What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-12 compared with 2021-05-13 · 172 added, 77 removed, 135 unchanged (65% of the section changed)

19 unchanged sentences

We also derive revenue from fuel surcharges, where separately identifiable, loading and unloading activities, equipment detention, container management and storage and other related services.

Operations aggregated in our transportation segment are associated with individual freight shipments coordinated by our agents, company-managed terminals and specialized services operations.

In contrast, operations aggregated in our logistics segment deliver value-added services and transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer.

Our segments are distinguished by the amount of forward visibility we have in regards to pricing and volumes, and also by the extent to which we dedicate resources and Company-owned equipment.

Operations in our intermodal, trucking and company-managed brokerage segments are associated with individual freight shipments coordinated by our agents and company-managed terminals.

In contrast, our contract logistics segment delivers value-added services and/or transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer.

Our segments are further distinguished by the amount of forward visibility we have into pricing and volumes, and also by the extent to which we dedicate resources and company-owned equipment.

Fees charged to customers by our full service international freight forwarding and customs house brokerage are based on the specific means of forwarding or delivering freight on a shipment-by-shipment basis.

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 and the unaudited Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q.

10 unchanged sentences

Our truckload, brokerage and intermodal services associated with individual freight shipments coordinated by our agents and company-managed terminals, while our dedicated and value-added services to specific customers on a contractual basis, generally pursuant to contract terms of one year or longer .

The following table sets forth operating revenues resulting from each of these categories for the thirteen weeks ended April 3, 2021 and April 4, 2020, presented as a percentage of total operating revenues:

The following table sets forth operating revenues resulting from each of these categories for the thirteen weeks and twenty-six weeks ended July 3, 2021 and July 4, 2020, presented as a percentage of total operating revenues:

Thirteen Weeks Ended

Twenty-six Weeks Ended

Operating revenues:

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Results of Operations

The following table sets forth items derived from our consolidated statements of income for the thirteen weeks ended April 3, 2021 and April 4, 2020, presented as a percentage of operating revenues:

The following table sets forth items derived from our consolidated statements of income for the thirteen weeks and twenty-six weeks ended July 3, 2021 and July 4, 2020, presented as a percentage of operating revenues:

Thirteen Weeks Ended

Twenty-six Weeks Ended

Operating revenues:

10 unchanged sentences

Income from operations

Interest and other non-operating expense, net

Interest and other non-operating income

(expense), net

Income before income taxes

Income tax expense

Thirteen Weeks Ended April 3 , 202 1 Compared to Thirteen Weeks Ended April 4 , 20 20

Thirteen Weeks Ended July 3, 2021 Compared to Thirteen Weeks Ended July 4, 2020

Operating revenues .

Operating revenues for the thirteen weeks ended April 3, 2021 increased $33.1 million, or 8.7%, to $415.2 million from $382.2 million for the thirteen weeks ended April 4, 2020.

Included in operating revenues are separately-identified fuel surcharges of $20.2 million for the thirteen weeks ended April 3, 2021 compared to $23.1 million for the thirteen weeks ended April 4, 2020.

Consolidated income from operations increased $7.2 million, or 30.3%, to $31.2 million for the first quarter 2021 compared to $23.9 million during the same period last year.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $27.9 million, or 21.9%, to $154.9 million in the first quarter 2021 compared to $127.0 million in the previous year.

Income from operations in the contract logistics segment increased $5.1 million, or 43.9%, to $16.8 million for the thirteen weeks ended April 3, 2021 compared to $11.7 million in the same period last year.

The improved performance was due to the successful launch of new business wins and robust volumes at current operations.

In the first quarter of 2021, Universal managed 60 value-added programs compared to 56 in the prior year period.

During the recently completed quarter, dedicated transportation load count increased 12.1% to 156,375 from 139,515 in the first quarter 2020.

In the intermodal segment, operating revenues decreased $6.6 million to $103.7 million in the first quarter 2021 compared to $110.3 million in the previous year.

Intermodal revenues for the thirteen weeks ended April 3, 2021 included $10.2 million in separately identified fuel surcharges, compared to $13.6 million in the same period last year.

During the first quarter 2021, Universal moved 179,905 intermodal loads compared to 197,783 in the first quarter 2020, a decrease of 9.0%, while its average operating revenue per load, excluding fuel surcharges decreased 6.5% to $461 from $493.

