UNIVERSAL LOGISTICS HOLDINGS, INC. Some of the statements and assumptions in this Form 10-Q are forward-looking statements. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases you can identify forward-looking statements by words such as "anticipate," "expect," "believe," "targets," "could," "estimate," "plan," "intend," "may," "should," "will" and "would" or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other "forward-looking" information. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management's good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the section captioned "Risk Factors" in Part I, Item 1A in our Form 10-K for the year endedDecember 31, 2020 and Part II, Item 1A of this Form 10-Q, as well as any other cautionary language in these filings, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.
Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.
Overview
We are a leading asset-light provider of customized transportation and logistics solutions throughoutthe United States and inMexico ,Canada andColombia . We offer our customers a broad array of services across their entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services. We provide a comprehensive suite of transportation and logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently. We market our services through a direct sales and marketing network focused on selling our portfolio of services to large customers in specific industry sectors, through a network of agents who solicit freight business directly from shippers, and through company-managed facilities and full-service freight forwarding and customs house brokerage offices. We believe our asset-light business model is highly scalable and will continue to support our growth with comparatively modest capital expenditure requirements. Our asset-light model, combined with a disciplined approach to contract structuring and pricing, creates a highly flexible cost structure that allows us to expand and contract quickly in response to changes in demand from our customers. We generate substantially all of our revenues through fees charged to customers for the transportation of freight and for the customized logistics services we provide. 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 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 endedDecember 31, 2020 and the unaudited Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q. COVID-19 Pandemic The Company remains committed to doing its part to protect its employees, customers, vendors and the general public from the spread of the coronavirus outbreak (COVID-19). We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers. 20 -------------------------------------------------------------------------------- The ultimate magnitude of COVID-19, including the extent of its impact on the Company's financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its severity, government regulations imposed in response to the pandemic, and to its general effect on the economy and transportation demand. While operating cash flows may be negatively impacted by the pandemic, the Company believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and loans and extensions of credit under our credit facilities and on margin against our marketable securities. Should the impact of the COVID-19 pandemic last longer than anticipated, and/or our cash flow from operations decline more than expected, we may need to obtain additional financing. The Company's ability to fund future operating expenses and capital expenditures, as well as its ability to meet future debt service obligations or refinance indebtedness will depend on future operating performance, which will be affected by general economic, financial, and other factors beyond our control.
Operating Revenues
We broadly group our services into the following categories: truckload services, brokerage services, intermodal services, dedicated services and value-added services. 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 and thirty-nine weeks endedOctober 2, 2021 andOctober 3, 2020 , presented as a percentage of total operating revenues: Thirteen Weeks Ended Thirty-nine Weeks Ended October 2, October 3, October 2, October 3, 2021 2020 2021 2020 Operating revenues: Truckload services 14.7 % 14.3 % 14.3 % 15.1 % Brokerage services 22.9 24.8 23.5 23.8 Intermodal services 27.2 25.9 25.8 28.6 Dedicated services 11.6 10.8 11.7 8.9 Value-added services 23.6 24.2 24.7 23.6 Total operating revenues 100.0 % 100.0 % 100.0 % 100.0 % Results of Operations The following table sets forth items derived from our consolidated statements of income for the thirteen weeks and thirty-nine weeks endedOctober 2, 2021 andOctober 3, 2020 , presented as a percentage of operating revenues: Thirteen Weeks Ended Thirty-nine Weeks Ended October 2, October 3,
