ulh-10q_20200404.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 4, 2020

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 11, 2020, was 26,918,830.


PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

 

UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

April 4,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,995

 

 

$

7,726

 

Marketable securities

 

 

6,320

 

 

 

9,369

 

Accounts receivable – net of allowance for doubtful accounts of $3,044

   and $2,545, respectively

 

 

219,229

 

 

 

210,534

 

Other receivables

 

 

18,395

 

 

 

19,065

 

Prepaid expenses and other

 

 

21,216

 

 

 

19,676

 

Due from affiliates

 

 

2,838

 

 

 

1,705

 

Prepaid income taxes

 

 

-

 

 

 

3,768

 

Total current assets

 

 

275,993

 

 

 

271,843

 

Property and equipment – net of accumulated depreciation of $277,743 and

   $270,062, respectively

 

 

355,381

 

 

 

339,823

 

Operating lease right-of-use asset

 

 

90,805

 

 

 

87,209

 

Goodwill

 

 

170,039

 

 

 

168,451

 

Intangible assets – net of accumulated amortization of $82,442 and $78,366, respectively

 

 

112,035

 

 

 

116,111

 

Deferred income taxes

 

 

1,412

 

 

 

1,460

 

Other assets

 

 

2,790

 

 

 

3,100

 

Total assets

 

$

1,008,455

 

 

$

987,997

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

88,801

 

 

$

91,909

 

Current portion of long-term debt

 

 

57,904

 

 

 

59,476

 

Current portion of operating lease liabilities

 

 

25,638

 

 

 

27,484

 

Accrued expenses and other current liabilities

 

 

25,634

 

 

 

34,825

 

Insurance and claims

 

 

22,874

 

 

 

23,039

 

Due to affiliates

 

 

21,483

 

 

 

14,842

 

Income taxes payable

 

 

1,260

 

 

 

-

 

Total current liabilities

 

 

243,594

 

 

 

251,575

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Long-term debt, net of current portion

 

 

420,877

 

 

 

398,136

 

Operating lease liabilities, net of current portion

 

 

63,860

 

 

 

61,674

 

Deferred income taxes

 

 

65,892

 

 

 

65,692

 

Other long-term liabilities

 

 

5,569

 

 

 

5,703

 

Total long-term liabilities

 

 

556,198

 

 

 

531,205

 

Shareholders' equity:

 

 

 

 

 

 

 

 

Common stock, no par value. Authorized 100,000,000 shares; 30,979,827 and

   30,970,452 shares issued; 26,925,201 and 27,282,230 shares outstanding,

   respectively

 

 

30,981

 

 

 

30,972

 

Paid-in capital

 

 

4,484

 

 

 

4,298

 

Treasury stock, at cost; 4,054,626 and 3,688,222 shares, respectively

 

 

(82,166

)

 

 

(77,247

)

Retained earnings

 

 

260,502

 

 

 

251,204

 

Accumulated other comprehensive income (loss):

 

 

 

 

 

 

 

 

Interest rate swaps, net of income taxes of $(167) and $(32), respectively

 

 

(553

)

 

 

(105

)

Foreign currency translation adjustments

 

 

(4,585

)

 

 

(3,905

)

Total shareholders’ equity

 

 

208,663

 

 

 

205,217

 

Total liabilities and shareholders’ equity

 

$

1,008,455

 

 

$

987,997

 

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 4,

2020

 

 

March 30,

2019

 

Operating revenues:

 

 

 

 

 

 

 

 

Truckload services

 

$

58,898

 

 

$

65,671

 

Brokerage services

 

 

85,900

 

 

 

85,867

 

Intermodal services

 

 

110,322

 

 

 

91,168

 

Dedicated services

 

 

31,579

 

 

 

37,021

 

Value-added services

 

 

95,463

 

 

 

97,679

 

Total operating revenues

 

 

382,162

 

 

 

377,406

 

Operating expenses:

 

 

 

 

 

 

 

 

Purchased transportation and equipment rent

 

 

180,856

 

 

 

177,325

 

Direct personnel and related benefits

 

 

97,388

 

 

 

93,167

 

Operating supplies and expenses

 

 

30,695

 

 

 

30,770

 

Commission expense

 

 

