10-Q 1 ulh-10q_20170701.htm FORM 10-Q ulh-10q_20170701.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 1, 2017

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File Number: 0-51142

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Michigan

 

38-3640097

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

12755 E. Nine Mile Road

Warren, Michigan 48089

(Address, including Zip Code of Principal Executive Offices)

(586) 920-0100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes     No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes     No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

 

 

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

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

The number of shares of the registrant’s common stock, no par value, outstanding as of August 7, 2017, was 28,442,894.

 

 


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

July 1,

2017

 

 

December 31,

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,039

 

 

$

1,755

 

Marketable securities

 

 

14,117

 

 

 

14,359

 

Accounts receivable – net of allowance for doubtful accounts of $1,997

   and $1,613, respectively

 

 

154,976

 

 

 

144,712

 

Other receivables

 

 

16,872

 

 

 

15,438

 

Due from affiliates

 

 

3,114

 

 

 

2,513

 

Prepaid income taxes

 

 

10,152

 

 

 

11,300

 

Prepaid expenses and other

 

 

20,336

 

 

 

17,374

 

Total current assets

 

 

221,606

 

 

 

207,451

 

Property and equipment – net of accumulated depreciation of $194,093 and

   $181,297, respectively

 

 

260,776

 

 

 

246,277

 

Goodwill

 

 

74,484

 

 

 

74,484

 

Intangible assets – net of accumulated amortization of $54,395 and $50,971, respectively

 

 

33,764

 

 

 

37,189

 

Deferred income taxes

 

 

164

 

 

 

164

 

Other assets

 

 

5,685

 

 

 

4,892

 

Total assets

 

$

596,479

 

 

$

570,457

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

89,127

 

 

$

65,945

 

Due to affiliates

 

 

9,695

 

 

 

4,597

 

Accrued expenses and other current liabilities

 

 

20,644

 

 

 

19,765

 

Insurance and claims

 

 

22,597

 

 

 

19,754

 

Current portion of long-term debt

 

 

36,702

 

 

 

34,455

 

Total current liabilities

 

 

178,765

 

 

 

144,516

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

213,532

 

 

 

226,812

 

Deferred income taxes

 

 

50,064

 

 

 

47,819

 

Other long-term liabilities

 

 

2,912

 

 

 

3,578

 

Total long-term liabilities

 

 

266,508

 

 

 

278,209

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value. Authorized 100,000,000 shares; 30,930,452 and

   30,917,952 shares issued; 28,442,894 and 28,430,394 shares outstanding,

   respectively

 

 

30,932

 

 

 

30,919

 

Paid-in capital

 

 

3,684

 

 

 

3,451

 

Treasury stock, at cost; 2,487,558 shares

 

 

(50,044

)

 

 

(50,044

)

Retained earnings

 

 

169,108

 

 

 

166,033

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized holding gain on available-for-sale securities, net of income

   taxes of $1,503 and $1,512, respectively

 

 

2,678

 

 

 

2,679

 

Interest rate swaps, net of income taxes of $49 and $62, respectively

 

 

79

 

 

 

99

 

Foreign currency translation adjustments

 

 

(5,231

)

 

 

(5,405

)

Total shareholders’ equity

 

 

151,206

 

 

 

147,732

 

Total liabilities and shareholders’ equity

 

$

596,479

 

 

$

570,457

 

See accompanying notes to consolidated financial statements.

2


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Income

(In thousands, except per share data)

 

 

 

Thirteen Weeks Ended

 

 

Twenty-six Weeks Ended

 

 

 

July 1,

2017

 

 

July 2,

2016

 

 

July 1,

2017

 

 

July 2,

2016

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Truckload services

 

$

76,744

 

 

$

73,827

 

 

$

148,234

 

 

$

143,648

 

Brokerage services

 

 

64,714

 

 

 

56,498

 

 

 

122,703

 

 

 

106,236

 

Intermodal services

 

 

38,729

 

 

 

36,298

 

 

 

74,656

 

 

 

71,674

 

Dedicated services

 

 

24,375

 

 

 

24,053

 

 

 

49,271

 

 

 

46,136

 

Value-added services

 

 

100,637

 

 

 

86,137

 

 

 

194,777

 

 

 

169,513

 

Total operating revenues

 

 

305,199

 

 

 

276,813

 

 

 

589,641

 

 

 

537,207

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

142,600

 

 

 

132,012

 

 

 

273,827

 

 

 

253,677

 