2021 2020 2021 2020
Operating revenues: 100.0 % 100.0 % 100.0 % 100.0 %
Operating expenses:
Purchased transportation and
equipment rent 47.8 48.6 46.8 48.4
Direct personnel and related benefits 26.6 24.4 26.2 24.3
Operating supplies and expenses 9.8 8.5 8.9 7.8
Commission expense 2.0 1.9 1.9 1.9
Occupancy expense 2.1 2.4 2.1 2.6
General and administrative 2.5 2.4 2.3 2.4
Insurance and claims 1.8 1.3 1.6 1.5
Depreciation and amortization 3.7 4.6 4.0 5.5
Total operating expenses 96.2 94.0 93.8 94.3
Income from operations 3.8 6.0 6.2 5.7
Interest and other non-operating
income
(expense), net (0.7 ) (1.1 ) (0.2 ) (1.5 )
Income before income taxes 3.1 4.9 6.0 4.2
Income tax expense 0.8 1.2 1.5 1.0
Net income 2.3 % 3.7 % 4.5 % 3.2 %
21
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Thirteen Weeks Ended
Operating revenues. Operating revenues for the thirteen weeks endedOctober 2, 2021 increased$80.6 million , or 22.1%, to$445.6 million from$365.0 million for the thirteen weeks endedOctober 3, 2020 . Included in operating revenues are separately-identified fuel surcharges of$24.9 million for the thirteen weeks endedOctober 2, 2021 compared to$16.4 million for the thirteen weeks endedOctober 3, 2020 . Consolidated income from operations decreased$5.3 million , or 24.2%, to$16.7 million for the third quarter 2021 compared to$22.1 million during the same period last year. Results for the thirteen weeks endedOctober 2, 2021 include$5.8 million in litigation related charges and$7.1 million of losses incurred in connection with a recent contract logistics program launch. In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased$29.2 million , or 22.9%, to$156.9 million in the third quarter 2021 compared to$127.7 million in the previous year. At the end of the third quarter 2021, Universal managed 61 value-added programs, compared to 57 programs at the end of the third quarter 2020. During the recently completed quarter, dedicated transportation load count decreased 14.7% to 137,127 from 160,694 in the third quarter 2020. Income from operations in the contract logistics segment decreased$5.6 million to$6.0 million for the thirteen weeks endedOctober 2, 2021 compared to$11.6 million in the same period last year. Third quarter 2021 results in the contract logistics segment include$7.1 million of losses incurred in connection with a previously announced program launch. As a percentage of revenue, operating margin in the contract logistics segment for the third quarter 2021 was 3.8% compared to 9.1% during the same period last year. Recent program awards were the primary drivers for increased revenue; however, lost production due to chip shortages, labor constraints, and an unfavorable operating environment led to compressed margins during the third quarter 2021. In the intermodal segment, operating revenues increased$26.5 million , or 28.0%, to$121.0 million in the third quarter 2021 compared to$94.5 million in the previous year. Intermodal revenues for the thirteen weeks endedOctober 2, 2021 included$13.2 million in separately identified fuel surcharges, compared to$9.4 million in the same period last year. During the third quarter 2021, Universal moved 159,428 intermodal loads compared to 182,803 in the third quarter 2020, a decrease of 12.8%, while its average operating revenue per load, excluding fuel surcharges, increased 20.9% to$537 from$444 . Additionally, other assessorial charges such as detention, demurrage and storage increased$13.4 million during the third quarter 2021. Income from operations in the intermodal segment decreased$6.9 million to$1.9 million for the thirteen weeks endedOctober 2, 2021 compared to$8.8 million in the third quarter 2020. Intermodal segment results included litigation related charges totaling$5.8 million in the third quarter 2021. As a percentage of revenue, operating margin in the intermodal segment decreased to 1.6% compared to 9.4% in the third quarter of 2020. In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased$24.2 million to$107.2 million in the third quarter 2021 compared to$82.9 million in the prior year period. Included in trucking segment revenues for the third quarter 2021 were$6.5 million in separately identified fuel surcharges compared to$3.6 million during the third quarter 2020. Income from operations in the trucking segment increased$2.1 million to$6.8 