0000799167 MARTEN TRANSPORT LTD false --12-31 Q3 2020 0.01 0.01 2,000,000 2,000,000 0 0 0 0 0.01 0.01 192,000,000 192,000,000 82,680,849 82,680,849 82,055,199 82,055,199 0.01 1,000,000 2,000,000 0 0 0 0 0.027 0.02 0.02 1.4 3 5 1 0 2.4 00007991672020-01-012020-09-30 xbrli:shares 00007991672020-10-26 iso4217:USD 00007991672020-09-30 00007991672019-12-31 iso4217:USDxbrli:shares 00007991672020-07-012020-09-30 00007991672019-07-012019-09-30 00007991672019-01-012019-09-30 0000799167mrtn:RevenueEquipmentMember2020-07-012020-09-30 0000799167mrtn:RevenueEquipmentMember2019-07-012019-09-30 0000799167mrtn:RevenueEquipmentMember2020-01-012020-09-30 0000799167mrtn:RevenueEquipmentMember2019-01-012019-09-30 0000799167mrtn:FacilityMember2020-07-012020-09-30 0000799167mrtn:FacilityMember2019-07-012019-09-30 0000799167mrtn:FacilityMember2020-01-012020-09-30 0000799167mrtn:FacilityMember2019-01-012019-09-30 0000799167us-gaap:CommonStockMember2019-12-31 0000799167us-gaap:AdditionalPaidInCapitalMember2019-12-31 0000799167us-gaap:RetainedEarningsMember2019-12-31 0000799167us-gaap:CommonStockMember2020-01-012020-03-31 0000799167us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-31 0000799167us-gaap:RetainedEarningsMember2020-01-012020-03-31 00007991672020-01-012020-03-31 0000799167us-gaap:CommonStockMember2020-03-31 0000799167us-gaap:AdditionalPaidInCapitalMember2020-03-31 0000799167us-gaap:RetainedEarningsMember2020-03-31 00007991672020-03-31 0000799167us-gaap:CommonStockMember2020-04-012020-06-30 0000799167us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-30 0000799167us-gaap:RetainedEarningsMember2020-04-012020-06-30 00007991672020-04-012020-06-30 0000799167us-gaap:CommonStockMember2020-06-30 0000799167us-gaap:AdditionalPaidInCapitalMember2020-06-30 0000799167us-gaap:RetainedEarningsMember2020-06-30 00007991672020-06-30 0000799167us-gaap:CommonStockMember2020-07-012020-09-30 0000799167us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-30 0000799167us-gaap:RetainedEarningsMember2020-07-012020-09-30 0000799167us-gaap:CommonStockMember2020-09-30 0000799167us-gaap:AdditionalPaidInCapitalMember2020-09-30 0000799167us-gaap:RetainedEarningsMember2020-09-30 0000799167us-gaap:CommonStockMember2018-12-31 0000799167us-gaap:AdditionalPaidInCapitalMember2018-12-31 0000799167us-gaap:RetainedEarningsMember2018-12-31 00007991672018-12-31 0000799167us-gaap:CommonStockMember2019-01-012019-03-31 0000799167us-gaap:AdditionalPaidInCapitalMember2019-01-012019-03-31 0000799167us-gaap:RetainedEarningsMember2019-01-012019-03-31 00007991672019-01-012019-03-31 0000799167us-gaap:CommonStockMember2019-03-31 0000799167us-gaap:AdditionalPaidInCapitalMember2019-03-31 0000799167us-gaap:RetainedEarningsMember2019-03-31 00007991672019-03-31 0000799167us-gaap:CommonStockMember2019-04-012019-06-30 0000799167us-gaap:AdditionalPaidInCapitalMember2019-04-012019-06-30 0000799167us-gaap:RetainedEarningsMember2019-04-012019-06-30 00007991672019-04-012019-06-30 0000799167us-gaap:CommonStockMember2019-06-30 0000799167us-gaap:AdditionalPaidInCapitalMember2019-06-30 0000799167us-gaap:RetainedEarningsMember2019-06-30 00007991672019-06-30 0000799167us-gaap:CommonStockMember2019-07-012019-09-30 0000799167us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-30 0000799167us-gaap:RetainedEarningsMember2019-07-012019-09-30 0000799167us-gaap:CommonStockMember2019-09-30 0000799167us-gaap:AdditionalPaidInCapitalMember2019-09-30 0000799167us-gaap:RetainedEarningsMember2019-09-30 00007991672019-09-30 0000799167mrtn:BuildingsAndLandOfficeEquipmentAndOtherMember2020-01-012020-09-30 0000799167mrtn:BuildingsAndLandOfficeEquipmentAndOtherMember2019-01-012019-09-30 0000799167us-gaap:EmployeeStockOptionMember2020-07-012020-09-30 0000799167us-gaap:EmployeeStockOptionMember2020-01-012020-09-30 0000799167us-gaap:EmployeeStockOptionMember2019-07-012019-09-30 0000799167us-gaap:EmployeeStockOptionMember2019-01-012019-09-30 0000799167mrtn:UnvestedPerformanceUnitAwardsMember2020-07-012020-09-30 0000799167mrtn:UnvestedPerformanceUnitAwardsMember2020-01-012020-09-30 0000799167mrtn:UnvestedPerformanceUnitAwardsMember2019-07-012019-09-30 0000799167mrtn:UnvestedPerformanceUnitAwardsMember2019-01-012019-09-30 xbrli:pure 0000799167mrtn:StockSplitToMember2020-08-132020-08-13 0000799167mrtn:StockSplitFromMember2020-08-132020-08-13 0000799167mrtn:StockSplitMember2020-08-13 00007991672018-07-31 00007991672018-08-31 0000799167mrtn:CreditFacilityMember2020-09-30 00007991672019-08-31 0000799167mrtn:PurchaseOfFuelTiresAndRelatedServicesMember2020-01-012020-09-30 0000799167mrtn:PurchaseOfFuelTiresAndRelatedServicesMember2019-01-012019-09-30 0000799167mrtn:TirePurchasesMember2020-01-012020-09-30 0000799167mrtn:TirePurchasesMember2019-01-012019-09-30 0000799167mrtn:MWLMember2019-10-31 00007991672007-12-31 00007991672015-11-04 00007991672017-08-15 0000799167mrtn:StockSplitToMember2017-07-072017-07-07 0000799167mrtn:StockSplitFromMember2017-07-072017-07-07 00007991672020-08-31 0000799167mrtn:PaidQuarterlyMember2020-01-012020-03-31 0000799167mrtn:PaidQuarterlyMember2020-04-012020-06-30 0000799167mrtn:PaidQuarterlyMember2020-07-012020-09-30 0000799167mrtn:SpecialDividendMember2019-09-012019-09-30 0000799167mrtn:PaidQuarterlyMember2019-07-012019-09-30 0000799167mrtn:PaidQuarterlyMember2019-01-012019-03-31 0000799167mrtn:PaidQuarterlyMember2019-04-012019-06-30 0000799167mrtn:MWLMember2019-10-312019-10-31 0000799167mrtn:MWLMember2019-01-012019-09-30 0000799167us-gaap:CapitalAdditionsMembermrtn:RevenueEquipmentMember2020-09-30 utr:Y 0000799167srt:MinimumMembermrtn:DedicatedMember2020-01-012020-09-30 0000799167srt:MaximumMembermrtn:DedicatedMember2020-01-012020-09-30 0000799167us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2020-09-30 0000799167us-gaap:PrepaidExpensesAndOtherCurrentAssetsMember2019-12-31 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:TruckloadMember2020-07-012020-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:TruckloadMember2019-07-012019-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:TruckloadMember2020-01-012020-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:TruckloadMember2019-01-012019-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:TruckloadMember2020-07-012020-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:TruckloadMember2019-07-012019-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:TruckloadMember2020-01-012020-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:TruckloadMember2019-01-012019-09-30 0000799167mrtn:TruckloadMember2020-07-012020-09-30 0000799167mrtn:TruckloadMember2019-07-012019-09-30 0000799167mrtn:TruckloadMember2020-01-012020-09-30 0000799167mrtn:TruckloadMember2019-01-012019-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:DedicatedMember2020-07-012020-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:DedicatedMember2019-07-012019-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:DedicatedMember2020-01-012020-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:DedicatedMember2019-01-012019-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:DedicatedMember2020-07-012020-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:DedicatedMember2019-07-012019-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:DedicatedMember2020-01-012020-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:DedicatedMember2019-01-012019-09-30 0000799167mrtn:DedicatedMember2020-07-012020-09-30 0000799167mrtn:DedicatedMember2019-07-012019-09-30 0000799167mrtn:DedicatedMember2020-01-012020-09-30 0000799167mrtn:DedicatedMember2019-01-012019-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:IntermodalMember2020-07-012020-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:IntermodalMember2019-07-012019-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:IntermodalMember2020-01-012020-09-30 0000799167mrtn:RevenueNetOfFuelSurchargeMembermrtn:IntermodalMember2019-01-012019-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:IntermodalMember2020-07-012020-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:IntermodalMember2019-07-012019-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:IntermodalMember2020-01-012020-09-30 0000799167mrtn:FuelSurchargeRevenueMembermrtn:IntermodalMember2019-01-012019-09-30 0000799167mrtn:IntermodalMember2020-07-012020-09-30 0000799167mrtn:IntermodalMember2019-07-012019-09-30 0000799167mrtn:IntermodalMember2020-01-012020-09-30 0000799167mrtn:IntermodalMember2019-01-012019-09-30 0000799167mrtn:BrokerageMember2020-07-012020-09-30 0000799167mrtn:BrokerageMember2019-07-012019-09-30 0000799167mrtn:BrokerageMember2020-01-012020-09-30 0000799167mrtn:BrokerageMember2019-01-012019-09-30 0000799167mrtn:ReclassificationOfTiresInServiceAmortizationAndOperatingLeasesMember2019-01-012019-09-30
 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Form 10-Q

 

   Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

or

   Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the Quarter ended September 30, 2020

 

Commission File Number 0-15010

  

MARTEN TRANSPORT, LTD.

