10-Q 1 ulh-10q_20180630.htm FORM 10-Q ulh-10q_20180630.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 June 30, 2018

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, a smaller reporting company, or an emerging growth 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 6, 2018, was 28,394,892.

 

 


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,664

 

 

$

1,672

 

Marketable securities

 

 

12,526

 

 

 

15,144

 

Accounts receivable – net of allowance for doubtful accounts of $1,618

   and $1,330, respectively

 

 

213,681

 

 

 

171,036

 

Other receivables

 

 

16,301

 

 

 

17,511

 

Due from affiliates

 

 

3,885

 

 

 

2,685

 

Prepaid income taxes

 

 

-

 

 

 

4,515

 

Prepaid expenses and other

 

 

21,074

 

 

 

16,103

 

Total current assets

 

 

269,131

 

 

 

228,666

 

Property and equipment – net of accumulated depreciation of $219,002 and

   $205,771, respectively

 

 

284,374

 

 

 

267,195

 

Goodwill

 

 

84,827

 

 

 

74,484

 

Intangible assets – net of accumulated amortization of $58,616 and $56,901, respectively

 

 

41,203

 

 

 

31,259

 

Deferred income taxes

 

 

3,584

 

 

 

4,154

 

Other assets

 

 

4,792

 

 

 

4,834

 

Total assets

 

$

687,911

 

 

$

610,592

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

113,451

 

 

$

84,380

 

Due to affiliates

 

 

7,601

 

 

 

11,964

 

Accrued expenses and other current liabilities

 

 

24,454

 

 

 

24,129

 

Income taxes payable

 

 

2,148

 

 

 

-

 

Insurance and claims

 

 

36,809

 

 

 

37,727

 

Current portion of long-term debt

 

 

51,605

 

 

 

40,870

 

Total current liabilities

 

 

236,068

 

 

 

199,070

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

220,619

 

 

 

207,108

 

Deferred income taxes

 

 

34,899

 

 

 

32,361

 

Other long-term liabilities

 

 

3,547

 

 

 

3,288

 

Total long-term liabilities

 

 

259,065

 

 

 

242,757

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value. Authorized 100,000,000 shares; 30,954,202 and

   30,941,702 shares issued; 28,394,892 and 28,382,392 shares outstanding,

   respectively

 

 

30,955

 

 

 

30,943

 

Paid-in capital

 

 

4,074

 

 

 

3,841

 

Treasury stock, at cost; 2,559,310 shares

 

 

(51,532

)

 

 

(51,532

)

Retained earnings

 

 

213,411

 

 

 

186,226

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

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

   taxes of $0 and $1,090, respectively

 

 

-

 

 

 

3,823

 

Interest rate swaps, net of income taxes of $153 and $63, respectively

 

 

428

 

 

 

197

 

Foreign currency translation adjustments

 

 

(4,558

)

 

 

(4,733

)

Total shareholders’ equity

 

 

192,778

 

 

 

168,765

 

Total liabilities and shareholders’ equity

 

$

687,911

 

 

$

610,592

 

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

 

 

 

June 30,

2018

 

 

July 1,

2017

 

 

June 30,

2018

 

 

July 1,

2017

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Truckload services

 

$

82,657

 

 

$

76,744

 

 

$

159,849

 

 

$

148,234

 

Brokerage services

 

 

92,486

 

 

 

64,714

 

 

 

170,645

 

 

 

122,703

 

Intermodal services

 

 

54,871

 

 

 

38,729

 

 

 

101,480

 

 

 

74,656

 

Dedicated services

 

 

28,708

 

 

 

24,375

 

 

 

56,783

 

 

 

49,271

 

Value-added services

 

 

107,203

 

 

 

100,637

 

 

 

212,281

 

 

 

194,777

 

Total operating revenues

 

 

365,925

 

 

 

305,199

 

 

 

701,038

 

 

 

589,641

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

178,252

 

 

 

142,600

 

 

 