These decreases were partially offset by increases in accessorial and other non-line haul charges during the recently ended quarter.

Income from operations in the intermodal segment decreased $0.5 million to $8.5 million for the thirteen weeks ended April 3, 2021 compared to $9.0 million in the first quarter 2020.

As a percentage of revenue, operating margin in the intermodal segment was unchanged at 8.2% during both the first quarters of 2021 and 2020.

In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased $3.3 million to $94.9 million in the first quarter 2021 compared to $91.6 million in the prior year period.

Included in trucking segment revenues for the first quarter 2021 were $5.1 million in separately identified fuel surcharges compared to $6.0 million during the first quarter 2020.

Income from operations in the trucking segment increased $0.7 million to $5.2 million for the first quarter 2021 compared to $4.5 million in the same period last year.

During the recently completed quarter, Universal’s average operating revenue per load, excluding fuel surcharges, increased 7.1% to $1,246 from $1,163 in the prior year period;

however, this increase was partially offset by a 4.6% decrease in load volumes.

During the first quarter 2021, Universal moved 72,744 loads compared to 76,216 during the same period last year.

In the company-managed brokerage segment, operating revenues increased $8.3 million, or 15.8%, to $61.1 million in the thirteen weeks ending April 3, 2021 compared to $52.8 million in the thirteen weeks ending April 4, 2020.

During the recently completed quarter, the average operating revenue per load, excluding fuel surcharges, increased 42.4% to $1,737 from $1,220 in the first quarter 2020;

however, load volumes fell 20.8% to 32,885 from 41,523.

As a percentage of revenue, operating margin for the company-managed brokerage segment was 0.7% for the first quarter 2021 compared to (2.6%) in the same period last year.

Operating revenues for the thirteen weeks ended July 3, 2021 increased $164.8 million, or 63.9%, to $422.8 million from $258.0 million for the thirteen weeks ended July 4, 2020.

Included in operating revenues are separately-identified fuel surcharges of $23.0 million for the thirteen weeks ended July 3, 2021 compared to $12.4 million for the thirteen weeks ended July 4, 2020.

Consolidated income from operations increased $20.5 million, or 188.9%, to $31.3 million for the second quarter 2021 compared to $10.8 million during the same period last year.

Second quarter 2020 results were negatively impacted by the Covid-19 pandemic which resulted in a substantial portion of our customers being shuttered during the quarter.

Second quarter 2021 results include a favorable legal settlement which resulted in a $5.7 million pre-tax gain.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $83.0 million, or 115.6%, to $154.8 million in the second quarter 2021 compared to $71.8 million in the previous year.

Income from operations in the contract logistics segment increased $15.2 million to $15.9 million for the thirteen weeks ended July 3, 2021 compared to $0.8 million in the same period last year.

The improved performance was due to recent program wins and a more stable operating environment.

Second quarter 2020 results were negatively impacted by the shutdown of North American automotive and heavy-duty truck manufacturing due to the Covid-19 pandemic.

In the second quarter of 2021, Universal managed 60 value-added programs compared to 55 in the prior year period.

During the recently completed quarter, dedicated transportation load count increased 170.6% to 156,119 from 57,703 in the second quarter 2020.

Second quarter 2021 results in the contract logistics segment include approximately $5.0 million of losses incurred in connection with a recent program launch.

As a percentage of revenue, operating margin in the contract logistics segment for the second quarter 2021 was 10.3% compared to 1.0% during the same period last year.

In the intermodal segment, operating revenues increased $23.7 million, or 28.6%, to $106.6 million in the second quarter 2021 compared to $82.9 million in the previous year.

Intermodal revenues for the thirteen weeks ended July 3, 2021 included $11.7 million in separately identified fuel surcharges, compared to $8.2 million in the same period last year.

During the second quarter 2021, Universal moved 169,441 intermodal loads compared to 156,779 in the second quarter 2020, an increase of 8.1%, while its average operating revenue per load, excluding fuel surcharges, increased 5.8% to $490 from $463.

Additionally, assessorial and other non-line haul charges increased $5.9 million during the second quarter 2021.

Income from operations in the intermodal segment increased $1.4 million to $6.2 million for the thirteen weeks ended July 3, 2021 compared to $4.7 million in the second quarter 2020.

As a percentage of revenue, operating margin in the intermodal segment increased to 5.8% compared to 5.7% in the second quarter of 2020.

