe operations, minimize maintenance and repair costs, and improve customer service by minimizing service interruptions caused by breakdowns. We evaluate our equipment purchasing decisions based on factors such as initial cost, useful life, warranty terms, expected maintenance costs, fuel economy, driver comfort, customer needs, manufacturer support, and resale value.

We also typically contract with owner-operators to provide transportation services for a small portion of our business. Owner-operators provide their own trucks and are contractually responsible for all associated expenses, including financing costs, fuel, maintenance, insurance, and taxes, among other things. They are also responsible for maintaining compliance with the Federal Motor Carrier Administration regulations. We believe that utilizing owner-operators complements our recruiting efforts and offers greater flexibility in responding to fluctuations in customer demand. At December 31, 2009, the Company had 34 owner-operators under contract.

During 1999, the U.S. Environmental Protection Agency (“EPA”) proposed a three-phase strategy to reduce engine emissions from heavy-duty vehicles through a combination of advanced emissions control technologies and diesel fuel with a reduced sulfur content. Each phase and its effect on the Company’s operations, if known, are described below.

The first phase (Phase I) mandated new engine emission standards for all model year 2004 heavy-duty trucks; however, through agreements with heavy-duty diesel engine manufacturers, the effective date was accelerated to October 1, 2002. Therefore, effective October 1, 2002, all newly manufactured truck engines had to comply with the new engine emission standards. All truck engines manufactured prior to October 1, 2002 were not subject to these new standards. As of December 31, 2009, the majority of our Company-owned truck fleet consisted of trucks with engines that comply with these emission standards. The Company has experienced a reduction in fuel efficiency and increased depreciation expense due to the higher cost of trucks with these new engines.

In the second phase (Phase II), effective January 1, 2007, the EPA mandated a new set of more stringent emission standards for vehicles powered by diesel fuel engines manufactured in 2007 through 2009. These new engines have been designed for and require the use of a more costly type of fuel known as ultra-low-sulfur-diesel (“ULSD”) which, according to EPA estimates, cost from $0.04 to $0.05 more per gallon due to increased refining costs. The EPA also mandated that refiners and importers nationwide ensure that at least 80% of the volume of the highway diesel fuel they produced or imported was ULSD-compliant by June 1, 2006. However, the EPA does not require service stations and truck stops to sell ULSD fuel. Therefore, it is possible that ULSD fuel might not be available in a particular area in which the Company operates. A majority of the Company’s current truck fleet can be fueled with either ULSD or low-sulfur diesel (“LSD”), but additional future purchases of trucks which contain 2007 or later diesel engines will require the use of ULSD fuel which have resulted in lower fuel economy as the process that removes sulfur can also reduce the energy content of the fuel. As of December 31, 2009, 739 trucks in our Company-owned truck fleet consisted of trucks with engines that comply with the Phase II emission standards and require the use of ULSD. During 2010, the Company expects to take delivery of 185 new trucks, all of which will contain engines compliant with the Phase II emission standards requiring the use of ULSD. As compared to our current Company-owned truck fleet which contain primarily Phase I diesel engines, trucks powered by the Phase II compliant diesel engines have a significantly higher purchase price and as a result, we expect that our depreciation expense will increase as we replace older trucks with trucks powered by the Phase II diesel engines. We also expect that these Phase II diesel engines will result in higher maintenance costs. To the extent we are unable to offset these anticipated increased costs with rate increases charged to customers or offsetting cost savings in other areas, our results of operations will be adversely affected.


 
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During the third phase (Phase III), effective in 2010, final emission standards become effective and LSD fuel will no longer be available for highway use. The EPA requires that by June 1, 2010 all diesel fuel imported or produced must be ULSD-compliant as it phases out LSD fuel availability by December 1, 2010 when all highway diesel fuel must be ULSD fuel. We are unable at this time to determine the increase in operating costs of trucks powered by the Phase III compliant engines, but we expect that the engines produced under the final standards will be less fuel-efficient and have higher maintenance costs than either the Phase I or Phase II compliant engines. Trucks powered by the Phase III diesel engine are currently available for purchase at a significant price premium as compared to the Phase II powered trucks and as a result, the Company expects that our depreciation expense will increase as we replace older trucks with trucks powered by the Phase III diesel engines.

Technology

We have installed Qualcomm Omnitracs™ display units in all of our trucks. The Omnitracs system is a satellite-based global positioning and communications system that allows fleet managers to communicate directly with drivers. Drivers can provide location status and updates directly to our computer system which increases productivity and convenience. The Omnitracs system provides us with accurate estimated time of arrival information, which optimizes load selection and service levels to our customers. In order to optimize our truck-to-trailer ratio, we have also installed Qualcomm TrailerTracs™ tracking units in all of our trailers. The TrailerTracs system is a trailer tracking product that enables us to more efficiently track the location of trailers in our inventory.

Our computer system manages the information provided by the Qualcomm devices to provide us with real-time information regarding the location, status and load assignment of all of our equipment, which permits us to better meet delivery schedules, respond to customer inquiries and match equipment with the next available load. Our system also provides real-time information electronically to our customers regarding the status of freight shipments and anticipated arrival times. This system provides our customers flexibility and convenience by extending supply chain visibility through electronic data interchange, the Internet and e-mail.

Maintenance

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

Our trucks carry full warranty coverage for at least three years or 350,000 miles. Extended warranties are negotiated with the truck manufacturer and manufacturers of major components, such as engine, transmission and differential manufacturers, for up to four years or 500,000 miles. Our trailers carry full warranties by the manufacturer and major component manufacturers for up to five years.

Employees

At December 31, 2009, we employed 2,591 persons, of whom 2,156 were drivers, 151 were maintenance personnel, 161 were employed in operations, 15 were employed in marketing, 57 were employed in safety and personnel, and 51 were employed in general administration and accounting. None of our employees are represented by a collective bargaining unit and we believe that our employee relations are good.


 
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Drivers

At December 31, 2009, we utilized 2,156 company drivers in our operations. We also had 34 owner-operators under contract compensated on a per mile basis. Our drivers are compensated on the basis of miles driven, loading and unloading, extra stops and layovers in transit. Drivers can earn bonuses by recruiting other qualified drivers who become employed by us and both cash and non-cash prizes are awarded for consecutive periods of safe, accident-free driving. All of our drivers are recruited, screened, drug tested and trained and are subject to the control and supervision of our operations and safety departments. Our driver training program stresses the importance of safety and reliable, on-time delivery. Drivers are required to report to their driver managers daily and at the earliest possible moment when any condition en route occurs that might delay their scheduled delivery time.

In addition to strict application screening and drug testing, before being permitted to operate a vehicle our drivers must undergo classroom instruction on our policies and procedures, safety techniques as taught by the Smith System of Defensive Driving, and the proper operation of equipment, and must pass both written and road tests. Instruction in defensive driving and safety techniques continues after hiring, with seminars at several of our terminals. At December 31, 2009, we employed 57 persons on a full-time basis in our driver recruiting, training and safety instruction programs.

Historically, intense competition in the trucking industry for qualified drivers has resulted in additional expense to recruit and retain an adequate supply of drivers, and has had a negative impact on the industry. In prior years, our operations have also been impacted and from time to time we have experienced under-utilization and increased expenses due to a shortage of qualified drivers. During 2009, the continued economic downturn reduced the trucking industry’s demand for drivers and we did not experience decreases in utilization resulting from a driver shortage. However, we continue to place a high priority on the recruitment and retention of an adequate supply of qualified drivers.

Available Information

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

Seasonality

Our revenues do not exhibit a significant seasonal pattern due primarily to our varied customer mix. Operating expenses can be somewhat higher in the winter months primarily due to decreased fuel efficiency and increased maintenance costs associated with inclement weather. In addition, the automobile plants for which we transport a large amount of freight typically utilize scheduled shutdowns of two weeks in July and one week in December and the volume of freight we ship is reduced during such scheduled plant shutdowns.


 
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Regulation

We are a common and contract motor carrier regulated by various federal and state agencies. These regulatory agencies have broad powers, generally governing matters such as authority to engage in motor carrier operations, motor carrier registration, driver hours-of-service (“HOS”), drug and alcohol testing of drivers, and safety, weight and dimensions of transportation equipment.  Key regulatory agencies affecting the Company’s operations include the Federal Motor Carrier Safety Administration (“FMCSA”), the Pipeline and Hazardous Materials Safety Agency, and the Surface Transportation Board, which are all agencies within the U.S. Department of Transportation (“DOT”). We believe that we are in compliance in all material respects with applicable regulatory requirements relating to our business and operate with a “satisfactory” rating (the highest of three grading categories) from the DOT. In addition, we are subject to compliance with cargo-security and transportation regulations issued by the Transportation Security Administration, a component department within the U.S. Department of Homeland Security.