340,263

 

 

 

273,827

 

Direct personnel and related benefits

 

 

87,403

 

 

 

81,238

 

 

 

173,359

 

 

 

156,782

 

Operating supplies and expenses

 

 

30,336

 

 

 

31,467

 

 

 

58,428

 

 

 

60,451

 

Commission expense

 

 

9,733

 

 

 

8,237

 

 

 

18,645

 

 

 

15,781

 

Occupancy expense

 

 

7,791

 

 

 

7,666

 

 

 

15,164

 

 

 

15,497

 

General and administrative

 

 

7,618

 

 

 

6,495

 

 

 

15,605

 

 

 

14,453

 

Insurance and claims

 

 

5,294

 

 

 

9,538

 

 

 

10,754

 

 

 

15,396

 

Depreciation and amortization

 

 

13,246

 

 

 

11,541

 

 

 

25,464

 

 

 

21,868

 

Total operating expenses

 

 

339,673

 

 

 

298,782

 

 

 

657,682

 

 

 

574,055

 

Income from operations

 

 

26,252

 

 

 

6,417

 

 

 

43,356

 

 

 

15,586

 

Interest income

 

 

18

 

 

 

24

 

 

 

36

 

 

 

38

 

Interest expense

 

 

(2,972

)

 

 

(2,505

)

 

 

(5,543

)

 

 

(4,755

)

Other non-operating income (expense)

 

 

336

 

 

 

464

 

 

 

(59

)

 

 

532

 

Income before income taxes

 

 

23,634

 

 

 

4,400

 

 

 

37,790

 

 

 

11,401

 

Income tax expense

 

 

5,965

 

 

 

1,661

 

 

 

9,687

 

 

 

4,344

 

Net income

 

$

17,669

 

 

$

2,739

 

 

$

28,103

 

 

$

7,057

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.62

 

 

$

0.10

 

 

$

0.99

 

 

$

0.25

 

Diluted

 

$

0.62

 

 

$

0.10

 

 

$

0.99

 

 

$

0.25

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,395

 

 

 

28,443

 

 

 

28,391

 

 

 

28,439

 

Diluted

 

 

28,402

 

 

 

28,443

 

 

 

28,398

 

 

 

28,439

 

Dividends declared per common share

 

$

0.105

 

 

$

0.070

 

 

$

0.210

 

 

$

0.140

 

 

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

 

 

 

June 30,

2018

 

 

July 1,

2017

 

 

June 30,

2018

 

 

July 1,

2017

 

Net Income

 

$

17,669

 

 

$

2,739

 

 

$

28,103

 

 

$

7,057

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized changes in fair value of interest rate swaps,

   net of income taxes (1)

 

 

31

 

 

 

(51

)

 

 

231

 

 

 

(20

)

Foreign currency translation adjustments

 

 

(1,346

)

 

 

(824

)

 

 

175

 

 

 

174

 

Unrealized holding gains on available-for-sale

   investments arising during the period, net

   of income taxes (2)(4)

 

 

-

 

 

 

6

 

 

 

-

 

 

 

187

 

Realized gains on available-for-sale investments reclassified

   into income, net of taxes (3)(4)

 

 

-

 

 

 

(199

)

 

 

-

 

 

 

(188

)

Total other comprehensive income (loss)

 

 

(1,315

)

 

 

(1,068

)

 

 

406

 

 

 

153

 

Total comprehensive income

 

$

16,354

 

 

$

1,671

 

 

$

28,509

 

 

$

7,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Net of income taxes of $28, ($30), $90 and ($12), respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2) Net of income taxes of $0, $28, $0 and $107, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3) Net of income taxes of $0, $120, $0 and $117, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4) In accordance with the adoption of ASU 2016-01 on January 1, 2018 (see Note 4), unrealized holding gains and losses on equity securities have been reclassified to income for the current period and to retained earnings for historical amounts recorded in Accumulated Other Comprehensive Income at December 31, 2017.