Direct personnel and related benefits

 

 

81,238

 

 

 

65,903

 

 

 

156,782

 

 

 

130,418

 

Operating supplies and expenses

 

 

31,467

 

 

 

25,421

 

 

 

60,451

 

 

 

50,085

 

Commission expense

 

 

8,237

 

 

 

8,379

 

 

 

15,781

 

 

 

16,451

 

Occupancy expense

 

 

7,666

 

 

 

7,974

 

 

 

15,497

 

 

 

15,697

 

General and administrative

 

 

6,495

 

 

 

6,729

 

 

 

14,453

 

 

 

13,836

 

Insurance and claims

 

 

9,538

 

 

 

4,486

 

 

 

15,396

 

 

 

8,658

 

Depreciation and amortization

 

 

11,541

 

 

 

9,135

 

 

 

21,868

 

 

 

17,681

 

Total operating expenses

 

 

298,782

 

 

 

260,039

 

 

 

574,055

 

 

 

506,503

 

Income from operations

 

 

6,417

 

 

 

16,774

 

 

 

15,586

 

 

 

30,704

 

Interest income

 

 

24

 

 

 

3

 

 

 

38

 

 

 

126

 

Interest expense

 

 

(2,505

)

 

 

(2,118

)

 

 

(4,755

)

 

 

(4,204

)

Other non-operating income

 

 

464

 

 

 

112

 

 

 

532

 

 

 

250

 

Income before provision for income taxes

 

 

4,400

 

 

 

14,771

 

 

 

11,401

 

 

 

26,876

 

Provision for income taxes

 

 

1,661

 

 

 

5,724

 

 

 

4,344

 

 

 

10,352

 

Net income

 

$

2,739

 

 

$

9,047

 

 

$

7,057

 

 

$

16,524

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.10

 

 

$

0.32

 

 

$

0.25

 

 

$

0.58

 

Diluted

 

$

0.10

 

 

$

0.32

 

 

$

0.25

 

 

$

0.58

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,443

 

 

 

28,414

 

 

 

28,439

 

 

 

28,408

 

Diluted

 

 

28,443

 

 

 

28,414

 

 

 

28,439

 

 

 

28,408

 

Dividends declared per common share

 

$

0.07

 

 

$

0.07

 

 

$

0.14

 

 

$

0.14

 

 

See accompanying notes to consolidated financial statements.

 

 

3


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

Thirteen Weeks Ended

 

 

Twenty-six Weeks Ended

 

 

 

July 1,

2017

 

 

July 2,

2016

 

 

July 1,

2017

 

 

July 2,

2016

 

Net Income

 

$

2,739

 

 

$

9,047

 

 

$

7,057

 

 

$

16,524

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains on available-for-sale

   investments arising during the period, net

   of income taxes

 

 

6

 

 

 

555

 

 

 

187

 

 

 

565

 

Realized (gain) loss on available-for-sale investments

   reclassified into income, net of taxes

 

 

(199

)

 

 

-

 

 

 

(188

)

 

 

25

 

Unrealized changes in fair value of interest rate swaps,

   net of income taxes

 

 

(51

)

 

 

(203

)

 

 

(20

)

 

 

(434

)

Foreign currency translation adjustments

 

 

(824

)

 

 

(456

)

 

 

174

 

 

 

(697

)

Total other comprehensive income (loss)

 

 

(1,068

)

 

 

(104

)

 

 

153

 

 

 

(541

)

Total comprehensive income

 

$

1,671

 

 

$

8,943

 

 

$

7,210

 

 

$

15,983

 

 

See accompanying notes to consolidated financial statements.

 

 

4


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Twenty-six Weeks Ended

 

 

 

July 1,

2017

 

 

July 2,

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

7,057

 

 

$

16,524

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

21,868

 

 

 

17,681

 

(Gain) loss on sale of marketable equity securities

 

 

(305

)

 

 

39

 

Loss on disposal of property and equipment

 

 

3

 

 

 

433

 

Amortization of debt issuance costs

 

 

161

 

 

 

153

 

Stock-based compensation

 

 

246

 

 

 

298

 

Provision for doubtful accounts

 

 

1,301

 

 

 

888

 

Deferred income taxes

 

 

2,019

 

 

 

(1,202

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

(12,715

)

 

 

(2,849

)

Prepaid income taxes, prepaid expenses and other assets

 

 

(2,201

)

 

 

(5,479

)

Accounts payable, accrued expenses and other current liabilities, and insurance

   and claims

 