In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased $36.8 million to $99.8 million in the second quarter 2021 compared to $63.0 million in the prior year period.

Included in trucking segment revenues for the second quarter 2021 were $6.0 million in separately identified fuel surcharges compared to $2.9 million during the second quarter 2020.

Income from operations in the trucking segment increased $2.9 million to $6.5 million for the second quarter 2021 compared to $3.6 million in the same period last year.

During the recently completed quarter, load volumes increased 47.7% to 75,645 loads compared to 51,222 during the same period last year.

Universal’s average operating revenue per load, excluding fuel surcharges, also increased 3.5% to $1,286 from $1,242 in the prior year period.

As a percentage of revenue, operating margin in the trucking segment for the second quarter 2021 was 6.5% compared to 5.7% for the second quarter 2020.

In the company-managed brokerage segment, operating revenues increased $20.5 million, or 51.3%, to $60.4 million in the thirteen weeks ending July 3, 2021 compared to $39.9 million in the thirteen weeks ending July 4, 2020.

Income from operations in the company-managed brokerage segment increased $0.7 million to $2.4 million for the second quarter 2021 from $1.7 million for the second quarter 2020.

Average operating revenue per load, excluding fuel surcharges, increased 71.4% to $1,879 in the second quarter 2021 from $1,096 in the second quarter 2020.

Company-managed brokerage load volumes decreased 6.1% to 31,006 from 33,020.

As a percentage of revenue, operating margin for the company-managed brokerage segment was 4.0% for the second quarter 2021 compared to 4.3% in the same period last year.

Purchased transportation and equipment rent .

Purchased transportation and equipment rental costs for the first quarter 2021 increased $8.5 million, or 4.7%, to $189.3 million from $180.9 million during the same period last year.

Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers.

The increases or decreases are generally correlated with changes in demand for transportation-related services, which includes truckload, brokerage, intermodal and to a lesser extent, dedicated services, which uses a higher mix of company-drivers compared to owner-operators.

The absolute increase in purchased transportation and equipment rental costs was primarily the result of an overall increase in transportation-related services.

First quarter 2021 transportation-related service revenues increased 7.5% compared to the first quarter of 2020.

As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 45.6% compared to 47.3% during the same period last year due to a decrease in the mix of transportation-related service revenue.

As a percentage of total revenues, transportation-related service revenue decreased to 74.2% for 2021 compared to 75.0% in the same period last year.

Purchased transportation and equipment rental costs for the second quarter 2021 increased $69.4 million, or 54.0%, to $198.0 million from $128.6 million during the same period last year.

Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers, and is generally correlated with changes in demand for transportation-related services, which includes truckload, brokerage, intermodal and to a lesser extent, dedicated services, which uses a higher mix of company-drivers compared to owner-operators.

The absolute increase in purchased transportation and equipment rental costs was primarily the result of an increase in transportation-related service revenues.

Second quarter 2021 transportation-related service revenues increased 55.9% compared to the second quarter of 2020.

As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 46.8% compared to 49.9% during the same period last year.

The decrease was due to a decrease in the mix of transportation-related service revenue.

As a percentage of total revenues, transportation-related service revenue decreased to 75.3% for the thirteen weeks ended July 3, 2021 compared to 79.2% in the same period last year.

Direct personnel and related benefits .

Direct personnel and related benefits for the thirteen weeks ended April 3, 2021 increased by $10.2 million, or 10.4%, to $107.6 million compared to $97.4 million during the same period last year.

Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase and decrease with the level of demand for our staffing needs in our contract logistics segment , which includes value-added services and dedicated transportation .

The increase was due to the launch of new business wins and robust volumes experienced during the current quarter .

As a percentage of operating revenues, personnel and related benefits increased to 25.9% for the thirteen weeks ended April 3, 2021, compared to 25.5% for the thirteen weeks ended April 4, 2020.

Direct personnel and related benefits for the thirteen weeks ended July 3, 2021 increased by $53.4 million, or 92.7%, to $111.0 million compared to $57.6 million during the same period last year.

Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase and decrease with the level of demand for our value-added services and staffing needs of our operations.

The increase was due to the launch of new business wins and robust volumes in our contract logistics segment in 2021, as well as the impact of temporary layoffs and furloughs in 2020 in response to the Covid-19 pandemic.