7,170

 

 

 

7,836

 

Occupancy expense

 

 

8,831

 

 

 

9,284

 

General and administrative

 

 

8,924

 

 

 

9,241

 

Insurance and claims

 

 

4,872

 

 

 

6,352

 

Depreciation and amortization

 

 

19,518

 

 

 

16,918

 

Total operating expenses

 

 

358,254

 

 

 

350,893

 

Income from operations

 

 

23,908

 

 

 

26,513

 

Interest income

 

 

8

 

 

 

22

 

Interest expense

 

 

(4,217

)

 

 

(4,391

)

Other non-operating income (expense)

 

 

(3,605

)

 

 

953

 

Income before income taxes

 

 

16,094

 

 

 

23,097

 

Income tax expense

 

 

3,931

 

 

 

5,800

 

Net income

 

$

12,163

 

 

$

17,297

 

Earnings per common share:

 

 

 

 

 

 

 

 

Basic

 

$

0.45

 

 

$

0.61

 

Diluted

 

$

0.45

 

 

$

0.61

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

27,223

 

 

 

28,380

 

Diluted

 

 

27,223

 

 

 

28,381

 

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 4,

2020

 

 

March 30,

2019

 

Net Income

 

$

12,163

 

 

$

17,297

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Unrealized changes in fair value of interest rate swaps,

   net of income taxes of $(135) and $(44), respectively

 

 

(448

)

 

 

(143

)

Foreign currency translation adjustments

 

 

(680

)

 

 

229

 

Total other comprehensive income (loss)

 

 

(1,128

)

 

 

86

 

Total comprehensive income

 

$

11,035

 

 

$

17,383

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to consolidated financial statements.

 

 

4


UNIVERSAL LOGISTICS HOLDINGS, INC.

Unaudited Consolidated Statements of Cash Flows

(In thousands)

 

 

Thirteen Weeks Ended

 

 

 

April 4,

2020

 

 

March 30,

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

12,163

 

 

$

17,297

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

19,518

 

 

 

16,918

 

Noncash lease expense

 

 

7,555

 

 

 

7,103

 

Loss (gain) on marketable equity securities

 

 

3,409

 

 

 

(875

)

Gain on disposal of property and equipment

 

 

(506

)

 

 

(24

)

Amortization of debt issuance costs

 

 

146

 

 

 

147

 

Stock-based compensation

 

 

195

 

 

 

73

 

Provision for doubtful accounts

 

 

1,048

 

 

 

507

 

Deferred income taxes

 

 

(1,202

)

 

 

(3,240

)

Change in assets and liabilities:

 

 

 

 

 

 

 

 

Trade and other accounts receivable

 

 

(11,947

)

 

 

(1,752

)

Prepaid income taxes, prepaid expenses and other assets

 

 

2,404

 

 

 

1,810

 

Principal reduction in operating lease liabilities

 

 

(7,258

)

 

 

(6,692

)

Accounts payable, accrued expenses and other current liabilities, insurance

   and claims, and income taxes payable

 

 

(5,147

)

 

 

21,926

 

Due to/from affiliates, net

 

 

5,507

 

 

 

(4,497

)

Other long-term liabilities

 

 

(719

)

 

 

(935

)

Net cash provided by operating activities

 

 

25,166

 

 

 

47,766

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(32,775

)

 

 

(10,790

)

Proceeds from the sale of property and equipment

 

 

2,282

 

 

 

913

 

Purchases of marketable securities

 

 

(360

)

 

 

 

Acquisition of business

 

 

 

 

 

(427

)

Net cash used in investing activities

 

 

(30,853

)

 

 

(10,304

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing - revolving debt

 

 

91,200

 

 

 

15,565

 

Repayments of debt - revolving debt

 

 

(84,084

)

 

 

(41,249

)

Proceeds from borrowing - term debt

 

 

29,760

 

 

 

7,979

 

Repayments of debt - term debt

 

 

(15,853

)

 

 

(12,728

)

Borrowings under margin account

 

 

256

 

 

 

 

Repayments under margin account

 

 

(256

)

 

 

(541

)

Dividends paid

 

 

(5,731

)

 

 

(6,101

)

Purchases of treasury stock

 

 

(4,919

)