(Exact name of registrant as specified in its charter)

 

Delaware

  

39-1140809

(State of incorporation)

  

(I.R.S. employer identification no.)

   

129 Marten Street

  

Mondovi, Wisconsin 54755

 

715-926-4216

(Address of principal executive offices)

 

(Registrant’s telephone number)

  

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

 

Title of each class:

Trading symbol:

Name of each exchange on which registered:

COMMON STOCK, PAR VALUE

MRTN

THE NASDAQ STOCK MARKET LLC

$.01 PER SHARE

 

(NASDAQ GLOBAL SELECT MARKET)

 

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 ☒   No ☐

 

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒   No ☐

 

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

 

Large accelerated filer

Accelerated filer ☐

Smaller reporting company

Non-accelerated filer ☐

Emerging growth company  

 

 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the Registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes    No ☒

 

The number of shares outstanding of the Registrant’s Common Stock, par value $.01 per share, was 82,680,849 as of October 26, 2020.

 

 

 
 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED BALANCE SHEETS

 

  

September 30,

  

December 31,

 

(In thousands, except share information)

 

2020

  

2019

 
  

(Unaudited)

     

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $88,279  $31,461 

Receivables:

        

Trade, net

  80,719   90,712 

Other

  2,908   11,055 

Prepaid expenses and other

  20,640   20,938 

Total current assets

  192,546   154,166 
         

Property and equipment:

        

Revenue equipment, buildings and land, office equipment and other

  943,058   904,237 

Accumulated depreciation

  (278,488

)

  (263,843

)

Net property and equipment

  664,570   640,394 

Other noncurrent assets

  1,950   2,026 

Total assets

 $859,066  $796,586 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

Current liabilities:

        

Accounts payable

 $24,563  $22,917 

Insurance and claims accruals

  36,629   31,729 

Accrued and other current liabilities

  26,755   21,680 

Total current liabilities

  87,947   76,326 

Deferred income taxes

  125,890   122,022 

Noncurrent operating lease liabilities

  521   649 

Total liabilities

  214,358   198,997 
         

Stockholders’ equity:

        

Preferred stock, $.01 par value per share; 2,000,000 shares authorized; no shares issued and outstanding

  -   - 

Common stock, $.01 par value per share; 192,000,000 shares authorized; 82,680,849 shares at September 30, 2020, and 82,055,199 shares at December 31, 2019, issued and outstanding

  827   821 

Additional paid-in capital

  84,389   79,465 

Retained earnings

  559,492   517,303 

Total stockholders’ equity

  644,708   597,589 

Total liabilities and stockholders’ equity

 $859,066  $796,586 

    

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

1

 

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

  

Three Months

  

Nine Months

 
  

Ended September 30,

  

Ended September 30,

 

(In thousands, except per share information)

 

2020

  

2019

  

2020

  

2019

 
                 

Operating revenue

 $216,011  $214,973  $647,041  $626,086 
                 

Operating expenses (income):

                

Salaries, wages and benefits

  74,797   69,312   221,034   201,449 

Purchased transportation

  37,066   40,435   113,676   117,352 

Fuel and fuel taxes

  24,268   31,275   73,433   89,904 

Supplies and maintenance

  12,440   12,116   36,501   34,739 

Depreciation

  25,580   24,290   76,979   70,295 

Operating taxes and licenses

  2,749   2,651   8,003   7,422 

Insurance and claims

  11,243   9,618   35,160   29,355 

Communications and utilities

  1,999   1,901   5,961   5,801 

Gain on disposition of revenue equipment

  (2,128

)

  (2,559

)

  (5,899

)

  (5,337

)

Gain on disposition of facility

  (1,718

)

  -   (1,718

)

  - 

Other

  5,315   5,900   16,223   17,395 
                 

Total operating expenses

  191,611   194,939   579,353   568,375 
                 

Operating income

  24,400   20,034   67,688   57,711 
                 

Other

  (17

)

  (255

)

  (127

)

  (928

)

                 

Income before income taxes

  24,417   20,289   67,815   58,639 
                 

Income taxes expense

  6,373   3,702   17,919   13,316 
                 

Net income

 $18,044  $16,587  $49,896  $45,323 
                 

Basic earnings per common share

 $0.22  $0.20  $0.61  $0.55 
                 

Diluted earnings per common share

 $0.22  $0.20  $0.60  $0.55 
                 

Dividends declared per common share

 $0.04  $0.453  $0.093  $0.493 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

2

 

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

 (Unaudited)

 

  

Common Stock

  

Additional

Paid-In

  

Retained

  

Total

Stock-

holders’

 

(In thousands)

 

Shares

  

Amount

  

Capital

  

Earnings

  

Equity

 
                     

Balance at December 31, 2019

  82,055  $821  $79,465  $517,303  $597,589 

Net income

  -   -   -   13,718   13,718 

Repurchase and retirement of common stock

  (53

)

  (1

)

  (596

)

  -   (597

)

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

  259   3   1,052   (1

)

  1,054 

Employee taxes paid in exchange for shares withheld

  -   -   (437

)

  -   (437

)

Share-based payment arrangement compensation expense

  -   -   246   -   246 

Dividends on common stock

  -   -   -   (2,193

)

  (2,193

)

Balance at March 31, 2020

  82,261   823   79,730   528,827   609,380 

Net income

  -   -   -   18,134   18,134 

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

  401   4   3,360   (1

)

  3,363 

Share-based payment arrangement compensation expense

  -   -   726   -   726 

Dividends on common stock

  -   -   -   (2,205

)

  (2,205

)

Balance at June 30, 2020

  82,662   827   83,816   544,755   629,398 

Net income

  -   -   -   18,044   18,044 

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

  19   -   181   -   181 

Share-based payment arrangement compensation expense

  -   -   392   -   392 

Dividends on common stock

  -   -   -   (3,307

)

  (3,307

)

Balance at September 30, 2020

  82,681  $827  $84,389  $559,492  $644,708 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.  

 

3

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

 (Unaudited)

 

  

Common Stock

  

Additional

Paid-In

  

Retained

  

Total

Stock-

holders’

 

(In thousands)

 

Shares

  

Amount

  

Capital

  

Earnings

  

Equity

 
                     

Balance at December 31, 2018

  81,700  $817  $76,814  $498,323  $575,954 

Net income

  -   -   -   13,546   13,546 

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

  158   2   291   (1

)

  292 

Employee taxes paid in exchange for shares withheld

  -   -   (784

)

  -   (784

)

Share-based payment arrangement compensation expense

  -   -   366   -   366 

Dividends on common stock

  -   -   -   (1,637

)

  (1,637

)

Balance at March 31, 2019

  81,858   819   76,687   510,231   587,737 

Net income

  -   -   -   15,190   15,190 

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

  92   -   466   -   466 

Share-based payment arrangement compensation expense

  -   -   636   -   636 

Dividends on common stock

  -   -   -   (1,639

)

  (1,639

)

Balance at June 30, 2019

  81,950   819   77,789   523,782   602,390 

Net income

  -   -   -   16,587   16,587 

Issuance of common stock from share-based payment arrangement exercises and vesting of performance unit awards

  81   1   658   -   659 

Share-based payment arrangement compensation expense

  -   -   393   -   393 

Dividends on common stock

  -   -   -   (37,172

)

  (37,172

)

Balance at September 30, 2019

  82,031  $820  $78,840  $503,197  $582,857 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.  

