10-Q 1 ulh-10q_20190330.htm FORM 10-Q ulh-10q_20190330.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 March 30, 2019

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 every Interactive Data File required to be submitted 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 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  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

ULH

The NASDAQ Stock Market LLC

The number of shares of the registrant’s common stock, no par value, outstanding as of May 6, 2019, was 28,838,827.

 

 


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

March 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,336

 

 

$

5,727

 

Marketable securities

 

 

10,208

 

 

 

9,333

 

Accounts receivable – net of allowance for doubtful accounts of $1,757

   and $1,772, respectively

 

 

216,218

 

 

 

215,991

 

Other receivables

 

 

20,256

 

 

 

19,130

 

Prepaid expenses and other

 

 

17,829

 

 

 

19,830

 

Due from affiliates

 

 

4,617

 

 

 

5,247

 

Total current assets

 

 

275,464

 

 

 

275,258

 

Property and equipment – net of accumulated depreciation of $239,123 and

   $231,319, respectively

 

 

300,262

 

 

 

303,234

 

Operating lease right-of-use asset

 

 

83,828

 

 

 

-

 

Goodwill

 

 

147,935

 

 

 

145,152

 

Intangible assets – net of accumulated amortization of $66,668 and $62,624, respectively

 

 

106,142

 

 

 

113,775

 

Deferred income taxes

 

 

2,900

 

 

 

2,549

 

Other assets

 

 

3,194

 

 

 

3,179

 

Total assets

 

$

919,725

 

 

$

843,147

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

100,680

 

 

$

92,019

 

Current portion of long-term debt

 

 

53,501

 

 

 

51,903

 

Insurance and claims

 

 

33,088

 

 

 

31,679

 

Accrued expenses and other current liabilities

 

 

28,284

 

 

 

25,126

 

Current portion of operating lease liabilities

 

 

25,021

 

 

 

-

 

Due to affiliates

 

 

12,637

 

 

 

17,764

 

Income taxes payable

 

 

11,024

 

 

 

2,678

 

Total current liabilities

 

 

264,235

 

 

 

221,169

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

316,124

 

 

 

348,549

 

Operating lease liabilities, net of current portion

 

 

59,277

 

 

 

-

 

Deferred income taxes

 

 

55,468

 

 

 

59,228

 

Other long-term liabilities

 

 

3,967

 

 

 

4,902

 

Total long-term liabilities

 

 

434,836

 

 

 

412,679

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value. Authorized 100,000,000 shares; 30,970,452 and

   30,965,452 shares issued; 28,383,827 and 28,378,827 shares outstanding,

   respectively

 

 

30,972

 

 

 

30,967

 

Paid-in capital

 

 

4,298

 

 

 

4,230

 

Treasury stock, at cost; 2,586,625 shares

 

 

(52,462

)

 

 

(52,462

)

Retained earnings

 

 

242,721

 

 

 

231,525

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Interest rate swaps, net of income taxes of $50 and $94, respectively

 

 

155

 

 

 

298

 

Foreign currency translation adjustments

 

 

(5,030

)

 

 

(5,259

)

Total shareholders’ equity

 

 

220,654

 

 

 

209,299

 

Total liabilities and shareholders’ equity

 

$

919,725

 

 

$

843,147

 

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

 

 

 

March 30,

2019

 

 

March 31,

2018

 

Operating revenues:

 

 

 

 

 

 

 

 

Truckload services

 

$

65,671

 

 

$

77,192

 

Brokerage services

 

 

85,867

 

 

 

78,159

 

Intermodal services

 

 

91,168

 

 

 

46,609

 

Dedicated services

 

 

37,021

 

 

 

35,020

 

Value-added services

 

 

97,679

 

 

 

98,133

 

Total operating revenues

 

 

377,406

 

 

 

335,113

 

Operating expenses:

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

177,325

 

 

 

162,011

 

Direct personnel and related benefits

 

 

93,167

 

 

 

85,956

 

Operating supplies and expenses

 

 

30,770

 

 

 

28,091

 

Commission expense

 

 

7,836

 

 

 

8,913

 

Occupancy expense

 

 

9,284

 

 

 

7,373

 

General and administrative

 

 

9,241

 

 

 

7,987

 

Insurance and claims

 

 

6,352

 

 

 

5,460

 

Depreciation and amortization

 

 

16,918

 

 

 

12,218

 

Total operating expenses

 

 

350,893

 

 

 

318,009

 

Income from operations

 

 

26,513

 

 

 

17,104

 

Interest income

 

 

22

 

