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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 April 3, 2021

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 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 May 10, 2021, was 26,919,455.

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

April 3,

2021

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

10,799

 

 

$

8,763

 

Marketable securities

 

 

7,530

 

 

 

6,534

 

Accounts receivable – net of allowance for doubtful accounts of $5,585

   and $5,140, respectively

 

 

264,385

 

 

 

259,154

 

Other receivables

 

 

23,798

 

 

 

22,422

 

Prepaid expenses and other

 

 

22,109

 

 

 

23,427

 

Due from affiliates

 

 

1,262

 

 

 

1,224

 

Total current assets

 

 

329,883

 

 

 

321,524

 

Property and equipment – net of accumulated depreciation of $309,475 and

   $298,789, respectively

 

 

353,361

 

 

 

364,795

 

Operating lease right-of-use asset

 

 

94,853

 

 

 

97,820

 

Goodwill

 

 

170,730

 

 

 

170,730

 

Intangible assets – net of accumulated amortization of $97,054 and $93,574, respectively

 

 

98,756

 

 

 

102,236

 

Deferred income taxes

 

 

2,159

 

 

 

2,159

 

Other assets

 

 

4,930

 

 

 

3,785

 

Total assets

 

$

1,054,672

 

 

$

1,063,049

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

98,577

 

 

$

97,916

 

Current portion of long-term debt

 

 

60,022

 

 

 

59,713

 

Current portion of operating lease liabilities

 

 

21,691

 

 

 

21,920

 

Accrued expenses and other current liabilities

 

 

43,316

 

 

 

39,588

 

Insurance and claims

 

 

28,735

 

 

 

25,022

 

Due to affiliates

 

 

17,316

 

 

 

17,093

 

Income taxes payable

 

 

9,261

 

 

 

11,555

 

Total current liabilities

 

 

278,918

 

 

 

272,807

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

369,015

 

 

 

400,407

 

Operating lease liabilities, net of current portion

 

 

75,395

 

 

 

78,093

 

Deferred income taxes

 

 

64,427

 

 

 

64,426

 

Other long-term liabilities

 

 

7,151

 

 

 

7,743

 

Total long-term liabilities

 

 

515,988

 

 

 

550,669

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value. Authorized 100,000,000 shares; 30,986,702 and

   30,979,827 shares issued; 26,919,455 and 26,912,580 shares outstanding,

   respectively

 

 

30,988

 

 

 

30,981

 

Paid-in capital

 

 

4,639

 

 

 

4,484

 

Treasury stock, at cost; 4,067,247 shares

 

 

(82,385

)

 

 

(82,385

)

Retained earnings

 

 

312,474

 

 

 

293,643

 

Accumulated other comprehensive (loss):

 

 

 

 

 

 

 

 

Interest rate swaps, net of income taxes of $(109) and $(142), respectively

 

 

(343

)

 

 

(476

)

Foreign currency translation adjustments

 

 

(5,607

)

 

 

(6,674

)

Total shareholders’ equity

 

 

259,766

 

 

 

239,573

 

Total liabilities and shareholders’ equity

 

$

1,054,672

 

 

$

1,063,049

 

 

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

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Operating revenues:

 

 

 

 

 

 

 

 

Truckload services

 

$

59,702

 

 

$

58,898

 

Brokerage services

 

 

96,919

 

 

 

85,900

 

Intermodal services

 

 

103,716

 

 

 

110,322

 

Dedicated services

 

 

47,961

 

 

 

31,579

 

Value-added services

 

 

106,933

 

 

 

95,463

 

Total operating revenues

 

 

415,231

 

 

 

382,162

 

Operating expenses:

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

189,331

 

 

 

180,856

 

Direct personnel and related benefits

 

 

107,552

 

 

 

97,388

 

Operating supplies and expenses

 

 

37,092

 

 

 

30,695

 

Commission expense

 

 

7,324

 

 

 

7,170

 

Occupancy expense

 

 

8,180

 

 

 

8,831

 

General and administrative

 

 

9,176

 

 

 

8,924

 

Insurance and claims

 

 

6,335

 

 

 

4,872

 

Depreciation and amortization

 

 

19,085

 

 

 

19,518

 

Total operating expenses

 

 

384,075

 

 

 

358,254

 

Income from operations

 

 

31,156

 

 

 

23,908

 

Interest income

 

 

18

 

 

 

8

 

Interest expense

 

 

(3,181

)

 

 

(4,217

)

Other non-operating income (expense)

 

 

1,006

 

 

 

(3,605

)

Income before income taxes

 

 

28,999

 

 

 

16,094

 

Income tax expense

 

 

7,344

 

 

 

3,931

 

Net income

 

$

21,655

 

 

$

12,163

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.80

 

 

$

0.45

 

Diluted

 

$

0.80

 

 

$

0.45

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

26,916

 

 

 

27,223

 

Diluted

 

 

26,930

 

 

 

27,223

 

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

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Net Income

 

$

21,655

 

 

$

12,163

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized changes in fair value of interest rate swaps, net of income taxes of

   $33 and $(135), respectively

 

 

133

 

 

 

(448

)

Foreign currency translation adjustments

 

 

1,067

 

 

 

(680

)

Total other comprehensive income (loss)

 

 

1,200

 

 

 

(1,128

)

Total comprehensive income

 

$

22,855

 

 

$

11,035

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

4


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

Thirteen Weeks Ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

21,655

 

 

$

12,163

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19,085

 

 

 

19,518

 

Noncash lease expense

 

 

6,392

 

 

 

7,555

 

Loss (gain) on marketable equity securities

 

 

(999

)

 

 

3,409

 

Gain on disposal of property and equipment

 

 

(219

)

 

 

(506

)

Amortization of debt issuance costs

 

 

120

 

 

 

146

 

Stock-based compensation

 

 

162

 

 

 

195

 

Provision for doubtful accounts

 

 

1,621

 

 

 

1,048

 

Deferred income taxes

 

 

(21

)

 

 

(1,202

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

(8,936

)

 

 

(11,947

)

Prepaid income taxes, prepaid expenses and other assets

 

 

293

 

 

 

2,404

 

Principal reduction in operating lease liabilities

 

 

(6,158

)

 

 

(7,258

)

Accounts payable, accrued expenses and other current liabilities, insurance

   and claims, and income taxes payable

 

 

10,382

 

 

 

(5,147

)

Due to/from affiliates, net

 

 

185

 

 

 

5,507

 

Other long-term liabilities

 

 

(425

)

 

 

(719

)

Net cash provided by operating activities

 

 

43,137

 

 

 

25,166

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,940

)

 

 

(32,775

)

Proceeds from the sale of property and equipment

 

 

760

 

 

 

2,282

 

Purchases of marketable securities

 

 

(114

)

 

 

(360

)

Proceeds from sale of marketable securities

 

 

117

 

 

 

 

Net cash used in investing activities

 

 

(4,177

)

 

 

(30,853

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

83,784

 

 

 

91,200

 

Repayments of debt - revolving debt

 

 

(102,579

)

 

 

(84,084

)

Proceeds from borrowing - term debt

 

 

3,035

 

 

 

29,760

 

Repayments of debt - term debt

 

 

(15,443

)

 

 

(15,853

)

Borrowings under margin account

 

 

 

 

 

256

 

Repayments under margin account

 

 

 

 

 

(256

)

Dividends paid

 

 

(5,692

)

 

 

(5,731

)

Purchases of treasury stock

 

 

 

 

 

(4,919

)

Net cash provided by (used in) financing activities

 

 

(36,895

)

 

 

10,373

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(29

)

 

 

(4,417

)

Net increase in cash

 

 

2,036

 

 

 

269

 

Cash  and cash equivalents – beginning of period

 

 

8,763

 

 

 

7,726

 

Cash and cash equivalents – end of period

 

$

10,799

 

 

$

7,995

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

3,086

 

 

$

4,157

 

Cash paid for income taxes

 

$

9,786

 

 

$

55

 

 

See accompanying notes to consolidated financial statements.

