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EX-31.1 - EXHIBIT 31.1 - UNIVERSAL LOGISTICS HOLDINGS, INC.d515643dex311.htm
EX-31.2 - EXHIBIT 31.2 - UNIVERSAL LOGISTICS HOLDINGS, INC.d515643dex312.htm
EXCEL - IDEA: XBRL DOCUMENT - UNIVERSAL LOGISTICS HOLDINGS, INC.Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - UNIVERSAL LOGISTICS HOLDINGS, INC.d515643dex321.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended March 30, 2013

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 TRUCKLOAD SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Michigan   38-3640097

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

12755 E. Nine Mile Road

Warren, Michigan 48089

(Address, including Zip Code of Principal Executive Offices)

(586) 920-0100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of shares of the registrant’s common stock, no par value, outstanding as of April 29, 2013, was 30,053,912.

 

 

 


PART I — FINANCIAL INFORMATION

 

ITEM 1: FINANCIAL STATEMENTS

UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

Assets    March 30,
2013
    December 31,
2012
 

Current assets:

    

Cash and cash equivalents

   $ 4,818      $ 2,554   

Marketable securities

     10,394        9,962   

Accounts receivable – net of allowance for doubtful accounts of $2,610 and $2,515, respectively

     122,315        118,903   

Other receivables

     16,563        16,720   

Due from affiliates

     3,151        3,586   

Prepaid income taxes

     904        1,621   

Prepaid expenses and other

     12,767        10,914   

Deferred income taxes

     4,370        4,878   
  

 

 

   

 

 

 

Total current assets

     175,282        169,138   

Property and equipment – net of accumulated depreciation of $129,374 and $126,736, respectively

     125,866        127,791   

Goodwill

     17,965        17,965   

Intangible assets – net of accumulated amortization of $22,862 and $22,237, respectively

     6,490        7,115   

Other assets

     5,514        5,360   
  

 

 

   

 

 

 

Total assets

   $ 331,117      $ 327,369   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities:

    

Accounts payable

   $ 52,435      $ 55,248   

Due to affiliates

     6,227        4,093   

Accrued expenses and other current liabilities

     18,568        17,130   

Insurance and claims

     27,701        27,246   

Current portion of long-term debt

     1,143        —     
  

 

 

   

 

 

 

Total current liabilities

     106,074        103,717   

Long-term liabilities:

    

Long-term debt

     134,857        146,000   

Deferred income taxes

     16,004        15,599   

Other long-term liabilities

     4,537        4,681   
  

 

 

   

 

 

 

Total long-term liabilities

     155,398        166,280   

Shareholders' equity:

    

Common stock, no par value. Authorized 100,000,000 shares; 30,685,441 shares issued; 30,053,912 shares outstanding

     30,685        30,685   

Paid-in capital

     550        550   

Treasury stock, at cost; 631,529 shares

     (9,316     (9,316

Retained earnings

     45,963        34,589   

Accumulated other comprehensive income:

    

Unrealized holding gain on available-for-sale securities, net of income taxes of $977 and $858, respectively

     1,609        998   

Foreign currency translation adjustments

     154        (134
  

 

 

   

 

 

 

Total shareholders’ equity

     69,645        57,372   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 331,117      $ 327,369   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

2


UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Income

Thirteen Weeks ended March 30, 2013 and March 31, 2012

(In thousands, except per share data)

 

     2013     2012  

Operating revenues:

    

Transportation services

   $ 166,927      $ 185,390   

Value-added services

     47,770        45,258   

Intermodal services

     33,412        25,344   
  

 

 

   

 

 

 

Total operating revenues

     248,109        255,992   
  

 

 

   

 

 

 

Operating expenses:

    

Purchased transportation and equipment rent

     134,514        145,091   

Direct personnel and related benefits

     43,347        43,156   

Commission expense

     9,335        10,241   

Operating expenses (exclusive of items shown seperately)

     19,160        17,736   

Occupancy expense

     4,962        4,984   

Selling, general, and administrative

     7,802        7,438   

Insurance and claims

     4,678        5,498   

Depreciation and amortization

     5,060        4,453   
  

 

 

   

 

 

 

Total operating expenses

     228,858        238,597   
  

 

 

   

 

 

 

Income from operations

     19,251        17,395   

Interest income

     24        25   

Interest expense

     (1,126     (821

Other non-operating income

     134        504   
  

 

 

   

 

 

 

Income before provision for income taxes

     18,283        17,103   

Provision for income taxes

     6,909        2,664   
  

 

 

   

 

 

 

Net income

   $ 11,374      $ 14,439   
  

 

 

   

 

 

 

Earnings per common share:

    

Basic

   $ 0.38      $ 0.48   

Diluted

   $ 0.38      $ 0.48   

Weighted average number of common shares outstanding:

    

Basic

     30,054        30,065   

Diluted

     30,196        30,065   

Pre-merger dividends declared common share

   $ —        $ 1.00   
  

 

 

   

 

 

 

Pro Forma earnings per common share – “C” corporation status (unaudited):

    

Pro Forma provision for income taxes due to LINC Logistics Company conversion to “C” corporation

   $ —        $ 4,003   

Earnings per common share:

    

Basic

   $ 0.38      $ 0.35   

Diluted

   $ 0.38      $ 0.35   

See accompanying notes to consolidated financial statements.