 

 

17

 

Interest expense

 

 

(4,391

)

 

 

(2,570

)

Other non-operating income (expense)

 

 

953

 

 

 

(395

)

Income before income taxes

 

 

23,097

 

 

 

14,156

 

Income tax expense

 

 

5,800

 

 

 

3,722

 

Net income

 

$

17,297

 

 

$

10,434

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.61

 

 

$

0.37

 

Diluted

 

$

0.61

 

 

$

0.37

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

28,380

 

 

 

28,386

 

Diluted

 

 

28,381

 

 

 

28,393

 

Dividends declared per common share

 

$

0.105

 

 

$

0.105

 

 

See accompanying notes to consolidated financial statements.

 

3


 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Comprehensive Income

(In thousands)

 

 

 

Thirteen Weeks Ended

 

 

 

March 30,

2019

 

 

March 31,

2018

 

Net Income

 

$

17,297

 

 

$

10,434

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Unrealized changes in fair value of interest rate swaps,

   net of income taxes of $(44) and $61, respectively

 

 

(143

)

 

 

200

 

Foreign currency translation adjustments

 

 

229

 

 

 

1,521

 

Total other comprehensive income

 

 

86

 

 

 

1,721

 

Total comprehensive income

 

$

17,383

 

 

$

12,155

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

4


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

Thirteen Weeks Ended

 

 

 

March 30,

2019

 

 

March 31,

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

17,297

 

 

$

10,434

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

16,918

 

 

 

12,218

 

Noncash lease expense

 

 

7,103

 

 

 

-

 

(Gain) loss on marketable equity securities

 

 

(875

)

 

 

520

 

Gain on disposal of property and equipment

 

 

(24

)

 

 

(9

)

Amortization of debt issuance costs

 

 

147

 

 

 

85

 

Stock-based compensation

 

 

73

 

 

 

245

 

Provision (credit) for doubtful accounts

 

 

507

 

 

 

(297

)

Deferred income taxes

 

 

(3,240

)

 

 

(1,564

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

(1,752

)

 

 

(23,177

)

Prepaid expenses and other assets

 

 

1,810

 

 

 

4,067

 

Accounts payable, accrued expenses and other current liabilities, insurance

   and claims, and income taxes payable

 

 

21,926

 

 

 

21,523

 

Principal reduction in operating lease liabilities

 

 

(6,692

)

 

 

 

Due to/from affiliates, net

 

 

(4,497

)

 

 

(7,307

)

Other long-term liabilities

 

 

(935

)

 

 

(630

)

Net cash provided by operating activities

 

 

47,766

 

 

 

16,108

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(10,790

)

 

 

(7,336

)

Proceeds from the sale of property and equipment

 

 

913

 

 

 

1,255

 

Purchases of marketable securities

 

 

 

 

 

(119

)

Proceeds from sale of marketable securities

 

 

 

 

 

2,811

 

Acquisition of business

 

 

(427

)

 

 

(34,850

)

Net cash used in investing activities

 

 

(10,304

)

 

 

(38,239

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

15,565

 

 

 

89,850

 

Repayments of debt - revolving debt

 

 

(41,249

)

 

 

(72,349

)

Proceeds from borrowing - term debt

 

 

7,979

 

 

 

12,406

 

Repayments of debt - term debt

 

 

(12,728

)

 

 

(12,619

)

Borrowings under margin account

 

 

 

 

 

9,100

 

Repayments under margin account

 

 

(541

)

 

 

(3,364

)

Payment of capital lease obligations

 

 

 

 

 

(22

)

Capitalized financing costs

 

 

 

 

 

(124

)

Dividends paid

 

 

(6,101

)

 

 

(1,988

)

Net cash (used in) provided by financing activities

 

 

(37,075

)

 

 

20,890

 

Effect of exchange rate changes on cash and cash equivalents

 

 

222

 

 

 

1,714

 

Net increase in cash

 

 

609

 

 

 

473

 

Cash  and cash equivalents – beginning of period

 

 

5,727

 

 

 

1,672

 

Cash and cash equivalents – end of period

 

$

6,336

 

 

$

2,145

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

5


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows - Continued

(In thousands)

 

 

Thirteen Weeks Ended

 

 

 

March 30,

2019

 

 

March 31,

2018

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,091

 

 

$

2,408

 

Cash paid for income taxes

 

$

769

 

 

$

1,185

 

Acquisition of business:

 

 

 

 

 

 

 

 

Fair value of assets acquired

 

$

 

 

$

38,943

 

Liabilities assumed

 

 

 

 

 

(3,838

)

Acquisition obligation

 

 

 

 

 

(255

)

Payment of acquisition obligations

 

 

427

 

 

 

 

Net cash paid for acquisition of business

 

$

427

 

 

$

34,850

 

 

See accompanying notes to consolidated financial statements.