million for the third quarter 2021 compared to$4.8 million in the same period last year. During the recently completed quarter, load volumes increased 12.4% to 72,549 loads compared to 64,552 during the same period last year. Universal's average operating revenue per load, excluding fuel surcharges, also increased 13.6% to$1,417 from$1,247 in the prior year period. As a percentage of revenue, operating margin in the trucking segment for the third quarter 2021 was 6.4% compared to 5.8% for the third quarter 2020. In the company-managed brokerage segment, operating revenues decreased$0.4 million , or 0.6%, to$59.2 million in the thirteen weeks endingOctober 2, 2021 compared to$59.6 million in the thirteen weeks endingOctober 3, 2020 . Income from operations in the company-managed brokerage segment increased$5.0 million to$1.8 million for the third quarter 2021 from an operating loss of$3.2 million for the third quarter 2020. Average operating revenue per load, excluding fuel surcharges, increased 18.9% to$1,808 in the third quarter 2021 from$1,521 in the third quarter 2020. Company-managed brokerage load volumes decreased 17.4% to 30,619 from 37,079. As a percentage of revenue, operating margin for the company-managed brokerage segment was 3.0% for the third quarter 2021 compared to (5.4%) in the same period last year. Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the third quarter 2021 increased$35.7 million , or 20.1%, to$212.9 million from$177.2 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. Third quarter 2021 transportation-related service revenues increased 23.0% compared to the third quarter of 2020. As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 47.8% compared to 48.6% during the same period last year. The decrease was due to a decrease in the mix of brokerage services revenue, where the cost of transportation is typically higher than our other transportation businesses. As a percentage of total revenues, brokerage services revenue decreased to 22.9% for the thirteen weeks endedOctober 2, 2021 compared to 24.8% in the same period last year. 22 -------------------------------------------------------------------------------- Direct personnel and related benefits. Direct personnel and related benefits for the thirteen weeks endedOctober 2, 2021 increased by$29.5 million , or 33.2%, to$118.4 million compared to$88.9 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 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 26.6% for the thirteen weeks endedOctober 2, 2021 , compared to 24.4% for the thirteen weeks endedOctober 3, 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$12.8 million , or 41.3%, to$43.8 million for the thirteen weeks endedOctober 2, 2021 compared to$31.0 million for the thirteen weeks endedOctober 3, 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$8.7 million in fuel expense,$4.9 million in legal charges and professional fees,$2.0 million in vehicle and other maintenance, and$1.8 million in travel and entertainment. Commission expense. Commission expense for the third quarter 2021 increased by$2.3 million , or 34.5%, to$9.1 million from$6.8 million for the third quarter 2020. Commission expense increased due to increased revenue in the agency based truckload business. As a percentage of operating revenues, commission expense increased to 2.0% for the thirteen weeks endingOctober 2, 2021 , compared to 1.9% one year earlier. Occupancy expense. Occupancy expenses increased by$0.7 million , or 7.6%, to$9.3 million for the thirteen weeks endedOctober 2, 2021 . This compares to$8.7 million for the thirteen weeks endedOctober 3, 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 endedOctober 2, 2021 increased by$2.4 million to$11.0 million from$8.6 million in the thirteen weeks endedOctober 3, 2020 . The increase was attributable to a$0.9 million increase in salaries, wages, and benefits, a$0.8 million increase in professional fees, and a$0.6 million increase in other general and administrative expenses. As a percentage of operating revenues, general and administrative expense was 2.5% for the third quarter 2021 compared to 2.4% for the third quarter 2020. Insurance and claims. Insurance and claims expense for the third quarter 2021 increased by$3.0 million to$7.9 million from$4.9 million in the third quarter 2020. The increase was attributable to an increase in auto liability premiums and cargo and service failure claims. As a percentage of operating revenues, insurance and claims increased to 1.8% for the thirteen weeks endingOctober 2, 2021 compared to 1.3% for the third quarter 2020.