 

3


UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Comprehensive Income

Thirteen Weeks ended March 30, 2013 and March 31, 2012

(In thousands)

 

     2013     2012  

Net Income

   $ 11,374      $ 14,439   

Other comprehensive income:

    

Unrealized holding gains on available-for-sale investments arising during the period, net of income taxes

     643        799   

Realized gains on available-for-sale investments reclassified into income, net of income taxes

     (32     (220

Foreign currency translation adjustments

     288        277   
  

 

 

   

 

 

 

Net gain recognized in other comprehensive income

     899        856   
  

 

 

   

 

 

 

Total comprehensive income

   $ 12,273      $ 15,295   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

4


UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Cash Flows

Thirteen Weeks ended March 30, 2013 and March 31, 2012

(In thousands)

 

     2013     2012  

Cash flows from operating activities:

    

Net income

   $ 11,374      $ 14,439   

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

    

Depreciation and amortization

     5,060        4,453   

Gain on sale of marketable equity securities

     (52     (361

(Gain) loss on disposal of property and equipment

     (74     6   

Provision for doubtful accounts

     380        283   

Deferred income taxes

     806        553   

Change in assets and liabilities:

    

Trade and other accounts receivable

     (3,499     (9,303

Prepaid income taxes, prepaid expenses and other assets

     (1,207     1,222   

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

     (1,044     2,240   

Due to/from affiliates, net

     2,573        (2,390

Other long-term liabilities

     (144     455   
  

 

 

   

 

 

 

Net cash provided by operating activities

     14,173        11,597   

Cash flows from investing activities:

    

Capital expenditures

     (2,710     (2,588

Proceeds from the sale of property and equipment

     311        364   

Purchases of marketable securities

     (4     —     

Proceeds from sale of marketable securities

     353        1,323   

Affiliate notes receivables – LINC

     —          (5,000
  

 

 

   

 

 

 

Net cash used in investing activities

     (2,050     (5,901

Cash flows from financing activities:

    

Proceeds from borrowing – revolving debt

     8,113        12,813   

Repayments of debt – revolving debt

     (18,113     (9,813

Repayments of debt – term debt

     —          (1,321

Distributions to LINC shareholders

     —          (6,143

Purchases of treasury stock

     —          (879

Payment of earnout obligations related to acquisitions

     (23     (48
  

 

 

   

 

 

 

Net cash used in financing activities

     (10,023     (5,391

Effect of exchange rate changes on cash and cash equivalents

     164        64   
  

 

 

   

 

 

 

Net increase in cash

     2,264        369   

Cash and cash equivalents – beginning of period

     2,554        5,511   
  

 

 

   

 

 

 

Cash and cash equivalents – end of period

   $ 4,818      $ 5,880   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements.

 

 

5


UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Cash Flows — Continued

Thirteen Weeks ended March 30, 2013 and March 31, 2012

(In thousands)

 

     2013      2012  

Supplemental cash flow information:

     

Cash paid for interest

   $ 944       $ 554   
  

 

 

    

 

 

 

Cash paid for income taxes

   $ 5,328       $ 725   
  

 

 

    

 

 

 

Distributions to LINC shareholders:

     

Dividends paid

   $ —         $ (6,000

Distribution for shareholder state tax withholding

     —           (143
  

 

 

    

 

 

 

Net cash paid

   $ —         $ (6,143
  

 

 

    

 

 

 

See accompanying notes to consolidated financial statements.

 

 

6


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements

 

(1) Basis of Presentation

The accompanying unaudited consolidated financial statements of Universal Truckload Services, Inc. and its wholly owned subsidiaries (“UTSI” or us, we, 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, 2012 and 2011 and for each of the years in the three-year period ended December 31, 2012 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.

The Company’s fiscal year ends on December 31. The Company’s fiscal year consists of four quarters, each with thirteen weeks.

 

(2) Business Combinations

Acquisitions Accounted for Between Entities Under Common Control

In October 2012, we completed the acquisition of LINC Logistics Company (“LINC”). This resulted in the issuance of 14,527,332 shares of the Company’s common stock. Our majority shareholders beneficially owned, in the aggregate, 100% of the common stock of LINC. The effects of the retroactive restatement of the Company’s 2012 financial statements using the guidance for transactions between entities under common control as described in ASC Topic 805 — “Business Combinations” are summarized below (in thousands, except per share data):

 

     Thirteen
weeks
ended
March 31,
2012
 

Total operating revenues:

  

Universal, as previously reported on Form 10-Q for the thirteen weeks ended March 31, 2012

   $ 175,848   

LINC

     80,146   

Elimination of intercompany transactions

     (2
  

 

 

 

Universal, as restated

   $ 255,992   
  

 

 

 

Net income:

  

Universal, as previously reported on Form 10-Q for the thirteen weeks ended March 31, 2012

   $ 3,598   

LINC

     10,841   
  

 

 

 

Universal, as restated

   $ 14,439   
  

 

 

 

Earnings per common share:

  

Basic :

  

Universal, as previously reported on Form 10-Q for the thirteen weeks ended March 31, 2012

   $ 0.23   

Universal, as restated

   $ 0.48   

Diluted :

  

Universal, as previously reported on Form 10-Q for the thirteen weeks ended March 31, 2012

   $ 0.23   

Universal, as restated

   $ 0.48   

 

 

7


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(3) Marketable Securities

At March 30, 2013 and December 31, 2012, marketable securities, all of which are available-for-sale, consist of common and preferred stocks. Marketable securities are carried at fair value, with unrealized gains and losses, net of related income taxes, reported as accumulated other comprehensive income, except for losses from impairments which are determined to be other-than-temporary. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in the determination of net income and are included in other non-operating income (expense), at which time the average cost basis of these securities are adjusted to fair value. Fair values are based on quoted market prices at the reporting date. Interest and dividends on available-for-sale securities are included in other non-operating income (expense).

