FORWARD AIR CORPORATION Overview
Forward Air Corporation is a leading asset-light freight and logistics company. As a result of the Company's decision to divest of Pool, our services are now classified into two reportable segments: Expedited Freight and Intermodal. Through the Expedited Freight segment, we operate a comprehensive national network to provide expedited regional, inter-regional and national LTL services. Expedited Freight offers customers local pick-up and delivery and other services including final mile, truckload, shipment consolidation and deconsolidation, warehousing, customs brokerage and other handling. We plan to grow our LTL and final mile geographic footprints through greenfield start-ups as well as acquisitions. OnJuly 13, 2020 , we announced an organic growth initiative and now offer LTL service inSavannah, Georgia . With this expansion, our LTL network began its evolution toward broader market coverage beyond its legacy airport-to-airport footprint. Our Intermodal segment provides first- and last-mile high value intermodal container drayage services both to and from seaports and railheads. Intermodal also offers dedicated contract and container freight station ("CFS") warehouse and handling services. Today, Intermodal operates primarily in the Midwest and Southeast, with smaller operational presence in Southwest and Mid-AtlanticUnited States . We plan to grow Intermodal's geographic footprint through acquisitions as well as greenfield start-ups where we do not have an acceptable acquisition target. OnApril 16, 2020 , we announced a greenfield start-up inFront Royal, VA , which furthered our growth objectives. Our operations, particularly our network of hubs and terminals, represent substantial fixed costs. Consequently, our ability to increase our earnings depends in significant part on our ability to increase the amount of freight and the revenue per pound for the freight shipped through our networks and to grow other services, such as LTL pickup and delivery, final mile solutions and intermodal services, which will allow us to maintain revenue growth in challenging shipping environments. In addition, we are continuing to execute synergies across our services, particularly with service offerings in the Expedited Freight segment. Synergistic opportunities include the ability to share resources, particularly our fleet resources. OnApril 23, 2020 , the Board approved a strategy to divest Pool within the next year. As a result of this decision,Forward Air reclassified Pool from continuing operations to discontinued operations in accordance with ASC 205-20. Pool provides high-frequency handling and distribution of time sensitive product to numerous destinations within a specific geographic region. Pool offers this service throughout the Mid-Atlantic, Southeast, Midwest andSouthwest United States . Pool has been reported as discontinued operations in our Consolidated Statements of Comprehensive Income, and the related assets and liabilities have been presented as held for sale in the Consolidated Balance Sheets. These changes have been applied to all periods presented. Unless otherwise noted, amounts, percentages and discussion for all periods included below reflect the results of operations, financial condition and cash flows fromForward Air's continuing operations. Refer to Note 4, Discontinued Operations and Held for Sale, to the Company's consolidated financial statements for additional information on discontinued operations. Trends and Developments Impact of COVID-19 COVID-19 was characterized as a pandemic by theWorld Health Organization onMarch 11, 2020 . To help lessen its spread, many countries implemented travel restrictions and/or required companies to limit or suspend business operations. These actions disrupted supply chains and company operations around the world. These restrictions began to lessen inMay 2020 , although the effects are still being felt. The current environment resulting from COVID-19 is unprecedented and comes with a great deal of uncertainty. TheForward Air team is actively managing through the COVID-19 pandemic, with a paramount focus on team member and customer safety. Given our modal exposures to air freight, ocean freight and physical retail, the impact of COVID-19 presents a meaningful challenge that we are addressing through our asset-light business model. In Expedited Freight, our networks remain fully operational. However, much of the freight that typically moves through our LTL network is not classified as "essential goods" - such as staples, consumables or consumer packaged goods. As such, we were 30
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adversely impacted by the numerous stay-at-home orders that were issued inMarch 2020 to combat COVID-19. In addition, declining fuel prices have resulted in decreased fuel surcharge revenue as compared to prior periods. Despite these headwinds, we are making key investments that we believe will enable us to emerge from this episode as a stronger LTL competitor (amid a potentially reduced field of service providers). Our owner-operator fleet is the best it has ever been, which helped reduce our use of brokered power to approximately 6.0% of miles in the six months endedJune 30, 2020 . Our Truckload team is becoming more integrated in our LTL operations, and our Truckload brokerage group is growing by generating opportunities amid supply chain disruptions. We are also integrating Final Mile into our LTL operations while organically growing in an environment where more heavy-bulky items are being ordered online. We are presently operating four terminals that service both our Final Mile and LTL operations and expect this number to grow in the future. In addition, our Final Mile fleet is supporting LTL operations by performing pickup and delivery services on their behalf in six terminals. COVID-19 also impacted our Intermodal business, which faced reduced volumes from lower Asian imports amid reduced US demand, blank sailings and port congestion driven by container imbalances. Our Intermodal network remains fully functional with all terminals open and we lowered purchase transportation and labor costs to address the volume declines. Beyond lowering our costs through our flexible business model, we are actively pursuing new revenue opportunities in line with our medium-term growth objectives. We believe that we have the most reliable networks for moving freight that is bigger-than-a-box, and we are stretching these capabilities to "essential goods," small and midsize businesses, business-to-consumer shipments, new verticals and warehousing opportunities. As discussed above, onApril 23, 2020 , the Company's Board approved a strategy to divest Pool within the next year. This represents a strategic shift for the Company that will have a major effect on its operations and financial results. The Company is currently exploring all options to divest of these assets, but has not entered into a material definitive agreement to sell these assets as of the date of this report. However, the Company does believe it is probable that these assets will be divested within a year of receiving this authority from the Board. As a result, the Company has reported Pool as a Discontinued Operation in this report. COVID-19's impact on our Pool Distribution business has been significant. Reduced US demand, coupled with temporary retail mall closures in response to stay-at-home orders inMarch 2020 , have materially reduced Pool's revenue. We furloughed roughly 90% of Pool's workforce in response inApril 2020 , although we are bringing the workforce back as volumes rebound. As ofJune 30, 2020 , we returned to approximately 80% of our pre-COVID-19 workforce levels. We remain committed to serving our current and additional Pool customers as volumes improve while we are pursuing divestiture options for this business unit. We expected a downturn in Q2 2020, but project a slow recovery sequentially through Q1 2021, although year-on-year growth is expected to be negative for the remainder of 2020. Pool's results drove a discontinued operations loss for the three and six months endedJune 30, 2020 , however on a continuing operations and consolidated basis, the Company was profitable and expects to be profitable for the remainder of the year endedDecember 31, 2020 . We have also taken steps to improve our financial flexibility by executing an amendment to increase the availability on our$150 million revolving credit facility by$75 million , which closed onApril 16, 2020 . In addition, we have deferred payroll and federal and state income tax payments as allowed by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, which resulted in an approximately$5 million cash flow benefit for the second quarter of 2020 and is expected to result in an approximately$12 million cash flow benefit for 2020. This includes cash flow benefits for the Company as a whole, including cash flows related to discontinued operations. Note that payroll taxes may be deferred for all of 2020, while federal and state income tax payments were only permitted to be deferred for the second quarter of 2020 and were due and payable on or beforeJuly 15, 2020 . In addition, we took advantage of employee retention credits as allowed by the CARES Act of$0.8 million , which primarily benefited our discontinued operations. At this time, the Company does not expect any liquidity issues or inability in meeting its financial obligations. See additional discussion over the impact to our results from operations below.