 

 

See accompanying notes to consolidated financial statements.

 

 

4


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

Twenty-six Weeks Ended

 

 

 

June 30,

2018

 

 

July 1,

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

28,103

 

 

$

7,057

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

25,464

 

 

 

21,868

 

Loss (gain) on marketable equity securities

 

 

306

 

 

 

(305

)

Loss (gain) on disposal of property and equipment

 

 

(69

)

 

 

3

 

Amortization of debt issuance costs

 

 

172

 

 

 

161

 

Stock-based compensation

 

 

246

 

 

 

246

 

Provision for doubtful accounts

 

 

279

 

 

 

1,301

 

Deferred income taxes

 

 

245

 

 

 

2,019

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

(36,047

)

 

 

(12,715

)

Prepaid income taxes, prepaid expenses and other assets

 

 

188

 

 

 

(2,201

)

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

   and claims

 

 

29,791

 

 

 

25,727

 

Due to/from affiliates, net

 

 

(5,563

)

 

 

4,496

 

Other long-term liabilities

 

 

259

 

 

 

(612

)

Net cash provided by operating activities

 

 

43,374

 

 

 

47,045

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(31,621

)

 

 

(33,309

)

Proceeds from the sale of property and equipment

 

 

1,626

 

 

 

362

 

Purchases of marketable securities

 

 

(499

)

 

 

 

Proceeds from sale of marketable securities

 

 

2,811

 

 

 

536

 

Acquisition of business

 

 

(35,105

)

 

 

 

Net cash used in investing activities

 

 

(62,788

)

 

 

(32,411

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

195,846

 

 

 

142,816

 

Repayments of debt - revolving debt

 

 

(188,071

)

 

 

(144,859

)

Proceeds from borrowing - term debt

 

 

34,678

 

 

 

13,081

 

Repayments of debt - term debt

 

 

(23,545

)

 

 

(22,232

)

Borrowings under margin account

 

 

9,521

 

 

 

 

Repayments under margin account

 

 

(4,231

)

 

 

 

Payment of capital lease obligations

 

 

(45

)

 

 

(55

)

Capitalized financing costs

 

 

(124

)

 

 

 

Dividends paid

 

 

(4,969

)

 

 

(3,982

)

Net cash provided by (used in) financing activities

 

 

19,060

 

 

 

(15,231

)

Effect of exchange rate changes on cash and cash equivalents

 

 

346

 

 

 

881

 

Net increase (decrease) in cash

 

 

(8

)

 

 

284

 

Cash  and cash equivalents – beginning of period

 

 

1,672

 

 

 

1,755

 

Cash and cash equivalents – end of period

 

$

1,664

 

 

$

2,039

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

5,167

 

 

$

4,247

 

Cash paid for income taxes

 

$

2,751

 

 

$

1,330

 

 

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. and its wholly-owned subsidiaries (collectively, “Universal” or the “Company”) 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, 2017 and 2016 and for each of the years in the three-year period ended December 31, 2017 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.

The Company made certain immaterial reclassifications to items in its prior financial statements so that their presentation is consistent with the format in the financial statements for the period ended June 30, 2018.  These reclassifications, however, had no effect on reported consolidated net income, comprehensive income, earnings per common share, cash flows, total assets or shareholders’ equity as previously reported.

 

(2)

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, using the modified retrospective transition method with a cumulative adjustment to retained earnings of approximately $0.2 million.  ASU 2014-09 is a comprehensive revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In applying the new guidance, an entity will (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price;  (4) allocate the transaction price to the contract’s performance obligations; and (5) recognize revenue when or as the entity satisfies a performance obligation. For our transportation services businesses, which include truckload, brokerage, intermodal and dedicated services, the adoption of the standard changed the timing of revenue recognition from “at delivery” to “over-time” as the performance obligations on the in-transit services are completed.  For our value-added service businesses, the adoption of the standard did not change the timing of revenue recognition.  Due to the Company’s short in-transit period for transportation services, the impact did not have a material impact on its consolidated results of operations, financial position or cash flows. The adoption of ASU 2014-09 required an increase in the level of information disclosed in the Notes to Unaudited Consolidated Financial Statements.  See Note 3 for additional information.