The cost, gross unrealized holding gains, gross unrealized holding losses, and fair value of available-for-sale securities by type were as follows (in thousands):

 

     Cost      Gross
unrealized
holding
gains
     Gross
unrealized
holding
(losses)
    Fair
Value
 

At March 30, 2013

          

Equity Securities

   $ 7,808       $ 2,802       $ (216   $ 10,394   
  

 

 

    

 

 

    

 

 

   

 

 

 

At December 31, 2012

          

Equity Securities

   $ 8,106       $ 2,077       $ (221   $ 9,962   
  

 

 

    

 

 

    

 

 

   

 

 

 

Included in equity securities at March 30, 2013 are securities with a fair value of $1.5 million with a cumulative loss position of $0.2 million, the impairment of which the Company considers to be temporary. The Company considers several factors in its determination as to whether declines in value are judged to be temporary or other-than-temporary, including the severity and duration of the decline, the financial condition and near-term prospects of the specific issuers and the industries in which they operate, and the Company’s intent and ability to hold these securities. The Company may incur future impairment charges if declines in market values continue and/or worsen and impairments are no longer considered temporary.

The fair value and gross unrealized holding losses of the Company’s marketable securities that are not deemed to be other-than-temporarily impaired aggregated by type and length of time they have been in a continuous unrealized loss position were as follows (in thousands):

 

     Less than 12 Months      12 Months or
Greater
     Total  
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

At March 30, 2013

                 

Equity securities

   $ 1,297       $ 128       $ 179       $ 88       $ 1,476       $ 216   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2012

                 

Equity securities

   $ 1,222       $ 118       $ 164       $ 103       $ 1,386       $ 221   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

8


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(3) Marketable Securities — continued

 

The Company’s portfolio of equity securities in a continuous loss position, the impairment of which the Company considers to be temporary, consists primarily of common stocks in the banking, oil and gas, and transportation industries. The fair value and unrealized losses are distributed in 10 publicly traded companies, with no single industry or company representing a material or concentrated unrealized loss. The Company has evaluated the near-term prospects of the various industries, as well as the specific issuers within its portfolio, in relation to the severity and duration of the impairments, and based on that evaluation, and the Company’s ability and intent to hold these investments for a reasonable period of time to allow for a recovery of fair value, the Company does not consider these investments to be other-than-temporarily impaired at March 30, 2013.

The Company from time to time invests cash in excess of its current needs in marketable securities, much of which is held in equity securities, which are actively traded on public exchanges. It is the philosophy of the Company to minimize the risk of capital loss without foregoing the potential for capital appreciation through investing in value-and-income oriented investments. However, holding equity securities subjects the Company to fluctuations in the market value of its investment portfolio based on current market prices, and a decline in market prices or other unstable market conditions could cause a loss in the value of the Company’s marketable securities classified as available-for-sale.

 

(4) Accrued Expenses and Other Current Liabilities

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

 

     March 30,
2013
     December 31,
2012
 

Payroll related items

   $ 7,351       $ 6,582   

Driver escrow liabilities

     5,827         5,769   

Commissions, taxes and other

     5,390         4,779   
  

 

 

    

 

 

 

Total

   $ 18,568       $ 17,130   
  

 

 

    

 

 

 

 

(5) Debt

Debt is comprised of the following (in thousands):

 

     Interest Rates at
March 30, 2013
    March 30,
2013
     December 31,
2012
 

Outstanding Debt:

       

Syndicated credit facility

       

$110 million revolving credit facility

     LIBOR + 1.60   $ 54,000       $ 64,000   

$60 million equipment financing facility

     LIBOR + 1.85     32,000         32,000   

$50 million term loan

     LIBOR + 2.75     50,000         50,000   

UBS secured borrowing facility

     LIBOR + 0.85     —           —     
    

 

 

    

 

 

 
       136,000         146,000   

Less current portion

       1,143         —     
    

 

 

    

 

 

 

Total long-term debt

     $ 134,857       $ 146,000   
    

 

 

    

 

 

 

 

9


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(5) Debt — continued

 

Syndicated credit facility

On August 30, 2012, the Company entered into a Revolving Credit and Term Loan Agreement, or the Credit Agreement, with and among the lenders parties thereto and Comerica Bank, as administrative agent, to provide for aggregate borrowing facilities of up to $220 million. The Credit Agreement consists of a $110 million revolving credit facility (which amount may be increased by up to $20 million upon request of the Company and approval of the lenders), a $60 million equipment credit facility, and a $50 million term loan. Additionally, the Credit Agreement provides for up to $5 million in letters of credit, which letters of credit reduce availability under the revolving credit facility.

Upon closing the merger with LINC on October 1, 2012, we borrowed approximately $149.1 million to repay LINC’s outstanding indebtedness and dividends payable via the Credit Agreement.

$110 million Revolving Credit Facility

The revolving credit facility is available to refinance existing indebtedness and to finance working capital through August 28, 2017. Two interest rate options are applicable to advances borrowed pursuant to the facility: Eurodollar-based advances and base rate advances. Eurodollar-based advances bear interest at 30, 60 or 90-day LIBOR rates plus an applicable margin, which varies from 1.35% to 2.10% based on our ratio of total debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined. As an alternative, base rate advances bear interest at a base rate, as defined, plus an applicable margin, which also varies based on our ratio of total debt to EBITDA in a range from 0.35% to 1.10%. The base rate is the greater of the prime rate announced by Comerica Bank, the federal funds effective rate plus 1.0%, or the daily adjusting LIBOR rate plus 1.0%. At March 30, 2013, interest accrued at 1.80% based on 30-day LIBOR.