Depreciation and amortization. Depreciation and amortization expense for the
thirteen weeks ended
Interest expense, net. Net interest expense was$3.0 million for the thirteen weeks endedOctober 2, 2021 compared to$3.5 million for the thirteen weeks endedOctober 3, 2020 . The decrease in net interest expense reflects a decrease in interest rates on our outstanding borrowings. As ofOctober 2, 2021 , our outstanding borrowings totaled$444.8 million compared to$468.3 million at the same time last year. Other non-operating income (expense). Other non-operating expense was$0.1 million for the third quarter 2021 compared to other non-operating expense of$0.5 million for the third quarter 2020. Included in other non-operating income for the third quarter 2021 was a$0.1 million pre-tax holding loss on marketable securities due to changes in fair value recognized in income compared to a$0.5 million pre-tax holding loss on marketable securities in the third quarter 2020. Income tax expense. Income tax expense for the third quarter 2021 was$3.3 million , compared to$4.5 million for the third quarter 2020, based on an effective tax rate of 24.5% and 24.8% respectively. The decrease in income taxes in 2021 is the result of a decrease in taxable income and our effective tax rate for the thirteen weeks endedOctober 2, 2021 compared to the thirteen weeks endedOctober 3, 2020 . 23 --------------------------------------------------------------------------------
Thirty-nine Weeks Ended
Operating revenues. Operating revenues for the thirty-nine weeks endedOctober 2, 2021 increased$278.5 million , or 27.7%, to$1,283.6 million from$1,005.1 million for the thirty-nine weeks endedOctober 3, 2020 . Included in operating revenues are separately-identified fuel surcharges of$68.0 million for the thirty-nine weeks endedOctober 2, 2021 compared to$51.9 million for the thirty-nine weeks endedOctober 3, 2020 . Consolidated income from operations increased$22.4 million , or 39.4%, to$79.2 million for the first three quarters of 2021 compared to$56.8 million during the same period last year. Results for the thirty-nine weeks endedOctober 3, 2020 were negatively impacted by the Covid-19 pandemic which resulted in a substantial portion of our customers being shuttered. Results for the thirty-nine weeks endedOctober 2, 2021 include a favorable legal settlement which resulted in a$5.7 million pre-tax gain,$7.6 million in legal charges, and$13.9 million of losses incurred in connection with a recent contract logistics program launch. In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased$140.1 million , or 42.9%, to$466.6 million in the thirty-nine weeks endedOctober 2, 2021 compared to$326.5 million in the previous year. Income from operations in the contract logistics segment increased$14.7 million , or 61.3%, to$38.7 million for the thirty-nine weeks endedOctober 2, 2021 compared to$24.0 million in the same period last year. In the thirty-nine weeks endedOctober 2, 2021 , Universal managed 61 value-added programs compared to 57 in the prior year period. During the thirty-nine weeks endedOctober 2, 2021 , dedicated transportation load count increased 25.6% to 449,621 from 357,912 in the thirty-nine weeks endedOctober 3, 2020 . Results for the thirty-nine weeks endedOctober 2, 2021 in the contract logistics segment include approximately$13.9 million of losses incurred in connection with a recent program launch. Results in the contract logistics segment for the thirty-nine weeks endedOctober 3, 2020 were negatively impacted by the Covid-19 pandemic which resulted in a substantial portion of our customers being shuttered As a percentage of revenue, operating margin for the contract logistics segment for the thirty-nine weeks endedOctober 2, 2021 was 8.3% compared to 7.4% during the same period last year. In the intermodal segment, operating revenues increased$43.6 million to$331.3 million in the thirty-nine weeks endingOctober 2, 2021 compared to$287.7 million in the previous year. Intermodal revenues for the thirty-nine weeks endedOctober 2, 2021 included$35.2 million in separately identified fuel surcharges, compared to$31.2 million in the same period last year. During the thirty-nine weeks endingOctober 2, 2021 , Universal moved 508,352 intermodal loads compared to 537,365 in the thirty-nine weeks endingOctober 3, 2020 , a decrease of 5.4%, while its average operating revenue per load, excluding fuel surcharges increased 7.8% to$500 from$464 . In the thirty-nine weeks endingOctober 2, 2021 other accessorial charges such as detention, demurrage and storage increased$29.3 million from the same period last year. Income from operations in the intermodal segment decreased$6.0 million to$16.6 million for the thirty-nine weeks endedOctober 2, 2021 compared to$22.6 million in the thirty-nine weeks endingOctober 3, 2020 . Intermodal segment results included litigation related charges totaling$7.6 million in the third quarter 2021. As a percentage of revenue, operating margin in the intermodal segment was 5.0% in the thirty-nine weeks endedOctober 2, 2021 compared to 7.8% in the prior year period. In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased$64.3 million to$301.8 million in the thirty-nine weeks endingOctober 2, 2021 compared to$237.5 million in the prior year