 

25,727

 

 

 

19,801

 

Due to/from affiliates, net

 

 

4,496

 

 

 

1,822

 

Other long-term liabilities

 

 

(612

)

 

 

(2,018

)

Net cash provided by operating activities

 

 

47,045

 

 

 

46,091

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(33,309

)

 

 

(46,110

)

Proceeds from the sale of property and equipment

 

 

362

 

 

 

1,987

 

Purchases of marketable securities

 

 

 

 

 

(10

)

Proceeds from sale of marketable securities

 

 

536

 

 

 

71

 

Net cash used in investing activities

 

 

(32,411

)

 

 

(44,062

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

142,816

 

 

 

57,393

 

Repayments of debt - revolving debt

 

 

(144,859

)

 

 

(72,328

)

Proceeds from borrowing - term debt

 

 

13,081

 

 

 

62,053

 

Repayments of debt - term debt

 

 

(22,232

)

 

 

(51,650

)

Payment of capital lease obligations

 

 

(55

)

 

 

(1,736

)

Dividends paid

 

 

(3,982

)

 

 

(3,977

)

Capitalized financing costs

 

 

 

 

 

(296

)

Purchases of treasury stock

 

 

 

 

 

(2

)

Net cash used in financing activities

 

 

(15,231

)

 

 

(10,543

)

Effect of exchange rate changes on cash and cash equivalents

 

 

881

 

 

 

(396

)

Net decrease in cash

 

 

284

 

 

 

(8,910

)

Cash  and cash equivalents – beginning of period

 

 

1,755

 

 

 

12,930

 

Cash and cash equivalents – end of period

 

$

2,039

 

 

$

4,020

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,247

 

 

$

4,018

 

Cash paid for income taxes

 

$

1,330

 

 

$

14,943

 

 

See accompanying notes to consolidated financial statements.

 

5


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements

 

(1)

Basis of Presentation

The accompanying unaudited consolidated financial statements of Universal Logistics Holdings, Inc. (“Universal” or the “Company”), and its wholly-owned subsidiaries, have been prepared by the Company’s management. In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. All intercompany transactions and balances have been eliminated in consolidation.  Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, should be read in conjunction with the consolidated financial statements as of December 31, 2016 and 2015 and for each of the years in the three-year period ended December 31, 2016 included in the Company’s Form 10-K filed with the Securities and Exchange Commission. The preparation of the consolidated financial statements requires the use of management’s estimates. Actual results could differ from those estimates.

Our fiscal year ends on December 31 and consists of four quarters, each with thirteen weeks.

Certain immaterial reclassifications have been made to the prior financial statements in order for them to conform to the July 1, 2017 presentation, including the reclassification of revenue categories to reflect Universal’s service offering.  These reclassifications had no effect on reported consolidated net income, comprehensive income, earnings per common share, cash flows, total assets, or stockholders' equity as previously reported.

 

 

(2)

Marketable Securities

At July 1, 2017 and December 31, 2016, marketable securities, all of which are available-for-sale, consist of common and preferred stocks.  Marketable securities are carried at fair value, with unrealized gains and losses, net of related income taxes, reported as accumulated other comprehensive income, except for losses from impairments which are determined to be other-than-temporary.  Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in the determination of net income and are included in other non-operating income (expense), at which time the average cost basis of these securities are adjusted to fair value.  Fair values are based on quoted market prices at the reporting date.  Interest and dividends on available-for-sale securities are included in other non-operating income (expense).

The cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of available-for-sale securities by type were as follows (in thousands):

 

 

 

Cost

 

 

Gross

Unrealized

Holding

Gains

 

 

Gross

Unrealized

Holding

(Losses)

 

 

Fair

Value

 

At July 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities

 

$

9,937

 

 

$

4,884

 

 

$

(704

)

 

$

14,117

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities

 

$

10,168

 

 

$

4,780

 

 

$

(589

)

 

$

14,359

 

 

Included in equity securities at July 1, 2017 are securities with a fair value of $2.5 million with a cumulative loss position of $0.7 million, the impairment of which we consider to be temporary.  We consider several factors in our determination as to whether declines in value are judged to be temporary or other-than-temporary, including the severity and duration of the decline, the financial condition and near-term prospects of the specific issuers and the industries in which they operate, and our intent and ability to hold these securities.  We may incur future impairment charges if declines in market values continue and/or worsen and impairments are no longer considered temporary.