5


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, 2019

 

$

30,972

 

 

$

4,298

 

 

$

(77,247

)

 

$

251,204

 

 

$

(4,010

)

 

$

205,217

 

Net income

 

 

 

 

 

 

 

 

 

 

 

12,163

 

 

 

 

 

 

12,163

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,128

)

 

 

(1,128

)

Dividends paid ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,865

)

 

 

 

 

 

(2,865

)

Stock based compensation

 

 

9

 

 

 

186

 

 

 

 

 

 

 

 

 

 

 

 

195

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

(4,919

)

 

 

 

 

 

 

 

 

(4,919

)

Balances – April 4, 2020

 

$

30,981

 

 

$

4,484

 

 

$

(82,166

)

 

$

260,502

 

 

$

(5,138

)

 

$

208,663

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances – December 31, 2020

 

$

30,981

 

 

$

4,484

 

 

$

(82,385

)

 

$

293,643

 

 

$

(7,150

)

 

$

239,573

 

Net income

 

 

 

 

 

 

 

 

 

 

 

21,655

 

 

 

 

 

 

21,655

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,200

 

 

 

1,200

 

Dividends paid ($0.105 per share)

 

 

 

 

 

 

 

 

 

 

 

(2,824

)

 

 

 

 

 

(2,824

)

Stock based compensation

 

 

7

 

 

 

155

 

 

 

 

 

 

 

 

 

 

 

 

162

 

Balances – April 3, 2021

 

$

30,988

 

 

$

4,639

 

 

$

(82,385

)

 

$

312,474

 

 

$

(5,950

)

 

$

259,766

 

 

See accompanying notes to consolidated financial statements.

 

 

 

6


 

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, 2020 and 2019 and for each of the years in the three-year period ended December 31, 2020 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.

COVID-19

In March of 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a pandemic.  The Company remains committed to doing its part to protect its employees, customers, vendors and the general public from the spread of COVID-19. We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers.

The Company makes estimates and assumptions that affect reported amounts and disclosures included in its financial statements and accompanying notes and assesses certain accounting matters that require consideration of forecasted financial information. The Company's assumptions about future conditions important to these estimates and assumptions are subject to uncertainty, including the impacts of the COVID-19 pandemic.  

Although we estimate COVID-19 had the largest impact on our business during the second quarter 2020, we are unable to predict with any certainty the future impact COVID-19 may have on our operational and financial performance.  The Company will continue to monitor these conditions in future periods as new information becomes available and will update its analyses accordingly.  

 

(2)

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”  The ASU was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company has evaluated the provisions of this standard and determined that it is applicable to our primary term loan and revolving credit facility, real estate promissory notes and investment margin credit facility. The London Interbank Offered Rate (“LIBOR”) is the basis for interest charges on outstanding borrowings for both our line of credit and investment margin account. The scheduled discontinuation of LIBOR is not expected to materially alter any provisions of either of these debt instruments, except for the identification of a replacement reference rate. The Company has evaluated the new guidance and does not expect it to have a material impact on its 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. The new standard will become effective for us beginning with the first quarter 2023.  The Company is evaluating the new guidance, but does not expect it to have a material impact on our consolidated financial statements.

 

7


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, brokerage, intermodal, dedicated and value-added. 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. Truckload services also include our final mile and ground expedited services.  

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.  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 include 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):

 

 

 

April 3,

2021

 

 

December 31,

2020

 

Prepaid expenses and other - contract assets

 

$

1,989

 

 

$

2,520

 

 

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. 

 

 

8


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 basis 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 7.

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

 

 

 

April 3,

2021

 

 

December 31,

2020

 

Fair value

 

$

7,530

 

 

$

6,534

 

Cost basis

 

 

6,426

 

 

 

6,579

 

Unrealized gain (loss)

 

$

1,104

 

 

$

(45

)

 

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

 

 

 

April 3,

2021

 

 

December 31,

2020

 

Gross unrealized gains

 

$

2,171

 

 

$

1,627

 

Gross unrealized losses

 

 

(1,067

)

 

 

(1,672

)

Net unrealized gains (losses)

 

$

1,104

 

 

$

(45

)

 

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

 

 

 

Thirteen weeks ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Realized gain:

 

 

 

 

 

 

 

 

Sale proceeds

 

$

117

 

 

$

 

Cost basis of securities sold

 

 

92

 

 

 

 

Realized gain

 

$

25

 

 

$

 

 

 

 

 

 

 

 

 

 

Realized gain, net of taxes

 

$

19

 

 

$

 

 

 

 

 

 

 

 

 

 

The Company did not sell marketable equity securities during the thirteen-week period April 4, 2020.

During the thirteen-week periods ended April 3, 2021 and April 4, 2020, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $974,000 and $(3,400,000), respectively, which was reported in other non-operating income (expense) for the period.

 

9


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(5)

Accrued Expenses and Other Current Liabilities

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

 

 

 

April 3,

2021

 

 

December 31,

2020

 

Accrued payroll

 

$

13,042

 

 

$

11,536

 

Accrued payroll taxes

 

 

14,112

 

 

 

11,601

 

Driver escrow liabilities

 

 

3,937

 

 

 

4,045

 

Legal settlements and claims

 

 

3,700

 

 

 

3,700

 

Commissions, taxes and other

 

 

8,525

 

 

 

8,706

 

Total

 

$

43,316

 

 

$

39,588

 

 

(6)

Debt

Debt is comprised of the following (in thousands):

 

 

 

Interest Rates

at April 3, 2021

 

 

April 3,

2021

 

 

December 31,

2020

 

Outstanding Debt:

 

 

 

 

 

 

 

 

 

 

 

 

Credit and Security Agreement (1)

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

1.86%

 

 

$

128,438

 

 

$

131,250

 

Revolver

 

1.86%

 

 

 

132,531

 

 

 

151,326

 

Equipment Financing (2)

 

2.25% to 5.13%

 

 

 

122,272

 

 

 

129,870

 

Real Estate Financing (3)

 

1.96% to 2.36%

 

 

 

47,250

 

 

 

49,248

 

Margin Facility (4)

 

1.21%

 

 

 

 

 

 

 

Unamortized debt issuance costs

 

 

 

 

 

 

(1,454

)

 

 

(1,574

)

 

 

 

 

 

 

 

429,037

 

 

 

460,120

 

Less current portion of long-term debt

 

 

 

 

 

 

60,022

 

 

 

59,713

 

Total long-term debt, net of current portion

 

 

 

 

 

$

369,015

 

 

$

400,407

 

 

(1) Our 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 on 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 April 3, 2021, we were in compliance with all covenants under the facility, and $67.5 million was available for borrowing on the revolver.

(2) Our Equipment Financing consists of a series of promissory notes issued by a wholly owned subsidiary. The equipment notes, which are secured by liens on specific titled vehicles, include certain affirmative and negative covenants, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25% to 5.13%.

(3) Our Real Estate Financing consists of a series of promissory notes issued by a wholly owned subsidiary. 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 a variable rate ranging from LIBOR plus 1.85% to LIBOR plus 2.25%. At April 3, 2021, we were in compliance with all covenants.