 

 

 

Net cash provided by (used in) financing activities

 

 

10,373

 

 

 

(37,075

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(4,417

)

 

 

222

 

Net increase in cash

 

 

269

 

 

 

609

 

Cash  and cash equivalents – beginning of period

 

 

7,726

 

 

 

5,727

 

Cash and cash equivalents – end of period

 

$

7,995

 

 

$

6,336

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,157

 

 

$

4,091

 

Cash paid for income taxes

 

$

55

 

 

$

769

 

Acquisition of business:

 

 

 

 

 

 

 

 

Payment of acquisition obligations

 

 

 

 

 

427

 

Net cash paid for acquisition of business

 

$

-

 

 

$

427

 

 

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, 2018

 

$

30,967

 

 

$

4,230

 

 

$

(52,462

)

 

$

231,525

 

 

$

(4,961

)

 

$

209,299

 

Net income

 

 

 

 

 

 

 

 

 

 

 

17,297

 

 

 

 

 

 

17,297

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

86

 

 

 

86

 

Dividends paid ($0.215 per share)

 

 

 

 

 

 

 

 

 

 

 

(6,101

)

 

 

 

 

 

(6,101

)

Stock based compensation

 

 

5

 

 

 

68

 

 

 

 

 

 

 

 

 

 

 

 

73

 

Purchases of treasury stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances – March 30, 2019

 

$

30,972

 

 

$

4,298

 

 

$

(52,462

)

 

$

242,721

 

 

$

(4,875

)

 

$

220,654

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

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

 

(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 December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes.” The ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The ASU also clarifies and amends existing guidance to improve consistent application among reporting entities. This ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within that reporting period; however, early adoption is permitted. We are currently evaluating the impact of this standard on our consolidated financial statements.

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, and is not expected to have a material impact on our consolidated financial statements.

 


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.

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

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

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

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

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

Value-added services, which are typically dedicated to individual customer requirements, include material handling, consolidation, sequencing, sub-assembly, cross-dock services, kitting, repacking, warehousing and returnable container management.  Value-added revenues are substantially driven by the level of demand for outsourced logistics services. Major factors that affect value-added service revenue 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 4,

2020

 

 

December 31,

2019

 

Prepaid expenses and other - contract assets

 

$

1,802

 

 

$

1,156

 

 

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 of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income (expense).

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

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

 

 

 

April 4,

2020

 

 

December 31,

2019

 

Fair value

 

$

6,320

 

 

$

9,369

 

Cost

 

 

9,729

 

 

 

8,136

 

Unrealized gain (loss)

 

$

(3,409

)

 

$

1,233

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

April 4,

2020

 

 

December 31,

2019

 

Gross unrealized gains

 

$

 

 

$

1,337

 

Gross unrealized losses

 

 

(3,409

)

 

 

(104

)

Net unrealized gains (losses)

 

$

(3,409

)

 

$

1,233

 

 

 

 

 

 

 

 

 

 

 

The Company did not sell marketable equity securities during either of the thirteen-week periods ended April 4, 2020 or March 30, 2019.

During the thirteen-week periods ended April 4, 2020 and March 30, 2019, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $(3,400,000) and $875,000, respectively, which was reported in other non-operating income (expense) for the period.

 

(5)

Goodwill

The changes in the carrying amount of goodwill during the thirteen weeks ended April 4, 2020 are as follows:

 

Balance as of January 1, 2020

 

$

168,451

 

Purchase accounting adjustments

 

 

1,588

 

Balance as of April 4, 2020

 

$

170,039

 

 

 

 

 

 

 

During the thirteen weeks ended April 4, 2020, the Company made purchase accounting adjustments to the preliminary purchase price allocation of the Company’s April 22, 2019 acquisition of Michael’s Cartage.  The adjustments resulted in an increase in goodwill of $1.6 million, with an offsetting increase in current liabilities of $0.1 million and a decrease in other assets of $1.5 million.  

At April 4, 2020 and December 31, 2019, $113.7 million and $112.2 million of goodwill was recorded in our transportation segment, respectively.  At both April 4, 2020 and December 31, 2019, $56.3 million of goodwill was recorded in our logistics segment.