6


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(2)

Marketable Securities - continued

The fair value and gross unrealized holding losses of our marketable securities that are not deemed to be other-than-temporarily impaired aggregated by type and length of time they have been in a continuous unrealized loss position were as follows (in thousands):

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

 

Fair

Value

 

 

Unrealized

Losses

 

At July 1, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

830

 

 

$

122

 

 

$

1,715

 

 

$

582

 

 

$

2,545

 

 

$

704

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

426

 

 

$

41

 

 

$

2,438

 

 

$

548

 

 

$

2,864

 

 

$

589

 

 

Our portfolio of equity securities in a continuous loss position, the impairment of which we consider to be temporary, consists primarily of common stocks in the oil and gas, banking, communications, and transportation industries.  The fair value and unrealized losses are distributed in 25 publicly traded companies, with no single industry or company representing a material or concentrated unrealized loss.  We have evaluated the near-term prospects of the various industries, as well as the specific issuers within our portfolio, in relation to the severity and duration of the impairments, and based on that evaluation, as well as our ability and intent to hold these investments for a reasonable period of time to allow for a recovery of fair value, we do not consider these investments to be other-than-temporarily impaired at July 1, 2017.

 

 

(3)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities is comprised of the following (in thousands):

 

 

 

July 1,

2017

 

 

December 31,

2016

 

 

 

 

 

 

 

 

 

 

Payroll related items

 

$

9,741

 

 

$

8,379

 

Driver escrow liabilities

 

 

3,755

 

 

 

7,701

 

Commissions, taxes and other

 

 

7,148

 

 

 

3,685

 

Total

 

$

20,644

 

 

$

19,765

 

 

 

7


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(4)

Debt

Debt is comprised of the following (in thousands):

 

 

 

Interest Rates

at July 1, 2017

 

 

July 1,

2017

 

 

December 31,

2016

 

Outstanding Debt:

 

 

 

 

 

 

 

 

 

 

 

 

ABL Facility (1)

 

2.73% to 4.75%

 

 

$

70,500

 

 

$

71,600

 

Westport Facility (2)

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

 

4.05%

 

 

 

28,494

 

 

 

34,000

 

Revolver

 

 

3.55%

 

 

 

2,057

 

 

 

3,000

 

Equipment Financing (3)

 

3.18% to 4.11%

 

 

 

103,550

 

 

 

104,607

 

Real Estate Financing (4)

 

 

3.48%

 

 

 

47,055

 

 

 

49,643

 

Margin Facility (5)

 

 

2.33%

 

 

 

 

 

 

 

Unamortized debt issuance costs

 

 

 

 

 

 

(1,422

)

 

 

(1,583

)

 

 

 

 

 

 

 

250,234

 

 

 

261,267

 

Less current portion of long-term debt

 

 

 

 

 

 

36,702

 

 

 

34,455

 

Total long-term debt, net of current portion

 

 

 

 

 

$

213,532

 

 

$

226,812

 

(1) The ABL Facility provides for maximum borrowings of $120 million at a variable rate of interest based on LIBOR or a base rate, and matures on December 23, 2020. The facility, which is secured by cash, deposits and accounts receivable of the borrowing subsidiaries, includes customary affirmative and negative covenants and events of default, as well as financial covenants requiring a minimum fixed charge coverage ratio to be maintained after a triggering event. Interest on base rate advances is payable quarterly, and interest on each LIBOR-based advance is payable on the last day of the applicable interest period. At July 1, 2017, we were in compliance with all covenants under the Facility, and $28.4 million was available for borrowing.

(2) The Westport Facility provides our subsidiary, Westport Axle Corporation, with maximum borrowings of $60 million in the form of a $40 million term loan and a $20 million revolver. Borrowings under the Westport Facility, which matures on December 23, 2020, accrue interest at a variable interest rate based on LIBOR or a base rate, and are secured by all of Westport’s assets. The Company becomes a guarantor upon the occurrence of certain events specified in the Westport Facility. Borrowings are repaid in part quarterly with the balance due at maturity. Interest on base rate advances is payable quarterly, and interest on each LIBOR-based advance is payable on the last day of the applicable interest period. The Westport Facility includes customary affirmative and negative covenants and events of default. At July 1, 2017, we were in compliance with all covenants, and $13.2 million was available for borrowing.

(3) The Equipment Financing consists of a series of promissory notes issued by a wholly-owned subsidiary in order to finance transportation equipment. The equipment notes, which are secured by liens on selected titled vehicles, include certain affirmative and negative covenants, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 3.18% to 4.11%. At July 1, 2017, we were in compliance with all covenants.