 

 

6


 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Shareholders’ Equity

(In thousands, except per share data)

 

 

Common

stock

 

 

Paid-in

capital

 

 

Treasury

stock

 

 

Retained

earnings

 

 

Accumulated

other

comprehensive

income (loss)

 

 

Total

 

Balances – December 31, 2017

 

$

30,943

 

 

$

3,841

 

 

$

(51,532

)

 

$

186,226

 

 

$

(713

)

 

$

168,765

 

Net income

 

 

 

 

 

 

 

 

 

 

 

10,434

 

 

 

 

 

 

10,434

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,721

 

 

 

1,721

 

Cumulative effect adjustment - ASU 2014-09

   revenue recognition

 

 

 

 

 

 

 

 

 

 

 

228

 

 

 

 

 

 

228

 

Cumulative effect adjustment - ASU 2016-01

   financial instruments

 

 

 

 

 

 

 

 

 

 

 

3,823

 

 

 

(3,823

)

 

 

 

Dividends paid ($0.07 per share)

 

 

 

 

 

 

 

 

 

 

 

(1,988

)

 

 

 

 

 

(1,988

)

Stock based compensation

 

 

12

 

 

 

233

 

 

 

 

 

 

 

 

 

 

 

 

245

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances – March 31, 2018

 

$

30,955

 

 

$

4,074

 

 

$

(51,532

)

 

$

198,723

 

 

$

(2,815

)

 

$

179,405

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances – December 31, 2018

 

$

30,967

 

 

$

4,230

 

 

$

(52,462

)

 

$

231,525

 

 

$

(4,961

)

 

$

209,299

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,297

 

 

 

 

 

 

17,297

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86

 

 

 

86

 

Dividends paid ($0.215 per share)

 

 

 

 

 

 

 

 

 

 

 

(6,101

)

 

 

 

 

 

(6,101

)

Stock based compensation

 

 

5

 

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

73

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances – March 30, 2019

 

$

30,972

 

 

$

4,298

 

 

$

(52,462

)

 

$

242,721

 

 

$

(4,875

)

 

$

220,654

 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


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, 2018 and 2017 and for each of the years in the three-year period ended December 31, 2018 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 March 30, 2019.  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

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 requires 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. In July 2018, the FASB issued additional authoritative guidance providing companies with the option to apply this ASU to new and existing leases within the scope of the guidance as of the beginning of the period of adoption. We elected this transition method of applying the new lease standard on January 1, 2019.   In doing so, we also elected the package of practical expedients provided under the guidance, however; we did not elect the hindsight practical expedient when determining the lease term for existing leases. The practical expedient package applies to leases that commenced prior to adoption of the new standard and permits companies not to reassess whether existing or expired contracts are or contain a lease, the lease classification, and any initial direct costs. Upon adoption of the standard, we recorded offsetting lease assets and lease liabilities, resulting in a $88.8 million increase in total assets, a $26.0 million increase in total current liabilities and a $62.8 million increase in total long-term liabilities in our consolidated balance sheet. The amount of accrued rent as of adoption was not material. Prior period amounts were not adjusted and are reported under the accounting standards in effect for those periods. The adoption of the standard did not have a material impact on our results of operations or cash flows. See Note 9 for additional information pertaining to leases.  

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. The adoption of this standard did not have a material impact on our financial condition, results of operations, or cash flows.

In June 2016, the FASB issued ASU No. 2016-13, (“ASU 2016-13”), Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. ASU 2016-13 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the new guidance, but does not expect it to have a material impact on its financial condition, results of operations, or cash flows.

 

8


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(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. We disaggregate these categories and report our service lines separately on the Consolidated Statements of Income.

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 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.

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.  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.

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. We have elected to use the “right to invoice” practical expedient to recognize revenue, reflecting that a customer obtains the benefit associated with value-added services as they are provided. 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 following table provides information related to contract balances associated with our contracts with customers (in thousands):

 

 

March 30,

2019

 

 

December 31,

2018

 

Prepaid expenses and other - contract assets

 

$

1,746

 

 

$

1,901

 

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. 