 

 

9


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(6)

Accrued Expenses and Other Current Liabilities

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

 

 

 

April 4,

2020

 

 

December 31,

2019

 

 

 

 

 

 

 

 

 

 

Payroll related items

 

$

11,352

 

 

$

14,390

 

Driver escrow liabilities

 

 

5,368

 

 

 

5,249

 

Commissions, taxes and other

 

 

8,914

 

 

 

8,238

 

Legal settlements

 

 

-

 

 

 

6,948

 

Total

 

$

25,634

 

 

$

34,825

 

 

(7)

Debt

Debt is comprised of the following (in thousands):

 

 

 

Interest Rates

at April 4, 2020

 

 

April 4,

2020

 

 

December 31,

2019

 

Outstanding Debt:

 

 

 

 

 

 

 

 

 

 

 

 

Credit and Security Agreement (1)

 

 

 

 

 

 

 

 

 

 

 

 

Term Loan

 

2.74%

 

 

$

139,688

 

 

$

142,500

 

Revolver

 

2.74%

 

 

 

158,341

 

 

 

151,225

 

Equipment Financing (2)

 

2.78% to 5.13%

 

 

 

128,267

 

 

 

128,512

 

Real Estate Financing (3)

 

2.84% to 3.24%

 

 

 

54,456

 

 

 

37,492

 

Margin Facility (4)

 

2.09%

 

 

 

 

 

 

 

Unamortized debt issuance costs

 

 

 

 

 

 

(1,971

)

 

 

(2,117

)

 

 

 

 

 

 

 

478,781

 

 

 

457,612

 

Less current portion of long-term debt

 

 

 

 

 

 

57,904

 

 

 

59,476

 

Total long-term debt, net of current portion

 

 

 

 

 

$

420,877

 

 

$

398,136

 

(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 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 4, 2020, we were in compliance with all covenants under the facility, and $41.7 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 2.78% 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 4, 2020, we were in compliance with all covenants.

10


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(7)

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 4, 2020, the maximum available borrowings under the line of credit were $3.9 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 $14.9 million at April 4, 2020. 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 $4.9 million) and expires in May 2022. At April 4, 2020, the fair value of the swap agreements was a liability of $0.7 million. Since these swap agreements qualify for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. See Note 8 for additional information pertaining to interest rate swaps.

 

(8)

Fair Value Measurements and Disclosures

FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date and expanded disclosures with respect to fair value measurements.

FASB ASC Topic 820 also establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

We have segregated all financial assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date in the tables below (in thousands):

 

 

 

April 4,

2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

30

 

 

$

 

 

$

 

 

$

30

 

Marketable securities

 

 

6,320

 

 

 

 

 

 

 

 

 

6,320

 

Total assets

 

$

6,350

 

 

$

 

 

$

 

 

$

6,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

720

 

 

$

 

 

$

720

 

Total liabilities

 

$

 

 

$

720

 

 

$

 

 

$

720

 

 

11


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(8)

Fair Value Measurements and Disclosures – continued

 

 

 

December 31,

2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value Measurement

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

18

 

 

$

 

 

$

 

 

$

18

 

Marketable securities

 

 

9,369

 

 

 

 

 

 

 

 

 

9,369

 

Total assets

 

$

9,387

 

 

$

 

 

$

 

 

$

9,387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

$

 

 

$

137

 

 

$

 

 

$

137

 

Total liabilities

 

$

 

 

$

137

 

 

$

 

 

$

137

 

 

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 4, 2020 is summarized as follows:

 

 

 

Carrying Value

 

 

Estimated Fair

Value

 

Equipment promissory notes

 

$

128,267

 

 

$

131,499

 

 

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

 

 

(9)

Leases

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

As of April 4, 2020, 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 4, 2020, 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. 

12


UNIVERSAL LOGISTICS HOLDINGS, INC.

Notes to Unaudited Consolidated Financial Statements - Continued

 

(9)

Leases – continued

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 period ended April 4, 2020 and related information (in thousands):

 

 

 

With Affiliates

 

 

With Third

Parties

 

 

Total

 

 

Lease cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease cost

 

$

2,836

 

 

$

5,960

 

 

$

8,796

 

 

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

 

 

$

7,072

 

 

$

10,375