 

10


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(6)

Debt – continued

(4) Our 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 April 3, 2021, the maximum available borrowings under the line of credit were $4.2 million.

The Company is also party to two interest rate swap agreements that qualify for hedge accounting. The Company executed the swap agreements to fix a portion of the interest rates on its variable rate debt that have a combined notional amount of $12.6 million at April 3, 2021. Under the swap agreements, the Company receives interest at the one-month LIBOR rate plus 2.25% and pays a fixed rate. The first swap became effective in October 2016, has a rate of 4.16% (amortizing notional amount of $10.0 million) and expires in July 2026. The second swap became effective in October 2016, has a rate of 3.83% (amortizing notional amount of $2.6 million) and expires in May 2022. At April 3, 2021, the fair value of the swap agreements was a liability of $0.5 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 7 for additional information pertaining to interest rate swaps.

(7)

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):

 

 

 

April 3,

2021

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

5

 

 

$

 

 

$

 

 

$

5

 

Marketable securities

 

 

7,530

 

 

 

 

 

 

 

 

 

7,530

 

Total assets

 

$

7,535

 

 

$

 

 

$

 

 

$

7,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

452

 

 

$

 

 

$

452

 

Total liabilities

 

$

 

 

$

452

 

 

$

 

 

$

452

 

 

11


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(7)

Fair Value Measurements and Disclosures – continued

 

 

 

December 31,

2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

9

 

 

$

 

 

$

 

 

$

9

 

Marketable securities

 

 

6,534

 

 

 

 

 

 

 

 

 

6,534

 

Total assets

 

$

6,543

 

 

$

 

 

$

 

 

$

6,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

619

 

 

$

 

 

$

619

 

Total liabilities

 

$

 

 

$

619

 

 

$

 

 

$

619

 

 

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 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 Credit Agreement and our Real Estate Financing consist of variable rate borrowings.  We categorize these borrowings 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 Financing, 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 these borrowings as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of these promissory notes at April 3, 2021 is summarized as follows:

 

 

 

Carrying Value

 

 

Estimated Fair

Value

 

Equipment promissory notes

 

$

122,272

 

 

$

124,744

 

 

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

 

 

12


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(8)

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.

As of April 3, 2021, 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 April 3, 2021, 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 basis over the lease term.

The following table summarizes our lease costs for the thirteen week periods ended April 3, 2021 and April 4, 2020 (in thousands):

 

 

 

April 3, 2021

 

 

 

With

Affiliates

 

 

With Third

Parties

 

 

Total

 

Lease cost

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

2,526

 

 

$

5,803

 

 

$

8,329

 

Short-term lease cost

 

 

-

 

 

 

1,157

 

 

 

1,157

 

Variable lease cost

 

 

210

 

 

 

589

 

 

 

799

 

Sublease income

 

 

-

 

 

 

(759

)

 

 

(759

)

Total lease cost

 

$

2,736

 

 

$

6,790

 

 

$

9,526

 

 

 

 

April 4, 2020

 

 

 

With

Affiliates

 

 

With Third

Parties

 

 

Total

 

Lease cost

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

2,836

 

 

$

5,984

 

 

$

8,820

 

Short-term lease cost

 

 

241

 

 

 

1,198

 

 

 

1,439

 

Variable lease cost

 

 

226

 

 

 

793

 

 

 

1,019

 

Sublease income

 

 

-

 

 

 

(879

)

 

 

(879

)

Total lease cost

 

$

3,303

 

 

$

7,096

 

 

$

10,399

 

13


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(8)

Leases – continued

The following table summarizes other lease related information as of and for the thirteen week periods ended April 3, 2021 and April 4, 2020 (in thousands):

 

 

 

April 3, 2021

 

 

 

With

Affiliates

 

 

With Third

Parties

 

 

Total

 

Other information

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of

   operating leases

 

$

2,403

 

 

$

5,685

 

 

$

8,088

 

Future right-of-use asset change due to lease signed with a future

   commencement date

 

$

2,733

 

 

$

-

 

 

$

2,733

 

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

   lease liabilities

 

$

2,604

 

 

$

909

 

 

$

3,513

 

Weighted-average remaining lease term (in years)

 

 

6.1

 

 

 

4.8

 

 

 

5.3

 

Weighted-average discount rate

 

 

7.1

%

 

 

6.1

%

 

 

6.5

%

 

 

 

April 4, 2020

 

 

 

With

Affiliates

 

 

With Third

Parties

 

 

Total

 

Other information

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of

   operating leases

 

$

2,814

 

 

$

5,622

 

 

$

8,436

 

Right-of-use asset change due to lease termination

 

$

-

 

 

$

(1,109

)

 

$

(1,109

)

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

   lease liabilities

 

$

1,739

 

 

$

11,092

 

 

$

12,831

 

Weighted-average remaining lease term (in years)

 

 

6.4

 

 

 

5.3

 

 

 

5.6

 

Weighted-average discount rate

 

 

7.6

%

 

 

6.1

%

 

 

6.6

%

 

Future minimum lease payments under operating leases as of April 3, 2021, are as follows (in thousands):

 

 

 

With Affiliates

 

 

With Third

Parties

 

 

Total

 

Year one

 

$

6,751

 

 

$

14,025

 

 

$

20,776

 

Year two

 

 

7,638

 

 

 

15,142

 

 

 

22,780

 

Year three

 

 

6,695

 

 

 

12,266

 

 

 

18,961

 

Year four

 

 

6,794

 

 

 

10,167

 

 

 

16,961

 

Year five

 

 

5,350

 

 

 

8,701

 

 

 

14,051

 

Thereafter

 

 

12,301

 

 

 

11,024

 

 

 

23,325

 

Total required lease payments

 

$

45,529

 

 

$

71,325

 

 

$

116,854

 

Less amounts representing interest

 

 

 

 

 

 

 

 

 

 

(19,768

)

Present value of lease liabilities

 

 

 

 

 

 

 

 

 

$

97,086

 

 

14


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(9)

Transactions with Affiliates

CenTra, Inc. (“CenTra”), an affiliate of the Company that is owned by our controlling shareholders, provides administrative support services to Universal in the ordinary course of business, including legal, human resources, IT infrastructure and other requested services.  The cost of these services is based on the actual or estimated utilization of the specific service.

Universal also purchases other services from affiliates controlled by CenTra. Following is a schedule of costs incurred and included in operating expenses for services provided by affiliates for the thirteen weeks ended April 3, 2021 and April 4, 2020 (in thousands):

 

 

 

Thirteen weeks ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Administrative support services

 

$

115

 

 

$

188

 

Truck fuel, tolls and maintenance

 

 

178

 

 

 

306

 

Real estate rent and related costs

 

 

2,913

 

 

 

3,307

 

Insurance and employee benefit plans

 

 

11,496

 

 

 

13,153

 

Purchased transportation and equipment rent

 

 

9

 

 

 

5

 

Total

 

$

14,711

 

 

$

16,959

 

 

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

We lease 28 facilities from related parties.  Our occupancy is based on either month-to-month or contractual, multi-year lease arrangements that are billed and paid monthly. Leasing properties from a related party affords us significant operating flexibility; however, we are not limited to such arrangements. See Note 8, “Leases” for further information regarding the cost of leased properties.   

