0001564590-17-023279.txt : 20171109 0001564590-17-023279.hdr.sgml : 20171109 20171109163137 ACCESSION NUMBER: 0001564590-17-023279 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 66 CONFORMED PERIOD OF REPORT: 20170930 FILED AS OF DATE: 20171109 DATE AS OF CHANGE: 20171109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL LOGISTICS HOLDINGS, INC. CENTRAL INDEX KEY: 0001308208 STANDARD INDUSTRIAL CLASSIFICATION: TRUCKING (NO LOCAL) [4213] IRS NUMBER: 383640097 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-51142 FILM NUMBER: 171191318 BUSINESS ADDRESS: STREET 1: 12755 EAST NINE MILE ROAD CITY: WARREN STATE: MI ZIP: 48089 BUSINESS PHONE: (586) 920-0100 MAIL ADDRESS: STREET 1: 12755 EAST NINE MILE ROAD CITY: WARREN STATE: MI ZIP: 48089 FORMER COMPANY: FORMER CONFORMED NAME: Universal Truckload Services, Inc. DATE OF NAME CHANGE: 20041109 10-Q 1 ulh-10q_20170930.htm FORM 10-Q ulh-10q_20170930.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 September 30, 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 November 3, 2017, was 28,391,197.

 

 


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

September 30,

2017

 

 

December 31,

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,897

 

 

$

1,755

 

Marketable securities

 

 

14,648

 

 

 

14,359

 

Accounts receivable – net of allowance for doubtful accounts of $1,960

   and $1,613, respectively

 

 

170,182

 

 

 

144,712

 

Other receivables

 

 

14,543

 

 

 

15,438

 

Due from affiliates

 

 

2,664

 

 

 

2,513

 

Prepaid income taxes

 

 

5,679

 

 

 

11,300

 

Prepaid expenses and other

 

 

17,519

 

 

 

17,374

 

Total current assets

 

 

228,132

 

 

 

207,451

 

Property and equipment – net of accumulated depreciation of $200,615 and

   $181,294, respectively

 

 

263,441

 

 

 

246,277

 

Goodwill

 

 

74,484

 

 

 

74,484

 

Intangible assets – net of accumulated amortization of $55,637 and $50,971, respectively

 

 

32,522

 

 

 

37,189

 

Deferred income taxes

 

 

164

 

 

 

164

 

Other assets

 

 

5,112

 

 

 

4,892

 

Total assets

 

$

603,855

 

 

$

570,457

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

100,793

 

 

$

65,945

 

Due to affiliates

 

 

6,601

 

 

 

4,597

 

Accrued expenses and other current liabilities

 

 

24,808

 

 

 

19,765

 

Insurance and claims

 

 

35,478

 

 

 

19,754

 

Current portion of long-term debt

 

 

39,186

 

 

 

34,455

 

Total current liabilities

 

 

206,866

 

 

 

144,516

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

204,354

 

 

 

226,812

 

Deferred income taxes

 

 

43,308

 

 

 

47,819

 

Other long-term liabilities

 

 

3,019

 

 

 

3,578

 

Total long-term liabilities

 

 

250,681

 

 

 

278,209

 

Shareholders' equity:

 

 

 

 

 

 

 

 

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

   30,917,952 shares issued; 28,416,777 and 28,430,394 shares outstanding,

   respectively

 

 

30,932

 

 

 

30,919

 

Paid-in capital

 

 

3,684

 

 

 

3,451

 

Treasury stock, at cost; 2,513,675 and 2,487,558 shares, respectively

 

 

(50,561

)

 

 

(50,044

)

Retained earnings

 

 

163,812

 

 

 

166,033

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

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

   taxes of $1,584 and $1,512, respectively

 

 

2,825

 

 

 

2,679

 

Interest rate swaps, net of income taxes of $43 and $62, respectively

 

 

133

 

 

 

99

 

Foreign currency translation adjustments

 

 

(4,517

)

 

 

(5,405

)

Total shareholders’ equity

 

 

146,308

 

 

 

147,732

 

Total liabilities and shareholders’ equity

 

$

603,855

 

 

$

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

 

 

Thirty-nine Weeks Ended

 

 

 

September 30,

2017

 

 