9


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(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. 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):

 

 

March 30,

2019

 

 

December 31,

2018

 

Fair value

 

$

10,208

 

 

$

9,333

 

Cost

 

 

9,333

 

 

 

11,143

 

Unrealized gain (loss)

 

$

875

 

 

$

(1,810

)

 

 

 

 

 

 

 

 

 

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

 

 

March 30,

2019

 

 

December 31,

2018

 

Gross unrealized gains

 

$

935

 

 

$

89

 

Gross unrealized losses

 

 

(60

)

 

 

(1,899

)

Net unrealized gains (losses)

 

$

875

 

 

$

(1,810

)

 

 

 

 

 

 

 

 

 

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

 

 

Thirteen weeks ended

 

 

 

March 30,

2019

 

 

March 31,

2018

 

Realized gain

 

 

 

 

 

 

 

 

Sale proceeds

 

$

 

 

$

2,811

 

Cost of securities sold

 

 

 

 

 

2,684

 

Realized gain

 

$

 

 

$

127

 

 

 

 

 

 

 

 

 

 

Realized gain, net of taxes

 

$

 

 

$

94

 

 

 

 

 

 

 

 

 

 

During the thirteen-week periods ended March 30, 2019 and March 31, 2018, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $875,000 and $(647,000), 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)

Goodwill

The changes in the carrying amount of goodwill during the thirteen weeks ended March 30, 2019 are as follows:

Balance as of January 1, 2019

 

$

145,152

 

Container Connection purchase accounting adjustment

 

 

2,783

 

Balance as of March 30, 2019

 

$

147,935

 

 

 

 

 

 

During the thirteen weeks ended March 30, 2019, the Company made purchase accounting adjustments to the preliminary purchase price allocation of the Company’s December 7, 2018 acquisition of Container Connection.  The adjustments resulted in an increase in goodwill of $2.8 million and in deferred tax liabilities of $0.8 million, with an offsetting decrease in intangible assets of $3.6 million.  

At March 30, 2019 and December 31, 2018, $91.6 million and $88.9 million of goodwill was recorded in our transportation segment, respectively.  At both March 30, 2019 and December 31, 2018, $56.3 million of goodwill was recorded in our logistics segment.

(6)

Accrued Expenses and Other Current Liabilities

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

 

 

 

March 30,

2019

 

 

December 31,

2018

 

 

 

 

 

 

 

 

 

 

Payroll related items

 

$

14,498

 

 

$

11,476

 

Driver escrow liabilities

 

 

3,768

 

 

 

3,923

 

Commissions, taxes and other

 

 

10,018

 

 

 

9,727

 

Total

 

$

28,284

 

 

$

25,126

 

 

(7)

Debt

Debt is comprised of the following (in thousands):

 

 

 

Interest Rates

at March 30, 2019

 

 

March 30,

2019

 

 

December 31,

2018

 

Outstanding Debt:

 

 

 

 

 

 

 

 

 

 

 

 

Credit and Security Agreement (1)

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

4.00%

 

 

$

148,125

 

 

$

150,000

 

Revolver

 

4.00%

 

 

 

54,904

 

 

 

80,588

 

Equipment Financing (2)

 

3.18% to 5.13%

 

 

 

124,761

 

 

 

126,162

 

Real Estate Financing (3)

 

4.75%

 

 

 

44,391

 

 

 

45,864

 

Margin Facility (4)

 

3.60%

 

 

 

 

 

 

541

 

Unamortized debt issuance costs

 

 

 

 

 

 

(2,556

)

 

 

(2,703

)

 

 

 

 

 

 

 

369,625

 

 

 

400,452

 

Less current portion of long-term debt

 

 

 

 

 

 

53,501

 

 

 

51,903

 

Total long-term debt, net of current portion

 

 

 

 

 

$

316,124

 

 

$

348,549

 

(1) The Credit and Security Agreement (the “Credit Agreement”) provides for maximum borrowings of $350 million in the form of a $150 million term loan and a $200 million revolver.  Term loan proceeds were advanced on November 27, 2018 and mature on November 26, 2023.  The term loan will be repaid in consecutive quarterly installments, as defined in the Credit Agreement, commencing March 31, 2019, with the remaining balance due at maturity.  Borrowings under the revolving credit facility may be made until and mature on November 26, 2023. Borrowings under the Credit Agreement bear interest at LIBOR or a base rate, plus an applicable margin for each based the Company’s leverage ratio.  The Credit Agreement is secured by a first priority pledge of the capital stock of applicable subsidiaries, as well as first priority perfected security interest in cash, deposits, accounts receivable, and selected other assets of the applicable borrowers.  The Credit Agreement includes customary affirmative and negative covenants and events of default, as well as financial covenants requiring minimum fixed charge coverage and leverage ratios, and customary mandatory prepayments provisions. At March 30, 2019, we were in compliance with all covenants under the facility, and $145.1 million was available for borrowing on the revolver.

