MARTEN TRANSPORT LTD 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   Our common stock is listed on the NASDAQ Global Select Market under the symbol “MRTN.” On February 14, 2022, we had 162 record stockholders and approximately 17,505 beneficial stockholders of our common stock. 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. The following cash dividends and share amounts have been adjusted to give retroactive effect to the stock split for all periods presented.   Dividend Policy   In 2010, we announced a regular cash dividend program to our stockholders, subject to approval each quarter. We paid cash dividends totaling $54.7 million in 2021 which consisted of a special dividend of $0.50 per share of common stock in October, along with quarterly cash dividends of $0.04 per share of common stock in March, June, October and December. We paid cash dividends totaling $52.4 million in 2020 which consisted of a special dividend of $0.50 per share of common stock in December, along with quarterly cash dividends of $0.04 per share of common stock in the third and fourth quarters and of $0.027 per share of common stock in the first and second quarters. We paid cash dividends totaling $42.1 million in 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 quarter of 2019. We currently expect to continue to pay quarterly cash dividends in the future. The payment of cash dividends in the future, and the amount of any such dividends, will depend upon our financial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors.   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. Waivers allowing stock redemptions and dividends in excess of the 25% limitation in total amounts of up to $80 million in 2021, of up to $60 million in 2020 and of up to $65 million in 2019 were obtained from the lender in August 2021, November 2020 and August 2019, respectively.   Share Repurchase Program   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 share repurchase program allows purchases on the open market or through private transactions in accordance with Rule 10b-18 of the Exchange Act. 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 2019, in the rest of 2020 or in 2021. As of December 31, 2021, future repurchases of up to $33.4 million, or approximately 2.6 million shares, were available in the share repurchase program.   13     Comparative Stock Performance     The graph below compares the cumulative total stockholder return on our common stock with the NASDAQ Market index and the SIC code 4213 (trucking, except local) line-of-business index for the last five years. Research Data Group, Inc. prepared the line-of-business index. The graph assumes $100 is invested in our common stock, the NASDAQ Stock Market index and the line-of-business index on December 31, 2016, with reinvestment of dividends. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of our common stock. The information in the graph below shall be deemed “furnished” and not “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.     14     ITEM 7. 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 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 under the heading “ Risk Factors ” beginning on page 6. 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 each individual customer’s 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 refrigerated containers and our temperature-controlled trailers, 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.   15     Our operating revenue increased $99.3 million, or 11.4%, in 2021 from 2020. Our operating revenue, net of fuel surcharges, increased $65.4 million, or 8.3%, compared with 2020. Truckload segment revenue, net of fuel surcharges, increased 1.1% from 2020 due to an increase in our average revenue per tractor, despite a reduction in our average number of tractors. Dedicated segment revenue, net of fuel surcharges, increased 2.0% from 2020 primarily due to an increase in our average revenue per tractor. Intermodal segment revenue, net of fuel surcharges, increased 9.4% from 2020 primarily due to an increase in revenue per load. Brokerage segment revenue increased 50.2% primarily due to increases in both the number of loads and in revenue per load in 2021. Fuel surcharge revenue increased to $117.7 million in 2021 from $83.8 million in 2020, primarily due to higher fuel costs.   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 statements of operations.   Our operating income improved 19.8% to $111.7 million in 2021 from $93.2 million in 2020. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 88.5% in 2021 from 89.3% in 2020. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 87.0% in 2021 from 88.2% in 2020. Our net income improved 22.9% to $85.4 million, or $1.02 per diluted share, in 2021 from $69.5 million, or $0.84 per diluted share, in 2020.   