On January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, using the modified retrospective method.  Upon adoption, approximately $3.8 million in accumulated changes in the fair market value of the Company’s equity securities that were presented at December 31, 2017 in accumulated other comprehensive income were reclassified to retained earnings. ASU 2016-01 requires, among other things, equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities.

On January 1, 2018, the Company prospectively adopted ASU 2017-01, Business Combinations: Clarifying the Definition of a Business, to clarify the definition of a business to assist entities when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The impact of the adoption did not have an impact on its results of operations, financial position or cash flows.

6


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(2)

Recent Accounting Pronouncements - continued

Recent accounting pronouncements not currently effective

In February 2016, the FASB issued ASU 2016-02, Leases. The objective of the new standard is to establish principles for lessees and lessors to report information about the amount, timing, and uncertainty of cash flows arising from a lease.  The ASU will require a lessee to recognize the assets and liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of 12 months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. This update is effective for annual and interim periods beginning after December 15, 2018, which will require us to adopt these provisions in the first quarter of 2019 using a modified retrospective approach. Early adoption is permitted, although we do not plan to adopt early.  We are currently evaluating the effects ASU 2016-02 will have on our consolidated financial statements and related disclosures. As of December 31, 2017, we disclosed approximately $71.8 million in operating lease obligations in Note 9, “Leases” in the Company’s Form 10-K.  We will evaluate those contracts as well as other existing arrangements to determine if they qualify for lease accounting under the new standard. Upon adoption, we would expect the amount recognized for the right-of-use assets and lease liabilities to be material to the consolidated financial statements.

 

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which amends existing guidance for reporting comprehensive income to reflect changes resulting from the Tax Cuts and Jobs Act of 2017. The amendment provides the option to reclassify stranded tax effects within accumulated other comprehensive income (AOCI) to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Act is recorded. New disclosures will be required upon adoption, including the accounting policy for releasing income tax effects from AOCI, whether reclassification of stranded income tax effects is elected, and information about other income tax effect reclassifications. Although the amendment will become effective for us on January 1, 2019, early adoption is permitted, although we do not plan to early adopt. We are currently evaluating the impact of adopting this standard on our consolidated financial statements and disclosures.

 

In March 2018, the FASB issued ASU 2018-05, Income Taxes, to clarify the accounting implications of Staff Accounting Bulletin No. 118 ("SAB 118"). SAB 118 provides a measurement period that should not extend beyond one year from December 22, 2017, the date of the enactment of the Tax Cuts and Jobs Act, to complete the accounting under Accounting Standards Codification ("ASC") 740, Income Taxes. As of June 30, 2018, we have not adjusted the provisional estimate recorded at December 31, 2017. We expect to complete our analysis within the measurement period in accordance with SAB 118.

 

(3)

Revenue Recognition

The Company broadly groups its services into the following categories: truckload services, brokerage services, intermodal services, dedicated services and value-added services.

 

Truckload services include dry van, flatbed, heavy-haul and refrigerated operations. We transport a wide variety of general commodities, including automotive parts, machinery, building materials, paper, food, consumer goods, furniture, steel and other metals on behalf of customers in various industries.

 

To complement our available capacity, we provide customers freight brokerage services by utilizing third-party transportation providers to move freight.  Brokerage services also include full service domestic and international freight forwarding, and customs brokerage.  

 

Intermodal services include rail-truck, steamship-truck and support services. Our intermodal support services are primarily short-to-medium distance delivery of rail and steamship containers between the railhead or port and the customer and drayage services.

 

Dedicated services are primarily provided in support of automotive and retail customers using specialized van equipment.  Dedicated services also include our final mile and ground expedited services.  Our dedicated services are primarily short run or round-trip moves within a defined geographic area.