11


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(7)

Debt – continued

(2) 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 and are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 3.18% to 5.13%. At March 30, 2019, we were in compliance with all covenants.

(3) 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 March 30, 2019, we were in compliance with all covenants.

(4) 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 March 30, 2019, the maximum available borrowings under the line of credit were $5.6 million.

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 March 30, 2019. 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 March 30, 2019, the fair value of the 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 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.

12


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(8)

Fair Value Measurements and Disclosures – continued

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):

 

 

 

March 30,

2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

21

 

 

$

 

 

$

 

 

$

21

 

Marketable securities

 

 

10,208

 

 

 

 

 

 

 

 

 

10,208

 

Interest rate swaps

 

 

 

 

 

205

 

 

 

 

 

 

205

 

Total

 

$

10,229

 

 

$

205

 

 

$

 

 

$

10,434

 

 

 

 

December 31,

2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities

 

$

9,333

 

 

$

 

 

$

 

 

$

9,333

 

Interest rate swaps

 

 

 

 

 

392

 

 

 

 

 

 

392

 

Total

 

$

9,333

 

 

$

392

 

 

$

 

 

$

9,725

 

 

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 March 30, 2019 is summarized as follows:

 

 

Carrying Value

 

 

Estimated Fair

Value

 

Equipment promissory notes

 

$

124,761

 

 

$

124,523

 

 

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

 

 

 

13


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(9)Leases

On January 1, 2019, we adopted ASU 2016-02, Leases, which required us to recognize a right-of-use asset and a corresponding lease liability on our balance sheet for most leases classified as operating leases under previous guidance. Right-of-use assets represent our right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments resulting from the lease agreement. We recognize a right-of-use asset and a lease liability on the effective date of a lease agreement.

We initially record these assets and liabilities based on the present value of lease payments over the lease term using our incremental borrowing rate applicable to the leased asset or the implicit rate in the lease if it is readily determinable. Most of our leases did not provide a readily determinable implicit rate, and therefore we estimated our incremental borrowing rate based on information available at lease commencement. The incremental borrowing rate is defined as the rate of interest that we would have to pay to borrow, on a collateralized basis and over a similar term, an amount equal to the lease payments in a similar economic environment. We elected to utilize a portfolio approach and applied the rates to a portfolio of leases with similar underlying assets and terms. Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019. ASU 2016-02 was adopted using the modified retrospective approach, and as such prior period amounts are reported under the accounting standards in effect for those periods.

As of March 30, 2019, our obligations under operating lease arrangements primarily related to the rental of office space, warehouses, freight distribution centers, terminal yards and equipment. Our lease obligations typically do not include options to purchase the leased property, nor do they contain residual value guarantees or material restrictive covenants. Options to extend or terminate an agreement are included in the lease term when it becomes reasonably certain the option will be exercised. As of March 30, 2019, we were not reasonably certain of exercising any renewal or termination options, and as such, no adjustments were made to the right-of-use lease assets or corresponding liabilities. 

We did not separate lease and nonlease components of contracts for purposes of determining the right-of use lease asset and corresponding liability. Variable lease components that do not depend on an index or a rate, and variable nonlease components were also not contemplated in the calculation of the right-of-use asset and corresponding liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which we pay the lessors an estimate that is adjusted to actual expense on a quarterly or annual basis depending on the underlying contract terms. For equipment leases, variable lease costs may include additional fees associated with using equipment in excess of estimated amounts. Leases with an initial term of 12 months or less, short-term leases, are not recorded on the balance sheet. Lease expense for short-term and long-term operating leases is recognized on a straight-line bases over the lease term.

The following table summarizes our lease costs for the thirteen week period ended March 30, 2019 and related information (in thousands):

 

Lease cost

 

 

 

 

Operating lease cost

 

$

8,177

 

Short-term lease cost

 

 

1,393

 

Variable lease cost

 

 

333

 

Sublease income

 

 

(671

)

Total lease cost

 

$

9,232

 

 

 

 

 

 

Other information

 

 

 

 

Cash paid for amounts included in the measurement of operating leases

 

$

7,700

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

$

2,107

 

Weighted-average remaining lease term (in years)

 

 

4.8

 

Weighted-average discount rate

 

 

5.0

%

 

14


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(9)Leases – continued