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

Other services from affiliates, including contracted transportation services, are delivered to us on a per-transaction basis or pursuant to separate contractual arrangements provided in the ordinary course of business. At April 3, 2021 and December 31, 2020, amounts due to affiliates were $17.3 million and $17.1 million, respectively. In our Consolidated Balance Sheets, we record our insured claims liability and the related recovery from an affiliate insurance provider in insurance and claims, and other receivables. At April 3, 2021 and December 31, 2020, there were $15.1 million and $13.3 million, respectively, included in each of these accounts for insured claims.  

Services provided by Universal to Affiliates

We periodically assist our affiliates by providing selected transportation and logistics services in connection with their specific customer contracts or purchase orders.  Following is a schedule of services provided to affiliates for the thirteen weeks ended April 3, 2021 and April 4, 2020 (in thousands):

 

 

 

Thirteen weeks ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Purchased transportation and equipment rent

 

$

49

 

 

$

135

 

Total

 

$

49

 

 

$

135

 

 

At April 3, 2021 and December 31, 2020, amounts due from affiliates were $1.3 million and $1.2 million, respectively.

 

15


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(10)

Stock Based Compensation

On April 23, 2014, our Board of Directors adopted our 2014 Amended and Restated Stock Incentive Plan. The Plan was approved at the 2014 annual meeting of shareholders and became effective as of the date our Board adopted it. The 2014 Plan replaced our 2004 Stock Incentive Plan and carried forward the shares of common stock that remained available for issuance under the 2004 Plan. The grants under the Plan may be made in the form of options, restricted stock awards, restricted stock purchase rights, stock appreciation rights, phantom stock units, restricted stock units or shares of unrestricted common stock. 

On February 5, 2020, the Company granted 5,000 shares of restricted stock to our Chief Financial Officer.  The restricted stock award has a fair value of $17.74 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest on February 20, 2024, subject to his continued employment with the Company.

On January 10, 2020, the Company granted 60,000 shares of restricted stock to our Chief Executive Officer.  The restricted stock award has a fair value of $18.82 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest in installments of 20,000 shares on January 10, 2024 and January 10, 2026, and installments of 10,000 shares on January 10, 2027 and January 10, 2028, subject to his continued employment with the Company.  

On February 20, 2019, the Company granted 44,500 shares of restricted stock to certain of its employees, including 10,000 shares to our Chief Financial Officer. The restricted stock awards have a grant date fair value of $23.56 per share, based on the closing price of the Company’s stock, and any non-vested shares under the awards will vest in four equal increments on each February 20 in 2020, 2021, 2022 and 2023.

 A grantee’s vesting of restricted stock awards may be accelerated under certain conditions, including retirement.

The following table summarizes the status of the Company’s non-vested shares and related information for the period indicated:

 

 

 

Shares

 

 

Weighted

Average Grant

Date Fair Value

 

Non-vested at January 1, 2021

 

 

85,625

 

 

$

19.90

 

Granted

 

 

 

 

$

-

 

Vested

 

 

(6,875

)

 

$

23.56

 

Forfeited

 

 

 

 

$

-

 

Balance at April 3, 2021

 

 

78,750

 

 

$

19.58

 

 

In each of the thirteen-week periods ended April 3, 2021 and April 4, 2020, the total grant date fair value of vested shares recognized as compensation costs was $0.2 million.  As of April 3, 2021, there was approximately $1.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements.  That cost is expected to be recognized on a straight-line basis over the remaining vesting period.  As a result, the Company expects to recognize stock-based compensation expense of $0.2 million in each year of 2022 and 2023, and $0.4 million in 2024, $0.3 million in 2026, and $0.2 million in each 2027 and 2028.

(11)

Earnings Per Share

Basic earnings per common share amounts are based on the weighted average number of common shares outstanding, excluding outstanding non-vested restricted stock. Diluted earnings per common share include dilutive common stock equivalents determined by the treasury stock method.  For the thirteen weeks ended April 3, 2021 and April 4, 2020, we included 14,613 and 0 weighted average non-vested shares of restricted stock, respectively, in the denominator for the calculation of diluted earnings per share.

For the thirteen weeks ended April 3, 2021 and April 4, 2020, we excluded 0 and 85,625 shares of non-vested restricted stock, respectively, from the calculation of diluted earnings per share because such shares were anti-dilutive.  

 

(12)

Dividends

On February 4, 2021, our Board of Directors declared a cash dividend of $0.105 per share of common stock, payable on April 5, 2021 to shareholders of record at the close of business on March 1, 2021.  Declaration of future cash dividends is subject to final determination by the Board of Directors each quarter after its review of our financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant.

16


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(13)

Segment Reporting

In December 2020, we changed the way we aggregate our business units and adopted a new segment reporting structure.  As part of the new structure, we separated our previous transportation segment into three reportable segments: trucking, intermodal, and company-managed brokerage. In addition, we changed the name of our previous logistics segment to contract logistics.  As a result, we now report our financial results in four distinct reportable segments: contract logistics, intermodal, trucking, and company-managed brokerage, which are based primarily on the services each segment provides. This presentation reflects the manner in which management evaluates our operating segments, including an evaluation of economic characteristics and applicable aggregation criteria.  

Operations aggregated in our contract logistics segment deliver value-added and/or dedicated transportation services to support in-bound logistics to original equipment manufacturers (OEMs) and major retailers on a contractual basis, generally pursuant to terms of one year or longer. Our intermodal segment is associated with local and regional drayage moves coordinated by company-managed terminals using a mix of owner-operators, company equipment and third-party capacity providers (broker carriers).  Operations aggregated in our trucking segment are associated with individual freight shipments coordinated by our agents and company-managed terminals using a mix of owner-operators, company equipment and broker carriers. Our company-managed brokerage segment provides for the pick-up and delivery of individual freight shipments using broker carriers, coordinated by our company-managed operations. Other non-reportable segments are comprised of the Company’s subsidiaries that provide support services to other subsidiaries.

Separate balance sheets are not prepared by segment, and we do not provide asset information by segment to the chief operating decision maker.

The following tables summarize information about our reportable segments for the thirteen week period ended April 3, 2021 and April 4, 2020 (in thousands):

 

 

 

Operating Revenues

 

 

 

Thirteen weeks ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Contract logistics

 

$

154,894

 

 

$

127,042

 

Intermodal

 

 

103,716

 

 

 

110,322

 

Trucking

 

 

94,899

 

 

 

91,570

 

Company-managed brokerage

 

 

61,106

 

 

 

52,782

 

Other

 

 

616

 

 

 

446

 

Total operating revenues

 

$

415,231

 

 

$

382,162

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminated Inter-segment Revenues

 

 

 

Thirteen weeks ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Contract logistics

 

$

287

 

 

$

235

 

Intermodal

 

 

1,077

 

 

 

336

 

Trucking

 

 

5,457

 

 

 

681

 

Company-managed brokerage

 

 

537

 

 

 

592

 

Total eliminated inter-segment revenues

 

$

7,358

 

 

$

1,844

 

 

 

 

 

 

 

 

 

 

17


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(13)

Segment Reporting - continued

 

 

Income from Operations

 

 

 

Thirteen weeks ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Contract logistics

 

$

16,820

 

 

$

11,690

 

Intermodal

 

 

8,494

 

 

 

9,000

 

Trucking

 

 

5,191

 

 

 

4,500

 

Company-managed brokerage

 

 

440

 

 

 

(1,397

)

Other

 

 

211

 

 

 

115

 

Total income from operations

 

$

31,156

 

 

$

23,908

 

 

 

 

 

 

 

 

 

 

 

(14)

Commitments and Contingencies

Our principal commitments relate to long-term real estate leases and payment obligations to equipment vendors.