The FMCSA, a separate administration within the DOT charged with regulating motor carrier safety, issued new rules that limit driver HOS effective January 4, 2004, and then later modified effective October 1, 2005 (the "2005 Rules"). In July 2007, a federal appeals court vacated certain provisions of the 2005 Rules relating to the expansion of the driving day from 10 hours to 11 hours, and the "34-hour restart," which allowed drivers to restart calculations of the weekly on-duty time limits after the driver had at least 34 consecutive hours off duty. The court indicated that, in addition to other reasons, it vacated these two provisions because the FMCSA failed to provide adequate data supporting its decision to increase the driving day and provide for the 34-hour restart. In November 2008, following the submission of additional data by FMCSA and a series of appeals and related court rulings, FMCSA published its final rule, which retains the 11 hour driving day and the 34-hour restart. However, advocacy groups may continue to challenge the final rule. We are unable to predict how a court may rule on such challenges but expect that any significant changes to the driver HOS rules that, in effect, reduce available driving time would have a negative impact our current operations.

During 2010, the FMCSA plans to launch a new compliance and enforcement initiative known as “Comprehensive Safety Analysis 2010” (“CSA 2010”). The stated goal under CSA 2010 is to achieve a greater reduction in large truck and bus crashes, injuries and fatalities, while maximizing the resources of the FMCSA and its state partners. Since the 1970s, federal and state enforcement agencies, in partnership with the motor carrier industry, have progressively reduced the commercial vehicle related fatality crash rate. Under CSA 2010, the FMCSA will use a comprehensive measurement system of all safety-based violations found during roadside inspections, weighing such violations by their relationship to crash risk. CSA 2010’s data analysis expands on the previous system utilized by the FMCSA and covers more behavioral areas specifically linked to crash risk such as unsafe or fatigued driving, driver fitness, controlled substances, crash history, vehicle maintenance, and improper loading. Safety performance information will be accumulated to assess the safety performance of both carriers and drivers.  The CSA 2010 implementation date is set for July 1, 2010 with enforcement beginning later during the year. The Company is currently preparing for CSA 2010 by expanding existing safety programs to include CSA 2010 training and education.

Our motor carrier operations are also subject to environmental laws and regulations, including laws and regulations dealing with underground fuel storage tanks, the transportation of hazardous materials and other environmental matters, and our operations involve certain inherent environmental risks. We maintain two bulk fuel storage and fuel islands. Our operations involve the risks of fuel spillage or seepage, environmental damage, and hazardous waste disposal, among others. We have instituted programs to monitor and control environmental risks and assure compliance with applicable environmental laws. As part of our safety and risk management program, we periodically perform internal environmental reviews so that we can achieve environmental compliance and avoid environmental risk. We transport a minimum amount of environmentally hazardous substances and, to date, have experienced no significant claims for hazardous materials shipments. If we should fail to comply with applicable regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.

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

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

In addition to environmental regulations directly affecting our business, we are also subject to the effects of new truck engine design requirements implemented by the EPA. See "Revenue Equipment" above.

Item 1A. Risk Factors.

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

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

These factors include significant increases or rapid fluctuations in fuel prices, excess capacity in the trucking industry, surpluses in the market for used equipment, interest rates, fuel taxes, license and registration fees, insurance premiums, self-insurance levels, and difficulty in attracting and retaining qualified drivers and independent contractors.

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

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

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

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

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

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

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

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

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

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

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

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

A significant portion of our revenue is generated from our major customers. For 2009, our top five customers, based on revenue, accounted for approximately 42% of our revenue, and our largest customer, General Motors Corporation, accounted for approximately 25% of our revenue. We also provide transportation services to other manufacturers who are suppliers for automobile manufacturers. As a result, the concentration of our business within the automobile industry is greater than the concentration in a single customer. Approximately 31% of our revenues for 2009 were derived from transportation services provided to the automobile industry.

Generally, we do not have long-term contractual relationships with our major customers, and we cannot assure that our customer relationships will continue as presently in effect. A reduction in or termination of our services by our major customers could have a material adverse effect on our business and operating results.

Ongoing insurance and claims expenses could significantly reduce our earnings.

Our future insurance and claims expenses might exceed historical levels, which could reduce our earnings. The Company is self insured for health and workers compensation insurance coverage up to certain limits. If medical costs continue to increase, or if the severity or number of claims increase, and if we are unable to offset the resulting increases in expenses with higher freight rates, our earnings could be materially and adversely affected.

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

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

 
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We may be unable to successfully integrate businesses we acquire into our operations.

Integrating businesses we acquire may involve unanticipated delays, costs or other operational or financial problems. Successful integration of the businesses we acquire depends on a number of factors, including our ability to transition acquired companies to our management information systems. In integrating businesses we acquire, we may not achieve expected economies of scale or profitability or realize sufficient revenues to justify our investment. We also face the risk that an unexpected problem at one of the companies we acquire will require substantial time and attention from senior management, diverting management’s attention from other aspects of our business. We cannot be certain that our management and operational controls will be able to support us as we grow.

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

Periodically, the transportation industry experiences difficulty in attracting and retaining qualified drivers, including independent contractors, resulting in intense competition for drivers. We have from time to time experienced under-utilization and increased expenses due to a shortage of qualified drivers. If we are unable to  attract drivers when needed or contract with independent contractors when needed, we could be required to further adjust our driver compensation packages or let trucks sit idle, which could adversely affect our growth and profitability.

If we are unable to retain our key employees, our business, financial condition and results of operations could be harmed.

We are highly dependent upon the services of our key employees and executive officers. The loss of any of their services could have a material adverse effect on our operations and future profitability. We must continue to develop and retain a core group of managers if we are to realize our goal of expanding our operations and continuing our growth. We cannot assure that we will be able to do so.

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

None of our employees are currently represented by a collective bargaining agreement. However, we can offer no assurance that our employees will not unionize in the future, particularly if legislation is passed that facilitates unionization such as the Employee Free Choice Act.

We have significant ongoing capital requirements that could affect our profitability if we are unable to generate sufficient cash from operations.

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

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

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

 
-10-


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

The DOT and various state agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations, safety, and financial reporting. We may also become subject to new or more restrictive regulations relating to fuel emissions, drivers’ hours in service, and ergonomics. Compliance with such regulations could substantially impair equipment productivity and increase our operating expenses.

The EPA adopted new emission control regulations, which require progressive reductions in exhaust emissions from diesel engines through 2010. In part to offset the costs of compliance with the new EPA engine design requirements, some manufacturers have increased new equipment prices and eliminated or sharply reduced the price of repurchase or trade-in commitments. If new equipment prices were to increase, or if the price of repurchase commitments by equipment manufacturers were to decrease more than anticipated, we may be required to increase our depreciation and financing costs and/or retain some of our equipment longer, which may result in an increase in maintenance expenses. To the extent we are unable to offset any such increases in expenses with rate increases or cost savings, our results of operations would be adversely affected. If our fuel or maintenance expenses were to increase as a result of our use of the new, EPA-compliant engines, and we are unable to offset such increases with fuel surcharges or higher freight rates, our results of operations would be adversely affected. Further, our business and operations could be adversely impacted if we experience problems with the reliability of the new engines. Although we have not experienced any significant reliability issues with these engines to date, the expenses associated with the trucks containing these engines have been slightly elevated, primarily as a result of lower fuel efficiency and higher depreciation.

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

Proposals for voluntary initiatives and mandatory controls are being discussed both in the United States and worldwide to reduce greenhouse gases such as carbon dioxide, a by-product of burning fossil fuels such as those used in the Company’s trucks. If increased regulation of greenhouse gas emissions are implemented, our operations  may be significantly impacted as there can be no assurance that environmental costs may be recovered through rate increases charged to customers.
 
 
The EPA is also beginning to implement regulatory actions under the Clean Air Act to address emission of greenhouse gases. Pending or future legislation or other regulatory actions could have a material impact on our operations and financial position and the rates we charge our customers. Impacts include expenditures for environmental equipment beyond what is currently planned, financing costs related to additional capital expenditures and the potential purchase of emission allowances from market sources.

Item 1B. Unresolved Staff Comments.

None.


 
-11-


Item 2. Properties.

Our executive offices and primary terminal facilities, which we own, are located in Tontitown, Arkansas. These facilities are located on approximately 49.3 acres and consist of 114,403 square feet of office space and maintenance and storage facilities.

Our subsidiaries lease facilities in Jacksonville, Florida; Breese and Effingham, Illinois; Paulsboro, New Jersey; North Jackson, Ohio; Oklahoma City, Oklahoma; and El Paso, Texas. Our terminal facilities in Columbia, Mississippi; Irving and Laredo, Texas; North Little Rock, Arkansas; and Willard, Ohio are owned. The leased facilities are leased primarily on contractual terms typically ranging from one to five years. As of December 31, 2009, the following provides a summary of the ownership and types of activities conducted at each location:

 
Location
Own/
Lease
Dispatch
Office
Maintenance
Facility
Safety
Training
Tontitown, Arkansas
Own
Yes
Yes
Yes
North Little Rock, Arkansas
Own
No
Yes
No
Jacksonville, Florida
Lease
Yes
Yes
Yes
Breese, Illinois
Lease
Yes
No
No
Effingham, Illinois
Lease
No
Yes
No
Columbia, Mississippi
Own
No
No
No
Paulsboro, New Jersey
Lease
Yes
No
No
North Jackson, Ohio
Lease
Yes
Yes
Yes
Willard, Ohio
Own
Yes
Yes
Yes
Oklahoma City, Oklahoma
Lease
Yes
Yes
Yes
El Paso, Texas
Lease
No
No
No
Irving, Texas
Own
Yes
Yes
Yes
Laredo, Texas
Own
Yes
Yes
No

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

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

Item 3. Legal Proceedings.