To support daily borrowing and other operating requirements, the revolving credit facility contains a $10 million Swing Line sub-facility, which is provided by Comerica Bank, and a $5.0 million letter of credit sub-facility. Swing Line advances incur interest at either the base rate plus the applicable margin or, alternatively, at a quoted rate offered by Comerica Bank in its sole discretion. The Company did not have any amounts outstanding under the Swing Line at March 30, 2013, and there were no letters of credit issued against the line.

The revolving credit facility is subject to a facility fee, which is payable quarterly in arrears, of either 0.25% or 0.5%, depending on our ratio of total debt to EBITDA. Other than in connection with Eurodollar-based advances or quoted rate advances that are paid off and terminated prior to an applicable interest period, there are no premiums or penalties resulting from prepayment. Borrowings outstanding at any time under the revolving credit facility are limited to the value of eligible accounts receivable of our principal operating subsidiaries, pursuant to a monthly borrowing base certificate. At March 30, 2013, our $54.0 million revolver advance was secured by, among other assets, net eligible accounts receivable totaling $100.6 million, of which, $85.5 million were available for borrowing against pursuant to the agreement.

$60 million Equipment Credit Facility

The equipment credit facility is available to refinance existing indebtedness and to finance capital expenditures including in connection with acquisitions. Borrowings under the equipment credit facility may be made until August 28, 2015, and such borrowings shall be repaid in quarterly installments equal to 1/28th of the aggregate amount of borrowings under the equipment credit facility commencing on January 1, 2014.

The two interest rate options that apply to revolving credit facility advances also apply to equipment credit facility advances. Eurodollar-based advances bear interest at 30, 60 or 90-day LIBOR rates plus an applicable margin, which varies from 1.60% to 2.60% based on our ratio of total debt to EBITDA. Base rate advances bear interest at a base rate, as defined, plus an applicable margin, which also varies based on our ratio of total debt to EBITDA in a range from 0.60% to 1.60%. The equipment credit facility is subject to an unused fee, which is payable quarterly in arrears, of 0.5%. At March 30, 2013, interest accrued at 2.05% based on 30-day LIBOR.

 

10


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(5) Debt — continued

 

$50 million Term Loan

Proceeds of the term loan were advanced on October 1, 2012 and used to refinance existing indebtedness of LINC. The outstanding principal balance is due on August 28, 2017, to the extent not already reduced by mandatory or optional prepayments. The applicable interest rate on the effective date of the term loan indebtedness was the base rate. Base rate advances bear interest at a defined base rate plus an applicable margin which varies from 1.50% to 2.25%, based on our ratio of total debt to EBITDA. Thereafter, we may convert base rate advances to Eurodollar-based advances, which bear interest at 30, 60 or 90-day LIBOR rates plus an applicable margin which varies from 2.50% to 3.25%, based on our ratio of total debt to EBITDA. At March 30, 2013, interest accrued at 2.95% based on 30-day LIBOR.

Interest on the unpaid principal of all term loan base rate advances is payable quarterly in arrears commencing on October 1, 2012, and on the first day of each October, January, April and July thereafter. Interest on the unpaid principal of each Eurodollar-based advance of the term loan is payable on the last day of the applicable Eurodollar interest period.

The Credit Agreement requires the Company to repay the borrowings made under the term loan facility and the equipment credit facility as follows: 50% (which percentage shall be reduced to 0% subject to the Company attaining a certain leverage ratio) of the Company’s annual excess cash flow, as defined; 100% of net cash proceeds of certain asset sales; and 100% of certain insurance and condemnation proceeds. Mandatory prepayment of the term loan was $0 as of March 30, 2013. The Company may voluntarily repay outstanding loans under each of the facilities at any time, subject to certain customary “breakage” costs with respect to LIBOR-based borrowings. In addition, the Company may elect to permanently terminate or reduce all or a portion of the revolving credit facility.

All obligations under the Credit Agreement are unconditionally guaranteed by the Company’s material U.S. subsidiaries and the obligations of the Company and such subsidiaries under the Credit Agreement and such guarantees are secured by, subject to certain exceptions, substantially all of their assets. The Credit Agreement also may, in certain circumstances, limit our ability to pay dividends or distributions. The Credit Agreement includes annual, quarterly and ad hoc financial reporting requirements and financial covenants requiring the Company to maintain maximum leverage ratios and a minimum fixed charge coverage ratio, as well as customary affirmative and negative covenants and events of default. Specifically, we may not exceed a maximum senior debt to EBITDA ratio, as defined, of 2.5:1 and a maximum total debt to EBITDA ratio, as defined, of 3.0:1. We must also maintain a fixed charge coverage ratio, as defined, of not less than 1.25:1. As of March 30, 2013, the Company was in compliance with its debt covenants.

UBS Secured Borrowing Facility

The Company also maintains a secured borrowing facility at UBS Financial Services, Inc., or UBS, using its marketable securities as collateral for the short-term line of credit. The line of credit bears an interest rate equal to LIBOR plus 0.85% (effective rate of 1.13% at March 30, 2013), and interest is adjusted and billed monthly. No principal payments are due on the borrowing; however, the line of credit is callable at any time. The amount available under the line of credit is based on a percentage of the market value of the underlying securities. If the equity value in the account falls below the minimum requirement, we must restore the equity value, or UBS may call the line of credit. As of March 30, 2013 and December 31, 2012, there were no amounts outstanding under the line of credit, and the maximum available borrowings were $5.0 million and $5.1 million, respectively.