 

4

 

 

MARTEN TRANSPORT, LTD.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

  

Nine Months

 
  

Ended September 30,

 

(In thousands)

 

2020

  

2019

 

Cash flows provided by operating activities:

        

Operations:

        

Net income

 $49,896  $45,323 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation

  76,979   70,295 

Tires in service amortization

  4,937   5,065 

Gain on disposition of revenue equipment

  (5,899

)

  (5,337

)

Gain on disposition of facility

  (1,718

)

  - 

Deferred income taxes

  3,868   6,477 

Share-based payment arrangement compensation expense

  1,364   1,395 

Equity in loss from affiliate

  -   144 

Changes in other current operating items:

        

Receivables

  16,847   (1,418

)

Prepaid expenses and other

  (2,317

)

  (1,793

)

Accounts payable

  1,315   1,769 

Insurance and claims accruals

  4,900   2,544 

Accrued and other current liabilities

  4,535   (2,443

)

Net cash provided by operating activities

  154,707   122,021 
         

Cash flows used for investing activities:

        

Revenue equipment additions

  (138,457

)

  (127,156

)

Proceeds from revenue equipment dispositions

  46,872   32,114 

Buildings and land, office equipment and other additions

  (4,697

)

  (3,422

)

Proceeds from buildings and land, office equipment and other dispositions

  2,573   - 

Other

  (39

)

  (25

)

Net cash used for investing activities

  (93,748

)

  (98,489

)

         

Cash flows used for financing activities:

        

Dividends on common stock

  (7,705

)

  (40,448

)

Repurchase and retirement of common stock

  (597

)

  - 

Issuance of common stock from share-based payment arrangement exercises

  4,598   1,417 

Employee taxes paid in exchange for shares withheld

  (437

)

  (784

)

Net cash used for financing activities

  (4,141

)

  (39,815

)

         

Net change in cash and cash equivalents

  56,818   (16,283

)

         

Cash and cash equivalents:

        

Beginning of period

  31,461   56,763 

End of period

 $88,279  $40,480 
         

Supplemental non-cash disclosure:

        

Change in property and equipment not yet paid

 $2,355  $10,527 

Operating lease assets and liabilities acquired

 $88  $1,664 
         

Supplemental disclosure of cash flow information:

        

Cash paid for:

        

Income taxes

 $5,543  $4,447 

Interest

 $-  $39 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

5

 

MARTEN TRANSPORT, LTD.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

NINE MONTHS ENDED SEPTEMBER 30, 2020

(Unaudited)

 

 

(1) Consolidated Condensed Financial Statements

 

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements, and therefore do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, such statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to fairly present our consolidated financial condition, results of operations and cash flows for the interim periods presented. The results of operations for any interim period do not necessarily indicate the results for the full year. The unaudited interim consolidated condensed financial statements should be read with reference to the consolidated financial statements and notes to consolidated financial statements in our 2019 Annual Report on Form 10-K.

 

 

(2) Earnings per Common Share

 

Basic and diluted earnings per common share were computed as follows:  

 

  

Three Months

  

Nine Months

 
  

Ended September 30,

  

Ended September 30,

 

(In thousands, except per share amounts)

 

2020

  

2019

  

2020

  

2019

 

Numerator:

                

Net income

 $18,044  $16,587  $49,896  $45,323 

Denominator:

                

Basic earnings per common share - weighted-average shares

  82,672   81,982   82,472   81,912 

Effect of dilutive stock options

  607   719   626   706 

Diluted earnings per common share - weighted-average shares and assumed conversions

  83,279   82,701   83,098   82,618 
                 

Basic earnings per common share

 $0.22  $0.20  $0.61  $0.55 

Diluted earnings per common share

 $0.22  $0.20  $0.60  $0.55 

 

Options totaling 181,650 and 288,150 equivalent shares for the three-month and nine-month periods ended September 30, 2020, respectively, and 313,950 and 477,900 equivalent shares for the three-month and nine-month periods ended September 30, 2019, respectively, were outstanding but were not included in the calculation of diluted earnings per share because including the options in the denominator would be antidilutive, or decrease the number of weighted-average shares, due to their exercise prices exceeding the average market price of the common shares, or because inclusion of average unrecognized compensation expense in the calculation would cause the options to be antidilutive.

 

Unvested performance unit awards totaling 43,923 and 96,423 equivalent shares for the three-month and nine-month periods ended September 30, 2020, respectively, and 101,274 and 102,774 equivalent shares for the three-month and nine-month periods ended September 30, 2019, respectively, were considered outstanding but were not included in the calculation of diluted earnings per share because inclusion of average unrecognized compensation expense in the calculation would cause the performance units to be antidilutive.

 

 

(3) Stock Split

 

On August 13, 2020, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% stock dividend. Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

 

6

 

 

(4) Long-Term Debt

 

In August 2018, we entered into an amendment to our unsecured committed credit facility which reduces the aggregate principal amount of the facility from $40.0 million to $30.0 million and extends the term of the facility to August 2023. At September 30, 2020, there was no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit to guarantee settlement of self-insurance claims of $17.0 million and remaining borrowing availability of $13.0 million. At December 31, 2019, there was also no outstanding principal balance on the facility. As of that date, we had outstanding standby letters of credit of $15.7 million on the facility. This facility bears interest at a variable rate based on the London Interbank Offered Rate or the lender’s Prime Rate, in each case plus/minus applicable margins. The interest rate for the facility that would apply to outstanding principal balances was 0.84% at September 30, 2020.

 

Our credit facility prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. A waiver allowing stock redemptions and dividends in excess of the 25% limitation in a total amount of up to $65 million in 2019 was obtained from the lender in August 2019. This facility also contains restrictive covenants which, among other matters, require us to maintain compliance with cash flow leverage and fixed charge coverage ratios. We were in compliance with all covenants at September 30, 2020 and December 31, 2019.

 

 

(5) Related Party Transactions

 

We purchase fuel and tires and obtain related services from Bauer Built, Inc., or BBI. Jerry M. Bauer, the chairman of the board, chief executive officer and the principal stockholder of BBI, is one of our directors. We paid BBI $166,000 in the first nine months of 2020 and $311,000 in the first nine months of 2019 for fuel, tires and related services. In addition, we paid $1.7 million in the first nine months of 2020 and $1.2 million in the first nine months of 2019 to tire manufacturers for tires that were provided by BBI. BBI received commissions from the tire manufacturers related to these purchases.

 

We provided transportation services to MW Logistics, LLC, or MWL, a 45% owned affiliate through October 31, 2019, as described in Note 10.

 

 

(6) Share Repurchase Program

 

In 2007, our Board of Directors approved, and we announced a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act. In 2015, our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to $40 million, or approximately two million shares, of our common stock, which was increased by our Board of Directors to 3.3 million shares in August 2017 to reflect the five-for-three stock split effected in the form of a stock dividend on July 7, 2017. In August 2019, our Board of Directors approved and we announced an increase from current availability in our existing share repurchase program providing for the repurchase of up to $34 million, or approximately 1.8 million shares, of our common stock, which was increased by our Board of Directors to 2.7 million shares in August 2020 to reflect the three-for-two stock split effected in the form of a stock dividend on August 13, 2020. The timing and extent to which we repurchase shares depends on market conditions and other corporate considerations. The repurchase program does not have an expiration date.

 

We repurchased and retired 53,064 shares of common stock for $597,000 in the first quarter of 2020. We did not repurchase any shares in the second or third quarters of 2020 or in 2019. As of September 30, 2020, future repurchases of up to $33.4 million, or approximately 2.6 million shares, were available in the share repurchase program.

 

 

(7) Dividends

 

In 2010, we announced that our Board of Directors approved a regular cash dividend program to our stockholders, subject to approval each quarter. A quarterly cash dividend of $0.027 per share of common stock was declared in each of the first two quarters of 2020 and of $0.04 per share of common stock was declared in the third quarter of 2020 which totaled $7.7 million. We paid cash dividends totaling $40.4 million in the first three quarters of 2019 which consisted of a special dividend of $0.433 per share of common stock in September, along with quarterly cash dividends of $0.02 per share of common stock in each of the first three quarters of 2019.

 

Our ability to pay cash dividends is currently limited by restrictions contained in our revolving credit facility, which prohibits us from paying, in any fiscal year, stock redemptions and dividends in excess of 25% of our net income from the prior fiscal year. A waiver allowing stock redemptions and dividends in excess of the 25% limitation in a total amount of up to $65 million in 2019 was obtained from the lender in August 2019.

 

7

 

 

(8) Accounting for Share-based Payment Arrangement Compensation

 

We account for share-based payment arrangements in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, 718, Compensation – Stock Compensation. During the first nine months of 2020, there were no significant changes to the structure of our stock-based award plans. Pre-tax compensation expense related to stock options and performance unit awards of $1.4 million was recorded in each of the first nine months of 2020 and 2019.