Our business requires substantial, ongoing capital investments, particularly for new tractors and trailers. At December 31, 2021, we had $57.0 million of cash and cash equivalents, $651.7 million in stockholders’ equity and no long-term debt outstanding. In 2021, net cash flows provided by operating activities of $171.2 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $118.3 million, to pay cash dividends of $54.7 million, and to construct and upgrade regional operating facilities in the amount of $4.3 million, resulting in a $9.1 million decrease in cash and cash equivalents. We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $143 million in 2022. We paid cash dividends totaling $54.7 million in 2021 which consisted of a special dividend of $0.50 per share of common stock in October, along with quarterly cash dividends of $0.04 per share of common stock in March, June, October and December. 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. 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.   16     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 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.   Results of Operations   The following table sets forth for the years indicated certain operating statistics regarding our revenue and operations:        2021     2020     2019   Truckload Segment:                         Revenue (in thousands)   $ 396,666     $ 379,148     $ 378,000   Average revenue, net of fuel surcharges, per tractor per week (1)   $ 4,315     $ 3,926     $ 3,797   Average tractors (1)     1,539       1,668       1,663   Average miles per trip     516       547       548   Total miles (in thousands)     147,192       165,267       155,177                             Dedicated Segment:                         Revenue (in thousands)   $ 329,442     $ 309,784     $ 265,984   Average revenue, net of fuel surcharges, per tractor per week (1)   $ 3,377     $ 3,316     $ 3,378   Average tractors (1)     1,572       1,566       1,272   Average miles per trip     322       305       315   Total miles (in thousands)     128,256       132,597       108,814                             Intermodal Segment:                         Revenue (in thousands)   $ 102,245     $ 88,733     $ 90,394   Loads     32,987       36,444       36,309   Average tractors     143       106       91                             Brokerage Segment:                         Revenue (in thousands)   $ 145,291     $ 96,709     $ 108,893   Loads     66,512       58,986       63,200     (1) Includes tractors driven by both company-employed drivers and independent contractors. Independent contractors provided 93, 143 and 92 tractors as of December 31, 2021, 2020 and 2019, respectively.   17     Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020   The following table sets forth for the years indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:                       Dollar Change     Percentage Change   (Dollars in thousands)   2021     2020     2021 vs. 2020     2021 vs. 2020   Operating revenue:                                 Truckload revenue, net of fuel surcharge revenue   $ 346,289     $ 342,357     $ 3,932       1.1 % Truckload fuel surcharge revenue     50,377       36,791       13,586       36.9   Total Truckload revenue     396,666       379,148       17,518       4.6                                     Dedicated revenue, net of fuel surcharge revenue     276,883       271,550       5,333       2.0   Dedicated fuel surcharge revenue     52,559       38,234       14,325       37.5   Total Dedicated revenue     329,442       309,784       19,658       6.3                                     Intermodal revenue, net of fuel surcharge revenue     87,468       79,944       7,524       9.4   Intermodal fuel surcharge revenue     14,777       8,789       5,988       68.1   Total Intermodal revenue     102,245       88,733       13,512       15.2                                     Brokerage revenue     145,291       96,709       48,582       50.2                                     Total operating revenue   $ 973,644     $ 874,374     $ 99,270       11.4 %                                   Operating income:                                 Truckload   $ 51,032     $ 39,637     $ 11,395       28.7 % Dedicated     36,395       40,909       (4,514 )     (11.0 ) Intermodal     9,479       5,730       3,749       65.4   Brokerage     14,783       6,970       7,813       112.1   Total operating income   $ 111,689     $ 93,246     $ 18,443       19.8 %                                   Operating ratio (1) :                                 Truckload     87.1 %     89.5 %                 Dedicated     89.0       86.8                   Intermodal     90.7       93.5                   Brokerage     89.8       92.8                   Consolidated operating ratio     88.5 %     89.3 %                   (1) Represents operating expenses as a percentage of operating revenue.   