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 4. Reserved.



 
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PART II

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

Our common stock is traded on the NASDAQ Global Market under the symbol PTSI. The following table sets forth, for the quarters indicated, the range of the high and low sales prices per share for our common stock as reported on the NASDAQ Global Market.

Fiscal Year Ended December 31, 2009
   
High
   
Low
 
First Quarter
  $ 7.89     $ 2.71  
Second Quarter
    5.86       5.00  
Third Quarter
    8.87       5.47  
Fourth Quarter
    10.93       7.51  

Fiscal Year Ended December 31, 2008
   
High
   
Low
 
First Quarter
  $ 16.85     $ 13.82  
Second Quarter
    16.90       9.22  
Third Quarter
    15.82       9.82  
Fourth Quarter
    11.08       3.15  

As of March 1, 2010, there were approximately 146 holders of record of our common stock.

Dividends

We have never declared or paid any cash dividends on our common stock. The policy of our Board of Directors is to retain earnings for the expansion and development of our business and the payment of our debt service obligations. Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors.

Repurchases of Equity Securities by the Issuer

The Company’s stock repurchase program was first announced on April 11, 2005. The repurchase program was subsequently extended and expanded several times, most recently in June 2008, when the Board of Directors authorized the Company to repurchase up to 300,000 shares of its common stock during the twelve month period following the announcement. As of December 31, 2009, no shares remain available for repurchase under any repurchase programs.

The Company did not repurchase any shares of its common stock during the fourth quarter of 2009.

Securities Authorized for Issuance Under Equity Compensation Plans

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


 
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Performance Graph

Set forth below is a line graph comparing the yearly percentage change in the cumulative total stockholder return on our common stock against the cumulative total return of the CRSP Total Return Index for the Nasdaq Stock Market (U.S. companies) and the CRSP Total Return Index for the Nasdaq Trucking and Transportation Stocks for the period of five years commencing December 31, 2004 and ending December 31, 2009. The graph assumes that the value of the investment in our common stock and in each index was $100 on December 31, 2004 and that all dividends were reinvested.
 
 
 

 
-14-


Item 6. Selected Financial Data.

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

   
Year Ended December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
   
(in thousands, except per share amounts)
 
Statement of Operations Data:
                             
Operating revenues:
                             
   Operating revenues, before fuel surcharge
  $ 260,774     $ 323,272     $ 351,701     $ 351,373     $ 326,353  
   Fuel surcharge
    31,136       83,451       57,140       48,896       34,527  
Total operating revenues
    291,910       406,723       408,841       400,269       360,880  
                                         
Operating expenses:
                                       
   Salaries, wages and benefits
    101,833       123,961       135,606       127,539       122,005  
   Fuel expense
    65,527       140,531       114,242       97,286       81,017  
   Rent and purchased transportation
    40,713       39,887       38,718       43,844       39,074  
   Depreciation and amortization
    37,742       37,477       38,759       33,929       31,376  
   Goodwill impairment charge
    -       15,413       -       -       -  
   Operating supplies
    26,572       30,514       30,845       25,682       23,114  
   Operating taxes and licenses
    13,055       15,937       17,520       16,421       15,776  
   Insurance and claims
    12,579       16,018       17,591       16,389       15,992  
   Communications and utilities
    2,644       2,869       3,113       2,642       2,648  
   Other
    4,967       5,119       7,130       5,426       6,205  
   Loss (gain) on sale or disposal of property
    931       952       (48 )     47       147  
Total operating expenses
    306,563       428,678       403,476       369,205       337,354  
Operating (loss) income
    (14,653 )     (21,955 )     5,365       31,064       23,526  
Non-operating (loss) income
    (745 )     (4,996 )     1,707       448       477  
Interest expense
    (2,373 )     (2,429 )     (2,453 )     (1,475 )     (1,881 )
(Loss) income before income taxes
    (17,771 )     (29,380 )     4,619       30,037       22,122  
Income tax (benefit) expense
    (6,924 )     (10,615 )     1,966       12,073       8,983  
Net (loss) income
  $ (10,847 )   $ (18,765 )   $ 2,653     $ 17,964     $ 13,139  
(Loss) earnings per common share:
                                       
Basic
  $ (1.15 )   $ (1.94 )   $ 0.26     $ 1.74     $ 1.20  
Diluted
  $ (1.15 )   $ (1.94 )   $ 0.26     $ 1.74     $ 1.20  
Average common shares outstanding – Basic
    9,411       9,683       10,238       10,296       10,966  
Average common shares outstanding – Diluted(1)
    9,416       9,683       10,239       10,302       10,976  
__________
(1)  
Diluted income per share for 2009, 2008, 2007, 2006 and 2005 assumes the exercise of stock options to purchase an aggregate of 7,139, 0, 19,213, 55,738 and 22,297 shares of common stock, respectively.
 
   
At December 31,
 
   
2009
   
2008
   
2007
   
2006
   
2005
 
Balance Sheet Data:
 
(in thousands)
 
Total assets
  $ 260,656     $ 290,361     $ 319,904     $ 314,246     $ 293,441  
Long-term debt, excluding current portion
    27,202       35,492       44,172       21,205       39,693  
Stockholders' equity
    147,127       155,477       179,377       185,028       164,762  
                                         
   
Year Ended December 31,
 
      2009       2008       2007       2006       2005  
Operating Data:
                                       
Operating ratio (1)
    105.6 %     106.8 %     98.5 %     91.2 %     92.8 %
Average number of truckloads per week
    6,275       7,559       7,849       7,200       6,946  
Average miles per trip
    556       598       647       659       680  
Total miles traveled (in thousands)
    177,872       221,450       246,801       229,810       228,624  
Average miles per truck
    102,816       111,114       118,483       123,156       125,479  
Average revenue, before fuel surcharge per truck per day
  $ 591     $ 662     $ 695     $ 778     $ 740  
Average revenue, before fuel surcharge per loaded mile
  $ 1.36     $ 1.41     $ 1.38     $ 1.43     $ 1.33  
Empty mile factor
    7.7 %     7.3 %     6.5 %     5.9 %     5.5 %
                                         
At end of period:
                                       
Total company-owned/leased trucks
    1,731 (2)     1,839 (3)     2,055 (4)     1,998 (5)     1,792 (6)
Average age of trucks (in years)
    2.60       1.90       1.75       1.55       1.43  
Total trailers
    4,630       4,809       4,882       4,540       4,406  
Average age of trailers (in years)
    5.22       4.43       4.44       4.16       3.92  
Number of employees
    2,591       2,931       3,181       3,062       3,035  
__________
(1) Total operating expenses, net of fuel surcharge as a percentage of operating revenues, before fuel surcharge.
(2) Includes 34 owner operator trucks; (3) Includes 33 owner operator trucks; (4) Includes 55 owner operator trucks.
(5) Includes 49 owner operator trucks; (6) Includes 50 owner operator trucks.
 
The Company has not declared or paid any cash dividends during any of the periods presented above.

 
-15-



Business Overview

The Company's administrative headquarters are in Tontitown, Arkansas. From this location we manage operations conducted through our wholly owned subsidiaries based in various locations around the United States and Canada. The operations of these subsidiaries can generally be classified into either truckload services or brokerage and logistics services. Truckload services include those transportation services in which we utilize company owned trucks or owner-operator owned trucks. Brokerage and logistics services consist of services such as transportation scheduling, routing, mode selection, transloading and other value added services related to the transportation of freight which may or may not involve the usage of company owned or owner-operator owned equipment. Both our truckload operations and our brokerage/logistics operations have similar economic characteristics and are impacted by virtually the same economic factors as discussed elsewhere in this Report. All of the Company's operations are in the motor carrier segment.

For both operations, substantially all of our revenue is generated by transporting freight for customers and is predominantly affected by the rates per mile received from our customers, equipment utilization, and our percentage of non-compensated miles. These aspects of our business are carefully managed and efforts are continuously underway to achieve favorable results. Truckload services revenues, excluding fuel surcharges, represented 85.3%, 89.6%, and 90.4% of total revenues, excluding fuel surcharges for the twelve months ended December 31, 2009, 2008, and 2007, respectively.

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

In discussing our results of operations we use revenue, before fuel surcharge, (and fuel expense, net of 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 2009, 2008 and 2007, approximately $31.1 million, $83.5 million and $57.1 million, respectively, of the Company's total revenue was generated from fuel surcharges. We also discuss certain changes in our expenses as a percentage of revenue, before fuel surcharge, rather than absolute dollar changes. We do this because we believe the high variable cost nature of certain expenses makes a comparison of changes in expenses as a percentage of revenue more meaningful than absolute dollar changes.


 
-16-


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 shown net of fuel surcharges.