Debt Repaid Upon Merger with LINC

On April 21, 2011, LINC executed a Revolving Credit and Term Loan Agreement with a syndicate of banks to refinance a substantial portion of outstanding secured debt and a portion of outstanding dividend payable to CenTra. The syndicated senior secured loan package included a $40 million revolving credit facility, a $25 million equipment credit facility, and a $30 million senior secured term loan. Comerica Bank acted as lead arranger for the agreement and was the administrative agent.

 

11


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(5) Debt — continued

 

$40 million Revolving Credit Facility

The revolving credit facility was available to refinance existing indebtedness and to finance working capital through April 21, 2014. At December 31, 2011, interest accrued at 2.04% based on 30-day LIBOR. Borrowings outstanding at any time under the revolving credit facility were limited to the value of eligible accounts receivable of LINC’s principal operating subsidiaries, pursuant to a monthly borrowing base certificate. At December 31, 2011, the $14.0 million revolver advance was secured by, among other assets, eligible accounts receivable totaling $35.7 million.

$25 million Equipment Credit Facility

The equipment credit facility was available to refinance existing indebtedness and to finance capital expenditures including in connection with acquisitions through advances available until April 21, 2014. Commencing on each anniversary date of the facility, equipment credit advances made during the prior year are repaid quarterly based on four-year, straight line amortization. The original maturity date of the overall facility was April 21, 2016. At December 31, 2011, interest accrued at 2.04% based on 30-day LIBOR, and the outstanding balance under the equipment credit facility was $11.1 million.

$30 million Senior Secured Term Loan

Proceeds of the term loan were advanced on April 21, 2011 and used to fund initial distributions described in the Revolving Credit and Term Loan Agreement. The outstanding principal balance was originally due on April 21, 2016. On June 25, 2012, LINC executed an amendment extending the due date of this payment for fiscal year 2011, to September 30, 2012. At December 31, 2011, interest accrued at 3.29% based on 30-day LIBOR, and the outstanding balance under the term loan was $30.0 million.

Fifth Third Bank Equipment Financing Facility

On December 18, 2006, LINC refinanced a substantial portion of its transportation equipment, including the rolling stock transferred to LINC by subsidiaries of its former parent on September 30, 2006. Two subsidiaries of Logistics Insight Corporation executed a $25.0 million equipment financing facility with Fifth Third Bank. Effective January 2, 2008, LINC consolidated four outstanding promissory notes due to Fifth Third Bank with aggregate principal value of $24.2 million into two separate term loans, per the original equipment financing facility. On April 21, 2011, two of the three notes were paid in full. At December 31, 2011, interest accrued at 1.65% based on 30-day LIBOR, and the principal outstanding pursuant to the remaining outstanding term note totaled $3.0 million, which was collateralized by transportation equipment with a carrying amount of $3.8 million.

Dividend Distribution Promissory Note

On December 31, 2008, LINC issued a $25.0 million Dividend Distribution Promissory Note due December 31, 2013 to CenTra, its former parent and an affiliate of the Company. The promissory note was issued in connection with extending the maturity and reducing to $68.0 million the value of the outstanding payment obligation pursuant to our existing dividend payable to CenTra. On December 22, 2010, upon receipt of required consents from both Comerica Bank and Fifth Third Bank, LINC paid $10.0 million to CenTra to further reduce the outstanding dividend payable. Concurrent with the April 2011 debt refinancing, LINC paid an additional $31.0 million to CenTra on April 21, 2011. At December 31, 2011, a net dividend payable totaling $27.0 million was outstanding. Any unpaid amount was payable in cash on or before December 31, 2013. At December 31, 2011, interest accrued at a fixed rate of 1.64%.

 

(6) 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.

 

12


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(6) Fair Value Measurements and Disclosures — continued

 

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.

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

 

     March 30, 2013  
     Level 1      Level 2      Level 3      Fair Value
Measurement
 

Assets

           

Cash equivalents

   $ 53       $ —         $ —         $ 53   

Marketable securities

     10,394         —           —           10,394   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 10,447       $ —         $ —         $ 10,447   
  

 

 

    

 

 

    

 

 

    

 

 

 
     December 31, 2012  
     Level 1      Level 2      Level 3      Fair Value
Measurement
 

Assets

           

Cash equivalents

   $ 23       $ —         $ —         $ 23   

Marketable securities

     9,962         —           —           9,962   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Assets

   $ 9,985       $ —         $ —         $ 9,985   
  

 

 

    

 

 

    

 

 

    

 

 

 

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.

Our senior debt and line of credit consist of variable rate borrowings. The carrying value of these borrowings approximate fair value because the applicable interest rates are adjusted frequently based on short-term market rates.

 

13


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(7) Transactions with Affiliates

Through December 31, 2004, UTSI was a wholly-owned subsidiary of CenTra, Inc. On December 31, 2004, CenTra distributed all of UTSI’s common stock to the shareholders of CenTra. Subsequent to our initial public offering in 2005, our majority shareholders retained and continue to hold a controlling interest in UTSI. CenTra and affiliates of CenTra provide administrative support services to UTSI, including legal, human resources, and tax services. The cost of these services is based on the actual or estimated utilization of the specific service. Management believes these charges are reasonable. However, the costs of these services charged to UTSI are not necessarily indicative of the costs that would have been incurred if UTSI had internally performed or acquired these services as a separate unaffiliated entity.