As a percentage of operating revenues, personnel and related benefits increased to 26.3% for the thirteen weeks ended July 3, 2021, compared to 22.3% for the thirteen weeks ended July 4, 2020.

The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles.

2 unchanged sentences

Operating supplies and expenses .

Operating supplies and expenses increased by $6.4 million, or 20.8%, to $37.1 million for the thirteen weeks ended April 3, 2021 compared to $30.7 million for the thirteen weeks ended April 4, 2020.

Operating supplies and expenses increased by $15.8 million, or 92.9%, to $32.7 million for the thirteen weeks ended July 3, 2021 compared to $17.0 million for the thirteen weeks ended July 4, 2020.

These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand.

The main elements driving the change included increases of $3.7 million in operating supplies and material costs in operations supporting heavy-truck programs, $1.3 million in professional fees, and $1.2 million in vehicle and other maintenance.

The main elements of the increase included increases of $8.9 million in fuel expense, $3.3 million in vehicle and other maintenance, $2.3 million in operating supplies and material costs in operations supporting heavy-truck programs, and $1.7 million in travel and entertainment.

Commission expense .

Commission expense for the first quarter 2021 increased by $0.2 million, or 2.1%, to $7.3 million from $7.2 million for the first quarter 2020.

Commission expense for the second quarter 2021 increased by $3.5 million, or 70.6%, to $8.6 million from $5.0 million for the second quarter 2020.

Commission expense increased due to increased revenue in the agency based truckload business.

As a percentage of operating revenues, commission expense decreased to 1.8% for the thirteen weeks ending April 3, 2021, compared to 1.9% one year earlier.

As a percentage of operating revenues, commission expense increased to 2.0% for the thirteen weeks ending July 3, 2021, compared to 1.9% one year earlier.

Occupancy expense .

Occupancy expenses decreased by $0.7 million, or 7.4%, to $8.2 million for the thirteen weeks ended April 3, 2021.

This compares to $8.8 million for the thirteen weeks ended April 4, 2020.

Occupancy expenses increased by $0.4 million, or 4.5%, to $9.4 million for the thirteen weeks ended July 3, 2021.

This compares to $9.0 million for the thirteen weeks ended July 4, 2020.

The increase was attributable to an increase in building rents and property taxes.

General and administrative .

General and administrative expense for the thirteen weeks ended July 3, 2021 increased by $3.1 million to $9.7 million from $6.6 million in the thirteen weeks ended July 4, 2020.

The increase was attributable to a $2.8 million increase in salaries, wages, and benefits and a $0.2 million increase in professional fees.

As a percentage of operating revenues, general and administrative expense was 2.3% for the second quarter 2021 compared to 2.6% for the second quarter 2020.

Insurance and claims .

Insurance and claims expense for the second quarter 2021 increased by $0.9 million to $5.7 million from $4.9 million in the second quarter 2020.

The increase was attributable to an increase in auto liability premiums and claims.

As a percentage of operating revenues, insurance and claims decreased to 1.4% for the thirteen weeks ending July 3, 2021 compared to 1.9% for the second quarter 2020.

Depreciation and amortization .

Depreciation and amortization expense for the thirteen weeks ended July 3, 2021 decreased by $2.2 million, or 11.8%, to $16.3 million from $18.5 million for the second quarter 2020.

Depreciation expense decreased $1.7 million and amortization expense decreased $0.5 million.

Interest expense, net .

Net interest expense was $2.9 million for the thirteen weeks ended July 3, 2021 compared to $3.4 million for the thirteen weeks ended July 4, 2020.

The decrease in net interest expense reflects a decrease in interest rates on our outstanding borrowings.

As of July 4, 2021, our outstanding borrowings totaled $433.5 million compared to $405.6 million at the same time last year.

Other non-operating income (expense) .

Other non-operating income was $6.1 million for the second quarter 2021 compared to $0.8 million for the second quarter 2020.

Other non-operating income for the second quarter 2021 includes a $5.7 million pre-tax gain from a favorable legal settlement.

Also included in other non-operating income for the second quarter 2021 was a $0.4 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to $0.9 million in the second quarter 2020.

Income tax expense .

Income tax expense for the second quarter 2021 was $8.9 million, compared to $2.0 million for the second quarter 2020, based on an effective tax rate of 25.7% and 24.9% respectively.

The increase in income taxes in 2021 is the result of an increase in taxable income and our effective tax rate for the thirteen weeks ended July 3, 2021 compared to the thirteen weeks ended July 4, 2020.