  

 

(9) Termination of Deferred Compensation Plan

 

On May 5, 2020, our Compensation Committee and Board of Directors approved the termination of our Deferred Compensation Plan. The plan is an unfunded, nonqualified deferred compensation plan designed to allow board elected officers and other select members of our management designated by our Compensation Committee to save for retirement on a tax-deferred basis. The termination is effective May 5, 2021.

 

 

(10) Equity Investment

 

We owned a 45% equity interest in MWL, a third-party provider of logistics services to the transportation industry, until October 31, 2019, at which time we sold our entire membership interest for approximately $1.3 million. Prior to the sale of our interest, a non-related party owned the other 55% equity interest in MWL. We accounted for our ownership interest in MWL under the equity method of accounting. We received $2.0 million of our revenue for loads transported by our tractors and arranged by MWL in the first nine months of 2019.

 

 

(11) Fair Value of Financial Instruments

 

The carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value because of the short maturity of these instruments.  

 

 

(12) Commitments and Contingencies

 

We are committed to new revenue equipment purchases of $33.0 million through the remainder of 2020 and $50.4 million in 2021. Operating lease obligation expenditures through 2025 total $1.1 million.

 

We self-insure, in part, for losses relating to workers’ compensation, auto liability, general liability, cargo and property damage claims, along with employees’ health insurance with varying risk retention levels. We maintain insurance coverage for per-incident and total losses in excess of these risk retention levels in amounts we consider adequate based upon historical experience and our ongoing review, and reserve currently for the estimated cost of the uninsured portion of pending claims.

 

We are also involved in other legal actions that arise in the ordinary course of business. In the opinion of management, based upon present knowledge of the facts, it is remote that the ultimate outcome of any such legal actions will have a material adverse effect upon our long-term financial position or results of operations.

 

 

(13) Revenue and Business Segments

 

We account for our revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers, which we adopted on January 1, 2018 using the modified retrospective method. We combine our five current operating segments into four reporting segments (Truckload, Dedicated, Intermodal and Brokerage) for financial reporting purposes. These four reporting segments are also the appropriate categories for the disaggregation of our revenue under FASB ASC 606.

 

We have strategically transitioned from a refrigerated long-haul carrier to a multifaceted business offering a network of refrigerated and dry truck-based transportation capabilities across our five distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico.

 

The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada. Our agreements with customers are typically for one year.

 

8

 

Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

 

Generally, we are paid by the mile for our Truckload and Dedicated services. We also derive Truckload and Dedicated revenue from fuel surcharges, loading and unloading activities, equipment detention and other accessorial services. The main factors that affect our Truckload and Dedicated revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated, the number of miles we generate with our equipment and changes in fuel prices. We monitor our revenue production primarily through average Truckload and Dedicated revenue, net of fuel surcharges, per tractor per week. We also analyze our average Truckload and Dedicated revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our fuel surcharge revenue, our accessorial revenue and our other sources of operating revenue.

 

Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers and, beginning in September 2019, our refrigerated containers, each on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.

 

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the United States Department of Transportation, or DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

 

Operating results of our MRTN de Mexico business which offers our customers door-to-door service between the United States and Mexico with our Mexican partner carriers is reported within our Truckload and Brokerage segments.

 

Our customer agreements are typically for one-year terms except for our Dedicated agreements which range from three to five years with annual rate reviews. Under FASB ASC 606, the contract date for each individual load within each of our four reporting segments is generally the date that each load is tendered to and accepted by us. For each load transported within each of our four reporting segments, the entire amount of revenue to be recognized is a single performance obligation and our agreements with our customers detail the per-mile charges for line haul and fuel surcharges, along with the rates for loading and unloading, stop offs and drops, equipment detention and other accessorial services, which is the transaction price. There are no discounts that would be a material right or consideration payable to a customer. We are required to recognize revenue and related expenses over time, from load pickup to delivery, for each load within each of our four reporting segments. We base our calculation of the amount of revenue to record in each period for individual loads picking up in one period and delivering in the following period using the number of hours estimated to be incurred within each period applied to each estimated transaction price. Contract assets for this estimated revenue which are classified within prepaid expenses and other within our consolidated condensed balance sheet were $2.2 million and $1.7 million as of September 30, 2020 and December 31, 2019, respectively. We had no impairment losses on contract assets in the first nine months of 2020 or in 2019. We bill our customers for loads after delivery is complete with standard payment terms of 30 days.

 

We account for revenue of our Intermodal and Brokerage segments and revenue on freight transported by independent contractors within our Truckload and Dedicated segments on a gross basis because we are the principal service provider controlling the promised service before it is transferred to each customer. We are primarily responsible for fulfilling the promise to provide each specified service to each customer. We bear the primary risk of loss in the event of cargo claims by our customers. We also have complete control and discretion in establishing the price for each specified service. Accordingly, all such revenue billed to customers is classified as operating revenue and all corresponding payments to carriers for transportation services we arrange in connection with brokerage and intermodal activities and to independent contractor providers of revenue equipment are classified as purchased transportation expense within our consolidated condensed statements of operations.

 

9

 

The following table sets forth for the periods indicated our operating revenue and operating income by segment. We do not prepare separate balance sheets by segment and, as a result, assets are not separately identifiable by segment.

  

  

Three Months

  

Nine Months

 
  

Ended September 30,

  

Ended September 30,

 

(In thousands)

 

2020

  

2019

  

2020

  

2019

 

Operating revenue:

                

Truckload revenue, net of fuel surcharge revenue

 $85,074  $82,931  $254,897  $246,313 

Truckload fuel surcharge revenue

  8,549   12,056   28,058   36,418 

Total Truckload revenue

  93,623   94,987   282,955   282,731 
                 

Dedicated revenue, net of fuel surcharge revenue

  69,002   59,281   200,237   164,365 

Dedicated fuel surcharge revenue

  9,335   11,053   28,564   30,704 

Total Dedicated revenue

  78,337   70,334   228,801   195,069 
                 

Intermodal revenue, net of fuel surcharge revenue

  19,991   19,336   59,127   56,618 

Intermodal fuel surcharge revenue

  1,985   2,961   6,830   9,253 

Total Intermodal revenue

  21,976   22,297   65,957   65,871 
                 

Brokerage revenue

  22,075   27,355   69,328   82,415 

Total operating revenue

 $216,011  $214,973  $647,041  $626,086 
                 

Operating income:

                

Truckload

 $10,546  $6,956  $28,367  $22,556 

Dedicated

  11,024   9,920   31,009   23,135 

Intermodal

  1,304   1,210   3,564   5,140 

Brokerage

  1,526   1,948   4,748   6,880 

Total operating income

 $24,400  $20,034  $67,688  $57,711 

 

 

Truckload segment depreciation expense was $13.4 million and $13.7 million, Dedicated segment depreciation expense was $10.5 million and $9.0 million, Intermodal segment depreciation expense was $1.4 million and $1.2 million, and Brokerage segment depreciation expense was $271,000 and $382,000 in the three-month periods ended September 30, 2020 and 2019, respectively.

 

Truckload segment depreciation expense was $41.3 million and $40.1 million, Dedicated segment depreciation expense was $30.7 million and $25.4 million, Intermodal segment depreciation expense was $4.1 million and $3.7 million, and Brokerage segment depreciation expense was $939,000 and $1.1 million in the nine-month periods ended September 30, 2020 and 2019, respectively.

 

 

(14) Measurement of Credit Losses on Financial Instruments

 

We adopted FASB Accounting Standards Update, or ASU, No. 2016-13, Measurement of Credit Losses on Financial Instruments, as of January 1, 2020. The adoption of this standard was not material to our consolidated condensed balance sheets, statements of operations or statements of cash flows.

 

 

(15) Consolidated Condensed Statements of Cash Flows Reclassifications

 

Tires in service amortization and operating leases in our consolidated condensed statements of cash flows have been reclassified to be consistent with the current presentation, resulting in a $2.4 million reclassification from investing to operating activities for the nine months ended September 30, 2019.

 

10

 

 

(16) Use of Estimates

 

We must make estimates and assumptions to prepare the consolidated condensed financial statements in conformity with U.S. generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities in the consolidated condensed financial statements and the reported amount of revenue and expenses during the reporting period. These estimates are primarily related to insurance and claims accruals and depreciation. Ultimate results could differ from these estimates.

 

 

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

 

              The following discussion and analysis of our financial condition and results of operations should be read together with the selected consolidated financial data and our consolidated condensed financial statements and the related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including but not limited to those included in our Form 10-K, Part I, Item 1A for the year ended December 31, 2019 and in our Form 10-Q, Part II, Item 1A for the quarter ended March 31, 2020. We do not assume, and specifically disclaim, any obligation to update any forward-looking statement contained in this report.