In addition to the administrative support services described above, UTSI purchases other services from affiliates. Following is a schedule of cost incurred for services provided by affiliates for the thirteen weeks ended March 30, 2013 and March 31, 2012 (in thousands):

 

     Thirteen weeks ended  
     March 30,
2013
     March 31,
2012
 

Administrative support services

   $ 534       $ 512   

Truck fueling and maintenance

     439         739   

Real estate rent and related costs

     2,602         3,056   

Insurance and employee benefit plans

     9,902         9,082   

Contracted transportation services

     66         46   
  

 

 

    

 

 

 

Total

   $ 13,543       $ 13,435   
  

 

 

    

 

 

 

In connection with our transportation services, we also routinely cross the Ambassador Bridge between Detroit, Michigan and Windsor Ontario, and we pay tolls and other fees to certain related entities which are under common control with CenTra. CenTra also charges us for the direct variable cost of various maintenance, fueling and other operational support costs for services delivered at their trucking terminals that are geographically remote from our own facilities. Such activities are billed when incurred, paid on a routine basis, and reflect actual labor utilization, repair parts costs or quantities of fuel purchased.

A significant number of our transportation and logistics service operations are located at facilities leased from affiliates. At 34 facilities, occupancy is based on either month-to-month or contractual, multi-year lease arrangements which are billed and paid monthly. Leasing properties provided by an affiliate that owns a substantial commercial property portfolio affords us significant operating flexibility. However, we are not limited to such arrangements.

We purchase workers’ compensation, property and casualty, 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 leased real estate, insurance and employee benefit plans, and 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 March 30, 2013 and December 31, 2012, amounts due to affiliates were $6.2 million and $4.1 million, respectively

 

14


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(7) Transactions with Affiliates — continued

 

Services provided by UTSI to Affiliates

We may assist our affiliates with 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 March 30, 2013 and March 31, 2012 (in thousands):

 

    Thirteen weeks ended  
    March 30,
2013
     March 31,
2012
 

Transportation and intermodal services

  $ 5,211       $ 19   

Truck fueling and maintenance

    35         74   

Administrative and customer support services

    28         16   
 

 

 

    

 

 

 

Total

  $ 5,274       $ 109   
 

 

 

    

 

 

 

At March 30, 2013 and December 31, 2012, amounts due from Affiliates were $3.2 million and $3.6 million, respectively.

During 2012, we also retained the law firm of Sullivan Hincks & Conway to provide legal services. Daniel C. Sullivan, a member of our Board, is a partner at Sullivan Hincks & Conway. Amounts paid for legal services during the thirteen weeks ended March 31, 2012, were $0.1 million.

On October 1, 2012, we completed the acquisition of LINC. Our principal shareholders beneficially owned, in the aggregate, 100% of the common stock of LINC. See Note 2 “Business Combinations — Acquisition Accounted for Between Entities Under Common Control”.

 

(8) Comprehensive Income

Comprehensive income includes the following (in thousands):

 

     Thirteen weeks ended  
     March 30,
2013
    March 31,
2012
 

Unrealized holding gains (losses) on available-for-sale investments arising during the period:

    

Gross amount

   $ 782      $ 1,282   

Income tax (expense) benefit

     (139     (483
  

 

 

   

 

 

 

Net of tax amount

   $ 643      $ 799   
  

 

 

   

 

 

 

Realized (gains) on available-for-sale investments reclassified into income:

    

Gross amount

   $ (52   $ (361

Income tax expense

     20        141   
  

 

 

   

 

 

 

Net of tax amount

   $ (32   $ (220
  

 

 

   

 

 

 

Foreign currency translation adjustments

   $ 288      $ 277   
  

 

 

   

 

 

 

 

15


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(9) Stock Based Compensation

In December 2004, UTSI’s Board of Directors adopted the 2004 Stock Incentive Plan, or the Plan, which became effective upon completion of the Company’s initial public offering. The Plan allows for the issuance of a total of 500,000 shares. The grants may be made in the form of restricted stock bonuses, restricted stock purchase rights, stock options, phantom stock units, restricted stock units, performance share bonuses, performance share units or stock appreciation rights.

On December 20, 2012, the Company granted 178,137 shares of restricted stock to certain of its employees. The restricted stock grants vested 20% on December 20, 2012, and an additional 20% will vest on each anniversary of the grant through December 20, 2016, subject to continued employment with the Company.

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
 

Nonvested at January 1, 2013

     142,511       $ 16.42   

Granted

     —         $ —     

Vested

     —         $ —     

Forfeited

     —         $ —     
  

 

 

    

Balance at March 30, 2013

     142,511       $ 16.42   
  

 

 

    

As of March 30, 2013, there was $2.3 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 4 years.

 

(10) 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, and diluted earnings per share amounts are based on the weighted average number of common shares outstanding, including outstanding non-vested restricted stock, plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options. For the thirteen weeks ended March 30, 2013 there were 142,511 weighted average non-vested shares of restricted shares included in the denominator for the calculation of diluted earnings per share. For the thirteen weeks ended March 31, 2012, the Company has no common stock equivalents; therefore, diluted earnings per share are equal to basic earnings per share.