Twenty-six Weeks Ended July 3, 2021 Compared to Twenty-six Weeks Ended July 4, 2020

Operating revenues .

Operating revenues for the twenty-six weeks ended July 3, 2021 increased $197.9 million, or 30.9%, to $838.0 million from $640.1 million for the twenty-six weeks ended July 4, 2020.

Included in operating revenues are separately-identified fuel surcharges of $43.1 million for the twenty-six weeks ended July 3, 2021 compared to $35.4 million for the twenty-six weeks ended July 4, 2020.

Consolidated income from operations increased $27.7 million, or 79.8%, to $62.5 million for the first half of 2021 compared to $34.7 million during the same period last year.

Results for the twenty-six weeks ended July 4, 2020 were negatively impacted by the Covid-19 pandemic which resulted in a substantial portion of our customers being shuttered.

Results for the twenty-six weeks ended July 3, 2021 include a favorable legal settlement which resulted in a $5.7 million pre-tax gain.

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $110.8 million, or 55.7%, to $309.7 million in the first half of 2021 compared to $198.8 million in the previous year.

Income from operations in the contract logistics segment increased $20.3 million, or 163.4%, to $32.8 million for the twenty-six weeks ended July 3, 2021 compared to $12.4 million in the same period last year.

The improved performance was due to recent program wins and a more stable operating environment.

First half 2020 results were negatively impacted by the shutdown of North American automotive and heavy-duty truck manufacturing due to the Covid-19 pandemic.

In the first half of 2021, Universal managed 60 value-added programs compared to 55 in the prior year period.

During the twenty-six weeks ended July 3, 2021, dedicated transportation load count increased 58.5% to 312,494 from 197,218 in the first half of 2020.

Second quarter 2021 results in the contract logistics segment include approximately $6.8 million of losses incurred in connection with a recent program launch.

As a percentage of revenue, operating margin for the contract logistics segment for the twenty-six weeks ended July 3, 2021 was 10.6% compared to 6.3% during the same period last year.

In the intermodal segment, operating revenues increased $17.1 million to $210.3 million in the first half of 2021 compared to $193.2 million in the previous year.

Intermodal revenues for the twenty-six weeks ended July 3, 2021 included $21.9 million in separately identified fuel surcharges, compared to $21.8 million in the same period last year.

During the first half of 2021, Universal moved 348,924 intermodal loads compared to 354,562 in the first half of 2020, a decrease of 1.6%, while its average operating revenue per load, excluding fuel surcharges increased 1.9% to $483 from $474.

Additionally, assessorial and other non-line haul charges increased $12.3 million during the twenty-six weeks ended July 3, 2021.

Income from operations in the intermodal segment increased $0.9 million to $14.6 million for the twenty-six weeks ended July 3, 2021 compared to $13.7 million in the first half of 2020.

As a percentage of revenue, operating margin in the intermodal segment was 7.0% in the twenty-six weeks ended July 3, 2021 compared to 7.1% in the prior year period.

In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased $40.1 million to $194.7 million in the first half of 2021 compared to $154.6 million in the prior year period.

Included in trucking segment revenues for the first half of 2021 were $11.1 million in separately identified fuel surcharges compared to $8.8 million during the first half of 2020.

Income from operations in the trucking segment increased $3.6 million to $11.7 million for the twenty-six weeks ended July 3, 2021 compared to $8.1 million in the same period last year.

During the twenty-six weeks ended July 3, 2021, load volumes increased 16.4% to 148,389 loads compared to 127,438 in the first half of 2020.

Average operating revenue per load, excluding fuel surcharges, also increased 5.9% to $1,266 from $1,195 in the prior year period.

As a percentage of revenue, operating margin in the trucking segment was 6.0% in the first half of 2021 compared to 5.2% in the same period last year.

In the company-managed brokerage segment, operating revenues increased $28.8 million, or 31.1%, to $121.5 million in the twenty-six weeks ending July 3, 2021 compared to $92.7 million in the twenty-six weeks ending July 4, 2020.

Company-managed brokerage load volumes decreased 14.3% to 63,891 from 74,543.

However, average operating revenue per load, excluding fuel surcharges, increased 55.0% to $1,806 in the first half of 2021 from $1,165 in the first half of 2020.