   
Years Ended December 31,
 
 
 
 
2009
   
2008
   
2007
 
Operating revenues, before fuel surcharge
    100.0 %     100.0 %     100.0 %
Operating expenses:
                       
   Salaries, wages and benefits
    44.8       42.1       42.0  
   Fuel expense, net of fuel surcharge
    15.6       19.9       18.2  
   Rent and purchased transportation
    2.7       3.2       2.5  
   Depreciation and amortization
    17.0       12.9       12.2  
   Goodwill impairment
    0.0       2.9       0.0  
   Operating supplies and expenses
    11.9       10.5       9.7  
   Operating taxes and licenses
    5.9       5.5       5.5  
   Insurance and claims
    5.6       5.5       5.5  
   Communications and utilities
    1.1       1.0       0.9  
   Other
    2.1       1.7       2.0  
   Loss on sale or disposal of property
    0.4       0.3       0.0  
Total operating expenses
    107.1       105.5       98.5  
Operating (loss) income
    (7.1 )     (5.5 )     1.5  
Non-operating (loss) income
    (0.3 )     (1.7 )     0.5  
Interest expense
    (1.1 )     (0.8 )     (0.7 )
(Loss) income before income taxes
    (8.5 )%     (8.0 )%     1.3 %

2009 Compared to 2008

For the year ended December 31, 2009, truckload services revenue, before fuel surcharges, decreased 23.2% to $222.5 million as compared to $289.6 million for the year ended December 31, 2008. The decrease relates primarily to a decrease in the average number of trucks utilized, a decrease in equipment utilization, and a decrease in the average rate charged to customers for the periods compared. During 2009, the number of trucks utilized decreased to an average count of 1,730 units compared to 1,993 units during 2008 as the Company has reduced its fleet size in response to current freight demand. During 2009, the Company also experienced a decrease in the average number of miles traveled per unit each work day from 454 miles during 2008 to 403 miles during 2009. Also contributing to the decrease in revenue was a decrease in the average rate charged per total mile. During 2009, the average rate charged to customers per total mile decreased by $0.06 as compared to the average rate charged during 2008.

Salaries, wages and benefits increased from 42.1% of revenues, before fuel surcharges, during 2008 to 44.8% of revenues, before fuel surcharges, during 2009. The increase, as a percentage of revenues, resulted primarily from the fixed cost characteristics of wages which do not fluctuate with changes in revenue, such as general and administrative, maintenance, and operations wages. Using a dollar-based comparison, salaries, wages and benefits decreased from $121.9 million during 2008 to $99.7 million during 2009 as the number of driver compensated miles decreased from 221.4 million miles during 2008 to 177.9 million miles during 2009. Also reflected in the dollar-based decrease was the effect of an across-the-board 5% employee pay rate reduction program implemented in June 2009. The Company also experienced an increase in expenses associated with employee benefits as employee health and workers compensation costs increased from $7.2 million during 2008 to $9.0 million during 2009. Partially offsetting these increases was a decrease in driver lease expense, a component of salaries, wages and benefits, which decreased from $6.2 million in 2008 to $4.4 million in 2009. This decrease was due to a decrease in the average number of owner operators under contract during the periods compared.


 
-17-


Fuel expense, net of fuel surcharge, decreased from 19.9% of revenues, before fuel surcharges, during 2008 to 15.6% of revenues, before fuel surcharges, during 2009 which, on a dollar basis, represented a decrease from $57.5 million during 2008 to $34.6 million during 2009. The decrease relates to both a decrease in the number of gallons of fuel purchased resulting from fewer miles traveled and a decrease in the average surcharge-adjusted price paid per gallon of fuel from $1.61 during 2008 to $1.30 paid per gallon during 2009. Fuel surcharge collections vary 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 declining fuel prices.

Rent and purchased transportation decreased from 3.2% of revenues, before fuel surcharges, in 2008 to 2.7% of revenues, before fuel surcharges, in 2009. The decrease relates primarily to a decrease in amounts paid to third party transportation service providers for intermodal services.

Depreciation and amortization increased from 12.9% of revenues, before fuel surcharges, in 2008 to 17.0% of revenues, before fuel surcharges, in 2009. The percentage change in depreciation expense was elevated due to a change in estimated residual values for a certain group of tractors. During the fourth quarter of 2009, management determined that a certain group of trucks, with guaranteed manufacturer trade-in residual values, would not be used as trade-ins for a newer model of the same make. Accordingly, the manufacturer guaranteed residual values associated with these trucks are no longer available. Management expects that these trucks will be sold on the open market and believes that the ultimate selling price will be significantly lower than the manufacturer guaranteed residual values. As such, the residual values of these trucks were reduced during the fourth quarter of 2009 to reflect this expectation which resulted in additional depreciation expense of $4.2 million during 2009. Excluding the impact of this additional depreciation, depreciation and amortization, increased from 12.9% of revenues, before fuel surcharges, in 2008 to 15.1% of revenues, before fuel surcharges, in 2009. The increase, as a percentage of revenue, relates to the effect of lower revenues during 2009 as compared to 2008 and the fixed cost nature of depreciation expense. On a dollar basis, and excluding the additional depreciation discussed above, depreciation and amortization expense decreased from $37.5 million during 2008 to $33.5 million during 2009 as the average size of the Company-owned truck fleet decreased from 1,949 trucks during 2008 to 1,697 trucks during 2009.

Goodwill impairment decreased from 2.9% of revenues, before fuel surcharges, in 2008 to 0.0% of revenues, before fuel surcharges, in 2009 as the Company has no recorded goodwill remaining. Goodwill impairment was recorded as a result of the Company’s 2008 annual test of goodwill impairment as required by GAAP. The impairment of our goodwill was triggered by the sustained decline of our market capitalization caused by a decrease in our stock price during 2008 and in the fourth quarter of 2008 we recognized an impairment expense which represented the entire balance of our recorded goodwill.

Operating supplies and expenses increased from 10.5% of revenues, before fuel surcharges, during 2008 to 11.9% of revenues, before fuel surcharges, during 2009. The increase, as a percentage of revenue, relates primarily to the effect of lower revenues during 2009 as compared to 2008 and the fixed cost nature of routine equipment maintenance costs, driver layover payments, drop lot rentals, and new tire amortization. On a dollar basis, operating supplies and expenses decreased from $30.5 million during 2008 to $26.5 million during 2009 primarily due to a decrease in driver recruiting costs and equipment maintenance costs. Driver recruiting costs, which consist primarily of payments to third-party driver training schools, decreased from $5.7 million during 2008 to $3.4 million during 2009 due to the availability of experienced drivers and a reduction in driver turnover. Equipment maintenance costs decreased from $17.0 million during 2008 to $15.7 million during 2009, primarily as a result of maintaining a smaller Company-owned truck fleet which decreased from an average count of 1,949 trucks during 2008 to 1,697 during 2009.


 
-18-


Operating taxes and licenses increased from 5.5% of revenues, before fuel surcharges, during 2008 to 5.9% of revenues, before fuel surcharges, during 2009. The increase, as a percentage of revenue, resulted from the interaction of expenses with fixed-cost characteristics, such as registration fees, with a decrease in revenues for the periods compared. However, on a dollar basis, operating taxes and licenses, which consists primarily of fuel taxes, decreased from $15.9 million during 2008 to $13.1 million during 2009. Fuel tax expense is primarily affected by the number of gallons of diesel fuel purchased which is directly related to the number of miles traveled. During 2009, a decrease in the number of miles traveled to 177.9 million in 2009 from 221.4 million miles in 2008, resulted in a decrease in the number of diesel fuel gallons purchased.

Insurance and claims expense increased from 5.5% of revenues, before fuel surcharges, during 2008 to 5.6% of revenues, before fuel surcharges, during 2009. On a dollar basis, insurance and claims expense decreased from $16.0 million during 2008 to $12.6 million during 2009. This dollar-based decrease relates primarily to a decrease in auto liability insurance premiums which are determined based on a negotiated rate-per-mile (“NRPM”) with the Company’s insurance carrier. During 2009, the number of miles used to calculate the premiums decreased to 177.9 million miles as compared to 2008 miles of 221.4 million and translated into a decrease in auto liability insurance expense. During October 2009, the Company’s auto liability insurance policy was renewed at a rate which represented a 2.2% reduction in the NRPM and this lower rate-per-mile has also contributed to the dollar-based decrease for the periods compared.

Other expenses increased from 1.7% of revenues, before fuel surcharges, during 2008 to 2.1% of revenues, before fuel surcharges, during 2009. The increase relates primarily to an increase in uncollectible revenue expense.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased to 107.1% for 2009 from 105.5% for 2008.

Non-operating expense decreased from 1.7% of revenues, before fuel surcharges, during 2008 to 0.3% of revenues, before fuel surcharges, during 2009.  The decrease relates to a decrease in amounts expensed due to write-downs of the Company’s investments in marketable equity securities. Each period, management must determine if the Company’s investments in marketable equity securities are other-than-temporarily impaired. Any of these investments determined to be other-than-temporarily impaired, must be written down to fair market value. The amount of these write-downs, as determined by the difference between the recorded cost of the investment and its respective quoted market price, were approximately $5.2 million during 2008 as compared to $1.5 million during 2009.