Expedited LTL Acquisitions
As part of our strategy to expand our final mile pickup and delivery operations, inJanuary 2020 , we acquired certain assets and liabilities ofLinn Star for$57.2 million . This acquisition increased our Final Mile capabilities with an additional 20 locations. In addition, inApril 2019 , we acquired certain assets and liabilities of FSA for$27.0 million and a potential earnout of up to$15.0 million based upon future revenue generation. We paid the first installment on this earn-out of$5.3 million inJune 2020 . The remaining expected payment had a fair value of$3.8 million as ofJune 30, 2020 . These acquisitions provided an opportunity for our Expedited Freight segment to expand its final mile service offering into additional geographic markets, form relationships with new customers, and add volumes to our existing locations. 31
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These acquisitions were funded using cash flows from operations. The assets, liabilities, and operating results of these acquisitions have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Expedited Freight reportable segment. See additional discussion in Note 5, Acquisitions and Long-Lived Assets, to our Consolidated Financial Statements. Intermodal Acquisitions As part of our strategy to expand our Intermodal operations, inJuly 2019 , we acquired certain assets and liabilities of OST for$12.0 million . OST is a drayage company and expanded our intermodal footprint on theEast Coast , primarily inBaltimore, Maryland , with additional locations inPennsylvania ,Virginia ,South Carolina andGeorgia . This acquisition was funded using cash flows from operations and provide an opportunity for our Intermodal segment to expand into additional geographic markets and add volumes to our existing locations. The assets, liabilities, and operating results of this acquisition have been included in the Company's consolidated financial statements from the date of acquisition and have been assigned to the Intermodal reportable segment. See additional discussion in Note 5, Acquisitions and Long-Lived Assets, to our Consolidated Financial Statements.
Environmental Protection and Community Support
AtForward Air , our mission is to create long-term value for our shareholders, customers and employees while having a positive impact on the communities in which we live and work. We strive to integrate social responsibility and environmental sustainability into every aspect of our strategy - from how we engage with employees and local communities to offering more sustainable products and services to customers. Our commitment to this mission requires us to adhere to a strong corporate governance program that includes policies and principles that integrate environmental, social and governance ("ESG") matters into our broader risk management and strategic planning initiatives. During 2019, the Board amended theCorporate Governance and Nominating Committee charter to reflect that the committee would review and discuss with management the Company's (i) environmental, social and governance matters and (ii) management of sustainability-related risks, and these reviews and discussions occur at least quarterly.The Corporate Governance and Nominating Committee provides leadership and oversight of our ESG practices, including oversight of our policies and programs related to environmental sustainability, health and safety, diversity and inclusion, and charitable giving. To facilitate our ESG initiatives, we appointed a head of Corporate ESG in the first quarter of 2020. We also have engaged a third-party to conduct an ESG materiality assessment during the first half of 2020. Our intent is to build upon this work to develop a more robust ESG strategy, institutionalize processes and begin to provide more public disclosure around activities and performance going forward. We are committed to making our presence count across the country. Environmental Protection: We have already taken a variety of steps to improve the sustainability of our operations. For example, as a partner of theU.S. Environmental Protection Agency ("EPA ") SmartWay program since 2008,Forward Air has continued to adopt new environmentally safe policies and innovations to improve fuel efficiency and reduce emissions. We actively seek to utilize equipment with reduced environmental impact. We utilize trailers with light weight composites and employ trailer skirts to decrease aerodynamic drag, both of which improve fuel efficiency. We are also increasing our use of electric forklifts and transitioning to automatic transmission tractors, which will decrease our fuel consumption. Through vendor partnerships, we are implementing new solutions to manage waste and improve recycling across our facilities. Annually, we recycle tons of dunnage and thousands of aluminum load bars.Forward Air also participates in ReCaps, providing and purchasing recycled trailer tires. We also focus on increasing our landfill diversion rate through our partnership with Waste Harmonics. Community Support: On Veteran's Day 2019,Forward Air launched Operation: Forward Freedom - providing support to our Veterans primarily through partnering with Hope for the Warriors. Hope for the Warriors is a nonprofit organization that is dedicated to restoring a sense of self, family and hope toUnited States military veterans. This is an important cause for us as many of our employees, independent contractors, customers and vendors are or have a family memberwho is a military veteran. During the second quarter of 2020, as part of Operation: Forward Freedom,Forward Air allocated$10 million of its cash balances to a$249 billion U.S. Government money market fund through its account at DrexelHamilton , a service-disabled veteran-owned and operated broker-dealer founded on the principal of offering meaningful employment opportunities to disabled veterans.
In addition, we are a corporate partner of Truckers Against Trafficking, a
nonprofit organization that educates, equips, empowers and mobilizes members of
the trucking and busing industries to combat human trafficking. In
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Results from Operations The following table sets forth our consolidated historical financial data from operations for the three months endedJune 30, 2020 and 2019 (in millions): Three months ended June 30, June 30, Percent 2020 2019 Change Change (As Adjusted) Operating revenue: Expedited Freight$ 235.7 $ 253.3 $ (17.6 ) (6.9 )% Intermodal 46.4 50.5 (4.1 ) (8.1 ) Eliminations and other operations (0.4 ) (0.9 ) 0.5 (55.6 ) Operating revenue 281.7 302.9 (21.2 ) (7.0 ) Operating expenses: Purchased transportation 142.1 143.4 (1.3 ) (0.9 ) Salaries, wages, and employee benefits 63.8 63.8 - - Operating leases 17.4 16.1 1.3 8.1 Depreciation and amortization 9.4 9.2 0.2 2.2 Insurance and claims 7.7 11.8 (4.1 ) (34.7 ) Fuel expense 2.5 4.5 (2.0 ) (44.4 ) Other operating expenses 24.9 25.0 (0.1 ) (0.4 ) Total operating expenses 267.8 273.8 (6.0 ) (2.2 ) Income (loss) from continuing operations: Expedited Freight 11.8 28.2 (16.4 ) (58.2 ) Intermodal 4.4 5.2 (0.8 ) (15.4 ) Other operations (2.3 ) (4.3 ) 2.0 (46.5 ) Income from continuing operations 13.9 29.1 (15.2 ) (52.2 ) Other expense: Interest expense (1.2 ) (0.6 ) (0.6 ) 100.0 Total other expense (1.2 ) (0.6 ) (0.6 ) 100.0 Income from continuing operations before income taxes 12.7 28.5 (15.8 ) (55.4 ) Income tax expense 3.5 7.3 (3.8 ) (52.1 ) Net income from continuing operations 9.2 21.2 (12.0 ) (56.6 ) (Loss) income from discontinued operations, net of tax (6.0 ) 1.1 (7.1 ) (645.5 ) Net income and comprehensive income$ 3.2 $ 22.3 $
(19.1 ) (85.7 )%
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
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Table of Contents Revenues Operating revenue decreased$21.2 million , or 7.0%, to$281.7 million for the three months endedJune 30, 2020 compared to$302.9 million for the three months endedJune 30, 2019 . The decrease was primarily driven by our Expedited Freight segment of$17.6 million due to decreased network, truckload and other revenue, partially offset by increased final mile revenue in our Expedited Freight segment as discussed further below. Operating Expenses Operating expenses decreased$6.0 million , or 2.2%, to$267.8 million for the three months endedJune 30, 2020 compared to$273.8 million for the three months endedJune 30, 2019 . The decrease was primarily driven by insurance and claims due to decreased vehicle claims reserves over the prior year. Income from Continuing Operations and Segment Operations Income from continuing operations decreased$15.2 million , or 52.2%, to$13.9 million for the three months endedJune 30, 2020 compared to$29.1 million for the three months endedJune 30, 2019 . The decrease is primarily driven by the impact of COVID-19 on the Company's revenue. The results for our two reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was$1.2 million for the three months endedJune 30, 2020 compared to$0.6 million for the three months endedJune 30, 2019 . The increase in interest expense was attributable to additional borrowings on our revolving credit facility.