Our operating revenue increased $99.3 million, or 11.4%, to $973.6 million in 2021 from $874.4 million in 2020. Our operating revenue, net of fuel surcharges, increased $65.4 million, or 8.3%, to $855.9 million in 2021 from $790.6 million in 2020. This increase was due to a $48.6 million increase in Brokerage revenue, a $7.5 million increase in Intermodal revenue, net of fuel surcharges, a $5.3 million increase in Dedicated revenue, net of fuel surcharges, and a $3.9 million increase in Truckload revenue, net of fuel surcharges. Fuel surcharge revenue increased by $33.9 million to $117.7 million in 2021 from $83.8 million in 2020 primarily due to higher fuel costs.   Truckload segment revenue increased $17.5 million, or 4.6%, to $396.7 million in 2021 from $379.1 million in 2020. Truckload segment revenue, net of fuel surcharges, increased $3.9 million, or 1.1%, to $346.3 million in 2021 from $342.4 million in 2020. During 2021, an increase in our average revenue per tractor was partially offset by a reduction in our average number of tractors. The improvement in the operating ratio in 2021 was primarily due to an increase in our average revenue per tractor due to increased rates with our customers and an increase in gain on disposition of revenue equipment, partially offset by increased company driver compensation expense.   18     Dedicated segment revenue increased $19.7 million, or 6.3%, to $329.4 million in 2021 from $309.8 million in 2020. Dedicated segment revenue, net of fuel surcharges, increased 2.0% primarily due to an increase in our average revenue per tractor. The operating ratio was negatively impacted in 2021 by increases in both company driver compensation expense and driver recruiting costs.   Intermodal segment revenue increased $13.5 million, or 15.2%, to $102.2 million in 2021 from $88.7 million in 2020. Intermodal segment revenue, net of fuel surcharges, increased 9.4% from 2020 primarily due to an increase in revenue per load. The improvement in the operating ratio in 2021 was primarily due to increased rates with our customers and a decrease in the amounts payable to railroads as a percentage of our revenue.   Brokerage segment revenue increased $48.6 million, or 50.2%, to $145.3 million in 2021 from $96.7 million in 2020 primarily due to increases in both the number of loads and in revenue per load. The improvement in the operating ratio in 2021 was primarily due to increased rates with our customers and a decrease 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 years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations, and those items as a percentage of operating revenue:       Dollar Change     Percentage Change     Percentage of Operating Revenue   (Dollars in thousands)   2021 vs. 2020     2021 vs. 2020     2021     2020                                     Operating revenue   $ 99,270       11.4 %     100.0 %     100.0 % Operating expenses (income):                                 Salaries, wages and benefits     17,807       5.9       32.7       34.3   Purchased transportation     38,608       25.0       19.8       17.7   Fuel and fuel taxes     33,155       33.8       13.5       11.2   Supplies and maintenance     (2,356 )     (4.9 )     4.7       5.5   Depreciation     (331 )     (0.3 )     10.5       11.8   Operating taxes and licenses     (306 )     (2.8 )     1.1       1.2   Insurance and claims     (5,467 )     (11.5 )     4.3       5.4   Communications and utilities     339       4.2       0.9       0.9   Gain on disposition of revenue equipment     (7,562 )     (86.6 )     (1.7 )     (1.0 ) Gain on disposition of facility     1,718       100.0       -       (0.2 ) Other     5,222       24.1       2.8       2.5   Total operating expenses     80,827       10.3       88.5       89.3   Operating income     18,443       19.8       11.5       10.7   Other     97       69.3       -       -   Income before income taxes     18,346       19.6       11.5       10.7   Income taxes expense     2,418       10.1       2.7       2.7   Net income   $ 15,928       22.9 %     8.8 %     7.9 %   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 $17.8 million, or 5.9%, in 2021 from 2020. This increase resulted primarily from additional company driver compensation expense of $12.6 million and a $2.7 million increase in bonus compensation expense for our non-driver employees. Other smaller increases in the components of salaries, wages and benefits were partially offset by a decrease in employees’ health insurance expense of $1.7 million in 2021 as a result of lower self-insured medical claims.   