As a percentage of revenue, operating margin for the company-managed brokerage segment was 2.4% for the first half of 2021 compared to 0.3% in the same period last year.

Purchased transportation and equipment rent .

Purchased transportation and equipment rental costs for the first half of 2021 increased $77.9 million, or 25.2%, to $387.4 million from $309.5 million during the same period last year.

The absolute increase in purchased transportation and equipment rental costs was primarily the result of an increase in transportation-related service revenues.

In the first half of 2021, transportation-related service revenues increased 27.7% compared to the first half of 2020.

As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 46.2% compared to 48.3% during the same period last year.

The decrease was due to a decrease in the mix of transportation-related service revenue.

As a percentage of total revenues, transportation-related service revenue decreased to 74.8% for the twenty-six weeks ended July 3, 2021 compared to 76.7% in the same period last year.

Direct personnel and related benefits .

Direct personnel and related benefits for the twenty-six weeks ended July 3, 2021 increased by $63.6 million, or 41.0%, to $218.6 million compared to $155.0 million during the same period last year.

Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase and decrease with the level of demand for our value-added services and staffing needs of our operations.

As a percentage of operating revenues, personnel and related benefits increased to 26.1% for the twenty-six weeks ended July 3, 2021, compared to 24.2% for the twenty-six weeks ended July 4, 2020.

The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles.

Individual operations may be impacted by additional production shifts or by overtime at selected operations.

While generalizations about the impact of personnel and related benefits costs as a percentage of total revenue are difficult, we manage compensation and staffing levels, including the use of contract labor, to maintain target economics based on near-term projections of demand for our services.

Operating supplies and expenses .

Operating supplies and expenses increased by $22.1 million, or 46.5%, to $69.8 million for the twenty-six weeks ended July 3, 2021 compared to $47.7 million for the twenty-six weeks ended July 4, 2020.

These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand.

The main elements of the increase included increases of $11.3 million in fuel expense, $4.5 million in vehicle and other maintenance, $3.0 million in operating supplies and material costs in operations supporting heavy-truck programs, $2.0 million in travel and entertainment, and $1.8 million in professional fees.

Commission expense .

Commission expense for the first half 2021 increased by $3.7 million, or 30.3%, to $15.9 million from $12.2 million for the first half of 2020.

Commission expense increased due to increased revenue in the agency based truckload business.

As a percentage of operating revenues, commission expense was unchanged at 1.9% for the twenty-six weeks ending July 3, 2021.

Occupancy expense .

Occupancy expenses decreased by $0.2 million, or 1.4%, to $17.6 million for the twenty-six weeks ended July 3, 2021.

This compares to $17.8 million for the twenty-six weeks ended July 4, 2020.

The decrease was primarily attributable to a decrease in building rents as we consolidated facilities for certain value-added programs.

General and administrative .

General and administrative expense for the thirteen weeks ended April 3, 2021 increased by $0.3 million to $9.2 million from $8.9 million in the thirteen weeks ended April 4, 2020.

General and administrative expense for the twenty-six weeks ended July 3, 2021 increased by $3.4 million to $18.9 million from $15.5 million in the twenty-six weeks ended July 4, 2020.

The increase was attributable to a $3.2 million increase in salaries, wages, and benefits and a $0.6 million increase in professional fees.

These increases were partially offset by a $0.5 million decrease in other general and administrative expenses.

As a percentage of operating revenues, general and administrative expense was 2.2% for the first quarter 2021 compared to 2.3% for the first quarter 2020.

As a percentage of operating revenues, general and administrative expense was 2.3% for the first half of 2021 compared to 2.4% for the first half of 2020.

Insurance and claims .

Insurance and claims expense for the first quarter 2021 increased by $1.5 million to $6.3 million from $4.9 million in the first quarter 2020.

As a percentage of operating revenues, insurance and claims increased to 1.5% for the thirteen weeks ending April 3, 2021 compared to 1.3% for the first quarter 2020.

The increase was attributable to a $1.5 million increase in cargo and service failure claims.

Insurance and claims expense for the first half of 2021 increased by $2.3 million to $12.1 million from $9.7 million in the first half of 2020.

The increase was attributable to increases of $1.6 million in cargo and service failure claims, $0.6 million in auto liability premiums and $0.2 million in contractor insurance.

As a percentage of operating revenues, insurance and claims decreased to 1.4% for the twenty-six weeks ending July 3, 2021 compared to 1.5% for the first half of 2020.