October 1,

2016

 

 

September 30,

2017

 

 

October 1,

2016

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Truckload services

 

$

82,812

 

 

$

72,127

 

 

$

231,046

 

 

$

215,775

 

Brokerage services

 

 

73,285

 

 

 

58,003

 

 

 

195,988

 

 

 

164,239

 

Intermodal services

 

 

39,057

 

 

 

36,366

 

 

 

113,713

 

 

 

108,040

 

Dedicated services

 

 

22,135

 

 

 

25,200

 

 

 

71,406

 

 

 

71,336

 

Value-added services

 

 

95,712

 

 

 

79,797

 

 

 

290,489

 

 

 

249,310

 

Total operating revenues

 

 

313,001

 

 

 

271,493

 

 

 

902,642

 

 

 

808,700

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

153,277

 

 

 

131,832

 

 

 

427,104

 

 

 

385,509

 

Direct personnel and related benefits

 

 

77,570

 

 

 

66,091

 

 

 

234,352

 

 

 

196,509

 

Operating supplies and expenses

 

 

28,306

 

 

 

25,725

 

 

 

88,757

 

 

 

75,810

 

Commission expense

 

 

8,503

 

 

 

8,217

 

 

 

24,284

 

 

 

24,668

 

Occupancy expense

 

 

7,504

 

 

 

8,075

 

 

 

23,001

 

 

 

23,772

 

General and administrative

 

 

8,968

 

 

 

7,501

 

 

 

23,421

 

 

 

21,337

 

Insurance and claims

 

 

20,562

 

 

 

4,949

 

 

 

35,958

 

 

 

13,607

 

Depreciation and amortization

 

 

11,795

 

 

 

9,076

 

 

 

33,663

 

 

 

26,757

 

Total operating expenses

 

 

316,485

 

 

 

261,466

 

 

 

890,540

 

 

 

767,969

 

(Loss) income from operations

 

 

(3,484

)

 

 

10,027

 

 

 

12,102

 

 

 

40,731

 

Interest income

 

 

29

 

 

 

15

 

 

 

67

 

 

 

141

 

Interest expense

 

 

(2,537

)

 

 

(2,093

)

 

 

(7,292

)

 

 

(6,297

)

Other non-operating income

 

 

721

 

 

 

170

 

 

 

1,253

 

 

 

420

 

(Loss) income before provision for income taxes

 

 

(5,271

)

 

 

8,119

 

 

 

6,130

 

 

 

34,995

 

Provision for income taxes

 

 

(1,966

)

 

 

3,122

 

 

 

2,378

 

 

 

13,474

 

Net (loss) income

 

$

(3,305

)

 

$

4,997

 

 

$

3,752

 

 

$

21,521

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.12

)

 

$

0.18

 

 

$

0.13

 

 

$

0.76

 

Diluted

 

$

(0.12

)

 

$

0.18

 

 

$

0.13

 

 

$

0.76

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,441

 

 

 

28,413

 

 

 

28,440

 

 

 

28,410

 

Diluted

 

 

28,444

 

 

 

28,413

 

 

 

28,440

 

 

 

28,410

 

Dividends declared per common share

 

$

0.07

 

 

$

0.07

 

 

$

0.21

 

 

$

0.21

 

 

See accompanying notes to consolidated financial statements.

 

 

3


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

Thirteen Weeks Ended

 

 

Thirty-nine Weeks Ended

 

 

 

September 30,

2017

 

 

October 1,

2016

 

 

September 30,

2017

 

 

October 1,

2016

 

Net Income

 

$

(3,305

)

 

$

4,997

 

 

$

3,752

 

 

$

21,521

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on available-for-sale

   investments arising during the period, net

   of income taxes

 

 

534

 

 

 

(147

)

 

 

717

 

 

 

467

 

Realized (gain) on available-for-sale investments

   reclassified into income, net of taxes

 

 

(387

)

 

 

(29

)

 

 

(571

)

 

 

(53

)

Unrealized changes in fair value of interest rate swaps,

   net of income taxes

 

 

55

 

 

 

45

 

 

 

34

 

 

 

(389

)

Foreign currency translation adjustments

 

 

713

 

 

 

(293

)

 

 

888

 

 

 

(990

)

Total other comprehensive income (loss)

 

 

915

 

 

 

(424

)

 

 

1,068

 

 

 

(965

)

Total comprehensive (loss) income

 

$

(2,390

)

 

$

4,573

 

 

$

4,820

 

 

$

20,556

 

 

See accompanying notes to consolidated financial statements.