 

Overview

 

We have strategically transitioned from a refrigerated long-haul carrier to a multifaceted business offering a network of refrigerated and dry truck-based transportation capabilities across our five distinct business platforms – Truckload, Dedicated, Intermodal, Brokerage and MRTN de Mexico.

 

The primary source of our operating revenue is provided by our Truckload segment through a combination of regional short-haul and medium-to-long-haul full-load transportation services. We transport food and other consumer packaged goods that require a temperature-controlled or insulated environment, along with dry freight, across the United States and into and out of Mexico and Canada. Our agreements with customers are typically for one year.

 

Our Dedicated segment provides customized transportation solutions tailored to meet individual customers’ requirements, utilizing temperature-controlled trailers, dry vans and other specialized equipment within the United States. Our agreements with customers range from three to five years and are subject to annual rate reviews.

 

Generally, we are paid by the mile for our Truckload and Dedicated services. We also derive Truckload and Dedicated revenue from fuel surcharges, loading and unloading activities, equipment detention and other accessorial services. The main factors that affect our Truckload and Dedicated revenue are the rate per mile we receive from our customers, the percentage of miles for which we are compensated, the number of miles we generate with our equipment and changes in fuel prices. We monitor our revenue production primarily through average Truckload and Dedicated revenue, net of fuel surcharges, per tractor per week. We also analyze our average Truckload and Dedicated revenue, net of fuel surcharges, per total mile, non-revenue miles percentage, the miles per tractor we generate, our fuel surcharge revenue, our accessorial revenue and our other sources of operating revenue.

 

Our Intermodal segment transports our customers’ freight within the United States utilizing our temperature-controlled trailers and, beginning in September 2019, our refrigerated containers, each on railroad flatcars for portions of trips, with the balance of the trips using our tractors or, to a lesser extent, contracted carriers. The main factors that affect our Intermodal revenue are the rate per mile and other charges we receive from our customers.

 

Our Brokerage segment develops contractual relationships with and arranges for third-party carriers to transport freight for our customers in temperature-controlled trailers and dry vans within the United States and into and out of Mexico through Marten Transport Logistics, LLC, which was established in 2007 and operates pursuant to brokerage authority granted by the DOT. We retain the billing, collection and customer management responsibilities. The main factors that affect our Brokerage revenue are the rate per mile and other charges that we receive from our customers.

 

Operating results of our MRTN de Mexico business which offers our customers door-to-door service between the United States and Mexico with our Mexican partner carriers is reported within our Truckload and Brokerage segments.

 

In addition to the factors discussed above, our operating revenue is also affected by, among other things, the United States economy, inventory levels, the level of truck and rail capacity in the transportation market, a contracting driver market, severe weather conditions and specific customer demand.

 

11

 

Our operating revenue increased $21.0 million, or 3.3%, in the first nine months of 2020 from the first nine months of 2019. Our operating revenue, net of fuel surcharges, increased $33.9 million, or 6.2%, compared with the first nine months of 2019. Truckload segment revenue, net of fuel surcharges, increased 3.5% from the first nine months of 2019 primarily due to fleet growth and an increase in our average revenue per tractor. Dedicated segment revenue, net of fuel surcharges, increased 21.8% from the first nine months of 2019 primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. Intermodal segment revenue, net of fuel surcharges, increased 4.4% primarily due to increased load volume. Brokerage segment revenue decreased 15.9% primarily due to a decrease in both revenue per load and load volume in the first nine months of 2020. Fuel surcharge revenue decreased to $63.5 million in the first nine months of 2020 from $76.4 million in the first nine months of 2019 due to significantly lower fuel prices.

 

Our profitability is impacted by the variable costs of transporting freight for our customers, fixed costs, and expenses containing both fixed and variable components. The variable costs include fuel expense, driver-related expenses, such as wages, benefits, training, and recruitment, and independent contractor costs, which are recorded under purchased transportation. Expenses that have both fixed and variable components include maintenance and tire expense and our cost of insurance and claims. These expenses generally vary with the miles we travel, but also have a controllable component based on safety, fleet age, efficiency and other factors. Our main fixed costs relate to the acquisition and subsequent depreciation of long-term assets, such as revenue equipment and operating terminals. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, along with any increases in fleet size. Although certain factors affecting our expenses are beyond our control, we monitor them closely and attempt to anticipate changes in these factors in managing our business. For example, fuel prices have significantly fluctuated over the past several years. We manage our exposure to changes in fuel prices primarily through fuel surcharge programs with our customers, as well as through volume fuel purchasing arrangements with national fuel centers and bulk purchases of fuel at our terminals. To help further reduce fuel expense, we have installed and tightly manage the use of auxiliary power units in our tractors to provide climate control and electrical power for our drivers without idling the tractor engine, and also have improved the fuel usage in the temperature-control units on our trailers. For our Intermodal and Brokerage segments, our profitability is impacted by the percentage of revenue which is payable to the providers of the transportation services we arrange. This expense is included within purchased transportation in our consolidated condensed statements of operations.

 

Our operating income improved 17.3% to $67.7 million in the first nine months of 2020 from $57.7 million in the first nine months of 2019. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 89.5% in the first nine months of 2020 from 90.8% in the first nine months of 2019. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 88.4% in the first nine months of 2020 from 89.5% in the first nine months of 2019. Our net income improved 10.1% to $49.9 million, or $0.60 per diluted share, in the first nine months of 2020 from $45.3 million, or $0.55 per diluted share, in the first nine months of 2019.

 

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At September 30, 2020, we had $88.3 million of cash and cash equivalents, $644.7 million in stockholders’ equity and no long-term debt outstanding. In the first nine months of 2020, net cash flows provided by operating activities of $154.7 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $91.6 million, to pay cash dividends of $7.7 million, and to upgrade regional operating facilities in the amount of $3.3 million, resulting in a $56.8 million increase in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $26 million for the remainder of 2020. We believe our sources of liquidity are adequate to meet our current and anticipated needs for at least the next twelve months. Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we do not anticipate any significant liquidity constraints in the foreseeable future.

  

We continue to invest considerable time and capital resources to actively implement and promote long-term environmentally sustainable solutions that drive reductions in our fuel and electricity consumption and decrease our carbon footprint. These initiatives include (i) reducing idle time for our tractors by installing and tightly managing the use of auxiliary power units, which are powered by solar panels and provide climate control and electrical power for our drivers without idling the tractor engine, (ii) improving the energy efficiency of our newer, more aerodynamic and well-maintained tractor and trailer fleets by optimizing the equipment’s specifications, weight and tractor speed, equipping our tractors with automatic transmissions, converting the refrigeration units in our refrigerated trailers to the new, more-efficient CARB refrigeration units along with increasing the insulation in the trailer walls and installing trailer skirts, and using ultra-fuel efficient and wide-based tires, and (iii) upgrading all of our facilities to indoor and outdoor LED lighting along with converting all of our facilities to solar power by the end of 2020. Additionally, we are an active participant in the United States EPA SmartWay Transport Partnership, in which freight shippers, carriers, logistics companies and other voluntary stakeholders partner with the EPA to measure, benchmark and improve logistics operations to reduce their environmental footprint.

 

12

 

This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes discussions of operating revenue, net of fuel surcharge revenue; Truckload, Dedicated and Intermodal revenue, net of fuel surcharge revenue; operating expenses as a percentage of operating revenue, each net of fuel surcharge revenue; and net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads). We provide these additional disclosures because management believes these measures provide a more consistent basis for comparing results of operations from period to period. These financial measures in this report have not been determined in accordance with U.S. generally accepted accounting principles (GAAP). Pursuant to Item 10(e) of Regulation S-K, we have included the amounts necessary to reconcile these non-GAAP financial measures to the most directly comparable GAAP financial measures of operating revenue, operating expenses divided by operating revenue, and fuel and fuel taxes.

 

Stock Split

 

On August 13, 2020, we effected a three-for-two stock split of our common stock, $.01 par value, in the form of a 50% stock dividend. Our consolidated condensed financial statements, related notes, and other financial data contained in this report have been adjusted to give retroactive effect to the stock split for all periods presented.

 

COVID-19 Update

 

The demand that our customers have from their customers within the COVID-19 pandemic for the food, beverages and other consumer goods that we transport and distribute varies significantly for each customer across their individual products, by region and in total – with the level of demand by freight lane also subject to significant fluctuations. Our continual redeployment of our drivers to match the changing freight demand by lane while minimizing empty miles has been and will continue to be imperative to the utilization of our revenue equipment and our operating revenue through this environment. Our execution of our unique multifaceted business model across our diverse customer base, including our ability to quickly make data-driven decisions and adjustments utilizing our in-house operating technology, has and will continue to be one of our key strengths as we proactively navigate through this fast-changing landscape in providing our essential service.