19     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 increased $38.6 million in total, or 25.0%, in 2021 from 2020. Amounts payable to carriers for transportation services we arranged in our Brokerage segment increased $39.5 million to $121.1 million in 2021 from $81.6 million in 2020, primarily due to an increase in the cost per load within the tight freight market and growth in load volume. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment decreased $236,000 to $55.8 million in 2021 from $56.0 million in 2020. The portion of purchased transportation expense related to independent contractors within our Truckload and Dedicated segments, including fuel surcharges, decreased $673,000 in 2021. We expect our purchased transportation expense to increase as we grow our Intermodal and Brokerage segments.   Fuel and fuel taxes increased by $33.2 million, or 33.8%, in 2021 from 2020. Net fuel expense (fuel and fuel taxes net of fuel surcharge revenue and surcharges passed through to independent contractors, outside drayage carriers and railroads) increased $2.9 million, or 11.9%, to $26.9 million in 2021 from $24.1 million in 2020. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads increased to $13.3 million from $9.7 million in 2020. The United States Department of Energy, or DOE, national average cost of fuel increased to $3.29 per gallon from $2.55 per gallon in 2020. This increase was a primary factor in our net fuel expense increasing to 3.8% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 3.5% in 2020. 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.   Supplies and maintenance consist of repairs, maintenance, tires, parts, oil and engine fluids, along with load-specific expenses including loading/unloading, tolls, pallets and trailer hostling. Our supplies and maintenance expense decreased $2.4 million, or 4.9%, from 2020 primarily due to lower outside repair, loading/unloading and parts costs.   Depreciation relates to owned tractors, trailers, containers, auxiliary power units, communication units, terminal facilities and other assets. The $331,000, or 0.3%, decrease in depreciation in 2021 was primarily due to a decrease in the size of our fleet of tractors partially offset by increased depreciation for our refrigerated containers. 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 $5.5 million, or 11.5%, decrease in insurance and claims in 2021 was primarily due to decreases in the cost of our self-insured physical damage claims related to our revenue equipment and our self-insured auto liability and workers’ compensation claims, partially offset by an increase in our insurance premiums. 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 was $16.3 million in 2021, up from $8.7 million in 2020 primarily due to an increase in the average gain for our tractor and trailer sales along with an increase in the number of units 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 2020. 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.   The $5.2 million increase in other operating expenses in 2021 was primarily due to increased costs associated with driver recruitment and retention.   20     Our operating income improved 19.8% to $111.7 million in 2021 from $93.2 million in 2020 as a result of the foregoing factors. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 88.5% in 2021 from 89.3% in 2020. The operating ratio for our Truckload segment was 87.1% in 2021 and 89.5% in 2020, for our Dedicated segment was 89.0% in 2021 and 86.8% in 2020, for our Intermodal segment was 90.7% in 2021 and 93.5% in 2020, and for our Brokerage segment was 89.8% in 2021 and 92.8% in 2020. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 87.0% in 2021 from 88.2% in 2020.   Our effective income tax rate decreased to 23.5% in 2021 from 25.6% in 2020 primarily due to decreases in per diem and other non-deductible expenses and in state income taxes.   As a result of the factors described above, net income improved 22.9% to $85.4 million, or $1.02 per diluted share, in 2021 from $69.5 million, or $0.84 per diluted share, in 2020.   Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019   The following table sets forth for the years indicated our operating revenue, operating income and operating ratio by segment, along with the change for each component:                       Dollar Change     Percentage Change   (Dollars in thousands)   2020     2019     2020 vs. 2019     2020 vs. 2019   Operating revenue:                                 Truckload revenue, net of fuel surcharge revenue   $ 342,357     $ 329,304     $ 13,053       4.0 % Truckload fuel surcharge revenue     36,791       48,696       (11,905 )     (24.4 ) Total Truckload revenue     379,148       378,000       1,148       0.3                                     Dedicated revenue, net of fuel surcharge revenue     271,550       223,935       