Income Taxes on a Continuing Basis
The combined federal and state effective tax rate on a continuing basis for the three months endedJune 30, 2020 was 27.5% compared to a rate of 25.4% for the three months endedJune 30, 2019 . The higher effective tax rate for the three months endedJune 30, 2020 was primarily due to decreased stock based compensation vesting and exercises when compared to the same period in 2019 and increased executive compensation as a percentage of income before income taxes, which was not deductible for income tax purposes.
(Loss) Income from Discontinued Operations, net of tax
Income from discontinued operations, net of tax decreased$7.1 million to a$6.0 million loss for the three months endedJune 30, 2020 from$1.1 million of income for the three months endedJune 30, 2019 . Income from discontinued operations includes the Company's Pool business and, as discussed above, Pool's operations were negatively impacted by COVID-19 as many of its customers were affected by retail mall closures in response to stay-at-home orders. As a result, there was a sudden and significant decline in Pool's operating revenue, resulting in an operating loss for Pool during the three months endedJune 30, 2020 . Net Income
As a result of the foregoing factors, net income decreased by
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Expedited Freight - Three Months Ended
The following table sets forth the historical financial data of our Expedited Freight segment for the three months endedJune 30, 2020 and 2019 (in millions): Expedited Freight Segment Information (In millions) (Unaudited) Three months ended June 30, Percent of June 30, Percent of Percent 2020 1 Revenue 2019 Revenue Change Change (As Adjusted) Operating revenue: Network 2 $ 134.2 56.9 % $ 172.5 68.1 %$ (38.3 ) (22.2 )% Truckload 41.9 17.8 48.6 19.2 (6.7 ) (13.8 ) Final Mile 53.4 22.7 25.0 9.9 28.4 113.6 Other 6.2 2.6 7.2 2.8 (1.0 ) (13.9 ) Total operating revenue 235.7 100.0 253.3 100.0 (17.6 ) (6.9 ) Operating expenses: Purchased transportation 127.5 54.1 125.8 49.7 1.7 1.4 Salaries, wages and employee benefits 50.5 21.4 50.9 20.1 (0.4 ) (0.8 ) Operating leases 13.3 5.6 12.1 4.8 1.2 9.9 Depreciation and amortization 6.7 2.8 7.5 3.0 (0.8 ) (10.7 ) Insurance and claims 5.7 2.4 6.6 2.6 (0.9 ) (13.6 ) Fuel expense 1.4 0.6 2.7 1.1 (1.3 ) (48.1 ) Other operating expenses 18.8 8.0 19.5 7.7 (0.7 ) (3.6 ) Total operating expenses 223.9 95.0 225.1 88.9 (1.2 ) (0.5 ) Income from operations $ 11.8 5.0 % $ 28.2 11.1 %$ (16.4 ) (58.2 )% 1 Includes revenues and operating expenses from the acquisition ofFSA and Linn Star , which were acquired inApril 2019 andJanuary 2020 , respectively. FSA results are partially included in the prior period.Linn Star results are not included in the prior period. 2 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue.
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
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Expedited Freight Operating Statistics
Three months ended
June 30, June 30, Percent
2020 2019 Change
(As Adjusted)
Business days 64 64 - %
Tonnage 1,2
Total pounds 522,031 626,748 (16.7 )
Pounds per day 8,157
9,793 (16.7 )
Shipments 1,2
Total shipments 963 1,014 (5.0 ) Shipments per day 15.0 15.8 (5.0 ) Weight per shipment 542
618 (12.3 )
Revenue per hundredweight 3$ 26.32 $ 27.39 (3.9 )
Revenue per hundredweight, ex fuel 3
0.8
Revenue per shipment 3 $ 139 $ 171 (18.7 )
Revenue per shipment, ex fuel 3 $ 122 $ 144 (15.3 )
Network revenue from door-to-door shipments
as a percentage of network revenue 3,4 49.9 % 39.9 % 25.1
Network gross margin 5 50.6 % 55.8 % (9.3 )%
1 In thousands
2 Excludes accessorial, full Truckload and Final Mile products
3 Includes intercompany revenue between the Network and Truckload revenue streams
4 Door-to-door shipments include all shipments with a pickup and/or delivery
5 Network revenue less Network purchased transportation as a percentage of Network revenue
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Revenues
Expedited Freight operating revenue decreased$17.6 million , or 6.9%, to$235.7 million for the three months endedJune 30, 2020 from$253.3 million for the three months endedJune 30, 2019 . The decrease was attributable to decreased network, truckload and other revenue, partially offset by increased final mile revenue. Network revenue decreased$38.3 million due to a 16.7% decrease in tonnage, a 5.0% decrease in shipments and a 3.9% decrease in revenue per hundredweight over prior year due to the impact of COVID-19, discussed above. In addition, fuel surcharge revenue decreased$10.8 million , or 39.1%, due to declining fuel prices and decreased tonnage. Truckload revenue decreased by$6.7 million primarily due to a decrease in revenue per mile driven by rate pressures from both spot market and contract rate customers. Other revenue, which includes warehousing and terminal handling, decreased$1.0 million due to the lower linehaul tonnage and shipment counts. Conversely, final mile revenue increased$28.4 million primarily due to the acquisitions of FSA inApril 2019 andLinn Star inJanuary 2020 . Purchased Transportation Expedited Freight purchased transportation increased$1.7 million , or 1.4%, to$127.5 million for the three months endedJune 30, 2020 from$125.8 million for the three months endedJune 30, 2019 . Purchased transportation was 54.1% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 49.7% for the same period in 2019. Expedited Freight purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The increase in purchased transportation as a percentage of revenue was mostly due to an increase in final mile purchased transportation due to the acquisitions ofFSA and Linn Star . This increase was partially offset by a 4.6% reduction in linehaul cost per mile due to increased utilization of owner-operators over more costly third-party transportation providers. Salaries, Wages and Employee Benefits Expedited Freight salaries, wages and employee benefits decreased$0.4 million , or 0.8%, to$50.5 million for the three months endedJune 30, 2020 from$50.9 million for the three months endedJune 30, 2019 . Salaries, wages and employee benefits were 21.4% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 20.1% for the same period in 2019. The decrease in expense was primarily due to cost-control measures implemented in response to COVID-19 and was partially offset by a$4.6 million increase due to the acquisitions ofFSA and Linn Star . Operating Leases Expedited Freight operating leases increased$1.2 million , or 9.9%, to$13.3 million for the three months endedJune 30, 2020 from$12.1 million for the three months endedJune 30, 2019 . Operating leases were 5.6% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 4.8% for the same period in 2019. The increase in expense was due to an increase in facility leases mostly from additional facilities acquired fromFSA and Linn Star . Depreciation and Amortization Expedited Freight depreciation and amortization decreased$0.8 million , or 10.7%, to$6.7 million for the three months endedJune 30, 2020 from$7.5 million for the three months endedJune 30, 2019 . Depreciation and amortization was 2.8% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 3.0% for the same period in 2019. The decrease in expense was primarily due to a$1.7 million decrease in trailer depreciation for the three months endedJune 30, 2020 compared to the same period in 2019 primarily related to extending the useful lives of its trailers from seven to ten years in the third quarter of 2019. See additional discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K. This decrease was partially offset by$0.7 million of increased amortization of acquired intangibles from the acquisitions ofFSA and Linn Star . Insurance and Claims Expedited Freight insurance and claims decreased$0.9 million , or 13.6%, to$5.7 million for the three months endedJune 30, 2020 from$6.6 million for the three months endedJune 30, 2019 . Insurance and claims were 2.4% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 2.6% for the same period in 2019. The decrease in expense was primarily attributable to a decrease in vehicle liability claims. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below. 37