 

 

4


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

 

Thirty-nine Weeks Ended

 

 

 

September 30,

2017

 

 

October 1,

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

3,752

 

 

$

21,521

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

33,663

 

 

 

26,757

 

Gain on sale of marketable equity securities

 

 

(923

)

 

 

(53

)

Gain on disposal of property and equipment

 

 

(198

)

 

 

(353

)

Amortization of debt issuance costs

 

 

241

 

 

 

227

 

Stock-based compensation

 

 

246

 

 

 

298

 

Provision for doubtful accounts

 

 

1,683

 

 

 

1,369

 

Deferred income taxes

 

 

(4,771

)

 

 

(251

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

(25,242

)

 

 

(6,558

)

Prepaid income taxes, prepaid expenses and other assets

 

 

5,833

 

 

 

(5,962

)

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

   and claims

 

 

54,779

 

 

 

23,608

 

Due to/from affiliates, net

 

 

1,848

 

 

 

2,251

 

Other long-term liabilities

 

 

(482

)

 

 

(1,912

)

Net cash provided by operating activities

 

 

70,429

 

 

 

60,942

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(46,677

)

 

 

(78,651

)

Proceeds from the sale of property and equipment

 

 

714

 

 

 

2,225

 

Purchases of marketable securities

 

 

(401

)

 

 

(13

)

Proceeds from sale of marketable securities

 

 

1,261

 

 

 

358

 

Net cash used in investing activities

 

 

(45,103

)

 

 

(76,081

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

223,723

 

 

 

140,494

 

Repayments of debt - revolving debt

 

 

(232,973

)

 

 

(150,129

)

Proceeds from borrowing - term debt

 

 

24,734

 

 

 

85,313

 

Repayments of debt - term debt

 

 

(33,452

)

 

 

(63,657

)

Payment of capital lease obligations

 

 

(77

)

 

 

(1,758

)

Dividends paid

 

 

(5,973

)

 

 

(5,965

)

Capitalized financing costs

 

 

 

 

 

(396

)

Purchases of treasury stock

 

 

(517

)

 

 

(26

)

Net cash (used in) provided by financing activities

 

 

(24,535

)

 

 

3,876

 

Effect of exchange rate changes on cash and cash equivalents

 

 

351

 

 

 

(123

)

Net increase (decrease) in cash

 

 

1,142

 

 

 

(11,386

)

Cash  and cash equivalents – beginning of period

 

 

1,755

 

 

 

12,930

 

Cash and cash equivalents – end of period

 

$

2,897

 

 

$

1,544

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

6,758

 

 

$

5,724

 

Cash paid for income taxes

 

$

1,628

 

 

$

18,398

 

 

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 September 30, 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 September 30, 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 September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities

 

$

10,231

 

 

$

4,991

 

 

$

(574

)

 

$

14,648

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity Securities

 

$

10,168

 

 

$

4,780

 

 

$

(589

)

 

$

14,359

 

 

Included in equity securities at September 30, 2017 are securities with a fair value of $2.4 million with a cumulative loss position of $0.6 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 September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

988

 

 

$

75

 

 

$

1,428

 

 

$

499

 

 

$

2,416

 

 

$

574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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, tobacco, and transportation industries.  The fair value and unrealized losses are distributed in 21 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 September 30, 2017.