47,615       21.3   Dedicated fuel surcharge revenue     38,234       42,049       (3,815 )     (9.1 ) Total Dedicated revenue     309,784       265,984       43,800       16.5                                     Intermodal revenue, net of fuel surcharge revenue     79,944       77,750       2,194       2.8   Intermodal fuel surcharge revenue     8,789       12,644       (3,855 )     (30.5 ) Total Intermodal revenue     88,733       90,394       (1,661 )     (1.8 )                                   Brokerage revenue     96,709       108,893       (12,184 )     (11.2 )                                   Total operating revenue   $ 874,374     $ 843,271     $ 31,103       3.7 %                                   Operating income:                                 Truckload   $ 39,637     $ 29,666     $ 9,971       33.6 % Dedicated     40,909       31,245       9,664       30.9   Intermodal     5,730       6,612       (882 )     (13.3 ) Brokerage     6,970       8,975       (2,005 )     (22.3 ) Total operating income   $ 93,246     $ 76,498     $ 16,748       21.9 %                                   Operating ratio (1) :                                 Truckload     89.5 %     92.2 %                 Dedicated     86.8       88.3                   Intermodal     93.5       92.7                   Brokerage     92.8       91.8                   Consolidated operating ratio     89.3 %     90.9 %                   (1) Represents operating expenses as a percentage of operating revenue.   21     Our operating revenue increased $31.1 million, or 3.7%, to $874.4 million in 2020 from $843.3 million in 2019. Our operating revenue, net of fuel surcharges, increased $50.7 million, or 6.8%, to $790.6 million in 2020 from $739.9 million in 2019. This increase was due to a $47.6 million increase in Dedicated revenue, net of fuel surcharges, a $13.1 million increase in Truckload revenue, net of fuel surcharges, and a $2.2 million increase in Intermodal revenue, net of fuel surcharges, partially offset by a $12.2 million decrease in Brokerage revenue. Fuel surcharge revenue decreased to $83.8 million in 2020 from $103.4 million in 2019 due to significantly lower fuel prices.   Truckload segment revenue increased $1.1 million, or 0.3%, to $379.1 million in 2020 from $378.0 million in 2019. Truckload segment revenue, net of fuel surcharges, increased $13.1 million, or 4.0%, to $342.4 million in 2020 from $329.3 million in 2019, primarily due to an increase in our average revenue per tractor. The improvement in the operating ratio in 2020 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 $43.8 million, or 16.5%, to $309.8 million in 2020 from $266.0 million in 2019. Dedicated segment revenue, net of fuel surcharges, increased 21.3% 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 2020 was primarily due to a decrease in net fuel expense as a percentage of revenue along with multiple cost control measures.   Intermodal segment revenue decreased $1.7 million, or 1.8%, to $88.7 million in 2020 from $90.4 million in 2019. Intermodal segment revenue, net of fuel surcharges, increased 2.8% from 2019 primarily due to increased revenue, net of fuel surcharges, per load. The increase in the operating ratio in 2020 was primarily due to an increase in salaries, wages and benefits expense as a percentage of revenue.   Brokerage segment revenue decreased $12.2 million, or 11.2%, to $96.7 million in 2020 from $108.9 million in 2019 primarily due to a decrease in both revenue per load and load volume. The increase in the operating ratio in 2020 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 years indicated the dollar and percentage increase or decrease of the items in our consolidated statements of operations, and those items as a percentage of operating revenue:       Dollar Change     Percentage Change     Percentage of Operating Revenue   (Dollars in thousands)   2020 vs. 2019     2020 vs. 2019     2020     2019                                     Operating revenue   $ 31,103       3.7 %     100.0 %     100.0 % Operating expenses (income):                                 Salaries, wages and benefits     25,999       9.5       34.3       32.5   Purchased transportation     (4,335 )     (2.7 )     17.7       18.8   Fuel and fuel taxes     (23,208 )     (19.1 )     11.2       14.4   Supplies and maintenance     1,078       2.3       5.5       5.5   Depreciation     7,756       8.2       11.8       11.3   Operating taxes and licenses     740       7.3       1.2       1.2   Insurance and claims     9,253       24.2       5.4       4.5   Communications and utilities     302       3.9       0.9       0.9   Gain on disposition of revenue equipment     (53 )     (0.6 )     (1.0 )     (1.0 ) Gain on disposition of facility     (1,718 )     N/A       (0.2 )     -   Other     (1,459 )     (6.3 )     2.5       2.7   Total operating expenses     14,355       1.9       89.3       90.9   Operating income     16,748       21.9       10.7       9.1   Other     1,050       88.2       -       (0.1 ) Income before income taxes     15,698       20.2       10.7       9.2   Income taxes expense     7,269       43.7       2.7       2.0   Net income   $ 8,429       13.8 %     7.9 %     7.2 %   22     Salaries, wages and benefits expense increased $26.0 million, or 9.5%, in 2020 from 2019. This increase resulted primarily from additional company driver compensation expense of $17.7 million, a $1.4 million increase in bonus compensation expense for our non-driver employees and a $1.3 million increase in employees’ health insurance expense as a result of increased self-insured medical claims.   Purchased transportation expense decreased $4.3 million in total, or 2.7%, in 2020 from 2019. Amounts payable to railroads and drayage carriers for transportation services within our Intermodal segment decreased $3.3 million to $56.0 million in 2020 from $59.3 million in 2019, primarily due to a decrease in the fuel surcharge component of the amounts payable. Amounts payable to carriers for transportation services we arranged in our Brokerage segment decreased $9.0 million to $81.6 million in 2020 from $90.7 million in 2019, 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 $8.0 million in 2020 as the number of independent contractors rose.   Fuel and fuel taxes decreased by $23.2 million, or 19.1%, in 2020 from 2019 primarily 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 $6.0 million, or 19.9%, to $24.1 million in 2020 from $30.1 million in 2019. Fuel surcharges passed through to independent contractors, outside drayage carriers and railroads decreased to $9.7 million from $12.1 million in 2019. The DOE national average cost of fuel decreased to $2.55 per gallon from $3.06 per gallon in 2019. Net fuel expense decreased to 3.5% of Truckload, Dedicated and Intermodal segment revenue, net of fuel surcharges, from 4.8% in 2019. 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.   The $7.8 million, or 8.2%, increase in depreciation in 2020 was primarily due to an increase in the size of our fleet of tractors.   The $9.3 million, or 24.2%, increase in insurance and claims in 2020 was primarily due to an increase in our insurance premiums along with increases in the cost of our self-insured workers’ compensation, auto liability and physical damage claims related to our revenue equipment.   Gain on disposition of revenue equipment was $8.7 million in each of 2020 and 2019.   Gain on disposition of facility was $1.7 million in 2020. 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 $1.5 million decrease in other operating expenses in 2020 was primarily due to decreased costs associated with travel and entertainment.   As a result of the foregoing factors, our operating income improved 21.9% to $93.2 million in 2020 from $76.5 million in 2019. Our operating expenses as a percentage of operating revenue, or “operating ratio,” improved to 89.3% in 2020 from 90.9% in 2019. The operating ratio for our Truckload segment was 89.5% in 2020 and 92.2% in 2019, for our Dedicated segment was 86.8% in 2020 and 88.3% in 2019, for our Intermodal segment was 93.5% in 2020 and 92.7% in 2019, and for our Brokerage segment was 92.8% in 2020 and 91.8% in 2019. Operating expenses as a percentage of operating revenue, with both amounts net of fuel surcharges, improved to 88.2% in 2020 from 89.7% in 2019.   The decrease in our other non-operating income was primarily due to less interest income earned in 2020.   Our effective income tax rate increased to 25.6% in 2020 from 21.4% in 2019. Additional income tax expense of $1.1 million was included in 2020 to adjust for certain discrete tax benefit reserves, which we evaluate based on the current facts, circumstances and information available. Additional income tax benefits of $1.4 million were included in 2019 which resulted 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 13.8% to $69.5 million, or $0.84 per diluted share, in 2020 from $61.1 million, or $0.74 per diluted share, in 2019.   23     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 years indicated.   (In thousands)   2021     2020     2019   Net cash flows provided by operating activities   $ 171,204     $ 189,598     $ 156,460   Net cash flows used for investing activities     (123,734 )     (106,325 )     (140,509 ) Net cash flows used for financing activities     (56,602 )     (48,607 )     (41,253 )   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 share repurchase program allows purchases on the open market or through private transactions in accordance with Rule 10b-18 of the Exchange Act. 