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Fuel Expense Expedited Freight fuel expense decreased$1.3 million , or 48.1%, to$1.4 million for the three months endedJune 30, 2020 from$2.7 million for the three months endedJune 30, 2019 . Fuel expense was 0.6% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 1.1% for the same period in 2019. Expedited Freight fuel expense decreased due to lower fuel prices and lower Company-employed driver miles. Other Operating Expenses Expedited Freight other operating expenses decreased$0.7 million , or 3.6%, to$18.8 million for the three months endedJune 30, 2020 from$19.5 million for the three months endedJune 30, 2019 . Other operating expenses were 8.0% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 7.7% for the same period in 2019. Other operating expenses included equipment maintenance, terminal and office expenses, legal and professional fees and other over-the-road costs. These expenses primarily decreased due to a$2.1 million decrease in the earn-out liability from the FSA acquisition due to the timing of expected new customer wins and a$1.1 million decrease in travel related expenses. These decreases were partly offset by a$2.0 million increase in parts costs for final mile installations and a$0.7 million increase in bad debt reserves in part due to increased specific reserves related to customers negatively impacted by COVID-19. Income from Operations Expedited Freight income from operations decreased$16.4 million , or 58.2%, to$11.8 million for the three months endedJune 30, 2020 compared to$28.2 million for the three months endedJune 30, 2019 . Income from operations was 5.0% of Expedited Freight operating revenue for the three months endedJune 30, 2020 compared to 11.1% for the same period in 2019. The decrease in income from operations was primarily due to lower tonnage, shipments and revenue per hundredweight due to the impact of COVID-19. In addition, the decrease was due to additional costs from the acquisitions ofFSA and Linn Star , as they continue to be integrated into the Expedited Freight segment. These margin deteriorations were partially offset by increased utilization of owner-operators over more costly third-party transportation providers. 38
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Intermodal - Three Months Ended
The following table sets forth the historical financial data of our Intermodal
segment for the three months ended
Intermodal Segment Information
(In millions)
(Unaudited)
Three months ended
June 30, Percent of June 30, Percent of Percent
2020 1 Revenue 2019 Revenue Change Change
Operating revenue $ 46.4 100.0 % $ 50.5 100.0 %
Operating expenses: Purchased transportation 14.9 32.1 18.2 36.0 (3.3 ) (18.1 ) Salaries, wages and employee benefits 11.7 25.2 12.4 24.6 (0.7 ) (5.6 ) Operating leases 4.0 8.6 4.0 7.9 - - Depreciation and amortization 2.6 5.6 1.8 3.6 0.8 44.4 Insurance and claims 1.8 3.9 1.7 3.4 0.1 5.9 Fuel expense 1.1 2.4 1.7 3.4 (0.6 ) (35.3 ) Other operating expenses 5.9 12.7 5.5 10.9 0.4 7.3 Total operating expenses 42.0 90.5 45.3 89.7 (3.3 ) (7.3 ) Income from operations $ 4.4 9.5 %$ 5.2
10.3 %
1 Includes revenues and operating expenses from the acquisition of OST, which was acquired in
Intermodal Operating Statistics
Three months ended
June 30, June 30, Percent
2020 2019 Change
Drayage shipments 68,974 76,074 (9.3 )%
Drayage revenue per shipment $ 556 $ 571 (2.6 )
Number of locations 24 21 14.3 %
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Table of Contents Revenues Intermodal operating revenue decreased$4.1 million , or 8.1%, to$46.4 million for the three months endedJune 30, 2020 from$50.5 million for the three months endedJune 30, 2019 . The decrease in operating revenue was primarily attributable to a 9.3% decrease in drayage shipments over prior year primarily due to the impact of COVID-19, discussed above. The decrease in revenue from declining drayage shipments was partially offset by increased accessorial revenue.
Purchased Transportation
Intermodal purchased transportation decreased$3.3 million , or 18.1%, to$14.9 million for the three months endedJune 30, 2020 from$18.2 million for the three months endedJune 30, 2019 . Purchased transportation was 32.1% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 36.0% for the same period in 2019. Intermodal purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The decrease in Intermodal purchased transportation as a percentage of revenue was due to operating efficiencies and increased accessorial revenue over the prior year.
Salaries, Wages and Employee Benefits
Intermodal salaries, wages and employee benefits decreased$0.7 million , or 5.6%, to$11.7 million for the three months endedJune 30, 2020 compared to$12.4 million for the three months endedJune 30, 2019 . Salaries, wages and benefits were 25.2% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 24.6% for the same period in 2019. The decrease in expense was primarily due to cost-control measures in response to COVID-19.
Operating Leases
Intermodal operating leases remained unchanged for the three months endedJune 30, 2020 compared to the three months endedJune 30, 2019 . Operating leases were 8.6% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 7.9% for the same period in 2019. The increase as a percentage of revenue was due to the decreased drayage volumes over the prior year.
Depreciation and Amortization
Intermodal depreciation and amortization increased$0.8 million , or 44.4%, to$2.6 million for the three months endedJune 30, 2020 from$1.8 million for the three months endedJune 30, 2019 . Depreciation and amortization was 5.6% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 3.6% for the same period in 2019. The increase in depreciation and amortization was due to a$0.6 million increase in depreciation of equipment partly due to the equipment acquired from OST. The increase was also attributable to a$0.2 million increase in amortization of acquired intangibles.
Insurance and Claims
Intermodal insurance and claims increased$0.1 million , or 5.9%, to$1.8 million for the three months endedJune 30, 2020 from$1.7 million for the three months endedJune 30, 2019 . Insurance and claims were 3.9% of Intermodal operating revenue for the three months endedJune 30, 2020 and compared to 3.4% for the same period in 2019. The increase in Intermodal insurance and claims expense was primarily due to an increase in insurance premiums, partly offset by a decrease in claims. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Intermodal fuel expense decreased$0.6 million , or 35.3%, to$1.1 million for the three months endedJune 30, 2020 from$1.7 million for the three months endedJune 30, 2019 . Fuel expense was 2.4% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 3.4% for the same period in 2019. Intermodal fuel expense decreased due to lower fuel prices and lower Company-employed driver activity. 40
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Other Operating Expenses Intermodal other operating expenses increased$0.4 million , or 7.3%, to$5.9 million for the three months endedJune 30, 2020 from$5.5 million for the three months endedJune 30, 2019 . Other operating expenses were 12.7% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 10.9% for the same period in 2019. The increase in Intermodal other operating expenses was primarily due to a$0.2 million increase in bad debt reserves in part due to increased specific reserves related to customers negatively impacted by COVID-19 and increased expenses to support the increased accessorial revenue noted above. Income from Operations Intermodal income from operations decreased$0.8 million , or 15.4%, to$4.4 million for the three months endedJune 30, 2020 compared to$5.2 million for the three months endedJune 30, 2019 . Income from operations was 9.5% of Intermodal operating revenue for the three months endedJune 30, 2020 compared to 10.3% for the same period in 2019. The deterioration in operating income was primarily attributable to increased bad debt reserves and losing leverage on fixed costs such as operating leases, depreciation and amortization due to the impact of COVID-19.