2008 Compared to 2007

For the year ended December 31, 2008, truckload services revenue, before fuel surcharges, decreased 8.9% to $289.6 million as compared to $317.9 million for the year ended December 31, 2007. The decrease relates primarily to a decrease in the number of trucks utilized during 2008 as compared to 2007 and to a decrease in equipment utilization for the periods compared. During 2008 the number of trucks utilized decreased to an average count of 1,993 units compared to 2,083 units during 2007 as the Company has reduced its fleet size in response to current freight demand. During 2008, the Company also experienced a decrease in the average number of miles traveled per unit each work day from 488 miles during 2007 to 454 miles during 2008. Partially offsetting these decreases in revenue was an increase in the average rate charged per total mile. During 2008, the average rate charged to customers per total mile increased by $0.02 as compared to the average rate charged during 2007.


 
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Salaries, wages and benefits increased from 42.0% of revenues, before fuel surcharges, during 2007 to 42.1% of revenues, before fuel surcharges, during 2008, however, based on a dollar comparison, salaries, wages and benefits decreased from $133.5 million during 2007 to $121.9 million during 2008 as the number of driver compensated miles decreased from 246.8 million miles during 2007 to 221.4 million miles during 2008. The increase, as a percentage of revenues, resulted primarily from the fixed cost characteristics of wages which do not fluctuate with changes in revenue, such as general and administrative, maintenance, and operations wages. Partially offsetting the increase was a decrease in driver lease expense and a decrease in amounts recorded for employee health insurance expense. Driver lease expense, which is a component of salaries, wages and benefits,
decreased from $7.8 million in 2007 to $6.2 million in 2008, as the average number of owner operators under contract decreased from 57 during 2007 to 44 during 2008. Employee health insurance expense decreased from $6.3 million in 2007 to $5.0 million in 2008 as a result of a decrease in the total number of covered employees and a decrease in the number and severity of health claims reported during 2008 as compared to 2007.

Fuel expense, net of fuel surcharge, increased from 18.2% of revenues, before fuel surcharges, during 2007 to 19.9% of revenues, before fuel surcharges, during 2008. On a dollar basis, fuel expense decreased from $57.8 million during 2007 to $57.5 million during 2008 as the number of gallons of diesel fuel purchased during 2008 were significantly lower than the number of gallons purchased during 2007 due to the decrease in miles traveled for the periods compared. The increase, as a percentage of revenue, was related to an increase in the average price paid per gallon of diesel fuel from $2.75 during 2007 to an average cost of $3.59 during 2008. Partially offsetting the increase related to the increase in average price paid per gallon of diesel fuel was an increase in amounts collected from customers in the form of fuel surcharges from an average of $1.24 per gallon of diesel fuel during 2007 to $1.98 per gallon during 2008. Fuel surcharge collections vary 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 declining fuel prices.

Rent and purchased transportation increased from 2.5% of revenues, before fuel surcharges, in 2007 to 3.2% of revenues, before fuel surcharges, in 2008. The increase relates primarily to an increase in amounts paid to third party transportation service providers for intermodal services.

Depreciation and amortization increased from 12.2% of revenues, before fuel surcharges, in 2007 to 12.9% of revenues, before fuel surcharges, in 2008. The increase, as a percentage of revenue, relates primarily to the effect of lower revenues during 2008 as compared to 2007 and the fixed cost nature of depreciation expense. On a dollar basis, depreciation and amortization expense decreased from $38.7 million during 2007 to $37.5 million during 2008 as the average size of the Company-owned truck fleet decreased from 2,027 trucks during 2007 to 1,949 trucks during 2008.

Goodwill impairment was recorded during the Company’s annual test of goodwill impairment as required by GAAP. The impairment of our goodwill was triggered by the sustained decline of our market capitalization caused by a decrease in our stock price during 2008. In the fourth quarter of 2008, we determined that our market capitalization compared to the carrying amount of the Company indicated that impairment was probable and that the second step of impairment testing was necessary. The second step of our impairment test required the calculation of the fair value of the Company and the subsequent allocation of the fair value to the assets and liabilities of the Company. The excess fair value after this allocation is performed represents the implied goodwill of the Company, if any, and was zero at December 31, 2008. As a result we incurred an impairment expense of $15.4 million which represented the entire balance of our goodwill.

Operating supplies and expenses increased from 9.7% of revenues, before fuel surcharges, during 2007 to 10.5% of revenues, before fuel surcharges, during 2008. The increase relates primarily to an increase in amounts paid for tolls, new tire amortization, driver layovers, and miscellaneous operations expense. The increase was partially offset by a decrease in amounts paid to third party driver training schools which the Company uses to recruit new truck drivers.


 
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Operating taxes and licenses remained constant at 5.5% of revenues, before fuel surcharges, for both 2007 and 2008. On a dollar basis however, operating taxes and licenses, which consists primarily of fuel taxes, decreased from $17.5 million during 2007 to $15.9 million during 2008. Fuel tax expense is primarily affected by the number of gallons of diesel fuel purchased which is directly related to the number of miles traveled. During 2008, a decrease in the number of miles traveled to 221.4 million in 2008 from 246.8 million miles in 2007, resulted in a decrease in the number of diesel fuel gallons purchased.

Insurance and claims expense remained constant at 5.5% of revenues, before fuel surcharges, for both 2007 and 2008. On a dollar basis however, insurance and claims expense decreased from $17.6 million during 2007 to $16.0 million during 2008. The decrease relates primarily to a decrease in auto liability insurance premiums which are determined based on a negotiated rate-per-mile (“NRPM”) with the Company’s insurance carrier. During 2008, the number of miles used to calculate the premiums decreased to 221.4 million miles as compared to 2007 miles of 246.8 million and translated into a decrease in auto liability insurance expense. During October 2008, the Company’s auto liability insurance policy was renewed at a rate which represented a 2.6% reduction in the NRPM and this lower rate-per-mile has also contributed to the dollar-based decrease for the periods compared.

Other expenses decreased from 2.0% of revenues, before fuel surcharges, during 2007 to 1.7% of revenues, before fuel surcharges, during 2008. The decrease relates primarily to a decrease in various expenses such as advertising, miscellaneous operating supplies, uncollectible revenue, and rents.

The truckload services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased to 105.5% for 2008 from 98.5% for 2007.

Non-operating income and expenses increased from income of 0.5% of revenues, before fuel surcharges, during  2007 to expense of 1.7% of revenues, before fuel surcharges, during 2008. During 2008, certain of the Company’s investments in marketable equity securities were determined by management to be other-than-temporarily impaired and were therefore written down to fair market value. The amount of the year-to-date write-downs approximated $5.2 million and was determined based on the difference between recorded cost and quoted market prices at the end of the period.


 
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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. Rent and purchased transportation, which includes costs paid to third party carriers, are shown net of fuel surcharges.

   
Years Ended December 31,
 
 
 
 
2009
   
2008
   
2007
 
Operating revenues, before fuel surcharge
    100.0 %     100.0 %     100.0 %
Operating expenses:
                       
   Salaries, wages and benefits
    5.5       6.2       6.3  
   Fuel expense
    0.0       0.0       0.0  
   Rent and purchased transportation, net of fuel surcharge
    90.4       89.5       88.9  
   Depreciation and amortization
    0.0       0.0       0.0  
   Goodwill impairment
    0.0       20.6       0.0  
   Operating supplies and expenses
    0.0       0.0       0.0  
   Operating taxes and licenses
    0.0       0.0       0.0  
   Insurance and claims
    0.1       0.1       0.1  
   Communications and utilities
    0.2       0.3       0.3  
   Other
    0.9       1.0       2.1  
   Loss on sale or disposal of property
    0.0       0.0       0.0  
Total operating expenses
    97.1       117.7       97.7  
Operating (loss) income
    2.9       (17.7 )     2.3  
Non-operating (loss) income
    0.0       0.0       0.0  
Interest expense
    (0.1 )     (0.2 )     (0.4 )
(Loss) income before income taxes
    2.8 %     (17.9 )%     1.9 %

2009 Compared to 2008

For the year ended December 31, 2009, logistics and brokerage services revenues, before fuel surcharges, increased 13.7% to $38.3 million as compared to $33.7 million for the year ended December 31, 2008. The increase was primarily the result of an increase in the number of loads brokered during 2009 as compared to 2008.

Salaries, wages and benefits decreased from 6.2% of revenues, before fuel surcharges, in 2008 to 5.5% of revenues, before fuel surcharges, in 2009. The decrease relates to the interaction between these expenses, which exhibit fixed cost characteristics, and an increase in revenue.

Rent and purchased transportation increased from 89.5% of revenues, before fuel surcharges, in 2008 to 90.4% of revenues, before fuel surcharges, in 2009. The increase relates to an increase in amounts charged by third party logistics and brokerage service providers.

Goodwill impairment decreased from 20.6% of revenues, before fuel surcharges, in 2008 to 0.0% of revenues, before fuel surcharges, in 2009 as the Company has no recorded goodwill remaining. Goodwill impairment was recorded during the Company’s 2008 annual test of goodwill impairment as required by GAAP. The impairment of our goodwill was triggered by the sustained decline of our market capitalization caused by a decrease in our stock price during 2008 and in the fourth quarter of 2008 we recognized an impairment expense which represented the entire balance of our recorded goodwill.

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, decreased to 97.1% for 2009 from 117.7% for 2008.