 

7


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(3)

Revenue Recognition - continued

 

Value-added services, which are typically dedicated to individual customer requirements, include material handling, consolidation, sequencing, sub-assembly, cross-dock services, kitting, repacking, warehousing and returnable container management.  Value-added revenues are substantially driven by the level of demand for outsourced logistics services. Major factors that affect value-added service revenue includes changes in manufacturing supply chain requirements and production levels in specific industries, particularly the North American automotive and Class-8 heavy-truck industries.

Revenue is recognized as control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for its services.

Our transportation services businesses include truckload, brokerage, intermodal and dedicated services.  The adoption of ASU 2014-09 changed the timing of revenue recognition for transportation services from at delivery to over-time as the performance obligations on the in-transit services are completed.  

Transportation services are short-term in nature; agreements governing their provision generally have a term of less than one year. They do not contain significant financing components.  In accordance with ASU 2014-09, the Company recognizes revenue over the period transportation services are provided to the customer, including service performed as of the end of the reporting period for loads currently in transit, in order to recognize the value that is transferred to a customer over the course of the transportation service.

We determine revenue in-transit using the input method, under which revenue is recognized based on the duration of time that has lapsed from the departure date (start of transportation services) to the arrival date (completion of transportation services). Measurement of revenue in transit requires the application of significant judgment. We calculate the estimated percentage of an order’s transit time that is complete at period end, and we apply that percentage of completion to the order’s estimated revenue.

 

 

For the Company’s value-added service businesses, the adoption of ASU 2014-09 did not change the timing of revenue recognition.  The contracts in our value-added services businesses are negotiated agreements, which contain both fixed and variable components. The variability of revenues is driven by volumes and transactions, which are known as of an invoice date. Value-added service contracts typically have terms that extend beyond one year, and they do not include financing components.  The timing of revenue recognition for value-added services will remain the same, as we have elected to use the “right to invoice” practical expedient, reflecting that a customer obtains the benefit associated with value-added services as they are provided.

 

The following table provides information related to contract balances associated with our contracts with customers (in thousands):

 

 

June 30,

2018

 

 

January 1,

2018

 

Prepaid expenses and other - contract assets

 

$

1,738

 

 

$

1,361

 

We generally receive payment for performance obligations within 45 days of completion of transportation services and 65 days for completion of value-added services. Contract assets in the table above generally relate to revenue in transit at the end of the reporting period. 

 

Practical expedients

 

The Company elected to use the following practical expedients that are available under ASC 606: (i) to apply the new revenue standard to a portfolio of contracts (or performance obligations) with similar characteristics, as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ materially from applying this guidance to the individual contracts; (ii) to recognize commission expense when incurred, which we consider to be a cost to obtain a contract, because the amortization period is less than one year; and (iii) to recognize revenue in the value-added services portfolio in the amount of consideration to which we have a right to invoice, that corresponds directly with the value to the customer of the service completed to date.

 

The Company does not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

8


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(3)     Revenue Recognition - continued

 

In accordance with the new revenue standard requirements, the impact of adoption on our consolidated statement of income and balance sheet was as follows (in thousands):

 

 

Twenty-six Weeks Ended June 30, 2018

 

 

 

Under ASC 605

 

 

Adjustment

 

 

As Reported

 

Consolidated Statement of Income

 

 

 

 

 

 

 

 

 

 

 

 

Truckload services

 

$

157,589

 

 

$

2,260

 

 

$

159,849

 

Brokerage services

 

 

169,507

 

 

 

1,138

 

 

 

170,645

 

Intermodal services

 

 

101,184

 

 

 

296

 

 

 

101,480

 

Dedicated services

 

 

56,640

 

 

 

143

 

 

 

56,783

 

Purchased transportation and equipment rent

 

 

337,128

 

 

 

3,135

 

 

 

340,263

 

Commission expense

 

 

18,556

 

 

 