The Company is involved in certain other claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. Based on the knowledge of the facts, and in certain cases, opinions of outside counsel, in the Company’s opinion the resolution of these claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.

At April 3, 2021, approximately 35% of our employees in the United States, Canada and Colombia, and approximately 86% of our employees in Mexico were subject to collective bargaining agreements that are renegotiated periodically, 40% of which are subject to contracts that expire in 2021.

 

(15)

Subsequent Events

On April 29, 2021, our Board of Directors declared the regular quarterly cash dividend of $0.105 per share of common stock, payable to shareholders of record at the close of business on June 7, 2021 and is expected to be paid on July 6, 2021.  Declaration of future cash dividends is subject to final determination by the Board of Directors each quarter after its review of our financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant.

 

 

 

18


 

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Some of the statements and assumptions in this Form 10-Q are forward-looking statements. These statements identify prospective information. Important factors could cause actual results to differ, possibly materially, from those in the forward-looking statements. In some cases you can identify forward-looking statements by words such as “anticipate,” “expect,” “believe,” “targets,” “could,” “estimate,” “plan,” “intend,” “may,” “should,” “will” and “would” or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or of our financial position or state other “forward-looking” information. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved. Forward-looking information is based on information available at the time and/or management’s good faith belief with respect to future events, and is subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in the statements. The factors listed in the section captioned “Risk Factors” in Part I, Item 1A in our Form 10-K for the year ended December 31, 2020 and Part II, Item 1A of this Form 10-Q, as well as any other cautionary language in these filings, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements.

Forward-looking statements speak only as of the date the statements are made. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect thereto or with respect to other forward-looking statements.

Overview

We are a leading asset-light provider of customized transportation and logistics solutions throughout the United States and in Mexico, Canada and Colombia. We offer our customers a broad array of services across their entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services.

We provide a comprehensive suite of transportation and logistics solutions that allow our customers and clients to reduce costs and manage their global supply chains more efficiently. We market our services through a direct sales and marketing network focused on selling our portfolio of services to large customers in specific industry sectors, through a network of agents who solicit freight business directly from shippers, and through company-managed facilities and full-service freight forwarding and customs house brokerage offices. We believe our asset-light business model is highly scalable and will continue to support our growth with comparatively modest capital expenditure requirements. Our asset-light model, combined with a disciplined approach to contract structuring and pricing, creates a highly flexible cost structure that allows us to expand and contract quickly in response to changes in demand from our customers. 

We generate substantially all of our revenues through fees charged to customers for the transportation of freight and for the customized logistics services we provide. We also derive revenue from fuel surcharges, where separately identifiable, loading and unloading activities, equipment detention, container management and storage and other related services. Operations aggregated in our transportation segment are associated with individual freight shipments coordinated by our agents, company-managed terminals and specialized services operations. In contrast, operations aggregated in our logistics segment deliver value-added services and transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer. Our segments are distinguished by the amount of forward visibility we have in regards to pricing and volumes, and also by the extent to which we dedicate resources and Company-owned equipment.

The following discussion of the Company’s financial condition and results of operations should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and Consolidated Financial Statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 and the unaudited Consolidated Financial Statements and related notes contained in this Quarterly Report on Form 10-Q.

COVID-19 Pandemic

The Company remains committed to doing its part to protect its employees, customers, vendors and the general public from the spread of the coronavirus outbreak (COVID-19). We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers.

19


 

The ultimate magnitude of COVID-19, including the extent of its impact on the Company’s financial and operating results, which could be material, will be determined by the length of time the pandemic continues, its severity, government regulations imposed in response to the pandemic, and to its general effect on the economy and transportation demand.

While operating cash flows may be negatively impacted by the pandemic, the Company believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and loans and extensions of credit under our credit facilities and on margin against our marketable securities. Should the impact of the COVID-19 pandemic last longer than anticipated, and/or our cash flow from operations decline more than expected, we may need to obtain additional financing. The Company’s ability to fund future operating expenses and capital expenditures, as well as its ability to meet future debt service obligations or refinance indebtedness will depend on future operating performance, which will be affected by general economic, financial, and other factors beyond our control.

Operating Revenues

We broadly group our services into the following categories: truckload services, brokerage services, intermodal services, dedicated services and value-added services. Our truckload, brokerage and intermodal services associated with individual freight shipments coordinated by our agents and company-managed terminals, while our dedicated and value-added services to specific customers on a contractual basis, generally pursuant to contract terms of one year or longer. The following table sets forth operating revenues resulting from each of these categories for the thirteen weeks ended April 3, 2021 and April 4, 2020, presented as a percentage of total operating revenues:

 

 

 

 

Thirteen Weeks Ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Operating revenues:

 

 

 

 

 

 

 

 

Truckload services

 

 

14.4

%

 

 

15.4

%

Brokerage services

 

 

23.3

 

 

 

22.5

 

Intermodal services

 

 

25.0

 

 

 

28.9

 

Dedicated services

 

 

11.6

 

 

 

8.3

 

Value-added services

 

 

25.7

 

 

 

24.9

 

Total operating revenues

 

 

100.0

%

 

 

100.0

%

Results of Operations

The following table sets forth items derived from our consolidated statements of income for the thirteen weeks ended April 3, 2021 and April 4, 2020, presented as a percentage of operating revenues:

 

 

 

Thirteen Weeks Ended

 

 

 

April 3,

2021

 

 

April 4,

2020

 

Operating revenues:

 

 

100.0

%

 

 

100.0

%

Operating expenses:

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

45.6

 

 

 

47.3

 

Direct personnel and related benefits

 

 

25.9

 

 

 

25.5

 

Operating supplies and expenses

 

 

8.9

 

 

 

8.0

 

Commission expense

 

 

1.8

 

 

 

1.9

 

Occupancy expense

 

 

2.0

 

 

 

2.3

 

General and administrative

 

 

2.2

 

 

 

2.3

 

Insurance and claims

 

 

1.5

 

 

 

1.3

 

Depreciation and amortization

 

 

4.6

 

 

 

5.1

 

Total operating expenses

 

 

92.5

 

 

 

93.7

 

Income from operations

 

 

7.5

 

 

 

6.3

 

Interest and other non-operating expense, net

 

 

(0.5

)

 

 

(2.1

)

Income before income taxes

 

 

7.0

 

 

 

4.2

 

Income tax expense

 

 

1.8

 

 

 

1.0

 

Net income

 

 

5.2

%

 

 

3.2

%

 

20


 

Thirteen Weeks Ended April 3, 2021 Compared to Thirteen Weeks Ended April 4, 2020

 

Operating revenues. Operating revenues for the thirteen weeks ended April 3, 2021 increased $33.1 million, or 8.7%, to $415.2 million from $382.2 million for the thirteen weeks ended April 4, 2020. Included in operating revenues are separately-identified fuel surcharges of $20.2 million for the thirteen weeks ended April 3, 2021 compared to $23.1 million for the thirteen weeks ended April 4, 2020. Consolidated income from operations increased $7.2 million, or 30.3%, to $31.2 million for the first quarter 2021 compared to $23.9 million during the same period last year.

 

In the contract logistics segment, which includes value-added and dedicated services, operating revenues increased $27.9 million, or 21.9%, to $154.9 million in the first quarter 2021 compared to $127.0 million in the previous year. Income from operations in the contract logistics segment increased $5.1 million, or 43.9%, to $16.8 million for the thirteen weeks ended April 3, 2021 compared to $11.7 million in the same period last year. The improved performance was due to the successful launch of new business wins and robust volumes at current operations. In the first quarter of 2021, Universal managed 60 value-added programs compared to 56 in the prior year period. During the recently completed quarter, dedicated transportation load count increased 12.1% to 156,375 from 139,515 in the first quarter 2020.

