10-Q 1 ulh-10q_20190928.htm FORM 10-Q ulh-10q_20190928.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 28, 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)

 

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

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  

The number of shares of the registrant’s common stock, no par value, outstanding as of November 4, 2019, was 27,282,230.

 

 


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

September 28,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

6,485

 

 

$

5,727

 

Marketable securities

 

 

9,139

 

 

 

9,333

 

Accounts receivable – net of allowance for doubtful accounts of $1,988

   and $1,772, respectively

 

 

212,010

 

 

 

215,991

 

Other receivables

 

 

16,814

 

 

 

19,130

 

Prepaid expenses and other

 

 

18,991

 

 

 

19,830

 

Due from affiliates

 

 

3,353

 

 

 

5,247

 

Total current assets

 

 

266,792

 

 

 

275,258

 

Property and equipment – net of accumulated depreciation of $258,769 and

   $231,319, respectively

 

 

317,623

 

 

 

303,234

 

Operating lease right-of-use asset

 

 

79,628

 

 

 

-

 

Goodwill

 

 

158,416

 

 

 

145,152

 

Intangible assets – net of accumulated amortization of $75,055 and $62,624, respectively

 

 

106,989

 

 

 

113,775

 

Deferred income taxes

 

 

2,361

 

 

 

2,549

 

Other assets

 

 

2,920

 

 

 

3,179

 

Total assets

 

$

934,729

 

 

$

843,147

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

101,483

 

 

$

92,019

 

Current portion of long-term debt

 

 

59,894

 

 

 

51,903

 

Insurance and claims

 

 

55,931

 

 

 

31,679

 

Accrued expenses and other current liabilities

 

 

27,242

 

 

 

25,126

 

Current portion of operating lease liabilities

 

 

24,860

 

 

 

-

 

Due to affiliates

 

 

20,371

 

 

 

17,764

 

Income taxes payable

 

 

2,470

 

 

 

2,678

 

Total current liabilities

 

 

292,251

 

 

 

221,169

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

326,662

 

 

 

348,549

 

Operating lease liabilities, net of current portion

 

 

56,440

 

 

 

-

 

Deferred income taxes

 

 

56,243

 

 

 

59,228

 

Other long-term liabilities

 

 

5,218

 

 

 

4,902

 

Total long-term liabilities

 

 

444,563

 

 

 

412,679

 

Shareholders' equity:

 

 

 

 

 

 

 

 

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

   30,965,452 shares issued; 27,282,230 and 28,378,827 shares outstanding,

   respectively

 

 

30,972

 

 

 

30,967

 

Paid-in capital

 

 

4,298

 

 

 

4,230

 

Treasury stock, at cost; 3,688,222 and 2,586,625 shares, respectively

 

 

(77,248

)

 

 

(52,462

)

Retained earnings

 

 

245,332

 

 

 

231,525

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Interest rate swaps, net of income taxes of $(60) and $94, respectively

 

 

(187

)

 

 

298

 

Foreign currency translation adjustments

 

 

(5,252

)

 

 

(5,259

)

Total shareholders’ equity

 

 

197,915

 

 

 

209,299

 

Total liabilities and shareholders’ equity

 

$

934,729

 

 

$

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

 

 

Thirty-nine Weeks Ended

 

 

 

September 28,

2019

 

 

September 29,

2018

 

 

September 28,

2019

 

 

September 29,

2018

 

Operating revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Truckload services

 

$

62,615

 

 

$

80,204

 

 

$

193,133

 

 

$

240,053

 

Brokerage services

 

 

94,442

 

 

 

98,801

 

 

 

269,680

 

 

 

269,446

 

Intermodal services

 

 

93,022

 

 

 

65,710

 

 

 

278,043

 

 

 

167,190

 

Dedicated services

 

 

32,730

 

 

 

36,195

 

 

 

105,618

 

 

 

106,915

 

Value-added services

 

 

92,676

 

 

 

93,382

 

 

 

289,593

 

 

 

291,726

 

Total operating revenues

 

 

375,485

 

 

 

374,292

 

 

 

1,136,067

 

 

 

1,075,330

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

183,902

 

 

 

186,239

 

 

 

539,584

 

 

 

526,502

 

Direct personnel and related benefits

 

 

91,946

 

 

 

87,189

 

 

 

278,763

 

 

 

260,548

 

Operating supplies and expenses

 

 

30,465

 

 

 

32,119

 

 

 

91,972

 

 

 

90,547

 

Commission expense

 

 

7,991

 

 

 

9,653

 

 

 

23,685

 

 

 