89

 

 

 

18,645

 

Income tax expense

 

 

9,525

 

 

 

162

 

 

 

9,687

 

Net income

 

 

27,653

 

 

 

450

 

 

 

28,103

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2018

 

Consolidated Balance Sheet

 

Under ASC 605

 

 

Adjustment

 

 

As Reported

 

Prepaid expenses and other

 

 

19,336

 

 

 

1,738

 

 

 

21,074

 

Accounts payable

 

 

112,035

 

 

 

1,416

 

 

 

113,451

 

Income taxes payable

 

 

2,063

 

 

 

85

 

 

 

2,148

 

Retained earnings

 

 

212,961

 

 

 

450

 

 

 

213,411

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See also Note 13 for information on revenue reported by segment.  

 

(4)

Marketable Securities

 

The Company accounts for its marketable equity securities in accordance with ASC Topic 321 “Investments- Equity Securities.” ASC Topic 321 requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income (expense).

 

Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income beginning January 1, 2018. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note 8.

 

The following table sets forth market value, cost, and unrealized gains on equity securities (in thousands):

 

 

June 30,

2018

 

 

December 31,

2017

 

Fair value

 

$

12,526

 

 

$

15,144

 

Cost

 

 

9,163

 

 

 

10,231

 

Unrealized gain

 

$

3,363

 

 

$

4,913

 

 

 

 

 

 

 

 

 

 

Prior to the Company’s  adoption of ASU 2016-01 as of January 1, 2018 , unrealized losses in fair market value were presented as a component of Accumulated Other Comprehensive Income in shareholders’ equity; before adoption of this guidance, the Company included in net income only realized gains and losses and declines in value determined to be other-than-temporary on available-for-sale securities. The cost of securities determined to be in an other-than-temporary loss position was required to be presented net of the amount of the other-than-temporary impairment calculated. Subsequent to adoption of ASU 2016-01, cost is no longer presented net of other-than-temporary impairment. The December 31, 2017 cost reflected in the table above was presented net of approximately $424,000 of other-than-temporary impairment.

9


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(4)

Marketable Securities - continued

 

The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities (in thousands):

 

 

June 30,

2018

 

 

December 31,

2017

 

Gross unrealized gains

 

$

3,949

 

 

$

5,390

 

Gross unrealized losses

 

 

(586

)

 

 

(477

)

Net unrealized gains

 

$

3,363

 

 

$

4,913

 

 

 

 

 

 

 

 

 

 

The following table shows the Company’s net realized gains on marketable equity securities (in thousands):

 

 

Thirteen weeks ended

 

 

Twenty-six weeks ended

 

 

 

June 30,

2018

 

 

July 1,

2017

 

 

June 30,

2018

 

 

July 1,

2017

 

Realized gain

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sale proceeds

 

$

 

 

$

536

 

 

$

2,811

 

 

$

536

 

Cost of securities sold

 

 

 

 

 

217

 

 

 

2,684

 

 

 

231

 

Realized gain

 

$

 

 

$

319

 

 

$

127

 

 

$

305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Realized gain, net of taxes

 

$

 

 

$

199

 

 

$

94

 

 

$

189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the thirteen-week and twenty-six week periods ended June 30, 2018, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $214,000 and ($433,000), respectively, which was reported in other non-operating income (expense) for the period.

10


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(5)

Acquisitions

On February 1, 2018, the Company acquired Fore Transportation, Inc. and certain of its affiliates (collectively, “Fore”).  Fore provides comprehensive intermodal solutions, including local and regional drayage services. One of the acquired Fore affiliates owns and leases real property and improvements, including a 28-acre terminal that serves as Fore’s corporate headquarters and its secured trailer and container storage facility for 1,100 units.  The acquisition of Fore strategically enhances our geographic footprint and further diversifies our customer base. The total cash purchase price was $35.1 million. To fund the acquisition, the Company used available cash and borrowed approximately $31.3 million using its margin credit facility, revolving credit facility and secured real estate financing.  