Other Operations - Three Months Ended
Other operating activity was a$2.3 million operating loss during the three months endedJune 30, 2020 and a$4.3 million operating loss during the three months endedJune 30, 2019 . The three months endedJune 30, 2020 included severance of$1.0 million and increased self-insurance reserves for vehicle claims of$0.6 million . The increase in self-insurance reserves were primarily due to increases to our loss development factors for prior quarter claims. The remaining loss was attributable to$0.3 million in share based compensation and$0.5 million of corporate costs previously allocated to the Pool Distribution segment that are not part of the discontinued operation. These costs represent corporate costs that will remain with the Company after the Pool Distribution business is divested. The$4.3 million operating loss for the three months endedJune 30, 2019 was primarily due to a$4.0 million vehicle claim reserve recorded in the second quarter of 2019 for pending vehicular claims, partly offset by decreases to our loss development factors for vehicle and workers' compensation claims of$0.5 million and$0.3 million , respectively. The remaining loss was attributed to$0.6 million in costs related to the CEO transition, including retention shares, and$0.5 million of corporate costs previously allocated to the Pool Distribution segment that are not part of the discontinued operation. 41
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Results from Operations The following table sets forth our consolidated historical financial data from operations for the six months endedJune 30, 2020 and 2019 (in millions): Six months ended June 30, 2020 2019 Change Percent Change (As Adjusted) Operating revenue: Expedited Freight$ 489.3 $ 478.9 $ 10.4 2.2 % Intermodal 98.9 104.6 (5.7 ) (5.4 ) Eliminations and other operations (1.0 ) (1.7 ) 0.7 (41.2 ) Operating revenue 587.2 581.8 5.4 0.9 Operating expenses: Purchased transportation 292.7 276.0 16.7 6.1 Salaries, wages, and employee benefits 133.3 123.9 9.4 7.6 Operating leases 35.3 31.0 4.3 13.9 Depreciation and amortization 18.7 18.5 0.2 1.1 Insurance and claims 17.8 19.7 (1.9 ) (9.6 ) Fuel expense 6.5 8.5 (2.0 ) (23.5 ) Other operating expenses 53.2 51.4 1.8 3.5 Total operating expenses 557.5 529.0 28.5 5.4 Income (loss) from continuing operations: Expedited LTL 26.9 49.1 (22.2 ) (45.2 ) Intermodal 8.1 11.4 (3.3 ) (28.9 ) Other operations (5.3 ) (7.7 ) 2.4 (31.2 ) Income from continuing operations 29.7 52.8 (23.1 ) (43.8 ) Other expense: Interest expense (2.1 ) (1.2 ) (0.9 ) 75.0 Total other expense (2.1 ) (1.2 ) (0.9 ) 75.0 Income from continuing operations before income taxes 27.6 51.6 (24.0 ) (46.5 ) Income tax expense 7.0 12.7 (5.7 ) (44.9 ) Net income from continuing operations$ 20.6 $ 38.9 $ (18.3 ) (47.0 ) (Loss) income from discontinued operations, net of tax (9.1 ) 1.8
(10.9 ) (605.6 )
Net income and comprehensive income
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
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Table of Contents Revenues Operating revenue increased$5.4 million , or 0.9% to$587.2 million for the six months endedJune 30, 2020 compared to$581.8 million for the six months endedJune 30, 2019 . The increase was primarily driven by our Expedited Freight segment of$10.4 million driven by final mile revenue from the acquisition of FSA inApril 2019 andLinn Star inJanuary 2020 . Revenue increases associated with the final mile acquisitions were partially offset by decreased volumes due to COVID-19, which impacted each of the Company's segments, as further discussed below. Operating Expenses Operating expenses increased$28.5 million , or 5.4%, to$557.5 million for the six months endedJune 30, 2020 compared to$529.0 million for the six months endedJune 30, 2019 . The increase was primarily driven by purchased transportation increases of$16.7 million and salaries, wages and employee benefits increases of$9.4 million . Purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and employee benefits. Purchased transportation expense increased due to increases for the Expedited Freight segment. These increases were mostly due to an increase in final mile purchased transportation due to the acquisitions ofFSA and Linn Star . Salaries, wages and employee benefits increased primarily due to additional salaries from acquisitions and increased Company-employed drivers. Income from Continuing Operations and Segment Operations Income from continuing operations decreased$23.1 million , or 43.8%, to$29.7 million for the six months endedJune 30, 2020 compared to$52.8 million for the six months endedJune 30, 2019 . The decrease is primarily driven by the impact of COVID-19 on the Company's volumes. The results for our two reportable segments are discussed in detail in the following sections.
Interest Expense
Interest expense was
Income Taxes on a Continuing Basis
The combined federal and state effective tax rate on a continuing basis for the six months endedJune 30, 2020 was 25.3% compared to a rate of 24.6% for the six months endedJune 30, 2019 . The higher effective tax rate for the six months endedJune 30, 2020 was primarily due to decreased stock based compensation vesting and exercises when compared to the same period in 2019 and increased executive compensation as a percentage of income before income taxes, which was not deductible for income tax purposes.
(Loss) Income from Discontinued Operations, net of tax
Income from discontinued operations, net of tax decreased$10.9 million to a$9.1 million loss for the six months endedJune 30, 2020 from$1.8 million of income for the six months endedJune 30, 2019 . (Loss) income from discontinued operations includes the Company's Pool business and, as discussed above, Pool's operations were negatively impacted by COVID-19 as many of its customers were affected by retail mall closures in response to stay-at-home orders beginning inMarch 2020 . As a result, there was a sudden and significant decline in Pool's operating revenue, resulting in an operating loss for Pool during the six months endedJune 30, 2020 . Net Income As a result of the foregoing factors, net income decreased by$29.2 million , or 71.7%, to$11.5 million for the six months endedJune 30, 2020 compared to$40.7 million for the six months endedJune 30, 2019 . 43
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Expedited Freight - Six Months Ended
The following table sets forth the historical financial data of our Expedited Freight segment for the six months endedJune 30, 2020 and 2019 (in millions): Expedited Freight Segment Information (In millions) (Unaudited) Six months ended June 30, Percent of June 30, Percent of Percent 2020 1 Revenue 2019 Revenue Change Change (As Adjusted) Operating revenue: Network 2 $ 286.2 58.5 % $ 333.8 69.7 %$ (47.6 ) (14.3 )% Truckload 89.4 18.3 96.3 20.1 (6.9 ) (7.2 ) Final Mile 101.2 20.7 34.7 7.2 66.5 191.6 Other 12.5 2.6 14.1 2.9 (1.6 ) (11.3 ) Total operating revenue 489.3 100.0 478.9
100.0 10.4 2.2
Operating expenses: Purchased transportation 260.3 53.2 240.6 50.2 19.7 8.2 Salaries, wages and employee benefits 106.0 21.7 96.7 20.2 9.3 9.6 Operating leases 26.9 5.5 23.2 4.8 3.7 15.9 Depreciation and amortization 13.4 2.7 14.9 3.1 (1.5 ) (10.1 ) Insurance and claims 12.4 2.5 11.6 2.4 0.8 6.9 Fuel expense 3.5 0.7 5.2 1.1 (1.7 ) (32.7 ) Other operating expenses 39.9 8.2 37.6 7.9 2.3 6.1 Total operating expenses 462.4 94.5 429.8 89.7 32.6 7.6 Income from operations $ 26.9 5.5 % $ 49.1
10.3 %
1 Includes revenues and operating expenses from the acquisition ofFSA and Linn Star , which were acquired inApril 2019 andJanuary 2020 , respectively. FSA results are partially included in the prior period.Linn Star results are not included in the prior period. 2 Network revenue is comprised of all revenue, including linehaul, pickup and/or delivery, and fuel surcharge revenue, excluding accessorial, Truckload and Final Mile revenue
Note: Prior period balances have been adjusted to conform with the Company's revised segment reporting classification. See additional discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K and in Note 14, Segment Reporting, to our Consolidated Financial Statements.