Depreciation and amortization .

Depreciation and amortization expense for the thirteen weeks ended April 3, 2021 decreased by $0.4 million, or 2.2%, to $19.1 million from $19.5 million for 2020.

Depreciation expense increased $0.2 million and amortization expense decreased $0.6 million.

Depreciation and amortization expense for the twenty-six weeks ended July 3, 2021 decreased by $2.6 million, or 6.9%, to $35.4 million from $38.0 million for 2020.

Depreciation expense decreased $1.5 million and amortization expense decreased $1.1 million.

Interest expense, net .

Net interest expense was $3.2 million for the thirteen weeks ended April 3, 2021 compared to $4.2 million for the thirteen weeks ended April 4, 2020.

The decrease in net interest expense reflects a decrease in our outstanding borrowings as well as a decrease in interest rates on our outstanding borrowings.

As of April 4, 2021, our outstanding borrowings totaled $430.5 million compared to $480.8 million at the same time last year.

Net interest expense was $6.1 million for the twenty-six weeks ended July 3, 2021 compared to $7.6 million for the twenty-six weeks ended July 4, 2020.

The decrease in net interest expense reflects a decrease in interest rates on our outstanding borrowings.

As of July 4, 2021, our outstanding borrowings totaled $433.5 million compared to $405.6 million at the same time last year.

Other non-operating income (expense) .

Other non-operating income was $1.0 million for the first quarter 2021 compared to $3.6 million of other non-operating expense for the first quarter 2020.

Other non-operating income for the first quarter 2021 includes a $0.9 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to a pre-tax holding loss of $3.4 million in the first quarter 2020.

Other non-operating income was $7.1 million for the first half 2021 compared to $2.8 million of other non-operating expense for the first half 2020.

Other non-operating income for the first half of 2021 includes a $5.7 million pre-tax gain from a favorable legal settlement.

Other non-operating income for the twenty-six weeks ended July 3, 2021 includes a $1.4 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to a pre-tax holding loss of $2.5 million in the twenty-six weeks ended July 4, 2020.

Income tax expense .

Income tax expense for the first quarter 2021 was $7.3 million, compared to $3.9 million for the first quarter 2020, based on an effective tax rate of 25.3% and 24.4% respectively.

The increase in income taxes in 2021 is the result of an increase in taxable income and our effective tax rate for the thirteen weeks ended April 3, 2021 compared to the thirteen weeks ended April 4, 2020.

Income tax expense for the first half of 2021 was $16.2 million, compared to $6.0 million for the first half of 2020, based on an effective tax rate of 25.5% and 24.6% respectively.

The increase in income taxes in 2021 is the result of an increase in taxable income and our effective tax rate for the twenty-six weeks ended July 3, 2021 compared to the twenty-six weeks ended July 4, 2020.

Liquidity and Capital Resources

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As a result, our capital expenditure requirements are limited in comparison to most large transportation and logistics service providers, which maintain significant properties and sizable fleets of owned tractors and trailers.

During the thirteen weeks ended April 3, 2021, our capital expenditures totaled $4.9 million.

During the twenty-six weeks ended July 3, 2021, our capital expenditures totaled $16.9 million.

These expenditures primarily consisted of transportation equipment and investments in support of our value-added service operations.

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We expect to make these capital expenditures for the acquisition of transportation equipment, to support our new and existing value-added service operations, and for improvements to our existing terminal yard and container facilities.

Due to widespread shortages, production backlogs, and limited availability of transportation equipment in 2021, our expenditures have been, and are projected to be, somewhat lower than the customary range of 4% to 5% of our operating revenues.

If equipment manufacturers identify and implement solutions enabling them to overcome these supply-side constraints, then we would expect to return to a normalized level of capital expenditures in future periods.

In such an event, our capital expenditures in 2022 would likely be somewhat higher than those experienced in the current and previous periods.

We have a cash dividend policy that anticipates a regular dividend of $0.42 per share of common stock, payable in quarterly increments of $0.105 per share of common stock.

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The Board of directors did not declare a special dividend in the first quarter of 2021.

On April 29, 2021, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable July 6, 2021 to shareholders of record at the close of business June 7, 2021.

On July 29, 2021, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable October 4, 2021 to shareholders of record at the close of business September 6, 2021.

During the first half of 2020, our Board of Directors temporarily suspended the Company’s cash dividend policy due to the uncertainty caused by the Covid-19 pandemic.