 

In the intermodal segment, operating revenues decreased $6.6 million to $103.7 million in the first quarter 2021 compared to $110.3 million in the previous year. Intermodal revenues for the thirteen weeks ended April 3, 2021 included $10.2 million in separately identified fuel surcharges, compared to $13.6 million in the same period last year. During the first quarter 2021, Universal moved 179,905 intermodal loads compared to 197,783 in the first quarter 2020, a decrease of 9.0%, while its average operating revenue per load, excluding fuel surcharges decreased 6.5% to $461 from $493. These decreases were partially offset by increases in accessorial and other non-line haul charges during the recently ended quarter. Income from operations in the intermodal segment decreased $0.5 million to $8.5 million for the thirteen weeks ended April 3, 2021 compared to $9.0 million in the first quarter 2020. As a percentage of revenue, operating margin in the intermodal segment was unchanged at 8.2% during both the first quarters of 2021 and 2020.

 

In the trucking segment, which includes agent-based and company-managed trucking operations, operating revenues increased $3.3 million to $94.9 million in the first quarter 2021 compared to $91.6 million in the prior year period. Included in trucking segment revenues for the first quarter 2021 were $5.1 million in separately identified fuel surcharges compared to $6.0 million during the first quarter 2020. Income from operations in the trucking segment increased $0.7 million to $5.2 million for the first quarter 2021 compared to $4.5 million in the same period last year. During the recently completed quarter, Universal’s average operating revenue per load, excluding fuel surcharges, increased 7.1% to $1,246 from $1,163 in the prior year period; however, this increase was partially offset by a 4.6% decrease in load volumes.  During the first quarter 2021, Universal moved 72,744 loads compared to 76,216 during the same period last year.

 

In the company-managed brokerage segment, operating revenues increased $8.3 million, or 15.8%, to $61.1 million in the thirteen weeks ending April 3, 2021 compared to $52.8 million in the thirteen weeks ending April 4, 2020. During the recently completed quarter, the average operating revenue per load, excluding fuel surcharges, increased 42.4% to $1,737 from $1,220 in the first quarter 2020; however, load volumes fell 20.8% to 32,885 from 41,523. As a percentage of revenue, operating margin for the company-managed brokerage segment was 0.7% for the first quarter 2021 compared to (2.6%) in the same period last year.

 

Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the first quarter 2021 increased $8.5 million, or 4.7%, to $189.3 million from $180.9 million during the same period last year. Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers.  The increases or decreases are generally correlated with changes in demand for transportation-related services, which includes truckload, brokerage, intermodal and to a lesser extent, dedicated services, which uses a higher mix of company-drivers compared to owner-operators. The absolute increase in purchased transportation and equipment rental costs was primarily the result of an overall increase in transportation-related services. First quarter 2021 transportation-related service revenues increased 7.5% compared to the first quarter of 2020. As a percentage of operating revenues, purchased transportation and equipment rent expense decreased to 45.6% compared to 47.3% during the same period last year due to a decrease in the mix of transportation-related service revenue. As a percentage of total revenues, transportation-related service revenue decreased to 74.2% for 2021 compared to 75.0% in the same period last year.

 

21


 

Direct personnel and related benefits. Direct personnel and related benefits for the thirteen weeks ended April 3, 2021 increased by $10.2 million, or 10.4%, to $107.6 million compared to $97.4 million during the same period last year. Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase and decrease with the level of demand for our staffing needs in our contract logistics segment, which includes value-added services and dedicated transportation. The increase was due to the launch of new business wins and robust volumes experienced during the current quarter. As a percentage of operating revenues, personnel and related benefits increased to 25.9% for the thirteen weeks ended April 3, 2021, compared to 25.5% for the thirteen weeks ended April 4, 2020. The percentage is derived on an aggregate basis from both existing and new programs, and from customer operations at various stages in their lifecycles. Individual operations may be impacted by additional production shifts or by overtime at selected operations. While generalizations about the impact of personnel and related benefits costs as a percentage of total revenue are difficult, we manage compensation and staffing levels, including the use of contract labor, to maintain target economics based on near-term projections of demand for our services.

 

Operating supplies and expenses. Operating supplies and expenses increased by $6.4 million, or 20.8%, to $37.1 million for the thirteen weeks ended April 3, 2021 compared to $30.7 million for the thirteen weeks ended April 4, 2020. These expenses include items such as fuel, maintenance, cost of materials, communications, utilities and other operating expenses, and generally relate to fluctuations in customer demand. The main elements driving the change included increases of $3.7 million in operating supplies and material costs in operations supporting heavy-truck programs, $1.3 million in professional fees, and $1.2 million in vehicle and other maintenance.

 

Commission expense. Commission expense for the first quarter 2021 increased by $0.2 million, or 2.1%, to $7.3 million from $7.2 million for the first quarter 2020. Commission expense increased due to increased revenue in the agency based truckload business. As a percentage of operating revenues, commission expense decreased to 1.8% for the thirteen weeks ending April 3, 2021, compared to 1.9% one year earlier.

 

Occupancy expense. Occupancy expenses decreased by $0.7 million, or 7.4%, to $8.2 million for the thirteen weeks ended April 3, 2021. This compares to $8.8 million for the thirteen weeks ended April 4, 2020. The decrease was primarily attributable to a decrease in building rents as we consolidated facilities for certain value-added programs.

 

General and administrative. General and administrative expense for the thirteen weeks ended April 3, 2021 increased by $0.3 million to $9.2 million from $8.9 million in the thirteen weeks ended April 4, 2020. The increase was attributable to a $0.4 million increase in salaries, wages, and benefits and a $0.4 million increase in professional fees. These increases were partially offset by a $0.5 million decrease in other general and administrative expenses.  As a percentage of operating revenues, general and administrative expense was 2.2% for the first quarter 2021 compared to 2.3% for the first quarter 2020.

 

Insurance and claims. Insurance and claims expense for the first quarter 2021 increased by $1.5 million to $6.3 million from $4.9 million in the first quarter 2020. As a percentage of operating revenues, insurance and claims increased to 1.5% for the thirteen weeks ending April 3, 2021 compared to 1.3% for the first quarter 2020. The increase was attributable to a $1.5 million increase in cargo and service failure claims.

 

Depreciation and amortization. Depreciation and amortization expense for the thirteen weeks ended April 3, 2021 decreased by $0.4 million, or 2.2%, to $19.1 million from $19.5 million for 2020. Depreciation expense increased $0.2 million and amortization expense decreased $0.6 million.  

 

Interest expense, net. Net interest expense was $3.2 million for the thirteen weeks ended April 3, 2021 compared to $4.2 million for the thirteen weeks ended April 4, 2020. The decrease in net interest expense reflects a decrease in our outstanding borrowings as well as a decrease in interest rates on our outstanding borrowings. As of April 4, 2021, our outstanding borrowings totaled $430.5 million compared to $480.8 million at the same time last year.

 

Other non-operating income (expense). Other non-operating income was $1.0 million for the first quarter 2021 compared to $3.6 million of other non-operating expense for the first quarter 2020. Other non-operating income for the first quarter 2021 includes a $0.9 million pre-tax holding gain on marketable securities due to changes in fair value recognized in income compared to a pre-tax holding loss of $3.4 million in the first quarter 2020.