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Expedited Freight Operating Statistics
Six months ended
June 30, June 30, Percent
2020 2019 Change
(As Adjusted)
Business days 128 127 0.8 %
Tonnage 1,2
Total pounds 1,091,987 1,223,388 (10.7 )
Pounds per day 8,531 9,633 (11.4 ) Shipments 1,2 Total shipments 1,849 1,944 (4.9 ) Shipments per day 14.4 15.3 (5.6 ) Weight per shipment 591 629 (6.0 ) Revenue per hundredweight 3$ 26.76 $ 27.09 (1.2 ) Revenue per hundredweight, ex fuel 3 23.09 22.83 1.1 Revenue per shipment 3 $ 155 173 (10.4 ) Revenue per shipment, ex fuel 3 133 146 (8.9 ) Network revenue from door-to-door shipments as a percentage of network revenue 3,4 46.9 % 39.1 % 19.9 Network gross margin 5 52.1 % 55.1 % (5.4 ) 1 In thousands 2 Excludes accessorial, full Truckload and Final Mile products 3 Includes intercompany revenue between the Network and Truckload revenue streams 4 Door-to-door shipments include all shipments with a pickup and/or delivery 5 Network revenue less Network purchased transportation as a percentage of Network revenue 45
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Revenues
Expedited Freight operating revenue increased$10.4 million , or 2.2%, to$489.3 million from$478.9 million for the six months endedJune 30, 2020 . The increase was due to increased final mile revenue of$66.5 million , partially offset by decreases in network, truckload and other revenue. Final mile revenue increased primarily due to the acquisition of FSA inApril 2019 andLinn Star inJanuary 2020 . Network revenue decreased$47.6 million due to a 10.7% decrease in tonnage, a 4.9% decrease in shipments and a 1.2% decrease in revenue per hundredweight over prior year. The decrease in tonnage and shipments was primarily due to the impact of COVID-19, discussed above. The decrease in revenue per hundredweight was due to decreased shipment size and rates. In addition, fuel surcharge revenue decreased$10.8 million , or 39.1%, due to declining fuel prices and decreased tonnage. Truckload revenue decreased by$6.9 million primarily due to a decrease in revenue per mile driven by rate pressures from both spot market and contract rate customers. Other revenue, which includes warehousing and terminal handling, decreased$1.6 million due to the lower linehaul tonnage and shipment counts Purchased Transportation Expedited Freight purchased transportation increased$19.7 million , or 8.2%, to$260.3 million for the six months endedJune 30, 2020 from$240.6 million for the six months endedJune 30, 2019 . Purchased transportation was 53.2% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 50.2% for the same period in 2019. Expedited Freight purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The increase in purchased transportation as a percentage of revenue was mostly due to an increase in final mile purchased transportation due to the acquisitions ofFSA and Linn Star . This increase was partially offset by a 4.5% reduction in linehaul cost per mile due to increased utilization of owner-operators and Company-employed drivers over more costly third-party transportation providers. Salaries, Wages, and Benefits Expedited Freight salaries, wages and employee benefits increased by$9.3 million , or 9.6%, to$106.0 million for the six months endedJune 30, 2020 from$96.7 million for the six months endedJune 30, 2019 . Salaries, wages and employee benefits were 21.7% of Expedited Freight's operating revenue for the six months endedJune 30, 2020 compared to 20.2% for the same period in 2019. The increase in expense was primarily due to a$12.3 million increase due to the acquisitions ofFSA and Linn Star . An additional$2.1 million increase was primarily related to credits for group health insurance premiums received in the prior year. These increases were partially offset by cost-control measures implemented in response to COVID-19. Operating Leases Expedited Freight operating leases increased$3.7 million , or 15.9%, to$26.9 million for the six months endedJune 30, 2020 from$23.2 million for the six months endedJune 30, 2019 . Operating leases were 5.5% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 4.8% for the same period in 2019. The increase in expense was primarily due to a$3.3 million increase in facility leases mostly from additional facilities acquired fromFSA and Linn Star and a$0.7 million increase in tractor rentals and leases to correspond with increased Company-employed driver usage. These increases were partially offset by a$0.2 million decrease in trailer rentals and leases, as old leases were replaced with purchased trailers. Depreciation and Amortization Expedited Freight depreciation and amortization decreased$1.5 million , or 10.1%, to$13.4 million for the six months endedJune 30, 2020 from$14.9 million for the six months endedJune 30, 2019 . Depreciation and amortization was 2.7% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 3.1% for the same period in 2019. The decrease in expense was primarily due to a$3.4 million decrease in trailer depreciation for the six months endedJune 30, 2020 compared to the same period in 2019 primarily related to extending the useful lives of its trailers from seven to ten years in the third quarter of 2019. See additional discussion in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K. This decrease was partially offset by$1.6 million of increased amortization of acquired intangibles from the acquisitions ofFSA and Linn Star . 46
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Insurance and Claims Expedited Freight insurance and claims increased$0.8 million , or 6.9%, to$12.4 million for the six months endedJune 30, 2020 from$11.6 million for the six months endedJune 30, 2019 . Insurance and claims were 2.5% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 2.4% for the same period in 2019. The increase in expense was primarily attributable to an increase in vehicle insurance premiums, offset by favorable claims. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below. Fuel Expense Expedited Freight fuel expense decreased$1.7 million , or 32.7%, to$3.5 million for the six months endedJune 30, 2020 from$5.2 million for the six months endedJune 30, 2019 . Fuel expense was 0.7% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 1.1% for the same period in 2019. Expedited Freight fuel expenses decreased due to lower fuel prices. Other Operating Expenses Expedited Freight other operating expenses increased$2.3 million , or 6.1%, to$39.9 million for the six months endedJune 30, 2020 from$37.6 million for the six months endedJune 30, 2019 . Other operating expenses were 8.2% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 7.9% for the same period in 2019. Other operating expenses included equipment maintenance, terminal and office expenses, legal and professional fees and other over-the-road costs. The increase in expense was primarily attributable to a$4.1 million increase in parts costs for final mile installations and increased terminal and office expenses due to the acquisitions ofFSA and Linn Star . These increases were partly offset by a$2.6 million decrease in the earn-out liability from the FSA acquisition due to the timing of expected new customer wins. Income from Operations Expedited Freight income from operations decreased$22.2 million , or 45.2%, to$26.9 million for the six months endedJune 30, 2020 compared to$49.1 million for the six months endedJune 30, 2019 . Income from operations was 5.5% of Expedited Freight operating revenue for the six months endedJune 30, 2020 compared to 10.3% for the same period in 2019. The decrease in income from operations was primarily due to lower tonnage, shipments and revenue per hundredweight due to the impact of COVID-19. In addition, the decrease was due to additional costs from the acquisitions ofFSA and Linn Star , as they continue to be integrated into the Expedited Freight segment. These margin deteriorations were partially offset by increased utilization of owner-operators over more costly third-party transportation providers. 47
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Intermodal - Six Months Ended
The following table sets forth the historical financial data of our Intermodal
segment for the six months ended
Intermodal Segment Information
(In millions)
(Unaudited)
Six months ended
June 30, Percent of June 30, Percent of Percent
2020 1 Revenue 2019 Revenue Change Change
Operating revenue $ 98.9 100.0 % $ 104.6 100.0 %
Operating expenses: Purchased transportation 33.1 33.5 36.6 35.0 (3.5 ) (9.6 ) Salaries, wages and employee benefits 24.7 25.0 25.1 24.0 (0.4 ) (1.6 ) Operating leases 8.5 8.6 7.7 7.4 0.8 10.4 Depreciation and amortization 5.3 5.4 3.7 3.5 1.6 43.2 Insurance and claims 3.8 3.8 3.1 3.0 0.7 22.6 Fuel expense 3.0 3.0 3.4 3.3 (0.4 ) (11.8 ) Other operating expenses 12.4 12.5 13.6 13.0 (1.2 ) (8.8 ) Total operating expenses 90.8 91.8 93.2 89.1 (2.4 ) (2.6 ) Income from operations $ 8.1 8.2 %$ 11.4
10.9 %
1 Includes revenues and operating expenses from the acquisition of OST, which was acquired in
Intermodal Operating Statistics
Six months ended
June 30, June 30, Percent
2020 2019 Change
Drayage shipments 151,448 151,681 (0.2 )%
Drayage revenue per shipment $ 553 $ 598 (7.5 )%
Number of locations 24 21 14.3 %
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Table of Contents Revenues Intermodal operating revenue decreased$5.7 million , or 5.4%, to$98.9 million for the six months endedJune 30, 2020 from$104.6 million for the same period in 2019. The decrease in operating revenue was primarily attributable to a 7.5% decrease in drayage revenue per shipment over prior year due in part to$3.3 million of lower rail storage revenue, decreased fuel surcharge revenue due to lower fuel prices and a decrease in linehaul shipments. These decreases were partially offset by a$1.5 million increase from per diem revenue.