(4) The Real Estate Financing consists of a series of promissory notes issued by a wholly-owned subsidiary in order to finance certain purchases of real property and refinance a portion of indebtedness pursuant to a previous $40 million unsecured loan. The promissory notes require monthly payments of principal and accrued interest until their maturity on June 30, 2026. The notes are secured by first mortgages and assignment of leases on specific parcels of real estate and improvements included in a collateral pool specified in the security documents. The Real Estate Financing includes an additional promissory note that is secured by other real property and improvements and matures on September 5, 2026. Each of the notes bears interest at LIBOR plus 2.25%. At July 1, 2017, we were in compliance with all covenants.

(5) The Margin Facility is a short-term line of credit secured by our portfolio of marketable securities. It bears interest at LIBOR plus 1.10%. The amount available under the line of credit is based on a percentage of the market value of the underlying securities. We did not have any amounts outstanding under our line of credit at July 1, 2017 or December 31, 2016, and the maximum available borrowings under the line of credit were $6.8 million and $7.0 million, respectively.

8


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(4)

Debt - continued

The Company is also party to three interest rate swap agreements that qualify for hedge accounting. The swap agreements were executed to fix a portion of the interest rates on its variable rate debt that have a combined notional amount of $27.7 million at July 1, 2017. Under two of the swap agreements, the Company receives interest at the one-month LIBOR rate plus 2.25%, and pays a fixed rate. The March 2016 swap (swap A) became effective October 2016, has a rate of 4.16% (amortizing notional amount of $10.0 million) and expires July 2026, and an additional March 2016 swap (swap B) became  effective October 2016, has a rate of 3.83% (amortizing notional amount of $5.7 million) and expires May 2022.  The third interest rate swap agreement (swap C) has a notional amount of $12.0 million and expires February 2018.  Under swap C, the Company receives interest at the one-month LIBOR rate, and pays a fixed rate of 0.78%.  At July 1, 2017, the fair value of the three swap agreements was an asset of $0.1 million. Since these swap agreements qualify for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. See Note 5 for additional information pertaining to interest rate swaps.

 

(5)

Fair Value Measurements and Disclosures

FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date and expanded disclosures with respect to fair value measurements.

FASB ASC Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We have segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below (in thousands):

 

 

 

July 1,

2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

17

 

 

$

 

 

$

 

 

$

17

 

Marketable securities

 

 

14,117

 

 

 

 

 

 

 

 

 

14,117

 

Interest rate swaps

 

 

 

 

 

128

 

 

 

 

 

 

128

 

Total

 

$

14,134

 

 

$

128

 

 

$

 

 

$

14,262

 

 

 

 

December 31,

2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

4

 

 

$

 

 

$

 

 

$

4

 

Marketable securities

 

 

14,359

 

 

 

 

 

 

 

 

 

14,359

 

Interest rate swaps

 

 

 

 

 

161

 

 

 

 

 

 

161

 

Total

 

$

14,363

 

 

$

161

 

 

$

 

 

$

14,524

 

 

9


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(5)

Fair Value Measurements and Disclosures – continued

The valuation techniques used to measure fair value for the items in the tables above are as follows:

 

Cash equivalents – This category consists of money market funds which are listed as Level 1 assets and measured at fair value based on quoted prices for identical instruments in active markets.

 

Marketable securities – Marketable securities represent equity securities, which consist of common and preferred stocks, are actively traded on public exchanges and are listed as Level 1 assets.  Fair value was measured based on quoted prices for these securities in active markets.  

 

Interest rate swaps - The fair value of our interest rate swaps, as provided by a third party service provider, is determined using a methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments).  The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. The fair value measurement also incorporates credit valuation adjustments to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk.

Our revolving credit and term loan agreements and our real estate promissory notes consist of variable rate borrowings.  We categorize borrowings under these credit agreements as Level 2 in the fair value hierarchy.  The carrying value of these borrowings approximate fair value because the applicable interest rates are adjusted frequently based on short-term market rates.

For our equipment promissory notes, the fair values are estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. We categorize borrowings under this credit agreement as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of these promissory notes at July 1, 2017 is summarized as follows:

 

 

Carrying Value

 

 

Estimated Fair

Value

 

Equipment promissory notes

 

$

103,550

 

 

$

103,229

 

 

We have not elected the fair value option for any of our financial instruments.