 
-22-


2008 Compared to 2007

For the year ended December 31, 2008, logistics and brokerage services revenues, before fuel surcharges, decreased 0.2% to $33.7 million as compared to $33.8 million for the year ended December 31, 2007. The decrease was primarily the result of a slight decrease in the number of loads brokered during 2008 as compared to 2007.

Rent and purchased transportation increased from 88.9% of revenues, before fuel surcharges, in 2007 to 89.5% of revenues, before fuel surcharges, in 2008. The increase relates to an increase in amounts charged by third party logistics and brokerage service providers primarily as a result of higher fuel costs.

Goodwill impairment was discovered during the Company’s annual test of goodwill impairment as required by GAAP. The impairment of our goodwill was triggered by the sustained decline of our market capitalization caused by a decrease in our stock price during 2008. In the fourth quarter of 2008, we determined that our market capitalization compared to the carrying amount of the Company indicated that impairment was probable and that the second step of impairment testing was necessary. The second step of our impairment test required the calculation of the fair value of the Company and the subsequent allocation of the fair value to the assets and liabilities of the Company. The excess fair value after this allocation is performed represents the implied goodwill of the Company, if any, and was zero at December 31, 2008. As a result we incurred an impairment expense of $15.4 million which represented the entire balance of our goodwill.

Other expenses decreased from 2.1% of revenues, before fuel surcharges, during 2007 to 1.0% of revenues, before fuel surcharges during 2008. The decrease relates to a decrease in non-compete amortization expense as the non-compete agreement with the former owner of East Coast Transport, LLC expired in January 2008.

The logistics and brokerage services division operating ratio, which measures the ratio of operating expenses, net of fuel surcharges, to operating revenues, before fuel surcharges, increased to 117.7% for 2008 from 97.7% for 2007.

Results of Operations - Combined Services
 
2009 Compared to 2008

Income tax benefit was approximately $6.9 million in 2009 resulting in an effective rate of 39.0%, as compared to income tax benefit of approximately $10.6 million in 2008 which resulted in an effective rate of 36.1%. The effective tax rate differs from the statutory rate primarily due to the existence of partially non-deductible meal and incidental expense per-diem payments to company drivers as well as a one-time benefit due to non-taxable life insurance proceeds received during 2009. Per-diem payments may cause a significant difference in the Company’s effective tax rate from period-to-period as the proportion of non-deductible expenses to pre-tax net income increases or decreases.
 
We have determined, based on significant judgment, that a valuation allowance against our deferred tax assets has not been necessary. Management evaluates the realizability of its deferred tax assets based upon negative and positive evidence available and, based on the evidence available at this time, management concludes that it is "more likely than not" that we will be able to realize the benefit of our deferred tax assets in the near future.
 
As of December 31, 2009, there were no unrecognized tax benefits and an adjustment to the Company’s consolidated financial statements for uncertain tax positions was not required as management believes that the Company’s significant tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws.


 
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The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which we operate generally provide for a deficiency assessment statute of limitation period of three years and as a result, the Company’s tax years 2006 through 2008 remain open to examination in those jurisdictions. During 2009, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions and does not believe it is reasonably possible that our unrecognized tax benefits will significantly change within the next twelve months.

The combined net loss for all divisions was $10.8 million, or 4.2% of revenues, before fuel surcharge, for 2009 as compared to the combined net loss for all divisions of $18.8 million or 5.8% of revenues, before fuel surcharge, for 2008. The increase in income resulted in a decrease in the diluted loss per share from $1.94 for 2008 to a diluted loss per share of $1.15 for 2009.

2008 Compared to 2007

Income tax benefit was approximately $10.6 million in 2008 resulting in an effective rate of 36.1%, as compared to income tax expense of approximately $2.0 million in 2007 which resulted in an effective rate of 42.6%. The effective tax rate differs from the statutory rate primarily due to the existence of partially non-deductible meal and incidental expense per-diem payments to company drivers. These per-diem payments may cause a significant difference in the Company’s effective tax rate from period-to-period as the proportion of non-deductible expenses to pre-tax net income increases or decreases.
 
We have determined, based on significant judgment, that a valuation allowance against our deferred tax assets has not been necessary. Management evaluates the realizability of its deferred tax assets based upon negative and positive evidence available and, based on the evidence available at this time, management concludes that it is "more likely than not" that we will be able to realize the benefit of our deferred tax assets in the near future.
 
As of December 31, 2008, there were no unrecognized tax benefits and an adjustment to the Company’s consolidated financial statements for uncertain tax positions was not required as management believes that the Company’s significant tax positions taken in income tax returns filed or to be filed are supported by clear and unambiguous income tax laws.

The Company and its subsidiaries are subject to U.S. and Canadian federal income tax laws as well as the income tax laws of multiple state jurisdictions. The major tax jurisdictions in which we operate generally provide for a deficiency assessment statute of limitation period of three years and as a result, the Company’s tax years 2005 through 2007 remain open to examination in those jurisdictions. During 2008, the Company has not recognized or accrued any interest or penalties related to uncertain income tax positions and does not believe it is reasonably possible that our unrecognized tax benefits will significantly change within the next twelve months.

The combined net loss for all divisions was $18.8 million, or 5.8% of revenues, before fuel surcharge, for 2008 as compared to combined net income for all divisions of $2.7 million or 0.8% of revenues, before fuel surcharge, for 2007. The decrease in income combined with the effect of treasury stock repurchases resulted in a decrease in diluted earnings per share from $0.26 for 2007 to a diluted loss per share of $1.94 for 2008.


 
-24-


Quarterly Results of Operations

The following table presents selected consolidated financial information for each of our last eight fiscal quarters through December 31, 2009. The information has been derived from unaudited consolidated financial statements that, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the quarterly information.

   
Quarter Ended
 
   
Mar. 31,
2009
   
June 30,
2009
   
Sept. 30,
2009
   
Dec. 31,
2009
   
Mar. 31,
2008
   
June 30,
2008
   
Sept. 30,
2008
   
Dec. 31,
2008
 
   
(unaudited)
 
   
(in thousands, except earnings per share data)
 
Operating revenues
  $ 65,818     $ 68,476     $ 76,743     $ 80,872     $ 105,820     $ 110,930     $ 105,958     $ 84,014  
Total operating expenses
    69,432       72,040       78,092       86,999       109,786       112,460       107,240       99,190  
Operating (loss) income
    (3,614 )     (3,564 )     (1,349 )     (6,127 )     (3,966 )     (1,530 )     (1,282 )     (15,176 )
Net (loss) income
    (3,346 )     (2,356 )     (1,230 )     (3,915 )     (2,828 )     (1,332 )     (3,181 )     (11,424 )
(Loss) earnings per common share:
                                                               
Basic
  $ (0.36 )   $ (0.25 )   $ (0.13 )   $ (0.42 )   $ (0.29 )   $ (0.14 )   $ (0.33 )   $ (1.19 )
Diluted
  $ (0.36 )   $ (0.25 )   $ (0.13 )   $ (0.42 )   $ (0.29 )   $ (0.14 )   $ (0.33 )   $ (1.19 )

Liquidity and Capital Resources

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

During 2009, we generated $32.1 million in cash from operating activities compared to $40.6 million and $45.2 million in 2008 and 2007, respectively. Investing activities used $2.4 million in cash during 2009 compared to $48.3 million and $61.7 million in 2008 and 2007, respectively. The cash used in all three years related primarily to the purchase of revenue equipment such as trucks and trailers or revenue related equipment such as auxiliary power units. Financing activities used $20.7 million in cash during 2009 compared to financing activities in 2008 and 2007 which provided $8.1 million and $15.9 million, respectively. See the Consolidated Statements of Cash Flows in Item 8 of this Report.

Our primary use of funds is for the purchase of revenue equipment. We typically use installment notes, our existing lines of credit on an interim basis, proceeds from the sale or trade of equipment, and cash flows from operations, to finance capital expenditures and repay long-term debt. During 2009 and 2008, we utilized cash on hand, installment notes, and our lines of credit to finance revenue equipment purchases of approximately $9.2 million and $53.5 million, respectively.

Occasionally we finance the acquisition of revenue equipment through installment notes with fixed interest rates and terms ranging from 12 to 48 months. At December 31, 2009, the Company’s subsidiaries had combined outstanding indebtedness under such installment notes of $37.4 million. These installment notes are payable in 36 monthly installments at a weighted average interest rate of 4.87%. At December 31, 2008, the Company’s subsidiaries had combined outstanding indebtedness under such installment notes of $45.7 million. These installment notes are payable in monthly installments ranging from 12 months to 36 months at a weighted average interest rate of 4.80%.

In order to maintain our truck and trailer fleet count it is often necessary to purchase replacement units and place them in service before trade units are removed from service. The timing of this process often requires the Company to pay for new units without any reduction in price for trade units. In this situation, the Company later receives payment for the trade units as they are delivered to the equipment vendor and have passed vendor inspection. During the twelve months ended December 31, 2009 and 2008, the Company received approximately $7.1 million and $4.3 million, respectively, for units delivered for trade.


 
-25-


During 2009 we maintained a $30.0 million revolving line of credit. Amounts outstanding under the line bear interest at LIBOR (determined as of the first day of each month) plus 1.95% (2.19% at December 31, 2009), are secured by our accounts receivable and mature on May 31, 2010. However the Company has the intent and ability to extend the terms of this line of credit for an additional one year period until May 31, 2011. At December 31, 2009, outstanding advances on the line were approximately $2.9 million, which consisted entirely of letters of credit, with availability to borrow $27.1 million.

Cash and cash equivalents at December 31, 2009 increased approximately $9.0 million as compared to December 31, 2008. The primary reason for the increase relates to a reduction in capital expenditures made during December 2009 as compared to December 2008.

Prepaid expenses and deposits at December 31, 2009 decreased approximately $4.2 million as compared to December 31, 2008. The primary reason for the decrease relates to a decrease in amounts prepaid for auto liability insurance premiums. In December 2008, a portion of the 2009 auto liability insurance premiums were paid in advance. There were no corresponding prepayments made during December 2009 for auto liability insurance premiums related to 2010.

Marketable equity securities available for sale at December 31, 2009 increased approximately $2.4 million as compared to December 31, 2008. The increase was primarily related to changes in the market value of the investments, net of sales and other-than-temporary write-downs. These securities, combined with equity securities purchased in prior periods, have a combined cost basis of approximately $9.8 million and a combined fair market value of approximately $14.9 million. The Company has developed a strategy to invest in securities from which it expects to receive dividends that qualify for favorable tax treatment, as well as appreciate in value. The Company anticipates that increases in the market value of the investments combined with dividend payments will exceed interest rates paid on borrowings for the same period. During 2009 the Company had net unrealized pre-tax gains of approximately $4.1 million and received dividends of approximately $532,000. The holding term of these securities depends largely on the general economic environment, the equity markets, borrowing rates and the Company's cash requirements.

Revenue equipment, which generally consists of trucks, trailers, and revenue equipment accessories such as Qualcomm™ satellite tracking units and auxiliary power units, at December 31, 2009 decreased approximately $22.4 million as compared to December 31, 2008. The decrease is attributable to the net effect of disposing approximately 300 trucks and 150 trailers during 2009 while only purchasing 25 trailers during 2009. Partially off-setting the decrease was the acquisition of approximately 900 additional auxiliary power units.

Accounts payable at December 31, 2009 decreased approximately $5.8 million as compared to December 31, 2008. The decrease is primarily related to a decrease in amounts accrued for the purchase of revenue equipment at December 31, 2009 as compared to December 2008.

Accrued expenses and other liabilities at December 31, 2009 decreased approximately $5.2 million as compared to December 31, 2008. The decrease is primarily related to a $6.9 million decrease in margin account borrowings secured by the Company’s investments in marketable equity securities. Partially offsetting the decrease related to margin account borrowings was a $1.3 million increase in amounts reserved at the end of the period for workers compensation claims reserves.

Current maturities of long-term debt at December 31, 2009 decreased approximately $5.6 million as compared to December 31, 2008. The decrease is related to a decrease in the number of monthly payments for installment note borrowings due within the next twelve months as a result of the maturity of certain of these borrowings.
 
 
Long-term debt at December 31, 2009 decreased approximately $8.3 million as compared to December 31, 2008. The decrease is primarily related to a decrease in amounts payable on the Company’s line of credit and a decrease in installment note borrowings outstanding.

 
-26-


For 2010, we expect to purchase 185 new trucks while continuing to sell or trade older equipment, which we expect to result in net capital expenditures of approximately $7.6 million. Management believes we will be able to finance our near term needs for working capital over the next twelve months, as well as acquisitions of revenue equipment during such period, with cash balances, cash flows from operations, and borrowings believed to be available from financing sources. We will continue to have significant capital requirements over the long-term, which may require us to incur debt or seek additional equity capital. The availability of additional capital will depend upon prevailing market conditions, the market price of our common stock and several other factors over which we have limited control, as well as our financial condition and results of operations. Nevertheless, based on our anticipated future cash flows and sources of financing that we expect will be available to us, we do not expect that we will experience any significant liquidity constraints in the foreseeable future.

Contractual Obligations and Commercial Commitments

The following table sets forth the Company's contractual obligations and commercial commitments as of December 31, 2009:

   
Payments due by period
(in thousands)
 
   
Total
   
Less than
1 year
   
1 to 3
Years
   
3 to 5
Years
   
More than
5 Years
 
                               
Long-term debt (1)
  $ 39,992     $ 11,978     $ 28,014     $ -     $ -  
Operating leases (2)
    755       296       379       80       -  
Total
  $ 40,747     $ 12,274     $ 28,393     $ 80     $ -  
                                         
(1)  
Including interest.
(2)  
Represents building, facilities, and drop yard operating leases.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements as defined in Regulation S-K 303 (a)(4)(ii) issued by the Securities and Exchange Commission.

Insurance

With respect to physical damage for trucks, cargo loss and auto liability, the Company maintains insurance coverage to protect it from certain business risks. These policies are with various carriers and have per occurrence deductibles of $2,500, $10,000 and $2,500 respectively. The Company maintains workers’ compensation coverage in Arkansas, Ohio, Oklahoma, Mississippi, and Florida with a $500,000 self-insured retention and a $500,000 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 reserved 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 $1,001,000 and certificates of deposit totaling $300,000 are held by banks as security for workers’ compensation claims. The Company self insures for employee health claims with a stop loss of $225,000 per covered employee per year and estimates its liability for claims incurred but not reported.

Inflation

Inflation has an impact on most of our operating costs. Recently, the effect of inflation has been minimal.


 
-27-


Adoption of Accounting Policies

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

Critical Accounting Policies

The Company's significant accounting policies are described in Note 1 to the Consolidated Financial Statements. The policies described below represent those that are broadly applicable to the Company's operations and involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related amounts.

Accounts Receivable. We continuously monitor collections and payments from our customers, third parties and vendors and maintain a provision for estimated credit losses based upon our historical experience and any specific collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

Property and equipment. Management must use its judgment in the selection of estimated useful lives and salvage values for purposes of depreciating trucks and trailers which in some cases do not have guaranteed residual values. Estimates of salvage value at the expected date of trade-in or sale are based on the expected market values of equipment at the time of disposal which, in many cases include guaranteed residual values by the manufacturers.

The depreciation of property, plant and equipment over their estimated useful lives and the determination of any salvage value require management to make judgments about future events. The Company’s management periodically evaluates whether changes to estimated useful lives or salvage values are necessary to ensure these estimates accurately reflect the economic use of the assets. This periodic evaluation may result in changes in the estimated lives and/or salvage values used by the Company to depreciate its assets, which can affect the amount of periodic depreciation expense recognized and, ultimately, the gain or loss on the disposal of the asset. During management’s most recent periodic evaluation, the estimated useful lives for certain revenue equipment were extended in response to planned capital expenditure levels. As a result of the revised estimates, management extended the estimated useful life of its tractors to 5 years from 3 or 4 years and reduced expected salvage values accordingly. These changes are expected to result in a $1.4 million decrease in 2010 tractor depreciation expense. Management also reduced the estimated salvage values for its trailers which is expected to result in a $0.4 million increase in 2010 trailer depreciation expense. Generally, an increase in useful lives for revenue equipment is accompanied by an increase in maintenance expenses.

Self Insurance. The Company is self-insured for health and workers' compensation benefits up to certain stop-loss limits. Such costs are accrued based on known claims and an estimate of incurred, but not reported (IBNR) claims. IBNR claims are estimated using historical lag information and other data either provided by outside claims administrators or developed internally. This estimation process is subjective, and to the extent that future actual results differ from original estimates, adjustments to recorded accruals may be necessary.

Revenue Recognition. Revenue is recognized in full upon completion of delivery to the receiver's location. For freight in transit at the end of a reporting period, the Company recognizes revenue prorata based on relative transit time completed as a portion of the estimated total transit time. Expenses are recognized as incurred.
 
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. Costs related to tire recapping are expensed when incurred.
 

 
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Income Taxes. Significant management judgment is required to determine the provision for income taxes and to determine whether deferred income tax assets will be realized in full or in part. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. When it is more likely that all or some portion of specific deferred income tax assets will not be realized, a valuation allowance must be established for the amount of deferred income tax assets that are determined not to be realizable. A valuation allowance for deferred income tax assets has not been deemed to be necessary. Accordingly, if the facts or financial circumstances were to change, thereby impacting the likelihood of realizing the deferred income tax assets, judgment would need to be applied to determine the amount of valuation allowance required in any given period.
 
On January 1, 2007, the Company adopted authoritative guidance related to uncertain tax positions. This guidance requires a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
 
Business Combinations and Goodwill. Upon acquisition of an entity, the cost of the acquired entity must be allocated to assets and liabilities acquired. Identification of intangible assets, if any, that meet certain recognition criteria is necessary. This identification and subsequent valuation requires significant judgments. The carrying value of goodwill, if any, is tested annually. As of December 31, 2009 the Company has no recorded goodwill.
 
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Our primary market risk exposures include equity price risk, interest rate risk, and commodity price risk (the price paid to obtain diesel fuel for our trucks). The potential adverse impact of these risks are discussed below.