Purchased Transportation
Intermodal purchased transportation decreased$3.5 million , or 9.6%, to$33.1 million for the six months endedJune 30, 2020 from$36.6 million for the six months endedJune 30, 2019 . Purchased transportation was 33.5% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 35.0% for the same period in 2019. Intermodal purchased transportation includes owner operators and third party carriers, while Company-employed drivers are included in salaries, wages and benefits. The decrease in Intermodal purchased transportation as a percentage of revenue was due to operating efficiencies and increased accessorial revenue over the prior year.
Salaries, Wages, and Benefits
Intermodal salaries, wages and employee benefits decreased$0.4 million , or 1.6%, to$24.7 million for the six months endedJune 30, 2020 compared to$25.1 million for the six months endedJune 30, 2019 . Salaries, wages and employee benefits were 25.0% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 24.0% for the same period in 2019. The decrease in expense was primarily due to cost-control measures in response to COVID-19. Operating Leases Intermodal operating leases increased$0.8 million , or 10.4%, to$8.5 million for the six months endedJune 30, 2020 from$7.7 million for the six months endedJune 30, 2019 . Operating leases were 8.6% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 7.4% for the same period in 2019. The increase in expense was primarily due to a$0.4 million increase in tractor rentals and leases to correspond with increased Company-employed driver usage. Facility leases also increased$0.3 million mostly from additional facilities acquired from OST.
Depreciation and Amortization
Intermodal depreciation and amortization increased$1.6 million , or 43.2%, to$5.3 million for the six months endedJune 30, 2020 from$3.7 million for the six months endedJune 30, 2019 . Depreciation and amortization was 5.4% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 3.5% for the same period in 2019. The increase in depreciation and amortization was due to a$1.2 million increase in depreciation of equipment partly due to the equipment acquired from OST. The increase was also attributable to a$0.4 million increase in amortization of acquired intangibles.
Insurance and Claims
Intermodal insurance and claims increased$0.7 million , or 22.6%, to$3.8 million for the six months endedJune 30, 2020 from$3.1 million for the six months endedJune 30, 2019 . Insurance and claims were 3.8% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 3.0% for the same period in 2019. The increase in Intermodal insurance and claims was primarily due to an increase in insurance premiums. See additional discussion over the consolidated increase in self-insurance reserves related to vehicle claims in the "Other operations" section below.
Fuel Expense
Intermodal fuel expense decreased$0.4 million , or 11.8%, to$3.0 million for the six months endedJune 30, 2020 from$3.4 million for the six months endedJune 30, 2019 . Fuel expense was 3.0% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 3.3% for the same period in 2019. Intermodal fuel expense decreased due to lower fuel prices. 49
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Table of Contents Other Operating Expenses Intermodal other operating expenses decreased$1.2 million , or 8.8%, to$12.4 million for the six months endedJune 30, 2020 compared to$13.6 million for the six months endedJune 30, 2019 . Other operating expenses were 12.5% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 13.0% from the same period in 2019. The decrease in Intermodal other operating expenses was primarily due to strong cost controls and decreased per diem expenses, corresponding with the decrease in per diem revenue noted above. These decreases were slightly offset by a$0.2 million increase in bad debt reserves in part due to increased specific reserves related to customers negatively impacted by COVID-19
Income from Operations
Intermodal income from operations decreased by$3.3 million , or 28.9%, to$8.1 million for the six months endedJune 30, 2020 compared to$11.4 million for the six months endedJune 30, 2019 . Income from operations was 8.2% of Intermodal operating revenue for the six months endedJune 30, 2020 compared to 10.9% for the same period in 2019. The deterioration in operating income was primarily attributable to losing leverage on fixed costs such as salaries, wages and benefits, operating leases, depreciation and amortization and insurance due to the impact of COVID-19.
Other Operations - Six Months Ended
Other operating activity was a$5.3 million operating loss during the six months endedJune 30, 2020 and a$7.7 million operating loss during the six months endedJune 30, 2019 . The six months endedJune 30, 2020 included increased self-insurance reserves for vehicle and workers' compensation claims of$2.6 million and$0.5 million , respectively. These increases were primarily due to increases to our loss development factors for prior quarter claims. The remaining loss was primarily attributable to severance of$1.0 million ,$0.5 million in share based compensation and$0.4 million of corporate costs previously allocated to the Pool Distribution segment that are not part of the discontinued operation. These costs represent corporate costs that will remain with the Company after the Pool Distribution business is divested. The$7.7 million operating loss for the six months endedJune 30, 2019 was primarily due to increased self-insurance reserves for vehicle and workers' compensation claims of$5.3 million and$0.2 million , respectively. The increase in vehicle liability reserves was primarily due to a$4.0 million vehicle claim reserve recorded in the second quarter of 2019 for pending vehicular claims. The remaining loss was attributed to$1.3 million in costs related to the CEO transition, including retention shares, and$0.8 million of corporate costs previously allocated to the Pool Distribution segment that are not part of the discontinued operation. Critical Accounting Policies Our unaudited consolidated financial statements have been prepared in accordance withUnited States generally accepted accounting principles ("GAAP"). The preparation of financial statements in accordance with GAAP requires our management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. The Company's critical accounting policies have not changed from those described under the caption "Discussion of Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2019 Annual Report on Form 10-K with the exception of the presentation of Pool's assets and liabilities as held for sale in the Consolidated Balance Sheets and Pool's results of operations presented as discontinued operations in the Consolidated Statements of Comprehensive Income. For further discussion on for sale and discontinued operations, see "Note 4, Discontinued Operations and Held for Sale.