 

10


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(6)

Transactions with Affiliates

CenTra, Inc., an affiliate of the Company, provides administrative support services to Universal in the ordinary course of business, including legal, human resources, tax, and IT infrastructure and related services.  The cost of these services is based on the actual or estimated utilization of the specific service.

Universal also purchases other services from affiliates. Following is a schedule of cost incurred and included in operating expenses for services provided by affiliates for the thirteen weeks and twenty-six weeks ended July 1, 2017 and July 2, 2016 (in thousands):

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 1,

2017

 

 

July 2,

2016

 

 

July 1,

2017

 

 

July 2,

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative support services

 

$

627

 

 

$

682

 

 

$

1,130

 

 

$

1,358

 

Truck fuel, tolls and maintenance

 

 

490

 

 

 

639

 

 

 

1,267

 

 

 

1,245

 

Real estate rent and related costs

 

 

4,010

 

 

 

4,232

 

 

 

8,716

 

 

 

8,241

 

Insurance and employee benefit plans

 

 

14,929

 

 

 

10,995

 

 

 

29,501

 

 

 

22,306

 

Purchased transportation and equipment rent

 

 

11

 

 

 

27

 

 

 

15

 

 

 

226

 

Total

 

$

20,067

 

 

$

16,575

 

 

$

40,629

 

 

$

33,376

 

 

We pay CenTra the direct variable cost of maintenance, fueling and other operational support costs for services delivered at our affiliate’s trucking terminals that are geographically remote from our own facilities. Such costs are billed when incurred, paid on a routine basis, and reflect actual labor utilization, repair parts costs or quantities of fuel purchased. In connection with our transportation services, we also pay tolls and other fees for international bridge crossings to certain related entities which are under common control with CenTra.

A significant number of our operating locations are located in facilities leased from affiliates.  At 36 facilities, occupancy is based on either month-to-month or contractual, multi-year lease arrangements which are billed and paid monthly.  Leasing properties provided by an affiliate that owns a substantial commercial property portfolio affords us significant operating flexibility.  However, we are not limited to such arrangements.  

We purchase workers’ compensation, property and casualty, cargo, warehousing and other general liability insurance from an insurance company controlled by our majority shareholders.  Our employee health care benefits and 401(k) programs are also provided by this affiliate.

Other services from affiliates, including contracted transportation services, are delivered to us on a per-transaction-basis or pursuant to separate contractual arrangements provided in the ordinary course of business.  At July 1, 2017 and December 31, 2016, amounts due to affiliates were $9.7 million and $4.6 million, respectively.  In our Consolidated Balance Sheets, we record our insured claims liability and the related recovery from an affiliate insurance provider in insurance and claims, and other receivables.  At July 1, 2017 and December 31, 2016, there were $10.0 million and $8.7 million, respectively, included in each of these accounts for insured claims.  

We made purchases of used equipment from an affiliate during the twenty-six weeks ended July 1, 2017, totaling $1.8 million, and also purchased wheels and tires from an affiliate for new trailering equipment totaling $1.8 million during the same period.  During the twenty-six weeks ended July 2, 2016, we contracted with an affiliate to provide real property improvements to us totaling $1.0 million, and also purchased wheels and tires for new trailering equipment totaling $1.4 million and an additional $0.2 million in revenue equipment components from an affiliate during the same period.

11


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(6)

Transactions with Affiliates – continued

Services provided by Universal to Affiliates

We periodically assist our affiliates by providing selected transportation and logistics services in connection with their specific customer contracts or purchase orders.  Following is a schedule of revenues generated from services provided to affiliates for the thirteen weeks and twenty-six weeks ended July 1, 2017 and July 2, 2016 (in thousands):

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 1,

2017

 

 

July 2,

2016

 

 

July 1,

2017

 

 

July 2,

2016

 

Purchased transportation and equipment rent

 

$

224

 

 

$

147

 

 

$

550

 

 

$

342

 

Total

 

$

224

 

 

$

147

 

 

$

550

 

 

$

342

 

At July 1, 2017 and December 31, 2016, amounts due from affiliates were $3.1 million and $2.5 million, respectively.

 

 

(7)

Comprehensive Income

Comprehensive income includes the following (in thousands):

 

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

July 1,

2017

 

 

July 2,

2016

 

 

July 1,

2017

 

 

July 2,

2016

 

Unrealized holding gains on available-for-sale

   investments arising during the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount

 

$

34

 

 

$

871