period. Included in trucking segment revenues for the thirty-nine weeks endingOctober 2, 2021 were$17.6 million in separately identified fuel surcharges compared to$12.4 million during the thirty-nine weeks endingOctober 3, 2020 . Income from operations in the trucking segment increased$5.6 million to$18.5 million for the thirty-nine weeks endedOctober 2, 2021 compared to$12.9 million in the same period last year. During the thirty-nine weeks endedOctober 2, 2021 , load volumes increased 15.1% to 220,938 loads compared to 191,990 in the thirty-nine weeks endingOctober 3, 2020 . Average operating revenue per load, excluding fuel surcharges, also increased 8.8% to$1,319 from$1,212 in the prior year period. As a percentage of revenue, operating margin in the trucking segment was 6.1% in the thirty-nine weeks endingOctober 2, 2021 compared to 5.4% in the same period last year. In the company-managed brokerage segment, operating revenues increased$28.5 million , or 18.7%, to$180.8 million in the thirty-nine weeks endingOctober 2, 2021 compared to$152.3 million in the thirty-nine weeks endingOctober 3, 2020 . Company-managed brokerage load volumes decreased 15.3% to 94,510 from 111,622. However, average operating revenue per load, excluding fuel surcharges, increased 40.7% to$1,807 in the thirty-nine weeks endingOctober 2, 2021 from$1,284 in the thirty-nine weeks endingOctober 3, 2020 . As a percentage of revenue, operating margin for the company-managed brokerage segment was 2.6% for the thirty-nine weeks endingOctober 2, 2021 compared to (1.9%) in the same period last year. 24 -------------------------------------------------------------------------------- Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the thirty-nine weeks endingOctober 2, 2021 increased$113.6 million , or 23.3%, to$600.3 million from$486.7 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. In the thirty-nine weeks endedOctober 2, 2021 , transportation-related service revenues increased 26.0% compared to the thirty-nine weeks endedOctober 3, 2020 . As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 46.8% compared to 48.4% 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 thirty-nine weeks endedOctober 2, 2021 compared to 76.4% in the same period last year. Direct personnel and related benefits. Direct personnel and related benefits for the thirty-nine weeks endedOctober 2, 2021 increased by$93.1 million , or 38.2%, to$336.9 million compared to$243.9 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 26.2% for the thirty-nine weeks endedOctober 2, 2021 , compared to 24.3% for the thirty-nine weeks endedOctober 3, 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$35.0 million , or 44.4%, to$113.6 million for the thirty-nine weeks endedOctober 2, 2021 compared to$78.7 million for the thirty-nine weeks endedOctober 3, 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$19.9 million in fuel expense,$6.6 million in legal charges and professional fees,$6.6 million in vehicle and other maintenance,$3.8 million in travel and entertainment, and$1.2 million in operating supplies and material costs in operations supporting heavy-truck programs. Commission expense. Commission expense for the thirty-nine weeks endedOctober 2, 2021 increased by$6.0 million , or 31.8%, to$25.0 million from$19.0 million for the thirty-nine weeks endedOctober 3, 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 both the thirty-nine weeks endingOctober 2, 2021 andOctober 3, 2020 . Occupancy expense. Occupancy expenses increased by$0.4 million , or 1.6%, to$26.9 million for the thirty-nine weeks endedOctober 2, 2021 . This compares to$26.5 million for the thirty-nine weeks endedOctober 3, 2020 . The increase was primarily attributable to an increase in property taxes. General and administrative. General and administrative expense for the thirty-nine weeks endedOctober 2, 2021 increased by$5.8 million to$29.9 million from$24.1 million in the thirty-nine weeks endedOctober 3, 2020 . The increase was attributable to a$4.1 million increase in salaries, wages, and benefits and a$1.4 million increase in professional fees. As a percentage of operating revenues, general and administrative expense was 2.3% for the thirty-nine weeks endedOctober 2, 2021 compared to 2.4% for the thirty-nine weeks endedOctober 3, 2020 . Insurance and claims. Insurance and claims expense for the thirty-nine weeks endedOctober 2, 2021 increased by$5.3 million to$20.0 million from$14.7 million in the thirty-nine weeks endedOctober 3, 2020 . The increase was attributable to increases of$4.0 million in cargo and service failure claims and$1.4 million in auto liability premiums and claims. As a percentage of operating revenues, insurance and claims increased to 1.6% for the thirty-nine weeks endingOctober 2, 2021 compared to 1.5% for the thirty-nine weeks endedOctober 3, 2020 . Depreciation and amortization. Depreciation and amortization expense for the thirty-nine weeks endedOctober 2, 2021 decreased by$3.1 million , or 5.6%, to$51.9 million from$54.9 million for 2020. Depreciation expense decreased$2.1 million and amortization expense decreased$0.9 million . 