 

 

(3)

Accrued Expenses and Other Current Liabilities

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

 

 

 

September 30,

2017

 

 

December 31,

2016

 

 

 

 

 

 

 

 

 

 

Payroll related items

 

$

9,718

 

 

$

8,379

 

Driver escrow liabilities

 

 

3,728

 

 

 

7,601

 

Commissions, taxes and other

 

 

11,362

 

 

 

3,785

 

Total

 

$

24,808

 

 

$

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 September 30, 2017

 

 

September 30,

2017

 

 

December 31,

2016

 

Outstanding Debt:

 

 

 

 

 

 

 

 

 

 

 

 

ABL Facility (1)

 

2.99% to 5.00%

 

 

$

65,350

 

 

$

71,600

 

Westport Facility (2)

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

 

4.24%

 

 

 

26,994

 

 

 

34,000

 

Revolver

 

 

3.74%

 

 

 

 

 

 

3,000

 

Equipment Financing (3)

 

3.18% to 4.11%

 

 

 

106,777

 

 

 

104,607

 

Real Estate Financing (4)

 

 

3.48%

 

 

 

45,761

 

 

 

49,643

 

Margin Facility (5)

 

 

2.34%

 

 

 

 

 

 

 

Unamortized debt issuance costs

 

 

 

 

 

 

(1,342

)

 

 

(1,583

)

 

 

 

 

 

 

 

243,540

 

 

 

261,267

 

Less current portion of long-term debt

 

 

 

 

 

 

39,186

 

 

 

34,455

 

Total long-term debt, net of current portion

 

 

 

 

 

$

204,354

 

 

$

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 September 30, 2017, we were in compliance with all covenants under the Facility, and $40.5 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 September 30, 2017, we were in compliance with all covenants, and $13.7 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 September 30, 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 September 30, 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 September 30, 2017 or December 31, 2016, and the maximum available borrowings under the line of credit were $7.0 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 September 30, 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 September 30, 2017, the fair value of the three swap agreements was an asset of $0.2 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 Accounting Standards Codification, or 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):

 

 

 

September 30,

2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

8

 

 

$

 

 

$

 

 

$

8

 

Marketable securities

 

 

14,648

 

 

 

 

 

 

 

 

 

14,648

 

Interest rate swaps

 

 

 

 

 

177

 

 

 

 

 

 

177

 

Total

 

$

14,656

 

 

$

177

 

 

$

 

 

$

14,833

 

 

 

 

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 values 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 September 30, 2017 is summarized as follows:

 

 

Carrying Value

 

 

Estimated Fair

Value

 

Equipment promissory notes

 

$

106,777

 

 

$

106,671

 

 

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 thirty-nine weeks ended September 30, 2017 and October 1, 2016 (in thousands):

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

September 30,

2017

 

 

October 1,

2016

 

 

September 30,

2017

 

 

October 1,

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Administrative support services

 

$

572

 

 

$

548

 

 

$

1,702

 

 

$

1,906

 

Truck fuel, tolls and maintenance

 

 

645

 

 

 

619

 

 

 

1,912

 

 

 

1,864

 

Real estate rent and related costs

 

 

4,230

 

 

 

4,218

 

 

 

12,947

 

 

 

12,458

 

Insurance and employee benefit plans

 

 

14,010

 

 

 

12,496

 

 

 

43,511

 

 

 

34,802

 

Purchased transportation and equipment rent

 

 

20

 

 

 

4

 

 

 

35

 

 

 

230

 

Total

 

$

19,477

 

 

$

17,885

 

 

$

60,107

 

 

$

51,260

 

 

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 35 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 September 30, 2017 and December 31, 2016, amounts due to affiliates were $6.6 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 September 30, 2017 and December 31, 2016, there were $7.5 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 thirty-nine weeks ended September 30, 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 thirty-nine weeks ended October 1, 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 thirty-nine weeks ended September 30, 2017 and October 1, 2016 (in thousands):

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

September 30,

2017

 

 

October 1,

2016

 

 

September 30,

2017

 

 

October 1,

2016

 

Purchased transportation and equipment rent

 

$

187

 

 

$

284

 

 

$

737

 

 

$

626

 

Total

 

$

187

 

 

$

284

 

 

$

737

 

 

$

626

 

At September 30, 2017 and December 31, 2016, amounts due from affiliates were $2.7 million and $2.5 million, respectively.

 

 

(7)

Comprehensive Income

Comprehensive income includes the following (in thousands):

 

 

 

Thirteen weeks ended

 

 

Thirty-nine weeks ended

 

 

 

September 30,

2017

 

 

October 1,

2016

 

 

September 30,

2017

 

 

October 1,

2016

 

Unrealized holding gain (loss) on available-for-sale

   investments arising during the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount

 

$

846