 

Income tax expense. Income tax expense for the first quarter 2021 was $7.3 million, compared to $3.9 million for the first quarter 2020, based on an effective tax rate of 25.3% and 24.4% respectively. The increase in income taxes in 2021 is the result of an increase in taxable income and our effective tax rate for the thirteen weeks ended April 3, 2021 compared to the thirteen weeks ended April 4, 2020.  

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Liquidity and Capital Resources

Our primary sources of liquidity are funds generated by operations, loans and extensions of credit under our credit facilities, on margin against our marketable securities and from installment notes, and proceeds from the sales of marketable securities. We use secured, asset lending to fund a substantial portion of purchases of tractors, trailers and material handling equipment.

We employ an asset-light operating strategy which we believe lowers our capital expenditure requirements. In general, our facilities used in our value-added services are leased on terms that are either substantially matched to our customer’s contracts, are month-to-month or are provided to us by our customers. We also utilize owner-operators and third-party carriers to provide a significant portion of our transportation and specialized services. A significant portion of the tractors and trailers used in our business are provided by our owner-operators. In addition, our use of agents reduces our overall need for large terminals. As a result, our capital expenditure requirements are limited in comparison to most large transportation and logistics service providers, which maintain significant properties and sizable fleets of owned tractors and trailers.

During the thirteen weeks ended April 3, 2021, our capital expenditures totaled $4.9 million. These expenditures primarily consisted of transportation equipment and investments in support of our value-added service operations. Our asset-light business model depends somewhat on the customized solutions we implement for specific customers.  As a result, our capital expenditures will depend on specific new contracts and the overall age and condition of our owned transportation equipment. Through the remainder of 2021, exclusive of any acquisitions of businesses and strategic real estate purchases, we expect our capital expenditures to be in the range of 5% to 6% of operating revenues. We expect to make these capital expenditures for the acquisition of transportation equipment, to support our new and existing value-added service operations, and for improvements to our existing terminal yard and container facilities.

We have a cash dividend policy that anticipates a regular dividend of $0.42 per share of common stock, payable in quarterly increments of $0.105 per share of common stock.  After taking into account the regular quarterly dividends made during the year, our Board of Directors also evaluates the potential declaration of an annual special dividend payable in the first quarter of each year.  The Board of Directors did not declare a special dividend in the first quarter of 2021.  On April 29, 2021, our Board of Directors did declare the regular quarterly cash dividend of $0.105 per share of common stock payable July 6, 2021 to shareholders of record at the close of business June 7, 2021. During the first half of 2020, our Board of Directors temporarily suspended the Company’s cash dividend policy due to the uncertainty caused by the Covid-19 pandemic.  The policy has since been reinstated. During the year ended December 31, 2020, we paid a total of $0.21 per common share, or $5.7 million.  Future dividend policy and the payment of dividends, if any, will be determined by the Board of Directors in light of circumstances then existing, including our earnings, financial condition and other factors deemed relevant by the Board of Directors.

While operating cash flows may be negatively impacted by a prolonged pandemic, the Company believes we will be able to finance our near term needs for working capital over the next twelve months, as well as any planned capital expenditures during such period, with cash balances, cash flows from operations, and loans and extensions of credit under our credit facilities and on margin against our marketable securities. Should the impact of the COVID-19 pandemic last longer than anticipated, and/or our cash flow from operations decline more than expected, we may need to obtain additional financing. The Company’s ability to fund future operating expenses and capital expenditures, as well as its ability to meet future debt service obligations or refinance indebtedness will depend on future operating performance, which will be affected by general economic, financial, and other factors beyond our control.

We continue to evaluate business development opportunities, including potential acquisitions that fit our strategic plans. There can be no assurance that we will identify any opportunities that fit our strategic plans or will be able to execute any such opportunities on terms acceptable to us.  Depending on prospective consideration to be paid for an acquisition, any such opportunities would be financed first from available cash and cash equivalents and availability of borrowings under our credit facilities.

Revolving Credit, Promissory Notes and Term Loan Agreements

Our secured credit facility (the “Credit Facility”) provides for maximum borrowings of $350 million in the form of a $150 million term loan and a $200 million revolver at a variable rate of interest based on LIBOR or a base rate and matures on November 26, 2023. The Credit Facility, which is secured by cash, deposits, accounts receivable, and selected other assets of the applicable borrowers, 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. Our Credit Facility includes an accordion feature which allows us to increase availability by up to $100 million upon our request.  At April 3, 2021, we were in compliance with all covenants under the Credit Facility, and $67.5 million was available for borrowing.

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A wholly-owned subsidiary issued a series of promissory notes in order to finance transportation equipment (the “Equipment Financing”). The notes issued in connection with the Equipment Financing, which are secured by liens on specific titled vehicles, include certain affirmative and negative covenants, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25% to 5.13%.

A wholly-owned subsidiary issued a series of promissory notes in order to finance certain purchases of real property (the “Real Estate Financing”). 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 variable rates ranging from LIBOR plus 1.85% to LIBOR plus 2.25%. At April 3, 2021, we were in compliance with all covenants.  

We also maintain a short-term line of credit secured by our portfolio of marketable securities (the “Margin Facility”). It bears interest at LIBOR plus 1.10%. The amount available under the Margin Facility is based on a percentage of the market value of the underlying securities. We did not have any amounts advanced against the line as of April 3, 2021, and the maximum available borrowings were $4.2 million.

Discussion of Cash Flows

 

At April 3, 2021, we had cash and cash equivalents of $10.8 million compared to $8.8 million at December 31, 2020.  Operating activities provided $43.1 million in net cash, and we used $36.9 million in financing activities and $4.2 million in investing activities.  

 

The $43.1 million in net cash provided by operations was primarily attributed to $21.7 million of net income, which reflects non-cash depreciation and amortization, noncash lease expense, gain on marketable equity securities, gains on equipment sales, amortization of debt issuance costs, stock-based compensation, and provisions for doubtful accounts totaling $26.1 million, net.  Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $4.7 million.   The primary drivers behind the increase in working capital were principal reductions in operating lease liabilities during the period, an increase in trade and other accounts receivable, and decreases in income taxes payable and other long-term liabilities. These were partially offset by increases in accruals for insurance and claims, trade accounts payable, accrued expenses and other current liabilities, and a decrease in prepaid expenses and other assets. Affiliate transactions increased net cash provided by operating activities by $0.2 million due to an increase in accounts payable to affiliates.

 

The $4.2 million in net cash used in investing activities consisted of $4.9 million in capital expenditures and $0.1 million in marketable securities purchases.  These uses were partially offset by $0.8 million in proceeds from the sale of equipment and $0.1 million in proceeds from the sale of marketable securities.  

 

We used $36.9 million in financing activities during the thirteen weeks ended April 3, 2021. During the period we paid cash dividends of $5.7 million.  We had outstanding borrowings totaling $430.5 million at April 3, 2021 compared to $461.7 million at December 31, 2020.  During the period we made net repayments on our revolving lines of credit totaling $18.8 million and term loan, and equipment and real estate note payments totaling $15.4 million.  We also borrowed $3.0 million for new equipment during the period.  

Off Balance Sheet Arrangements

None.

Critical Accounting Policies

 

A summary of critical accounting policies is presented in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies," of our Form 10-K for the year ended December 31, 2020. There have been no changes in our accounting policies during the thirteen weeks ended April 3, 2021.  

Seasonality

 

Generally, demand for our value-added services delivered to existing customers increases during the second calendar quarter of each year as a result of the automotive industry’s spring selling season. Conversely, such demand generally decreases during the third quarter of each year due to the impact of scheduled OEM customer plant shutdowns in July for vacations and changeovers in production lines for new model years.