28,298

 

Occupancy expense

 

 

8,380

 

 

 

7,410

 

 

 

27,523

 

 

 

22,574

 

General and administrative

 

 

11,435

 

 

 

7,750

 

 

 

30,309

 

 

 

23,354

 

Insurance and claims

 

 

29,912

 

 

 

7,419

 

 

 

41,215

 

 

 

18,173

 

Depreciation and amortization

 

 

18,807

 

 

 

13,983

 

 

 

53,140

 

 

 

39,448

 

Total operating expenses

 

 

382,838

 

 

 

351,762

 

 

 

1,086,191

 

 

 

1,009,444

 

(Loss) income from operations

 

 

(7,353

)

 

 

22,530

 

 

 

49,876

 

 

 

65,886

 

Interest income

 

 

14

 

 

 

21

 

 

 

57

 

 

 

56

 

Interest expense

 

 

(4,091

)

 

 

(4,324

)

 

 

(12,602

)

 

 

(9,866

)

Other non-operating income

 

 

163

 

 

 

1,746

 

 

 

1,212

 

 

 

1,688

 

(Loss) income before income taxes

 

 

(11,267

)

 

 

19,973

 

 

 

38,543

 

 

 

57,764

 

Provision for income taxes

 

 

(2,847

)

 

 

4,918

 

 

 

9,694

 

 

 

14,606

 

Net (loss) income

 

$

(8,420

)

 

$

15,055

 

 

$

28,849

 

 

$

43,158

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.30

)

 

$

0.53

 

 

$

1.02

 

 

$

1.52

 

Diluted

 

$

(0.30

)

 

$

0.53

 

 

$

1.02

 

 

$

1.52

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

28,263

 

 

 

28,382

 

 

 

28,342

 

 

 

28,388

 

Diluted

 

 

28,264

 

 

 

28,392

 

 

 

28,343

 

 

 

28,396

 

Dividends declared per common share

 

$

0.105

 

 

$

0.105

 

 

$

0.315

 

 

$

0.315

 

 

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 28,

2019

 

 

September 29,

2018

 

 

September 28,

2019

 

 

September 29,

2018

 

Net Income

 

$

(8,420

)

 

$

15,055

 

 

$

28,849

 

 

$

43,158

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized changes in fair value of interest rate swaps,

   net of income taxes of $(34), $17, $(155) and $107, respectively

 

 

(107

)

 

 

112

 

 

 

(485

)

 

 

343

 

Foreign currency translation adjustments

 

 

(185

)

 

 

589

 

 

 

7

 

 

 

764

 

Total other comprehensive income

 

 

(292

)

 

 

701

 

 

 

(478

)

 

 

1,107

 

Total comprehensive income

 

$

(8,712

)

 

$

15,756

 

 

$

28,371

 

 

$

44,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 28,

2019

 

 

September 29,

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

28,849

 

 

$

43,158

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

53,140

 

 

 

39,448

 

Noncash lease expense

 

 

22,361

 

 

 

 

Gain on marketable equity securities

 

 

(960

)

 

 

(291

)

Loss (gain) on disposal of property and equipment

 

 

6

 

 

 

(137

)

Gain on life insurance policies

 

 

 

 

 

(1,025

)

Amortization of debt issuance costs

 

 

439

 

 

 

998

 

Stock-based compensation

 

 

73

 

 

 

246

 

Provision for doubtful accounts

 

 

2,157

 

 

 

561

 

Deferred income taxes

 

 

(1,877

)

 

 

3,741

 

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

7,246

 

 

 

(33,239

)

Prepaid expenses and other assets

 

 

1,236

 

 

 

(3,694

)

Accounts payable, accrued expenses and other current liabilities, insurance

   and claims, and income taxes payable

 

 

36,230

 

 

 

20,421

 

Principal reduction in operating lease liabilities

 

 

(21,103

)

 

 

 

Due to/from affiliates, net

 

 

4,503

 

 

 

2,674

 

Other long-term liabilities

 

 

(324

)

 

 

1,040

 

Net cash provided by operating activities

 

 

131,976

 

 

 

73,901

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(60,752

)

 

 

(54,207

)

Proceeds from the sale of property and equipment

 

 

5,002

 

 

 

2,132

 

Purchases of marketable securities

 

 

(92

)

 

 

(613

)

Proceeds from sale of marketable securities

 

 

1,246

 

 

 

5,615

 

Proceeds from life insurance policies

 

 

 

 

 

2,583

 

Acquisition of business

 

 

(22,457

)

 

 

(100,787

)