25 -------------------------------------------------------------------------------- Interest expense, net. Net interest expense was$9.1 million for the thirty-nine weeks endedOctober 2, 2021 compared to$11.2 million for the thirty-nine weeks endedOctober 3, 2020 . The decrease in net interest expense reflects a decrease in interest rates on our outstanding borrowings. As ofOctober 2, 2021 , our outstanding borrowings totaled$444.8 million compared to$468.3 million at the same time last year. Other non-operating income (expense). Other non-operating income was$7.0 million for the thirty-nine weeks endedOctober 2, 2021 compared to$3.3 million of other non-operating expense for the thirty-nine weeks endedOctober 3, 2020 . Other non-operating income for thirty-nine weeks endedOctober 2, 2021 includes a$5.7 million pre-tax gain from a favorable legal settlement. Other non-operating income for the thirty-nine weeks endedOctober 2, 2021 also includes a$1.2 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$3.0 million in the thirty-nine weeks endedOctober 3, 2020 . Income tax expense. Income tax expense for the thirty-nine weeks endedOctober 2, 2021 was$19.5 million , compared to$10.5 million for the thirty-nine weeks endedOctober 3, 2020 , based on an effective tax rate of 25.3% and 24.7% respectively. The increase in income taxes in 2021 is the result of an increase in taxable income and our effective tax rate for the thirty-nine weeks endedOctober 2, 2021 compared to the thirty-nine weeks endedOctober 3, 2020 .
Liquidity and Capital Resources
Our primary sources of liquidity are funds generated by operations, loans and extensions of credit under our credit facilities, on margin against our marketable securities and from installment notes, and proceeds from the sales of marketable securities. We use secured, asset lending to fund a substantial portion of purchases of tractors, trailers and material handling equipment. We employ an asset-light operating strategy which we believe lowers our capital expenditure requirements. In general, our facilities used in our value-added services are leased on terms that are either substantially matched to our customer's contracts, are month-to-month or are provided to us by our customers. We also utilize owner-operators and third-party carriers to provide a significant portion of our transportation and specialized services. A significant portion of the tractors and trailers used in our business are provided by our owner-operators. In addition, our use of agents reduces our overall need for large terminals. 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 thirty-nine weeks endedOctober 2, 2021 , our capital expenditures totaled$26.2 million . These expenditures primarily consisted of transportation equipment and investments in support of our value-added service operations. Our asset-light business model depends somewhat on the customized solutions we implement for specific customers. As a result, our capital expenditures will depend on specific new contracts and the overall age and condition of our owned transportation equipment. Through the remainder of 2021, exclusive of any acquisitions of businesses and strategic real estate purchases, we expect our capital expenditures to be in the range of 1% to 2% of operating revenues. 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. After taking into account the regular quarterly dividends made during the year, our Board of Directors also evaluates the potential declaration of an annual special dividend payable in the first quarter of each year. The Board of directors did not declare a special dividend in the first quarter of 2021. OnOctober 28, 2021 , our Board of Directors declared the regular quarterly cash dividend of$0.105 per share of common stock payableDecember 6, 2021 to shareholders of record at the close of businessJanuary 4, 2022 . 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. The policy has since been reinstated. During the year endedDecember 31, 2020 , we paid a total of$0.21 per common share, or$5.7 million . Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors. 26 -------------------------------------------------------------------------------- While operating cash flows may be negatively impacted by a prolonged pandemic, the Company believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and loans and extensions of credit under our credit facilities and on margin against our marketable securities. Should the impact of the COVID-19 pandemic last longer than anticipated, and/or our cash flow from operations decline more than expected, we may need to obtain additional financing. The Company's ability to fund future operating expenses and capital expenditures, as well as its ability to meet future debt service obligations or refinance indebtedness will depend on future operating performance, which will be affected by general economic, financial, and other factors beyond our control. We continue to evaluate business development opportunities, including potential acquisitions that fit our strategic plans. There can be no assurance that we will identify any opportunities that fit our strategic plans or will be able to execute any such opportunities on terms acceptable to us. Depending on prospective consideration to be paid for an acquisition, any such opportunities would be financed first from available cash and cash equivalents and availability of borrowings under our credit facilities.