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 2019, in the rest of 2020 or in 2021. As of December 31, 2021, future repurchases of up to $33.4 million, or approximately 2.6 million shares, were available in the share repurchase program.   In 2021, net cash flows provided by operating activities of $171.2 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $118.3 million, to pay cash dividends of $54.7 million, and to construct and upgrade regional operating facilities in the amount of $4.3 million, resulting in a $9.1 million decrease in cash and cash equivalents. In 2020, net cash flows provided by operating activities of $189.6 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $102.2 million, to pay cash dividends of $52.4 million, and to upgrade and acquire regional operating facilities in the amount of $5.4 million, resulting in a $34.7 million increase in cash and cash equivalents. In 2019, net cash flows provided by operating activities of $156.5 million were primarily used to purchase new revenue equipment, net of proceeds from dispositions, in the amount of $136.9 million, to pay cash dividends of $42.1 million, and to upgrade regional operating facilities in the amount of $2.9 million, resulting in a $25.3 million decrease in cash and cash equivalents.   We estimate that capital expenditures, net of proceeds from dispositions, will be approximately $143 million in 2022. This amount includes commitments to purchase $28.3 million of new revenue equipment and $2.6 million in building construction in 2022. We also have commitments to purchase $14.5 million of new revenue equipment in 2023. Additionally, operating lease obligations total $594,000 through 2026. We paid cash dividends totaling $54.7 million in 2021 which consisted of a special dividend of $0.50 per share of common stock in October, along with quarterly cash dividends of $0.04 per share of common stock in March, June, October and December. We paid cash dividends totaling $52.4 million in 2020 which consisted of a special dividend of $0.50 per share of common stock in December, along with quarterly cash dividends of $0.04 per share of common stock in the third and fourth quarters and of $0.027 per share of common stock in the first and second quarters. We paid cash dividends totaling $42.1 million in 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 quarter of 2019. We currently expect to continue to pay quarterly cash dividends in the future. The payment of cash dividends in the future, and the amount of any such dividends, will depend upon our financial condition, results of operations, cash requirements, and certain corporate law requirements, as well as other factors deemed relevant by our Board of Directors. 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.   24     We maintain a credit agreement that provides for an unsecured committed credit facility with an aggregate principal amount of $30.0 million which matures in August 2023. At December 31, 2021, 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 $18.5 million and remaining borrowing availability of $11.5 million. 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.   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. Waivers allowing stock redemptions and dividends in excess of the 25% limitation in total amounts of up to $80 million in 2021, of up to $60 million in 2020 and of up to $65 million in 2019 were obtained from the lender in August 2021, November 2020 and August 2019, respectively. 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 December 31, 2021 and 2020.   Other than our obligations for revenue equipment purchases and operating lease expenditures, along with our outstanding standby letters of credit to guarantee settlement of self-insurance claims, which are each mentioned above, and our obligation to issue shares of our common stock under our nonqualified deferred compensation plan with a value of $1.8 million at December 31, 2021, we did not have any material off-balance sheet arrangements at December 31, 2021.   Seasonality   Our tractor productivity generally decreases during the winter season because inclement weather impedes operations and some shippers reduce their shipments. At the same time, operating expenses generally increase, with harsh weather creating higher accident frequency, increased claims, lower fuel efficiency and more equipment repairs.   