Net cash used in investing activities

 

 

(77,053

)

 

 

(145,277

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

214,393

 

 

 

304,885

 

Repayments of debt - revolving debt

 

 

(229,392

)

 

 

(276,000

)

Proceeds from borrowing - term debt

 

 

45,433

 

 

 

84,133

 

Repayments of debt - term debt

 

 

(44,228

)

 

 

(37,123

)

Borrowings under margin account

 

 

 

 

 

12,400

 

Repayments under margin account

 

 

(541

)

 

 

(7,149

)

Payment of capital lease obligations

 

 

 

 

 

(69

)

Capitalized financing costs

 

 

 

 

 

(862

)

Purchases of treasury stock

 

 

(24,786

)

 

 

(832

)

Dividends paid

 

 

(15,042

)

 

 

(7,950

)

Net cash (used in) provided by financing activities

 

 

(54,163

)

 

 

71,433

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(2

)

 

 

816

 

Net increase in cash

 

 

758

 

 

 

873

 

Cash  and cash equivalents – beginning of period

 

 

5,727

 

 

 

1,672

 

Cash and cash equivalents – end of period

 

$

6,485

 

 

$

2,545

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

5


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows - Continued

(In thousands)

 

 

Thirty-nine Weeks Ended

 

 

 

September 28,

2019

 

 

September 29,

2018

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

11,282

 

 

$

8,398

 

Cash paid for income taxes

 

$

11,892

 

 

$

3,717

 

Acquisition of business:

 

 

 

 

 

 

 

 

Fair value of assets acquired

 

$

23,981

 

 

$

115,736

 

Liabilities assumed

 

 

(2,779

)

 

 

(14,949

)

Payment of acquisition obligations

 

 

1,255

 

 

 

 

Net cash paid for acquisition of business

 

$

22,457

 

 

$

100,787

 

 

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 ($0.070 per share)

 

 

 

 

 

 

 

 

 

 

 

(1,988

)

 

 

 

 

 

(1,988

)

Stock based compensation

 

 

12

 

 

 

233

 

 

 

 

 

 

 

 

 

 

 

 

245

 

Balances - March 31, 2018

 

 

30,955

 

 

 

4,074

 

 

 

(51,532

)

 

 

198,723

 

 

 

(2,815

)

 

 

179,405

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,669

 

 

 

 

 

 

17,669

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,315

)

 

 

(1,315

)

Dividends paid ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,981

)

 

 

 

 

 

(2,981

)

Balances – June 30, 2018

 

 

30,955

 

 

 

4,074

 

 

 

(51,532

)

 

 

213,411

 

 

 

(4,130

)

 

 

192,778

 

Net income

 

 

 

 

 

 

 

 

 

 

 

15,055

 

 

 

 

 

 

15,055

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

701

 

 

 

701

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

(832

)

 

 

 

 

 

 

 

 

(832

)

Dividends paid ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,981

)

 

 

 

 

 

(2,981

)

Balances - September 29, 2018

 

$

30,955

 

 

$

4,074

 

 

$

(52,364

)

 

$

225,485

 

 

$

(3,429

)

 

$

204,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Balances - March 30, 2019

 

 

30,972

 

 

 

4,298

 

 

 

(52,462

)

 

 

242,721

 

 

 

(4,875

)

 

 

220,654

 

Net income

 

 

 

 

 

 

 

 

 

 

 

19,972

 

 

 

 

 

 

19,972

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(272

)

 

 

(272

)

Dividends paid ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,981

)

 

 

 

 

 

(2,981

)

Balances – June 29, 2019

 

 

30,972

 

 

 

4,298

 

 

 

(52,462

)

 

 

259,712

 

 

 

(5,147

)

 

 

237,373

 

Net income

 

 

 

 

 

 

 

 

 

 

 

(8,420

)

 

 

 

 

 

(8,420

)

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(292

)

 

 

(292

)

Dividends paid ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,980

)

 

 

 

 

 

(2,980

)

Dividends payable ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,980

)

 

 

 

 

 

(2,980

)

Purchases of treasury stock

 

 

 

 

 

 

 

 

(24,786

)

 

 

 

 

 

 

 

 

(24,786

)

Balances – September 28, 2019

 

$

30,972

 

 

$

4,298

 

 

$

(77,248

)

 

$

245,332

 

 

$

(5,439

)

 

$

197,915

 

 

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 September 28, 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 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):

 

 

September 28,

2019

 

 

December 31,

2018

 

Prepaid expenses and other - contract assets

 

$

2,391

 

 

$

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):

 

 

September 28,

2019