 

(11) Unaudited Pro Forma Earnings Per Share

Prior to its acquisition by Universal on October 1, 2012, LINC was an “S” Corporation for U.S. federal income tax purposes. As a result, LINC had no U.S. federal income tax liability, but had state and local liabilities in certain jurisdictions attributable to earnings as an “S” Corporation. Pro forma basic and diluted earnings per share have been computed to give effect to the termination of LINC’s “S” Corporation status and acquisition by Universal, which changes the provision for income taxes for each period presented. For the thirteen weeks ended March 31, 2012, we assume a blended statutory federal, state and local rate of 39.0%.

 

16


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(11) Unaudited Pro Forma Earnings Per Share — continued

 

The following table sets forth a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share for the period presented (in thousands, except per share data):

 

     Thirteen weeks
ended March 31,
2012
 

Net income

   $ 14,439   

Pro forma provision for income taxes due to LINC's conversion to a “C” corporation

     4,003   
  

 

 

 

Pro forma net income

   $ 10,436   
  

 

 

 

Pro forma earnings per common share:

  

Basic

   $ 0.35   

Diluted

   $ 0.35   

Weighted average number of common shares outstanding:

  

Basic

     30,065   

Diluted

     30,065   

 

(12) Segment Reporting

Our operating segments, LINC and the pre-merger reportable segment, generate revenues in two categories based on the nature of the underlying customer commitment, which is either contractual or transactional. This can impact the types of investments required to support these commitments. LINC, which engages primarily in contractual agreements, generates revenues for the delivery of value-added services or transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer. In contrast, the pre-merger reportable segment, which makes up our transactional business, is associated with individual freight shipments coordinated by our agents, company-managed terminals and freight forwarding operations. Our presentation of reportable segments reflects the manner in which management evaluates our operating segments, including an evaluation of economic characteristics and applicable aggregation criteria. Certain integration activities in connection with our acquisition of LINC on October 1, 2012 were not concluded as of March 30, 2013. As such, we concluded that LINC’s financial performance should be presented separately from our single reportable segment that predated the acquisition.

The following tables summarize information about the Company’s reportable segments as of and for the thirteen weeks ending March 30, 2013 and March 31, 2012 (in thousands):

 

     Thirteen weeks ended March 30, 2013  
     LINC      Pre-merger
Reportable

Segment
     Total  

Operating revenues

   $ 82,918       $ 165,191       $ 248,109   

Eliminated inter-segment revenues

     —           55         55   

Income from operations

     13,602         5,649         19,251   
     Thirteen weeks ended March 31, 2012  
     LINC      Pre-merger
Reportable
Segment
     Total  

Operating revenues

   $ 80,146       $ 175,846       $ 255,992   

Eliminated inter-segment revenues

     —           2         2   

Income from operations

     12,017         5,378         17,395   

 

17


UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements — Continued

 

(13) Commitments and Contingencies

The Company’s principal commitments relate to long-term real estate leases and payment obligations to equipment vendors.

The Company is involved in certain 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 the Company’s financial position, results of operations or cash flows.

At March 30, 2013, approximately 49.0% of our employees in the United States, Mexico and Canada are subject to collective bargaining agreements that are renegotiated periodically, of which 2.1% are subject to contracts that expire in 2013.

 

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,” “believe,” “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 Item 1A in our Form 10-K for the year ended December 31, 2012, as well as any other cautionary language in that Form 10-K, 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, Mexico and Canada. We provide our customers with supply chain solutions that can be scaled to meet their changing demands and volumes. We offer our customers a broad array of services across their entire supply chain, including transportation, value-added, and intermodal services. Our customized solutions and flexible business model are designed to provide us with a highly variable cost structure.

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 transportation logistic 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. Our agreements with customers typically follow one of two patterns: transactional or contractual. Our transactional business is associated with individual freight shipments coordinated by our agents, company-managed terminals and freight forwarding operations. In contrast, contractual agreements relate to the delivery of value-added services or transportation services to specific customers on a dedicated basis, generally pursuant to contract terms of one year or longer.

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, 2012 and the unaudited Consolidated Financial Statements and related notes contained in this quarterly report on Form 10-Q.

 

19


Operating Revenues

We broadly group our services into the following service categories: transportation, value-added and intermodal support. The following table sets forth each of these service categories for the thirteen weeks ended March 30, 2013 and March 31, 2012, presented as a percentage of total operating revenues:

 

     Thirteen Weeks Ended  
     March 30,
2013
    March 31,
2012
 

Operating revenues:

    

Transportation services

     67.3     72.4

Value-added services

     19.3        17.7   

Intermodal services

     13.5        9.9   
  

 

 

   

 

 

 

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 March 30, 2013 and March 31, 2012, presented as a percentage of operating revenues:

 

     Thirteen Weeks Ended  
     March 30,
2013
    March 31,
2012
 

Operating revenues

     100     100

Operating expenses:

    

Purchased transportation and equipment rent

     54.2        56.7   

Direct personnel and related benefits

     17.5        16.9   

Commission expense

     3.8        4.0   

Operating expenses (exclusive of items shown seperately)

     7.7        6.9   

Occupancy expense

     2.0        1.9   

Selling, general, and administrative

     3.1        2.9   

Insurance and claims

     1.9        2.1   

Depreciation and amortization

     2.0        1.7   
  

 

 

   

 

 

 

Total operating expenses

     92.2        93.2   
  

 

 

   

 

 

 

Income from operations

     7.8        6.8   

Interest and other non-operating income (expense), net

     (0.4     (0.1
  

 

 

   

 

 

 

Income before provision for income taxes

     7.4        6.7   

Provision for income taxes

     2.8        1.0   
  

 

 

   

 

 

 

Net income

     4.6        5.6   
  

 

 

   

 

 

 

Thirteen Weeks Ended March 30, 2013 Compared to Thirteen Weeks ended March 31, 2012

Operating revenues. Operating revenues for the thirteen weeks ended March 30, 2013 decreased by $7.9 million, or 3.1%, to $248.1 million from $256.0 million for the thirteen weeks ended March 31, 2012. Revenues from our transactional segment decreased $10.7 million, or 6.1%, while our contractual segment revenues increased $2.8 million, or 3.5%, over the same period last year. Included in operating revenues are fuel surcharges, where separately identifiable, of $29.0 million for thirteen weeks ended March 30, 2013 compared to $27.6 million for the thirteen weeks ended March 31, 2012.