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Our Credit Facility includes an accordion feature which allows us to increase availability by up to $100 million upon our request.

At April 3, 2021, we were in compliance with all covenants under the Credit Facility, and $67.5 million was available for borrowing.

At July 3, 2021, we were in compliance with all covenants under the Credit Facility, and $49.5 million was available for borrowing.

A wholly owned subsidiary issued a series of promissory notes in order to finance transportation equipment (the “Equipment Financing”).

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Each of the notes bears interest at variable rates ranging from LIBOR plus 1.85% to LIBOR plus 2.25%.

At April 3, 2021, we were in compliance with all covenants.

At July 3, 2021, we were in compliance with all covenants.

We also maintain a short-term line of credit secured by our portfolio of marketable securities (the “Margin Facility”).

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The amount available under the Margin Facility is based on a percentage of the market value of the underlying securities.

We did not have any amounts advanced against the line as of April 3, 2021, and the maximum available borrowings were $4.2 million.

We did not have any amounts advanced against the line as of July 3, 2021, and the maximum available borrowings were $4.2 million.

Discussion of Cash Flows

At April 3, 2021, we had cash and cash equivalents of $10.8 million compared to $8.8 million at December 31, 2020.

At July 3, 2021, we had cash and cash equivalents of $13.1 million compared to $8.8 million at December 31, 2020.

Operating activities provided $53.5 million in net cash, and we used $36.7 million in financing activities and $13.1 million in investing activities.

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Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $43.0 million.

The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, an increase in trade and other accounts receivable, and decreases in income taxes payable and other long-term liabilities.

These were partially offset by increases in accruals for insurance and claims, trade accounts payable, accrued expenses and other current liabilities, and a decrease in prepaid expenses and other assets.

Affiliate transactions increased net cash provided by operating activities by $0.2 million due to an increase in accounts payable to affiliates.

The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, an increase in trade and other accounts receivable, an increase in prepaid expenses and other assets, and a decrease in income taxes payable.

These were partially offset by increases in accruals for insurance and claims, trade accounts payable, and accrued expenses and other current liabilities.

Affiliate transactions decreased net cash provided by operating activities by $2.9 million.

The decrease in net cash resulted from a decrease in accounts payable to affiliates of $3.1 million and a decrease in accounts receivable from affiliates of $0.2 million.

The $13.1 million in net cash used in investing activities consisted of $16.9 million in capital expenditures and $0.1 million in marketable securities purchases.

These uses were partially offset by $3.9 million in proceeds from the sale of equipment and $0.1 million in proceeds from the sale of marketable securities.

We used $36.9 million in financing activities during the thirteen weeks ended April 3, 2021.

We used $36.7 million in financing activities during the twenty-six weeks ended July 3, 2021.

During the period we paid cash dividends of $8.5 million.

We had outstanding borrowings totaling $430.5 million at April 3, 2021 compared to $461.7 million at December 31, 2020.

We had outstanding borrowings totaling $433.5 million at July 3, 2021 compared to $461.7 million at December 31, 2020.

During the period we made net repayments on our revolving lines of credit totaling $0.9 million and term loan, and equipment and real estate note payments totaling $31.3 million.

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A summary of critical accounting policies is presented in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies," of our Form 10-K for the year ended December 31, 2020.

There have been no changes in our accounting policies during the thirteen weeks ended April 3, 2021.

There have been no changes in our accounting policies during the thirteen weeks ended July 3, 2021.

Generally, demand for our value-added services delivered to existing customers increases during the second calendar quarter of each year as a result of the automotive industry’s spring selling season.

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Our value-added services business is also impacted in the fourth quarter by plant shutdowns during the December holiday period.

However, d ue to the COVID-19 pandemic and its impact on North American automotive manufacturing, we may not experience normal seasonal demand for our services supporting the automotive production and selling cycles during the current year .

However, due to the COVID-19 pandemic and its impact on North American automotive manufacturing, we may not experience normal seasonal demand for our services supporting the automotive production and selling cycles during the current year.

Our transportation services business is generally impacted by decreased activity during the post-holiday winter season and, in certain states, during hurricane season.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have not been any material changes to the Company’s market risk during the thirteen weeks ended April 3, 2021.

There have not been any material changes to the Company’s market risk during the thirteen weeks ended July 3, 2021.

For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis