1.	ACCOUNTING POLICIES

Description of Business and Principles of Consolidation

–P.A.M. Transportation Services, Inc. (the “Company”), through its subsidiaries, operates as a truckload transportation and logistics company.

The consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiaries: P.A.M. Transport, Inc., P.A.M. Cartage Carriers, LLC, Overdrive Leasing, LLC, Choctaw Express, LLC, Decker Transport Co., LLC, T.T.X., LLC, Transcend Logistics, Inc., and East Coast Transport and Logistics, LLC. The following subsidiaries were inactive during all periods presented: P.A.M. International, Inc., P.A.M. Logistics Services, Inc., Choctaw Brokerage, Inc., S & L Logistics, Inc. and P.A.M. Mexico Holdings, LLC.

Use of Estimates

–The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. The Company periodically reviews these estimates and assumptions. The most significant estimates that affect our financial statements include accrued liabilities for insurance claims, legal reserves, useful lives and salvage values for property and equipment, allowance for doubtful accounts, and estimates for income taxes. The Company's estimates were based on its historical experience and various other assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

–The Company considers all highly liquid investments with a maturity of

three

months or less when purchased to be cash equivalents. At times cash held at banks

may

exceed FDIC insured limits.

Accounts Receivable and Allowance for Doubtful Accounts

–Accounts receivable are presented in the Company’s consolidated financial statements net of an allowance for estimated uncollectible amounts. Management estimates this allowance based upon an evaluation of the aging of our customer receivables and historical write-offs, as well as other trends and factors surrounding the credit risk of specific customers. The Company continually updates the history it uses to make these estimates so as to reflect the most recent trends, factors and other information available. In order to gather information regarding these trends and factors, the Company also performs ongoing credit evaluations of its customers. Customer receivables are considered to be past due when payment has

not

been received by the invoice due date. Write-offs occur when management determines an account to be uncollectible and could differ from the allowance estimate as a result of a number of factors, including unanticipated changes in the overall economic environment or factors and risks surrounding a particular customer. Management believes its methodology for estimating the allowance for doubtful accounts to be reliable and consistent with prior periods. However, additional allowances

may

be required if the financial condition of our customers were to deteriorate, and could have a material effect on the Company’s consolidated financial statements in future periods.

Bank Overdrafts

–The Company classifies bank overdrafts in current liabilities as accounts payable and does

not

offset other positive bank account balances located at the same or other financial institutions. Bank overdrafts generally represent checks written that have

not

yet cleared the Company’s bank accounts. The majority of the Company’s bank accounts are

zero

balance accounts that are funded at the time items clear against the account by drawings against a line of credit; therefore, the outstanding checks represent bank overdrafts. Because the recipients of these checks have generally

not

yet received payment, the Company continues to classify bank overdrafts as accounts payable. Bank overdrafts are classified as changes in accounts payable in the cash flows from operating activities section of the Company’s Consolidated Statement of Cash Flows. Bank overdrafts as of

December 31, 2019

and

2018

were approximately

$2,572,000

and

$3,669,000,

respectively.

Accounts Receivable Other

–The components of accounts receivable other consist primarily of amounts representing company driver advances, independent contractor advances, and equipment manufacturer warranties. Advances receivable from company drivers as of

December 31, 2019

and

2018,

were approximately

$211,000

and

$220,000,

respectively. Accounts receivable from independent contractors as of

December 31, 2019

and

2018,

were approximately

$1,381,000

and

$1,724,000,

respectively. Independent contractors are allowed to purchase items such as fuel, repairs and tolls on Company accounts in order to share in favorable pricing negotiated by the Company. Independent contractors and trip lease carriers are also allowed to receive advances for a portion of the revenue that they expect to receive for loads that they transport for the Company.

Marketable Equity Securities

– The Company’s investment in marketable equity securities is accounted for in accordance with ASC Topic

321,

(“ASC Topic

321”

), Investments-Equity Securities. ASC Topic

321

requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method. Realized and unrealized gains and losses, interest and dividends on marketable equity securities are included in non-operating income (expense) in our consolidated statements of operations.

Prior to the adoption of ASU

2016

January 1, 2018,

marketable equity securities were classified by the Company as either available-for-sale or trading. Securities classified as available for sale were carried at market value with unrealized gains and losses recognized in accumulated other comprehensive income in the statements of stockholders’ equity. Securities classified as trading were carried at market value with unrealized gains and losses recognized in the consolidated statements of operations. Realized gains and losses were computed utilizing the specific identification method.

For additional information with respect to marketable equity securities, see Note

– Marketable Equity Securities.

Impairment of Long-Lived Assets

–The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset

may

not

be recoverable. An impairment loss would be recognized if the carrying amount of the long-lived asset is

not

recoverable, and it exceeds its fair value. For long-lived assets classified as held and used, if the carrying value of the long-lived asset exceeds the sum of the future net undiscounted cash flows, it is

not

recoverable.

impairment losses were recorded during

2019

2018.

Property and Equipment

–Property and equipment is recorded at historical cost, less accumulated depreciation. For financial reporting purposes, the cost of such property is depreciated principally by the straight-line method. For tax reporting purposes, accelerated depreciation or applicable cost recovery methods are used. Depreciation is recognized over the estimated asset life, considering the estimated salvage value of the asset. Such salvage values are based on estimates using expected market values for used equipment and the estimated time of disposal which, in many cases include guaranteed residual values by the manufacturers. Gains and losses are reflected in the year of disposal. The following is a table reflecting estimated ranges of asset useful lives by major class of depreciable assets:

Asset Class	Estimated Asset Life (in years)

Service vehicles	3	-	5
Office furniture and equipment	3	-	7
Revenue equipment	3	-	8
Structures and improvements	5	-	40

The Company’s management periodically evaluates whether changes to estimated useful lives and/or salvage values are necessary to ensure its estimates accurately reflect the economic use of the assets. During

2019

and

2018,

management determined that an adjustment to the estimated useful lives or salvage values of trucks or trailers was

not

necessary based on such an evaluation.

Inventory

–Inventories consist primarily of revenue equipment parts, tires, supplies, and fuel. Inventories are carried at the lower of cost or market with cost determined using the

first

in,

first

out method.

Prepaid Tires

–Tires purchased with revenue equipment are capitalized as a cost of the related equipment. Replacement tires are included in prepaid expenses and deposits and are amortized over a

-month period. Amounts paid for the recapping of tires are expensed when incurred.

Advertising Expense

–Advertising costs are expensed as incurred and totaled approximately

$1,269,000,

$1,234,000

and

$1,087,000

for the years ended

December 31, 2019,

2018

and

2017,

respectively.

Repairs and Maintenance

–Repairs and maintenance costs are expensed as incurred.

Self

Insurance Liability

–A liability is recognized for known health, workers’ compensation, cargo damage, property damage, and auto liability damage claims. An estimate of the incurred but

not

reported claims for each type of liability is made based on historical claims made, estimated frequency of occurrence, and considering changing factors that contribute to the overall cost of insurance.

Income Taxes

–The Company applies the asset and liability method of accounting for income taxes, under which deferred taxes are determined based on the temporary differences between the financial statement and tax basis of assets and liabilities using tax rates expected to be in effect during the years in which the basis differences reverse. A valuation allowance is recorded when it is more likely than

not

that some or all of the deferred tax assets will

not

be realized.

The application of income tax law to multi-jurisdictional operations such as those performed by the Company is inherently complex. Laws and regulations in this area are voluminous and often ambiguous. As such, we

may

be required to make subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations

may

change over time which could cause changes in our assumptions and judgments that could materially affect amounts recognized in the consolidated financial statements.

We recognize the impact of tax positions in our financial statements. These tax positions must meet a more-likely-than-

not

recognition threshold to be recognized and tax positions that previously failed to meet the more-likely-than-

not

threshold are recognized in the

first

subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that

longer meet the more-likely-than-

not

threshold are derecognized in the

first

subsequent financial reporting period in which that threshold is

longer met. We recognize potential accrued interest and penalties related to unrecognized tax benefits within the consolidated statements of income as income tax expense.

In determining whether a tax asset valuation allowance is necessary, management, in accordance with the provisions of ASC

740

30,

weighs all available evidence, both positive and negative to determine whether, based on the weight of that evidence, a valuation allowance is necessary. If negative conditions exist which indicate a valuation allowance might be necessary, consideration is then given to what effect the future reversals of existing taxable temporary differences and the availability of tax strategies might have on future taxable income to determine the amount, if any, of the required valuation allowance. As of

December 31, 2019

and

2018,

management determined that the future reversals of existing taxable temporary differences and available tax strategies would generate sufficient future taxable income to realize its tax assets and therefore a valuation allowance was

not

necessary.

Revenue Recognition

– Revenue is recognized over time as the freight progresses towards its destination and the transportation service obligation is fulfilled. For loads picked up during the reporting period, but delivered in a subsequent reporting period, revenue is allocated to each period based on the transit time in each period as a percentage of total transit time. There are

assets or liabilities recorded in conjunction with revenue recognized, other than Accounts Receivable and Allowance for doubtful accounts.

Earnings Per Share

–The Company computes basic earnings per share (“EPS”) by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS includes the potential dilution that could occur from stock-based awards and other stock-based commitments using the treasury stock or the as if converted methods, as applicable. The difference between the Company's weighted-average shares outstanding and diluted shares outstanding is due to the dilutive effect of stock options for all periods presented. See Note

– Earnings per Share for more information regarding the computation of diluted EPS.

Fair Value Measurements

–Certain financial assets and liabilities are measured at fair value within the financial statements on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. For additional information with respect to fair value measurements, see Note

– Fair Value of Financial Instruments.

Reporting Segments

–The Company's operations are all in the motor carrier segment and are aggregated into a single reporting segment in accordance with the aggregation criteria under United States generally accepted accounting principles (“GAAP”). The Company provides truckload transportation services as well as brokerage and logistics services to customers throughout the United States and portions of Canada and Mexico. Truckload transportation services revenues, excluding fuel surcharges, represented

82.7%,

80.0%

and

86.3%

of total revenues, excluding fuel surcharges, for the

twelve

months ended

December 31, 2019,

2018

and

2017,

respectively. Remaining revenues, excluding fuel surcharges, for each respective year were generated by brokerage and logistics services.

Concentrations of Credit Risk

–The Company performs ongoing credit evaluations and generally does

not

require collateral from its customers. The Company maintains reserves for potential credit losses. In view of the concentration of the Company’s revenues and accounts receivable among a limited number of customers within the automobile industry, the financial health of this industry is a factor in the Company’s overall evaluation of accounts receivable.

Subsequent Events

– On

February 24, 2020,

the Company announced that the United States District Court for the Western District of Arkansas has granted preliminary approval of a settlement reached with the plaintiffs in the Company’s previously disclosed collective- and class-action lawsuit in which the plaintiffs, who include current and former employee drivers who worked for the Company from

December 9, 2013,

through

December 31, 2019,

allege violations under the Fair Labor Standards Act and the Arkansas Minimum Wage Law including “failure to pay minimum wage during orientation, failure to pay minimum wage to team drivers after initial orientation, failure to pay minimum wage to solo-drivers after initial orientation, failure to pay for compensable travel time, Comdata card fees, unlawful deductions, and breach of contract.” The proposed settlement is subject to final approval by the United States District Court for the Western District of Arkansas. As of

December 31, 2019

the preliminary settlement amount of

$16.5

million was reserved in accrued expenses and other liabilities in the Company’s consolidated balance sheet. The Company’s participation in the settlement agreement does

not

constitute an admission by the Company of any fault or liability, and the Company does

not

admit any fault or liability.

Foreign Currency Transactions

–The functional currency of the Company’s foreign branch office in Mexico is the U.S. dollar. The Company remeasures the monetary assets and liabilities of this branch office, which are maintained in the local currency ledgers, at the rates of exchange in effect at the end of the reporting period. Revenues and expenses recorded in the local currency during the period are remeasured using average exchange rates for each period. Non-monetary assets and liabilities are remeasured using historical rates. Any resulting exchange gain or loss from the remeasurement process is included in non-operating income (loss) in the Company’s consolidated statements of operations.