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

Equity Price Risk

We hold certain actively traded marketable equity securities which subjects the Company to fluctuations in the fair market value of its investment portfolio based on current market price. The recorded value of marketable equity securities increased to $14.9 million at December 31, 2009 from $12.5 million at December 31, 2008. The increase includes additional purchases, net of sales or write-downs, of approximately $0.3 million during 2009 and an increase in the fair market value of approximately $2.7 million during 2009. 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 $1.5 million. For additional information with respect to the marketable equity securities, see Note 3 to our consolidated financial statements.

Interest Rate Risk

Our line of credit bears interest at a floating rate equal to LIBOR plus a fixed percentage. Accordingly, changes in LIBOR, which are effected by changes in interest rates, will affect the interest rate on, and therefore our costs under, the line of credit. Assuming $1.0 million of variable rate debt was outstanding under our line of credit for a full fiscal year, a hypothetical 100 basis point increase in LIBOR would result in approximately $10,000 of additional interest expense.


 
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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 2009 fuel consumption, a 10% increase in the average annual price per gallon of diesel fuel would increase our annual fuel expenses by $6.6 million.

Item 8. Financial Statements and Supplementary Data.

The following statements are filed with this report:

Report of Independent Registered Public Accounting Firm – Grant Thornton LLP
Consolidated Balance Sheets - December 31, 2009 and 2008
Consolidated Statements of Operations - Years ended December 31, 2009, 2008 and 2007
Consolidated Statements of Shareholders’ Equity and Other Comprehensive Income (Loss) - Years ended
December 31, 2009, 2008 and 2007
Consolidated Statements of Cash Flows - Years ended December 31, 2009, 2008 and 2007
Notes to Consolidated Financial Statements


 
-30-



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
P.A.M. Transportation Services, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of P.A.M. Transportation Services, Inc. (a Delaware corporation) and subsidiaries (collectively the Company) as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity and other comprehensive income (loss),and cash flows for each of the three years in the period ended December 31, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of P.A.M. Transportation Services, Inc. and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), P.A.M. Transportation Services, Inc.  and subsidiaries’ internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 15, 2010 expressed an unqualified opinion thereon.

/s/ GRANT THORNTON LLP

Tulsa, Oklahoma
March 15, 2010

 
-31-



 
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(in thousands, except share and per share data)
 
             
             
ASSETS
 
2009
   
2008
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 9,870     $ 858  
Accounts receivable—net:
               
Trade
    45,911       43,815  
Other
    1,551       1,088  
Inventories
    750       858  
Prepaid expenses and deposits
    5,258       9,443  
Marketable equity securities
    14,921       12,540  
Income taxes refundable
    467       524  
Deferred income taxes—current
    1,401       -  
                 
Total current assets
    80,129       69,126  
                 
PROPERTY AND EQUIPMENT:
               
Land
    4,924       4,916  
Structures and improvements
    13,665       13,596  
Revenue equipment
    297,788       320,188  
Office furniture and equipment
    7,929       7,606  
                 
Total property and equipment
    324,306       346,306  
                 
Accumulated depreciation
    (145,526 )     (125,742 )
                 
Net property and equipment
    178,780       220,564  
                 
OTHER ASSETS:
               
Other
    1,747       671  
                 
Total other assets
    1,747       671  
                 
TOTAL ASSETS
  $ 260,656     $ 290,361  
                 
                 
           
(Continued)
 
                 
See notes to consolidated financial statements.
 

 

 
-32-



 
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2009 AND 2008
(in thousands, except share and per share data)
 
             
             
LIABILITIES AND SHAREHOLDERS' EQUITY
 
2009
   
2008
 
             
CURRENT LIABILITIES:
           
Accounts payable
  $ 14,492     $ 20,269  
Accrued expenses and other liabilities
    10,504       15,684  
Current maturities of long—term debt
    10,331       15,928  
Deferred income taxes—current
    -       157  
                 
Total current liabilities
    35,327       52,038  
                 
Long-term debt—less current portion
    27,202       35,492  
Deferred income taxes—less current portion
    51,000       47,354  
                 
Total liabilities
    113,529       134,884  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
SHAREHOLDERS' EQUITY
               
Preferred stock, $.01 par value, 10,000,000 shares
 authorized; none issued
    -       -  
Common stock, $.01 par value, 40,000,000 shares
 authorized; 11,372,207 and 11,368,207 shares issued;
 9,413,607 and 9,409,607 shares outstanding at
 December 31, 2009 and December 31, 2008, respectively
    114       114  
Additional paid-in capital
    77,704       77,659  
Accumulated other comprehensive income
    3,063       611  
Treasury stock, at cost; 1,958,600 shares
    (29,127 )     (29,127 )
Retained earnings
    95,373       106,220  
                 
Total shareholders’ equity
    147,127       155,477  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 260,656     $ 290,361  
                 
                 
           
(Concluded)
 
See notes to consolidated financial statements.
 

 

 
-33-



 
 
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands, except per share data)
 
                   
   
2009
   
2008
   
2007
 
OPERATING REVENUES:
                 
Revenue, before fuel surcharge
  $ 260,774     $ 323,272     $ 351,701  
Fuel surcharge
    31,136       83,451       57,140  
                         
Total operating revenues
    291,910       406,723       408,841  
                         
OPERATING EXPENSES AND COSTS:
                       
Salaries, wages and benefits
    101,833       123,961       135,606  
Fuel expense
    65,527       140,531       114,242  
Rents and purchased transportation
    40,713       39,887       38,718  
Depreciation and amortization
    37,742       37,477       38,759  
Goodwill impairment charge
    -       15,413       -  
Operating supplies and expenses
    26,572       30,514       30,845  
Operating taxes and licenses
    13,055       15,937       17,520  
Insurance and claims
    12,579       16,018       17,591  
Communications and utilities
    2,644       2,869       3,113  
Other
    4,967       5,119       7,130  
Loss (gain) on disposition of equipment
    931       952       (48 )
                         
Total operating expenses and costs
    306,563       428,678       403,476  
                         
OPERATING (LOSS) INCOME
    (14,653 )     (21,955 )     5,365  
                         
NON-OPERATING (EXPENSE) INCOME
    (745 )     (4,996 )     1,707  
INTEREST EXPENSE
    (2,373 )     (2,429 )     (2,453 )
                         
(LOSS) INCOME BEFORE INCOME TAXES
    (17,771 )     (29,380 )     4,619  
                         
FEDERAL & STATE INCOME TAX (BENEFIT) EXPENSE:
                       
Current
    180       314       217  
Deferred
    (7,104 )     (10,929 )     1,749  
                         
Total federal & state income tax (benefit) expense
    (6,924 )     (10,615 )     1,966  
                         
NET (LOSS) INCOME
  $ (10,847 )   $ (18,765 )   $ 2,653  
                         
(LOSS) EARNINGS PER COMMON SHARE:
                       
Basic
  $ (1.15 )   $ (1.94 )   $ 0.26  
Diluted
  $ (1.15 )   $ (1.94 )   $ 0.26  
                         
AVERAGE COMMON SHARES OUTSTANDING:
                       
Basic
    9,411       9,683       10,238  
Diluted
    9,416       9,683       10,239  
                         
See notes to consolidated financial statements.
 

 
-34-



 
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND OTHER COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
(in thousands)
 
   
Common Stock
Shares / Amount
   
Additional Paid-In Capital
   
Other Comprehensive Income (Loss)
   
Accumulated Other Comprehensive Income
   
Treasury Stock
   
Retained Earnings
   
Total
 
                                                 
BALANCE— January 1, 2007
    10,303     $ 114     $ 77,309           $ 3,142     $ (17,869 )   $ 122,332     $ 185,028  
                                                               
Components of comprehensive income:
                                                             
Net earnings
                          $ 2,653                       2,653       2,653  
Other comprehensive gain:
                                                               
Realized gain on marketable
                                                               
securities, net of tax of $241
                            (359 )     (359 )                     (359 )
Unrealized loss on marketable
                                                               
securities, net of tax of $(448)
                            (862 )     (862 )                     (862 )
Total comprehensive income
                          $ 1,432                                  
Treasury stock repurchases
    (471 )                                     (7,331 )             (7,331 )
Exercise of stock options-shares
                                                               
issued including tax benefits
    6               125                                       125  
Share-based compensation
                    123                                       123  
                                                                 
BALANCE— December 31, 2007
    9,838       114       77,557               1,921       (25,200 )     124,985       179,377  
                                                                 
Components of comprehensive income:
                                                               
Net loss
                          $ (18,765 )                     (18,765 )     (18,765 )
Other comprehensive gain:
                                                               
Realized loss on marketable
                                                               
securities, net of tax of $(6)
                            11       11                       11  
Unrealized loss on marketable
                                                               
securities, net of tax of $(1,072)
                            (1,321 )     (1,321 )                     (1,321 )
Total comprehensive loss
                          $ (20,075 )                                
Treasury stock repurchases
    (428 )                                     (3,927 )             (3,927 )
Share-based compensation
                    102                                       102  
                                                                 
BALANCE— December 31, 2008
    9,410       114       77,659               611       (29,127 )     106,220       155,477  
                                                                 
Components of comprehensive income:
                                                               
Net loss
                          $ (10,847 )                     (10,847 )     (10,847 )
Other comprehensive gain:
                                                               
Realized gain on marketable