The Company accounted for the acquisition in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed were recorded at their estimated fair value as of February 1, 2018, with the remaining unallocated purchase price recorded as goodwill. The goodwill recorded is included in our transportation segment, and is non-deductible for income tax purposes. The pro forma effect of this acquisition has been omitted, as the effect is immaterial to the Company’s consolidated results of operations, financial position and cash flows. The preliminary allocation of the purchase price is as follows (in thousands):

 

Current assets

 

$

6,077

 

Property and equipment

 

 

10,864

 

Goodwill

 

 

10,343

 

Intangible assets

 

 

11,659

 

Current liabilities

 

 

(1,234

)

Deferred tax liabilities, net

 

 

(2,604

)

 

 

$

35,105

 

 

The intangible assets acquired represent Fore’s acquired customer relationships and a non-competition agreement, that are being amortized over a period of 10 years and five years, respectively.  The Company used the discount cash flow method to estimate the fair value of these acquired intangible assets.  

 

Fore’s operating results have been included in the Company’s Unaudited Consolidated Statements of Income since February 1, 2018. Included in the Company’s operating results are acquisition related costs of approximately $0.2 million, which are reflected in operating supplies and expenses in the Unaudited Consolidated Statement of Income.

 

(6)

Accrued Expenses and Other Current Liabilities

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

 

 

 

June 30,

2018

 

 

December 31,

2017

 

 

 

 

 

 

 

 

 

 

Payroll related items

 

$

11,375

 

 

$

9,854

 

Driver escrow liabilities

 

 

3,660

 

 

 

3,785

 

Commissions, taxes and other

 

 

9,419

 

 

 

10,490

 

Total

 

$

24,454

 

 

$

24,129

 

 

 

11


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(7)

Debt

Debt is comprised of the following (in thousands):

 

 

 

Interest Rates

at June 30, 2018

 

 

June 30,

2018

 

 

December 31,

2017

 

Outstanding Debt:

 

 

 

 

 

 

 

 

 

 

 

 

ABL Facility (1)

 

3.75% to 5.75%

 

 

$

76,000

 

 

$

70,225

 

Westport Facility (2)

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

4.98%

 

 

 

18,000

 

 

 

22,500

 

Revolver

 

4.48%

 

 

 

2,000

 

 

 

 

Equipment Financing (3)

 

3.18% to 4.85%

 

 

 

123,336

 

 

 

112,205

 

Real Estate Financing (4)

 

4.34%

 

 

 

48,811

 

 

 

44,309

 

Margin Facility (5)

 

3.19%

 

 

 

5,289

 

 

 

 

Unamortized debt issuance costs

 

 

 

 

 

 

(1,212

)

 

 

(1,261

)

 

 

 

 

 

 

 

272,224

 

 

 

247,978

 

Less current portion of long-term debt

 

 

 

 

 

 

51,605

 

 

 

40,870

 

Total long-term debt, net of current portion

 

 

 

 

 

$

220,619

 

 

$

207,108

 

(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 June 30, 2018, we were in compliance with all covenants under the facility, and $48.9 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 June 30, 2018, we were in compliance with all covenants, and $16.5 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 4.85%. At June 30, 2018, 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 real property. 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 LIBOR plus 2.25%. At June 30, 2018, 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. At June 30, 2018, the maximum available borrowing under the line of credit was $1.3 million.

12


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(7)

Debt - continued

The Company is also party to two 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 $15.7 million at June 30, 2018. Under 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.  At June 30, 2018, the fair value of the swap agreements was an asset of $0.6 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 8 for additional information pertaining to interest rate swaps.

 

(8)

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):

 

 

 

June 30,

2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities

 

$

12,526

 

 

$

 

 

$

 

 

$

12,526

 

Interest rate swaps

 

 

 

 

 

581

 

 

 

 

 

 

581

 

Total

 

$

12,526

 

 

$

581

 

 

$