Recent Accounting Pronouncements–

July 2018,

the Financial Accounting Standards Board, (“FASB”) issued Accounting Standards Update, (“ASU”)

No.

2018

09,

(“ASU

2018

09”

), Codification Improvements. ASU

2018

was issued to update codification on multiple topics, and includes updates for technical corrections, clarifications and other minor improvements. ASU

2018

is effective for fiscal years, and interim periods within those years, beginning after

December 15, 2018,

with early adoption permitted. The adoption of this guidance on

January 1, 2019

did

not

have a material impact on the Company’s financial condition, results of operations, or cash flows.

July 2018,

the FASB issued ASU

No.

2018

10,

(“ASU

2018

10”

), Codification Improvements to Topic

842,

Leases. ASU

2018

was issued to update codification specific to Topic

842,

and includes updates for technical corrections, clarifications and other minor improvements. ASU

2018

is effective for fiscal years, and interim periods within those years, beginning after

December 15, 2018,

with early adoption permitted. The adoption of this guidance on

January 1, 2019

did

not

have a material impact on the Company’s financial condition, results of operations, or cash flows.

June 2016,

the FASB issued ASU

No.

2016

13,

(“ASU

2016

13”

), Accounting for Credit Losses (Topic

326

). ASU

2016

requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to the amortized cost of the securities. ASU

2016

is effective for fiscal years, and interim periods within those years, beginning after

December 15, 2019,

with early adoption permitted. The Company has evaluated the new guidance and does

not

expect it to have a material impact on its financial condition, results of operations, or cash flows.

February 2016,

the FASB issued ASU

No.

2016

02,

Leases (Topic

842

). This update seeks to increase the transparency and comparability among public entities by requiring filers to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that companies

may

elect to apply. These practical expedients relate to the identification and classification of leases that commenced before the effective date, initial direct costs for leases that commenced before the effective date, and the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset. The new standard was effective for public companies for annual periods beginning after

December

15,

2018,

and interim periods within those years, with early adoption permitted.

To satisfy the standard’s objective, a lessee will recognize a right-of-use asset representing its right to use the underlying asset for the lease term and a lease liability for the obligation to make lease payments. Both the right-of-use asset and lease liability will initially be measured at the present value of the lease payments, with subsequent measurement dependent on the classification of the lease as either a finance or an operating lease. For leases with a term of

months or less, a lessee is permitted to make an accounting policy election by class of underlying asset to

not

recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. Accounting by lessors will remain mostly unchanged from current U.S. GAAP.

The adoption of this guidance on

January 1, 2019

did

not

have a material impact on the Company’s financial condition, results of operations, or cash flows. See Note

– Leases for additional adoption information and disclosures required by Accounting Standards Codification (“ASC”) Topic

842.

January 2016,

the FASB issued ASU

2016

01,

(“ASU

2016

01”

), Financial Instruments - Overall (Subtopic

825

): Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure.

The provisions of ASU

2016

require, among other things, that the Company:

•

Categorize securities as equity securities or debt securities

•

Eliminate the classification of equity securities as trading or available for sale

•

Determine which securities have readily determinable fair values

•

Use the exit price notion when measuring the fair value of financial instruments for disclosure purposes

•

Consider the need for a valuation allowance related to a deferred tax asset on available-for-sale securities in combination with the Company’s other deferred tax assets, and

•

Recognize changes in the fair market value of equity securities in net income

ASU

2016

was effective for annual and interim periods beginning after

December

15,

2017.

With certain exceptions, early adoption was

not

permitted. The adoption of this guidance on

January 1, 2018,

did

not

have a significant impact on the Company’s financial condition or cash flows, but did impact the Company’s results of operations, as the current guidance requires changes in market value related to equity securities to be recognized in net income, rather than being recognized as other comprehensive income. Upon adoption, approximately

$7.4

million in accumulated changes in the fair market value of the Company’s equity securities, net of deferred tax, that were presented at

December 31, 2017

as Accumulated Other Comprehensive Income were reclassified to Retained Earnings.