 

Based upon anticipated cash flows, existing cash and cash equivalents balances, current borrowing availability and other sources of financing we expect to be available to us, we believe we are well-positioned for the sustainability of our business from a balance sheet perspective.

 

We fully embrace our responsibility to keep our valued employees safe, healthy and informed and have implemented measures including the following:

 

 

-

Throughout our headquarters and regional operating facilities, we are applying the social distancing guidelines by having a number of our office employees work from their homes and by staggering shift and break times for our maintenance personnel.

 

 

-

We have increased the frequency and extent of disinfecting and cleaning of each of our facilities and thoroughly disinfect all tractors prior to assignment to our drivers.

 

 

-

We provide hand sanitizer and masks to all of our employees. When hand sanitizer was not available in March, we purchased the components and prepared and distributed over 6,000 bottles.

 

 

-

We provide clear communication to our employees promoting essential healthy hygiene habits and assist in responsibly responding to potential symptoms including self-quarantining and testing.

 

13

 

Results of Operations

 

The following table sets forth for the periods indicated certain operating statistics regarding our revenue and operations:

 

   

Three Months

   

Nine Months

 
   

Ended September 30,

   

Ended September 30,

 
   

2020

   

2019

   

2020

   

2019

 

Truckload Segment:

                               

Revenue (in thousands)

  $ 93,623     $ 94,987     $ 282,955     $ 282,731  

Average revenue, net of fuel surcharges, per tractor per week(1)

  $ 3,955     $ 3,723     $ 3,865     $ 3,818  

Average tractors(1)

    1,637       1,695       1,685       1,654  

Average miles per trip

    546       545       554       545  

Total miles (in thousands)

    41,210       39,326       125,082       115,639  
                                 

Dedicated Segment:

                               

Revenue (in thousands)

  $ 78,337     $ 70,334     $ 228,801     $ 195,069  

Average revenue, net of fuel surcharges, per tractor per week(1)

  $ 3,295     $ 3,392     $ 3,304     $ 3,412  

Average tractors(1)

    1,593       1,329       1,548       1,235  

Average miles per trip

    304       312       306       316  

Total miles (in thousands)

    33,843       28,859       98,553       79,700  
                                 

Intermodal Segment:

                               

Revenue (in thousands)

  $ 21,976     $ 22,297     $ 65,957     $ 65,871  

Loads

    9,306       8,897       27,736       26,578  

Average tractors

    99       87       99       85  
                                 

Brokerage Segment:

                               

Revenue (in thousands)

  $ 22,075     $ 27,355     $ 69,328     $ 82,415  

Loads

    13,670       16,059       45,058       47,510  

 

(1)

Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 132 and 75 tractors as of September 30, 2020 and 2019, respectively.

 

14

 

Comparison of Three Months Ended September 30, 2020 to Three Months Ended September 30, 2019

 

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

 

                   

Dollar

   

Percentage

 
                   

Change

   

Change

 
   

Three Months

Ended

   

Three Months

Ended

   

Three Months

Ended

 
   

September 30,

   

September 30,

   

September 30,

 

(Dollars in thousands)

 

2020

   

2019

   

2020 vs. 2019

   

2020 vs. 2019

 

Operating revenue:

                               

Truckload revenue, net of fuel surcharge revenue

  $ 85,074     $ 82,931     $ 2,143       2.6

%

Truckload fuel surcharge revenue

    8,549       12,056       (3,507

)

    (29.1

)

Total Truckload revenue

    93,623       94,987       (1,364

)

    (1.4

)

                                 

Dedicated revenue, net of fuel surcharge revenue

    69,002       59,281       9,721       16.4  

Dedicated fuel surcharge revenue

    9,335       11,053       (1,718

)

    (15.5

)

Total Dedicated revenue

    78,337       70,334       8,003       11.4  
                                 

Intermodal revenue, net of fuel surcharge revenue

    19,991       19,336       655       3.4  

Intermodal fuel surcharge revenue

    1,985       2,961       (976

)

    (33.0

)

Total Intermodal revenue

    21,976       22,297       (321

)

    (1.4

)

                                 

Brokerage revenue

    22,075       27,355       (5,280

)

    (19.3

)

                                 

Total operating revenue

  $ 216,011     $ 214,973     $ 1,038       0.5

%

                                 

Operating income:

                               

Truckload

  $ 10,546     $ 6,956     $ 3,590       51.6

%

Dedicated

    11,024       9,920       1,104       11.1  

Intermodal

    1,304       1,210       94       7.8  

Brokerage

    1,526       1,948       (422

)

    (21.7

)

Total operating income

  $ 24,400     $ 20,034     $ 4,366       21.8

%

                                 

Operating ratio(1):

                               

Truckload

    88.7

%

    92.7

%

               

Dedicated

    85.9       85.9                  

Intermodal

    94.1       94.6                  

Brokerage

    93.1       92.9                  

Consolidated operating ratio

    88.7

%

    90.7

%

               

 

(1)

Represents operating expenses as a percentage of operating revenue.

 

Our operating revenue increased $1.0 million, or 0.5%, to $216.0 million in the 2020 period from $215.0 million in the 2019 period. Our operating revenue, net of fuel surcharges, increased $7.2 million, or 3.8%, to $196.1 million in the 2020 period from $188.9 million in the 2019 period. This increase was due to a $9.7 million increase in Dedicated revenue, net of fuel surcharges, a $2.1 million increase in Truckload revenue, net of fuel surcharges, and a $655,000 increase in Intermodal revenue, net of fuel surcharges, partially offset by a $5.3 million decrease in Brokerage revenue. Fuel surcharge revenue decreased to $19.9 million in the 2020 period from $26.1 million in the 2019 period due to significantly lower fuel prices.

 

Truckload segment revenue decreased $1.4 million, or 1.4%, to $93.6 million in the 2020 period from $95.0 million in the 2019 period. Truckload segment revenue, net of fuel surcharges, increased $2.1 million, or 2.6%, to $85.1 million in the 2020 period from $82.9 million in the 2019 period, primarily due to an increase in our average revenue per tractor, partially offset by a decrease in our average number of tractors. The improvement in the operating ratio in the 2020 period was primarily due to a decrease in net fuel expense as a percentage of revenue along with multiple cost control measures.

 

15

 

Dedicated segment revenue increased $8.0 million, or 11.4%, to $78.3 million in the 2020 period from $70.3 million in the 2019 period. Dedicated segment revenue, net of fuel surcharges, increased 16.4% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The operating ratio was consistent in both the 2020 and 2019 periods.

 

Intermodal segment revenue decreased $321,000, or 1.4%, to $22.0 million in the 2020 period from $22.3 million in the 2019 period. Intermodal segment revenue, net of fuel surcharges, increased 3.4% from the 2019 period primarily due to an increase in load volume. The improvement in the operating ratio in the 2020 period was primarily due to a decrease in net fuel expense as a percentage of revenue.

 

Brokerage segment revenue decreased $5.3 million, or 19.3%, to $22.1 million in the 2020 period from $27.4 million in the 2019 period primarily due to a decrease in both revenue per load and load volume. The increase in the operating ratio in the 2020 period was primarily due to an increase in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.

 

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

 

   

Dollar

Change

   

Percentage

Change

   

Percentage of

Operating Revenue

 
   

Three Months

Ended

September 30,

   

Three Months

Ended

September 30,

   

Three Months

Ended

September 30,

 

(Dollars in thousands)

 

2020 vs. 2019

   

2020 vs. 2019

   

2020

   

2019

 
                                 

Operating revenue

  $ 1,038       0.5

%

    100.0

%

    100.0

%

Operating expenses (income):

                               

Salaries, wages and benefits

    5,485       7.9       34.6       32.2  

Purchased transportation

    (3,369

)

    (8.3

)

    17.2       18.8  

Fuel and fuel taxes

    (7,007

)

    (22.4

)

    11.2       14.5  

Supplies and maintenance

    324       2.7       5.8       5.6  

Depreciation

    1,290       5.3       11.8       11.3  

Operating taxes and licenses

    98       3.7       1.3       1.2  

Insurance and claims

    1,625       16.9       5.2       4.5  

Communications and utilities

    98       5.2       0.9       0.9  

Gain on disposition of revenue equipment

    431       16.8       (1.0

)

    (1.2

)

Gain on disposition of facility

    (1,718

)

    N/A       (0.8

)

    -  

Other

    (585

)

    (9.9

)

    2.5       2.7  

Total operating expenses

    (3,328

)

    (1.7

)

    88.7       90.7  

Operating income

    4,366       21.8       11.3       9.3  

Other

    238       93.3       -       (0.1

)

Income before income taxes

    4,128       20.3       11.3       9.4  

Income taxes expense

    2,671       72.2       3.0       1.7  

Net income

  $ 1,457       8.8

%

    8.4

%

    7.7

%

   

Salaries, wages and benefits consist of compensation for our employees, including both driver and non-driver employees, employees’ health insurance, 401(k) plan contributions and other fringe benefits. These expenses vary depending upon the size of our Truckload, Dedicated and Intermodal tractor fleets, the ratio of company drivers to independent contractors, our efficiency, our experience with employees’ health insurance claims, changes in health care premiums and other factors. Salaries, wages and benefits expense increased $5.5 million, or 7.9%, in the 2020 period from the 2019 period. This increase resulted primarily from additional company driver compensation expense of $2.7 million, a $1.2 million increase in employees’ health insurance expense as a result of increased self-insured medical claims and a $935,000 increase in bonus compensation expense for our non-driver employees.