 

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Our value-added services business is also impacted in the fourth quarter by plant shutdowns during the December holiday period. However, due to the COVID-19 pandemic and its impact on North American automotive manufacturing, we may not experience normal seasonal demand for our services supporting the automotive production and selling cycles during the current year.

 

Our transportation services business is generally impacted by decreased activity during the post-holiday winter season and, in certain states, during hurricane season. At these times, some shippers reduce their shipments, and inclement weather impedes trucking operations or underlying customer demand.

 

Prolonged adverse weather conditions, particularly in winter months, can also adversely impact margins due to productivity declines and related challenges meeting customer service requirements.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have not been any material changes to the Company’s market risk during the thirteen weeks ended April 3, 2021. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of April 3, 2021. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives of ensuring that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures, and is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. There is no assurance that our disclosure controls and procedures will operate effectively under all circumstances.

In connection with the preparation of our consolidated financial statements for the year ended December 31, 2020, we concluded there was a material weakness in our internal control over financial reporting resulting from the absence of formalized policies and controls designed to identify the status of and any modifications to our existing facility lease obligations. As discussed below, we are taking steps to remediate this material weakness in internal control over financial reporting; however, we are not yet able to determine whether the steps we are taking will fully remediate the material weakness.

Because of the material weakness in our internal control over financial reporting as previously disclosed, our Chief Executive Officer and Chief Financial Officer concluded that, as of April 3, 2021, our disclosure controls and procedures were not effective at the reasonable assurance level. Our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that, notwithstanding the material weakness in our internal control over financial reporting, the condensed consolidated financial statements in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.

Management’s Remediation Efforts

Starting in 2021, we commenced measures to remediate the identified material weakness. Those remediation measures are ongoing and include the following:

 

Formally assessing our applicable policies and improving our procedures for the review of our existing facility leases, the approval of modifications to or extensions of such leases, and the authority for approval of entry into new facility leases;

 

modifying our applicable policies and improving our procedures to include not less than a quarterly review of all existing facility leases to confirm the status of their respective terms and their anticipated dates of expiration, extension, or renewal; and

 

modifying our policies and improving our procedures by requiring dual signatures on all new real property lease agreements or amendments to existing leases.

While we believe that these efforts will improve our internal control over financial reporting, the implementation of these measures is ongoing and will require validation and testing of the design and operating effectiveness of internal controls over a sustained period of financial reporting cycles.

25


 

We believe we are making progress toward achieving the effectiveness of our internal controls and disclosure controls. The actions that we are taking are subject to ongoing senior management review, as well as audit committee oversight. We will not be able to conclude whether the steps we are taking will fully remediate the material weakness in our internal control over financial reporting until we have completed our remediation efforts and subsequent evaluation of their effectiveness. We may also conclude that additional measures may be required to remediate the material weakness in our internal control over financial reporting, which may necessitate additional implementation and evaluation time. We will continue to assess the effectiveness of our internal control over financial reporting and take steps to remediate the known material weaknesses expeditiously.

Changes in Internal Control over Financial Reporting

We are taking actions to remediate the material weakness relating to our internal controls over financial reporting, as described above. Except as otherwise described herein, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The Company is involved in certain other claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. Based on the knowledge of the facts, and in certain cases, opinions of outside counsel, in the Company’s opinion the resolution of these claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows.

ITEM 1A: RISK FACTORS

Except as noted below, there have been no material changes to our risk factors as previously disclosed in Item 1A to Part 1 of our Form 10-K for the fiscal year ended December 31, 2020.

A determination that independent contractors are employees could expose us to various liabilities and additional costs.

Federal and state legislation, as well as tax and other regulatory authorities, often seek to assert that independent contractors in the transportation service industry are employees rather than independent contractors. An example of such legislation, recently enacted in California, had been under a judicial stay with respect to trucking companies while a legal challenge to the law is pending; however, the judicial stay was reversed by a Ninth Circuit panel on April 28, 2021. While the panel’s decision may be subject to a petition for rehearing, there can be no assurance that the California law will not be enforceable against trucking companies in the near future or that interpretations supporting the independent contractor status will not change, that other federal or state legislation will not be enacted, or that various authorities will not successfully assert a position that re-classifies independent contractors to be employees. If our independent contractors are determined to be our employees, that determination could materially increase our exposure under a variety of federal and state tax, workers’ compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits. In addition, such changes may be applied retroactively, and if so, we may be required to pay additional amounts to compensate for prior periods. Any of the above increased costs would adversely affect our business and operating results.

We are subject to certain risks arising from doing business in Mexico.

As we continue to grow our business in Mexico, we are subject to greater risks of doing business internationally, including but not limited to the following:

 

Fluctuations in foreign currencies;

 

changes in the economic strength of Mexico;

 

difficulties in enforcing contractual obligations and intellectual property rights;

 

burdens of complying with a wide variety of international and U.S. export and import laws; and

 

social, political, and economic instability.

We also face additional risks associated with our business in Mexico, including but not limited to the following:

 

Changes in Mexican law that would prohibit the hiring of outsourced personnel except under specified circumstances;

 

any change in Mexican law that materially modifies the calculation of an employer’s profit-sharing payments to employees;

 

the adoption and enforcement of restrictive trade policies;

 

the imposition of any import or export tariffs, taxes, duties, or fees; and

 

potential disruptions or delays at border crossings due to immigration-related issues or other factors.

If we are unable to address business concerns related to our Mexican operations in a timely and cost-efficient manner, our financial position, results of operations, or cash flows could be adversely affected.

27


 

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

None.

 

 

28


 

ITEM 6: EXHIBITS

The exhibits listed on the Exhibit Index are furnished as part of this quarterly report on Form 10-Q.

 

Exhibit
No.

 

Description

 

 

 

3.1

 

Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed on November 15, 2004)

 

 

 

3.2

 

Amendment to Articles of Incorporation (incorporated by reference to Exhibit 3(i)-1 and 3(i)-2 to the Registrant’s Current Report on Form 8-K filed on November 1, 2012)

 

 

 

3.3

 

Certificate of Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 2, 2016)

 

 

 

3.4

 

Fifth Amended and Restated Bylaws, effective December 13, 2019 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on December 16, 2019)

 

 

 

4.1

 

Amended and Restated Registration Rights Agreement among the Registrant, Matthew T. Moroun, the Manuel J. Moroun Revocable Trust and the M.J. Moroun 2012 Annuity Trust (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed July 26, 2012)

 

 

 

31.1*

 

Chief Executive Officer certification, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2*

 

Chief Financial Officer certification, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1**

 

Chief Executive Officer and Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS*

 

Inline XBRL Instance Document

 

 

 

101.SCH*

 

Inline XBRL Schema Document

 

 

 

101.CAL*

 

Inline XBRL Calculation Linkbase Document

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB*

 

Inline XBRL Labels Linkbase Document

 

 

 

101.PRE*

 

Inline XBRL Presentation Linkbase Document

 

 

 

104*

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

*

Filed herewith.

**

Furnished herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

 

 

Universal Logistics Holdings, Inc.

 

 

 

 

 

 

(Registrant)

 

 

 

 

Date: May 13, 2021

 

 

 

By:

 

/s/ Tim Phillips

 

 

 

 

 

 

Tim Phillips

Chief Executive Officer

 

 

 

 

Date: May 13, 2021

 

 

 

By:

 

/s/ Jude Beres

 

 

 

 

 

 

Jude Beres

Chief Financial Officer

 

 

30