Revolving Credit, Promissory Notes and Term Loan Agreements
Our secured credit facility (the "Credit Facility") provides for maximum borrowings of$350 million in the form of a$150 million term loan and a$200 million revolver at a variable rate of interest based on LIBOR or a base rate and matures onNovember 26, 2023 . The Credit Facility, which is secured by cash, deposits, accounts receivable, and selected other assets of the applicable borrowers, includes customary affirmative and negative covenants and events of default, as well as financial covenants requiring minimum fixed charge coverage and leverage ratios, and customary mandatory prepayments provisions. Our Credit Facility includes an accordion feature which allows us to increase availability by up to$100 million upon our request. AtOctober 2, 2021 , we were in compliance with all covenants under the Credit Facility, and$27.8 million was available for borrowing. A wholly owned subsidiary issued a series of promissory notes in order to finance transportation equipment (the "Equipment Financing"). The notes issued in connection with the Equipment Financing, which are secured by liens on specific titled vehicles, include certain affirmative and negative covenants, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25% to 5.13%. A wholly owned subsidiary issued a series of promissory notes in order to finance certain purchases of real property (the "Real Estate Financing"). The promissory notes, which are secured by first mortgages and assignment of leases on specific parcels of real estate and improvements, include certain affirmative and negative covenants and are generally payable in 120 monthly installments. Each of the notes bears interest at variable rates ranging from LIBOR plus 1.85% to LIBOR plus 2.25%. AtOctober 2, 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"). It bears interest at LIBOR plus 1.10%. 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 ofOctober 2, 2021 , and the maximum available borrowings were$4.2 million . Discussion of Cash Flows AtOctober 2, 2021 , we had cash and cash equivalents of$13.1 million compared to$8.8 million atDecember 31, 2020 . Operating activities provided$53.7 million in net cash, and we used$21.1 million in investing activities and$28.2 million in financing activities. The$53.7 million in net cash provided by operations was primarily attributed to$57.5 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, gain on marketable equity securities, gains on equipment sales, amortization of debt issuance costs, stock-based compensation, and provisions for doubtful accounts totaling$74.2 million , net. Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling$78.0 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, 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$1.8 million . The decrease in net cash resulted from a decrease in accounts payable to affiliates of$2.1 million and a decrease in accounts receivable from affiliates of$0.2 million . The$21.1 million in net cash used in investing activities consisted of$26.2 million in capital expenditures and$0.1 million in marketable securities purchases. These uses were partially offset by$5.1 million in proceeds from the sale of equipment and$0.1 million in proceeds from the sale of marketable securities. 27
-------------------------------------------------------------------------------- We used$28.2 million in financing activities during the thirty-nine weeks endedOctober 2, 2021 . During the period we paid cash dividends of$11.3 million . We had outstanding borrowings totaling$444.8 million atOctober 2, 2021 compared to$461.7 million atDecember 31, 2020 . During the period we had net borrowings on our revolving lines of credit totaling$20.9 million and borrowed an additional$8.3 million for new equipment. We also made term loan, and equipment and real estate note payments totaling$46.1 million during the period.
Off Balance Sheet Arrangements
None.
Critical Accounting Policies
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 endedDecember 31, 2020 . There have been no changes in our accounting policies during the thirteen weeks endedOctober 2, 2021 . Seasonality 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. Conversely, such demand generally decreases during the third quarter of each year due to the impact of scheduled OEM customer plant shutdowns in July for vacations and changeovers in production lines for new model years. Our value-added services business is also impacted in the fourth quarter by plant shutdowns during the December holiday period. 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. At these times, some shippers reduce their shipments, and inclement weather impedes trucking operations or underlying customer demand. Prolonged adverse weather conditions, particularly in winter months, can also adversely impact margins due to productivity declines and related challenges meeting customer service requirements.
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