 

16

 

Purchased transportation consists of amounts payable to railroads and carriers for transportation services we arrange in connection with Brokerage and Intermodal operations and to independent contractor providers of revenue equipment. This category will vary depending upon the amount and rates, including fuel surcharges, we pay to third-party railroad and motor carriers, the ratio of company drivers versus independent contractors and the amount of fuel surcharges passed through to independent contractors. Purchased transportation expense decreased $3.4 million in total, or 8.3%, in the 2020 period from the 2019 period. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment decreased $913,000 to $13.9 million in the 2020 period from $14.8 million in the 2019 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment decreased $4.4 million to $18.7 million in the 2020 period from $23.1 million in the 2019 period, primarily due to a decrease in both revenue per load and load volume. The portion of purchased transportation expense related to independent contractors within our Truckload and Dedicated segments, including fuel surcharges, increased $1.9 million in the 2020 period as the number of independent contractors rose. We expect our purchased transportation expense to increase as we grow our Intermodal and Brokerage segments.

 

Fuel and fuel taxes decreased by $7.0 million, or 22.4%, in the 2020 period from the 2019 period due to significantly lower fuel prices. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $1.6 million, or 19.5%, to $6.6 million in the 2020 period from $8.2 million in the 2019 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads decreased to $2.2 million from $3.0 million in the 2019 period. The United States Department of Energy, or DOE, national average cost of fuel decreased to $2.43 per gallon from $3.02 per gallon in the 2019 period. Net fuel expense decreased to 3.8% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 5.1% in the 2019 period. This decrease in the percentage of revenue from the 2019 period reduced our net fuel expense by $2.2 million in the 2020 period. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

 

Depreciation relates to owned tractors, trailers, containers, auxiliary power units, communication units, terminal facilities and other assets. The $1.3 million, or 5.3%, increase in depreciation in the 2020 period was primarily due to an increase in the size of our fleet of tractors. We expect our annual cost of tractor and trailer ownership will increase in future periods as a result of higher prices of new equipment, which will result in greater depreciation over the useful life.

 

Insurance and claims consist of the costs of insurance premiums and accruals we make for claims within our self-insured retention amounts, primarily for personal injury, property damage, physical damage to our equipment, cargo claims and workers’ compensation claims. These expenses will vary primarily based upon the frequency and severity of our accident experience, our self-insured retention levels and the market for insurance. The $1.6 million, or 16.9%, increase in insurance and claims in the 2020 period was primarily due to an increase in our insurance premiums along with an increase in the cost of physical damage claims related to our revenue equipment. Our significant self-insured retention exposes us to the possibility of significant fluctuations in claims expense between periods which could materially impact our financial results depending on the frequency, severity and timing of claims.

 

Gain on disposition of revenue equipment decreased to $2.1 million in the 2020 period from $2.6 million in the 2019 period primarily due to a decrease in the number of trailers sold. Future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.

 

Gain on disposition of facility was $1.7 million in the 2020 period. The disposition of the facility, located in Forest Park, GA, was part of our long-term program to expand and update the footprint of our facilities throughout the United States. We held the facility as rental property since 2011 after constructing a larger facility in the area. Any future gains or losses on disposition of facilities will be impacted by the market for real estate, which is beyond our control.

 

The $585,000 decrease in other operating expenses in the 2020 period was primarily due to decreased costs associated with travel and entertainment.

 

17

 

As a result of the foregoing factors, our operating income improved 21.8% to $24.4 million in the 2020 period from $20.0 million in the 2019 period. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 88.7% in the 2020 period from 90.7% in the 2019 period. The operating ratio for our Truckload segment was 88.7% in the 2020 period and 92.7% in the 2019 period, for our Dedicated segment was 85.9% in each of the 2020 and 2019 periods, for our Intermodal segment was 94.1% in the 2020 period and 94.6% in the 2019 period, and for our Brokerage segment was 93.1% in the 2020 period and 92.9% in the 2019 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 87.6% in the 2020 period from 89.4% in the 2019 period.

 

Our effective income tax rate increased to 26.1% in the 2020 period from 18.2% in the 2019 period. The 2019 period included additional income tax benefits of $1.4 million resulting from certain discrete tax benefits included in our tax filings in the period which were not previously recognized. These estimated benefits are net of reserves which are based on our evaluation of the current facts, circumstances and information available.

 

As a result of the factors described above, net income improved 8.8% to $18.0 million, or $0.22 per diluted share, in the 2020 period from $16.6 million, or $0.20 per diluted share, in the 2019 period.

 

18

 

Comparison of Nine Months Ended September 30, 2020 to Nine Months Ended September 30, 2019

 

The following table sets forth for the periods indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:

 

                   

Dollar

   

Percentage

 
                   

Change

   

Change

 
   

Nine Months

Ended

   

Nine Months

Ended

   

Nine Months

Ended

 
   

September 30,

   

September 30,

   

September 30,

 

(Dollars in thousands)

 

2020

   

2019

   

2020 vs. 2019

   

2020 vs. 2019

 

Operating revenue:

                               

Truckload revenue, net of fuel surcharge revenue

  $ 254,897     $ 246,313     $ 8,584       3.5

%

Truckload fuel surcharge revenue

    28,058       36,418       (8,360

)

    (23.0

)

Total Truckload revenue

    282,955       282,731       224       0.1  
                                 

Dedicated revenue, net of fuel surcharge revenue

    200,237       164,365       35,872       21.8  

Dedicated fuel surcharge revenue

    28,564       30,704       (2,140

)

    (7.0

)

Total Dedicated revenue

    228,801       195,069       33,732       17.3  
                                 

Intermodal revenue, net of fuel surcharge revenue

    59,127       56,618       2,509       4.4  

Intermodal fuel surcharge revenue

    6,830       9,253       (2,423

)

    (26.2

)

Total Intermodal revenue

    65,957       65,871       86       0.1  
                                 

Brokerage revenue

    69,328       82,415       (13,087

)

    (15.9

)

                                 

Total operating revenue

  $ 647,041     $ 626,086     $ 20,955       3.3

%

                                 

Operating income:

                               

Truckload

  $ 28,367     $ 22,556     $ 5,811       25.8

%

Dedicated

    31,009       23,135       7,874       34.0  

Intermodal

    3,564       5,140       (1,576

)

    (30.7

)

Brokerage

    4,748       6,880       (2,132

)

    (31.0

)

Total operating income

  $ 67,688     $ 57,711     $ 9,977       17.3

%

                                 

Operating ratio(1):

                               

Truckload

    90.0

%

    92.0

%

               

Dedicated

    86.4       88.1                  

Intermodal

    94.6       92.2                  

Brokerage

    93.2       91.7                  

Consolidated operating ratio

    89.5

%

    90.8

%

               

 

 (1)

 Represents operating expenses as a percentage of operating revenue.

 

 

Our operating revenue increased $21.0 million, or 3.3%, to $647.0 million in the 2020 period from $626.1 million in the 2019 period. Our operating revenue, net of fuel surcharges, increased $33.9 million, or 6.2%, to $583.6 million in the 2020 period from $549.7 million in the 2019 period. This increase was due to a $35.9 million increase in Dedicated revenue, net of fuel surcharges, an $8.6 million increase in Truckload revenue, net of fuel surcharges, and a $2.5 million increase in Intermodal revenue, net of fuel surcharges, partially offset by a $13.1 million decrease in Brokerage revenue. Fuel surcharge revenue decreased to $63.5 million in the 2020 period from $76.4 million in the 2019 period due to significantly lower fuel prices.

 

19

 

Truckload segment revenue increased $224,000, or 0.1%, to $283.0 million in the 2020 period from $282.7 million in the 2019 period. Truckload segment revenue, net of fuel surcharges, increased $8.6 million, or 3.5%, to $254.9 million in the 2020 period from $246.3 million in the 2019 period, primarily due to fleet growth and an increase in our average revenue per tractor. The improvement in the operating ratio in the 2020 period was primarily due to a decrease in net fuel expense as a percentage of revenue along with multiple cost control measures.