Impact of Recent Accounting Pronouncements
InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss methodology previously employed to measure credit losses for most financial assets and requires the use of a forward-looking expected loss model. Under current accounting guidance, credit losses are recognized when it is probable a loss has been incurred. The updated guidance will require financial assets to be measured at amortized costs less a reserve, equal to the net amount expected to be collected. This standard is effective for annual periods beginning afterDecember 15, 2019 , including interim periods within those fiscal years, with early adoption permitted. The Company adopted this standard as ofJanuary 1, 2020 , which resulted in the Company revising its allowance for doubtful accounts policy on a prospective basis. The adoption of this standard did not have a material impact on the Company's financial statements. See Note 2, Recent Accounting Pronouncements, for additional discussion over this new standard. 50
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Liquidity and Capital Resources
We have historically financed our working capital needs, including capital expenditures, with cash flows from operations and borrowings under our bank lines of credit. As discussed above, we have assessed the impact of COVID-19 on our liquidity and ability to access capital. To improve our financial flexibility, we executed a$75 million amendment to increase this line onApril 16, 2020 . In addition, we have deferred payroll and federal and state income tax payments as allowed by the CARES Act, which resulted in an approximately$5 million cash flow benefit for the second quarter of 2020 and is expected to result in an approximately$12 million cash flow benefit for 2020. This includes cash flow benefits for the Company as a whole, including cash flows related to discontinued operations. Note that payroll taxes may be deferred for all of 2020, while federal and state income tax payments were only permitted to be deferred for the second quarter of 2020 and were due and payable on or beforeJuly 15, 2020 . In addition, we took advantage of employee retention credits as allowed by the CARES Act of$0.8 million , which primarily benefited our discontinued operations. As ofJune 30, 2020 , the Company had$80.9 million in cash, which is approximately four times its target cash levels. As a result, we do not believe we have had significant limitations on accessing capital despite the current environment. Further, the Company is in compliance with all debt covenants as ofJune 30, 2020 . In addition, the Company's accounts receivables are stable and there are no known collection issues from its key customers as ofJune 30, 2020 . There are also no customer or vendor concentration risks for which the loss of the applicable relationship would have a significant impact to the Company's cash flows from operations. See additional discussion in Item 1A, Risk Factors.
Six Months Ended
Continuing Operations Net cash provided by continuing operating activities was approximately$59.9 million for the six months endedJune 30, 2020 compared to approximately$64.3 million for the six months endedJune 30, 2019 . The$4.3 million decrease in cash provided by continuing operating activities was mainly attributable to a$19.0 million decrease in continuing net earnings after consideration of non-cash items, partly offset by a$6.9 million improvement in the collection of receivables, a$5.2 million increase primarily due to the timing of prepaid insurance expense payments and a$1.8 million increase due to the timing of tax payments as discussed above. Net cash used in continuing investing activities was approximately$69.2 million for the six months endedJune 30, 2020 compared to approximately$40.2 million during the six months endedJune 30, 2019 . Continuing investing activities during the six months endedJune 30, 2020 and 2019 included the acquisition ofLinn Star for$55.9 million and FSA for$27.0 million , net of cash acquired, respectively. In addition the six months endedJune 30, 2020 included net capital expenditures of$13.2 million , of which approximately$9.8 million related to an organic investment to expand the capacity of the Company's national hub inColumbus, Ohio (CMH), which the Company announced onJuly 27, 2020 . The six months endedJune 30, 2019 included net capital expenditures of$13.2 million primarily for new trailers, information technology and facility equipment. The proceeds from disposal of property and equipment during the six months endedJune 30, 2020 and 2019 were primarily from sales of older tractors and trailers. Net cash provided by continuing financing activities was approximately$25.4 million for the six months endedJune 30, 2020 compared to net cash used in continuing financing activities of$34.9 million for the six months endedJune 30, 2019 . The$60.3 million increase in cash provided by continuing financing activities was attributable to a$55.0 million increase in borrowings on the revolving credit facility and a$23.4 million decrease in the repurchase of common stock. These increases are partly offset by a$10.7 million increase in distributions to a subsidiary (Pool Distribution), the$5.3 million payment on the FSA earn-out and a$1.8 million decrease in proceeds from share-based award activity. Discontinued Operations Net cash used in discontinued operating activities was approximately$4.7 million for the six months endedJune 30, 2020 compared to net cash provided by discontinued operating activities was approximately$7.5 million for the six months endedJune 30, 2019 . The$12.2 million decrease in cash provided by discontinued operating activities was primarily attributable to a decrease in discontinued net earnings after consideration of non-cash items. Net cash used in discontinued investing activities was approximately$0.6 million for the six months endedJune 30, 2020 compared to approximately$2.1 million during the six months endedJune 30, 2019 due to changes in net capital expenditures primarily for trailers and facility equipment. Proceeds from disposal of property and equipment during the six months endedJune 30, 2020 and 2019 were primarily from sales of older tractors and trailers. 51
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Net cash provided by discontinued financing activities was approximately
Credit Facility
See Note 7, Senior Credit Facility, to our Consolidated Financial Statements for a discussion of the senior credit facility.
Share Repurchases
See Note 12, Shareholders' Equity, to our Consolidated Financial Statements for a discussion of our share repurchases and dividends during the period.
Forward-Looking Statements
This report contains "forward-looking statements," as defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are statements other than historical information or statements of current condition and relate to future events or our future financial performance. In this Form 10-Q, forward-looking statements include, but are not limited to, any statements regarding the impact of the COVID-19 pandemic on our business, results of operations and financial condition, including the impacts on our LTL, Intermodal and Pool businesses, our ability to emerge as a stronger LTL competitor, our pursuit of new revenue opportunities and steps to bolster our liquidity; any projections of earnings, revenues, dividends, or other financial items or methods of interpretation or measurement; any statements of plans, strategies, and objectives of management for future operations, including, without limitation, future plans for the divesture of our Pool business; any statements regarding future performance; any statements regarding future insurance, claims and litigation and any associated estimates or projections; any statements concerning proposed or intended new services or developments and related integration costs; any statements regarding intended expansion through acquisition or greenfield start-ups; any statements regarding future economic conditions or performance based on our business strategy, including acquisitions; any statements related to our ESG and sustainability initiatives and operations; any statements regarding certain tax and accounting matters, including the impact on our financial statements; and any statements of belief and any statements of assumptions underlying any of the foregoing. Some forward-looking statements may be identified by use of such terms as "believes," "anticipates," "intends," "plans," "estimates," "projects" or "expects." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The following is a list of factors, among others, that could cause actual results to differ materially from those contemplated by the forward-looking statements: economic factors such as recessions, inflation, higher interest rates and downturns in customer business cycles, the impact of the COVID-19 pandemic on our business, results of operations and financial condition, the creditworthiness of our customers and their ability to pay for services rendered, more limited liquidity than expected which limits our ability to make key investments, the availability and compensation of qualified independent owner-operators and freight handlers as well as contracted, third-party carriers needed to serve our customers' transportation needs, the inability of our information systems to handle an increased volume of freight moving through our network, changes in fuel prices, our inability to maintain our historical growth rate because of a decreased volume of freight or decreased average revenue per pound of freight moving through our network, loss of a major customer, increasing competition and pricing pressure, our ability to secure terminal facilities in desirable locations at reasonable rates, our inability to successfully integrate acquisitions, claims for property damage, personal injuries or workers' compensation, enforcement of and changes in governmental regulations, environmental and tax matters, insurance matters, the handling of hazardous materials and the risks described in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . As a result of the foregoing, no assurance can be given as to future financial condition, cash flows or results of operations. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 52
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