Critical Accounting Estimates   The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, revenue and expenses in our consolidated financial statements and related notes. We base our estimates, assumptions and judgments on historical experience, current trends and other factors believed to be relevant at the time our consolidated financial statements are prepared. However, because future events and their effects cannot be determined with certainty, actual results could differ from our estimates and assumptions, and such differences could be material. We believe that the following area involves critical accounting estimates due to the levels of subjectivity and judgment that are necessary to account for its highly uncertain matters, the susceptibility of such matters to change, and the potentially material impact these estimates and assumptions could have to our financial condition and operating performance.   Auto Liability and Workers ’ Compensation Claims Reserves. We self-insure for our portion of claims exposure resulting from auto liability and workers’ compensation claims. We are responsible for the first $1.0 million on each auto liability claim and for the first $750,000 on each workers’ compensation claim. Additionally, we have $18.5 million in standby letters of credit to guarantee settlement of claims under agreements with our insurance carriers and regulatory authorities. 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. However, we could suffer a series of losses within our self-insured retention limits or losses over our policy limits, which could negatively affect our financial condition and operating results. Our auto liability and workers’ compensation claims expense and the related claims reserves will vary primarily based upon the frequency and severity of our accident experience. The total auto liability and workers’ compensation claims reserves within the insurance and claims accruals in our consolidated balance sheets were $36.8 million and $33.1 million as of December 31, 2021 and 2020, respectively. The excess of the insurance and claims accruals over these amounts relates to general liability, cargo and property damage claims, along with reserves for physical damage to our equipment and outstanding employees’ health insurance claims.   25     We reserve for the estimated cost of the uninsured portion of pending auto liability and workers’ compensation claims, including legal costs. These case reserves are periodically evaluated and adjusted based on our continuing evaluation of the nature and severity of each individual claim. Claims development factors are applied to the total amount of the individual claims’ case reserves by year incurred to estimate future claims development based on our historical experience. Our claims development factors phase down each year over nine years for auto liability claims and eleven years for workers’ compensation claims from the year incurred. We also ensure that our total recorded auto liability and workers’ compensation claims reserves are within a range of reasonable amounts determined in an independent actuarial analysis. There were no changes to our methodology used to estimate our ultimate claims losses in 2021 or 2020. Projection of losses is subject to a high level of estimation uncertainty and actual results could differ from these current estimates. Our estimates require judgments concerning the nature and severity of each claim, historical trends, consultation with actuarial experts, settlement patterns, jury awards, litigation trends, and legal interpretations, which are difficult to predict.   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   We are exposed to a variety of market risks, most importantly the effects of the price and availability of diesel fuel. We require substantial amounts of diesel fuel to operate our tractors and power the temperature-control units on our trailers. The price and availability of diesel fuel can vary, and are subject to political, economic and market factors that are beyond our control. Significant increases in diesel fuel costs could materially and adversely affect our results of operations and financial condition. Based upon our fuel consumption in 2021, a 5% increase in the average cost of diesel fuel would have increased our fuel expense by $6.4 million.   We have historically been able to pass through a significant portion of long-term increases in diesel fuel prices and related taxes to customers in the form of fuel surcharges. Fuel surcharge programs are widely accepted among our customers, though they can vary somewhat from customer-to-customer. These fuel surcharges, which adjust weekly with the cost of fuel, enable us to recover a substantial portion of the higher cost of fuel as prices increase. These fuel surcharge provisions are not effective in mitigating the fuel price increases related to non-revenue miles or fuel used while the tractor is idling. In addition, 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 our trailers’ refrigeration units.   While we do not currently have any outstanding hedging instruments to mitigate this market risk, we may enter into derivatives or other financial instruments to hedge a portion of our fuel costs in the future.   26