 

Dedicated segment revenue increased $33.7 million, or 17.3%, to $228.8 million in the 2020 period from $195.1 million in the 2019 period. Dedicated segment revenue, net of fuel surcharges, increased 21.8% primarily due to fleet growth driven by an increase in the number of Dedicated contracts we have with our customers. The improvement in the operating ratio in the 2020 period was primarily due to a decrease in net fuel expense as a percentage of revenue along with multiple cost control measures.

 

Intermodal segment revenue increased $86,000, or 0.1%, to $66.0 million in the 2020 period from $65.9 million in the 2019 period. Intermodal segment revenue, net of fuel surcharges, increased 4.4% from the 2019 period primarily due to an increase in load volume. The increase in the operating ratio in the 2020 period was primarily due to increases in salaries and wages and purchased transportation as a percentage of revenue.

 

Brokerage segment revenue decreased $13.1 million, or 15.9%, to $69.3 million in the 2020 period from $82.4 million in the 2019 period primarily due to a decrease in both revenue per load and load volume. The increase in the operating ratio in the 2020 period was primarily due to an increase in the amounts payable to carriers for transportation services which we arranged as a percentage of our Brokerage revenue.

 

The following table sets forth for the periods indicated the dollar and percentage increase or decrease of the items in our unaudited consolidated condensed statements of operations, and those items as a percentage of operating revenue:

 

   

Dollar

Change

   

Percentage

Change

   

Percentage of

Operating Revenue

 
   

Nine Months

Ended

September 30,

   

Nine Months

Ended

September 30,

   

Nine Months

Ended

September 30,

 

(Dollars in thousands)

 

2020 vs. 2019

   

2020 vs. 2019

   

2020

   

2019

 
                                 

Operating revenue

  $ 20,955       3.3

%

    100.0

%

    100.0

%

Operating expenses (income):

                               

Salaries, wages and benefits

    19,585       9.7       34.2       32.2  

Purchased transportation

    (3,676

)

    (3.1

)

    17.6       18.7  

Fuel and fuel taxes

    (16,471

)

    (18.3

)

    11.3       14.4  

Supplies and maintenance

    1,762       5.1       5.6       5.5  

Depreciation

    6,684       9.5       11.9       11.2  

Operating taxes and licenses

    581       7.8       1.2       1.2  

Insurance and claims

    5,805       19.8       5.4       4.7  

Communications and utilities

    160       2.8       0.9       0.9  

Gain on disposition of revenue equipment

    (562

)

    (10.5

)

    (0.9

)

    (0.9

)

Gain on disposition of facility

    (1,718

)

    N/A       (0.3

)

    -  

Other

    (1,172

)

    (6.7

)

    2.5       2.8  

Total operating expenses

    10,978       1.9       89.5       90.8  

Operating income

    9,977       17.3       10.5       9.2  

Other

    801       86.3       -       (0.1

)

Income before income taxes

    9,176       15.6       10.5       9.4  

Income taxes expense

    4,603       34.6       2.8       2.1  

Net income

  $ 4,573       10.1

%

    7.7

%

    7.2

%

 

Salaries, wages and benefits expense increased $19.6 million, or 9.7%, in the 2020 period from the 2019 period. This increase resulted primarily from additional company driver compensation expense of $13.6 million and a $1.0 million increase in employees’ health insurance expense as a result of increased self-insured medical claims.

 

20

 

Purchased transportation expense decreased $3.7 million in total, or 3.1%, in the 2020 period from the 2019 period. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment increased $104,000 to $43.0 million in the 2020 period from $42.9 million in the 2019 period. Amounts payable to carriers for transportation services we arranged in our Brokerage segment decreased $10.0 million to $58.5 million in the 2020 period from $68.6 million in the 2019 period, primarily due to a decrease in both revenue per load and load volume. The portion of purchased transportation expense related to independent contractors within our Truckload and Dedicated segments, including fuel surcharges, increased $6.3 million in the 2020 period as the number of independent contractors rose. We expect our purchased transportation expense to increase as we grow our Intermodal and Brokerage segments.

 

Fuel and fuel taxes decreased by $16.5 million, or 18.3%, in the 2020 period from the 2019 period. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) decreased $4.6 million, or 20.7%, to $17.6 million in the 2020 period from $22.2 million in the 2019 period. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads decreased to $7.6 million from $8.7 million in the 2019 period. The United States Department of Energy, or DOE, national average cost of fuel decreased to $2.58 per gallon from $3.06 per gallon in the 2019 period. Net fuel expense decreased to 3.4% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 4.7% in the 2019 period. This decrease in the percentage of revenue from the 2019 period reduced our net fuel expense by $6.8 million in the 2020 period. We have worked diligently to control fuel usage and costs by improving our volume purchasing arrangements and optimizing our drivers’ fuel purchases with national fuel centers, focusing on shorter lengths of haul, installing and tightly managing the use of auxiliary power units in our tractors to minimize engine idling and improving fuel usage in the temperature-control units on our trailers. Auxiliary power units, which we have installed in our company-owned tractors, provide climate control and electrical power for our drivers without idling the tractor engine.

 

The $6.7 million, or 9.5%, increase in depreciation in the 2020 period was primarily due to an increase in the size of our fleet of tractors.

 

The $5.8 million, or 19.8%, increase in insurance and claims in the 2020 period was primarily due to an increase in our insurance premiums along with increases in the cost of our self-insured auto liability, workers’ compensation and revenue equipment physical damage claims.

 

Gain on disposition of revenue equipment increased to $5.9 million in the 2020 period from $5.3 million in the 2019 period primarily due to an increase in the number of tractors sold. Future gains or losses on dispositions of revenue equipment will be impacted by the market for used revenue equipment, which is beyond our control.

 

Gain on disposition of facility was $1.7 million in the 2020 period. The disposition of the facility, located in Forest Park, GA, was part of our long-term program to expand and update the footprint of our facilities throughout the United States. We held the facility as rental property since 2011 after constructing a larger facility in the area. Any future gains or losses on disposition of facilities will be impacted by the market for real estate, which is beyond our control.

 

The $1.2 million decrease in other operating expenses in the 2020 period was primarily due to decreased costs associated with travel and entertainment.

 

As a result of the foregoing factors, our operating income improved 17.3% to $67.7 million in the 2020 period from $57.7 million in the 2019 period. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 89.5% in the 2020 period from 90.8% in the 2019 period. The operating ratio for our Truckload segment was 90.0% in the 2020 period and 92.0% in the 2019 period, for our Dedicated segment was 86.4% in the 2020 period and 88.1% in the 2019 period, for our Intermodal segment was 94.6% in the 2020 period and 92.2% in the 2019 period, and for our Brokerage segment was 93.2% in the 2020 period and 91.7% in the 2019 period. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 88.4% in the 2020 period from 89.5% in the 2019 period.

 

Our effective income tax rate increased to 26.4% in the 2020 period from 22.7% in the 2019 period. The 2020 period included additional income tax expense of $1.1 million to adjust for certain discrete tax benefit reserves, which we evaluate based on the current facts, circumstances and information available. The 2019 period included additional income tax benefits of $1.4 million resulting from certain discrete tax benefits included in our tax filings in the period which were not previously recognized.

 

As a result of the factors described above, net income improved 10.1% to $49.9 million, or $0.60 per diluted share, in the 2020 period from $45.3 million, or $0.55 per diluted share, in the 2019 period.

 

21

 

Liquidity and Capital Resources 

 

Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. Our primary sources of liquidity are funds provided by operations and our revolving credit facility. A portion of our tractor fleet is provided by independent contractors who own and operate their own equipment. We have no capital expenditure requirements relating to those drivers who own their tractors or obtain financing through third parties.

 

The table below reflects our net cash flows provided by operating activities, net cash flows used for investing activities and net cash flows used for financing activities for the periods indicated.

 

   

Nine Months

Ended September 30,

 

(In thousands)

 

2020

   

2019

 

Net cash flows provided by operating activities

  $ 154,707     $ 122,021  

Net cash flows used for investing activities

    (93,748

)

    (98,489

)

Net cash flows used for financing activities

    (4,141

)

    (39,815

)

 

In 2007, our Board of Directors approved, and we announced a share repurchase program to repurchase up to one million shares of our common stock either through purchases on the open market or through private transactions and in accordance with Rule 10b-18 of the Exchange Act. In 2015, our Board of Directors approved and we announced an increase in the share repurchase program, providing for the repurchase of up to $40 million, or approximately two million shares, of our common stock, which was increased by our Board of Directors to 3.3 million shares in August 2017 to reflect the five-for-three stock split effected in the form of a stock dividend on July 7, 2017. In August 2019, our Board of Directors approved and we announced an increase from current availability in our existing share repurchase program providing for the repurchase of up to $34 million, or approximately 1.8 million shares, of our common stock, which was increased by our Board of Directors to 2.7 million shares in August 2020 to reflect the three-for-two stock split effected in