The decrease in operating revenues was primarily the result of a $18.5 million decrease in our transportation services, which was partially offset by increases of $2.5 million and $8.1 million in our value-added and intermodal services, respectively. Overall, we experienced a decrease in our transportation volumes primarily due to actions taken to exit certain underperforming sales channels, a delayed demand for specialized loads in our wind energy business and unfavorable weather during the first quarter of 2013 compared to the prior year. The number of loads from our transportation operations decreased to approximately 151,000 for the thirteen weeks ended March 30, 2013 compared to approximately 171,000 for thirteen weeks ended March 31, 2012, and our operating revenue per loaded mile, excluding fuel surcharges decreased slightly to $2.31 from $2.34 for thirteen weeks ended March 31, 2012.

Our intermodal operations experienced an increase in both the number of loads hauled and in operating revenues per loaded mile, as well as a $3.5 million increase in domestic container related operations and $1.2 million of revenues attributable to an acquisition made in the second quarter of 2012. The number of loads from our intermodal operations increased to approximately 78,000 for the thirteen weeks ended March 30, 2013 compared to approximately 75,000 for thirteen weeks ended March 31, 2012, and our operating revenue per loaded mile, excluding fuel surcharges increased to $3.55 from $3.42 for thirteen weeks ended March 31, 2012. We also experienced increasing demand for value-added services and benefited from full-quarter operations from certain businesses that launched mid-way through the first quarter of 2012. At March 30, 2013 we provided value-added services at 44 locations compared to 39 at March 31, 2012. Our average headcount, which is significantly impacted by growth in services delivered, grew by over 500 individuals primarily reflecting the transition to direct employees from a third-party staffing vendor to our Mexican operation.

Purchased transportation and equipment rent. Purchased transportation and equipment rental costs for the thirteen weeks ended March 30, 2013 decreased by $10.6 million, or 7.3%, to $134.5 million from $145.1 million for the thirteen weeks ended March 31, 2012. Purchased transportation and equipment rent generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers, and is generally correlated with changes in demand for transportation and intermodal services. Combined, transportation and intermodal service revenues decreased 4.9% to $200.3 million for the thirteen weeks ended March 30, 2013 compared to $210.7 million for the thirteen weeks ended March 31, 2012. As a percentage of operating revenues, purchased transportation and equipment rent expense

 

20


decreased to 54.2% for the thirteen weeks ended March 30, 2013 from 56.7% for the thirteen weeks ended March 31, 2012. The decrease is primarily due to an increase in intermodal service revenue as a percentage of total revenues, which typically pays lower purchased transportation rates and also due to an increase in value-added services, which have operated with lower purchased transportation and equipment rental costs expressed as a percentage of revenues.

Direct Personnel and related benefits. Direct personnel and related benefits expenses for the thirteen weeks ended March 30, 2013 increased slightly to $43.3 million compared to $43.2 million for the thirteen weeks ended March 31, 2012. Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements and, therefore, increase with the level of demand for our value-added services and staffing needs of our operations. The increase in overall staffing needs was partially offset by a conversion of approximately 1,000 individuals in our San Luis Potosí, Mexico operations at a lower cost from a contract basis to full time employees, as well as a change in certain vacation accrual policies. During the thirteen weeks ended March 31, 2012, there was an additional $0.8 million of vacation expense as compared to the thirteen weeks ended March 30, 2013. As a percentage of revenue, personnel and related benefits expenses increased to 17.5% for the thirteen weeks ended March 30, 2013, compared to 16.9% for the thirteen weeks ended March 31, 2012. 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.

Commission expense. Commission expense for the thirteen weeks ended March 30, 2013 decreased by $0.9 million, or 8.8%, to $9.3 million from $10.2 million for the thirteen weeks ended March 31, 2012. The absolute decrease was primarily due to the decrease in our operating revenues from transportation services. Commission expense generally increases or decreases in proportion to our transportation and intermodal revenues, except in cases where we generate a higher proportion of our revenues at company-managed terminals. As a percentage of operating revenues, commission expense decreased to 3.8% for the thirteen weeks ended March 30, 2013 compared to 4.0% for the thirteen weeks ended March 31, 2012. As a percentage of revenues, the decrease in commission expense is due to an increase in fuel surcharges, which are generally passed through to our owner-operators, and an increase in revenues generated by company managed-locations and value-added services operations, where no commissions are paid.

Operating expenses (exclusive of items shown separately). Operating expenses (exclusive of items shown separately) increased by $1.5 million, or 8.5%, to $19.2 million for the thirteen weeks ended March 30, 2013, compared to $17.7 million for the thirteen weeks ended March 31, 2012. As a percentage of operating revenues, other operating expenses (exclusive of items shown separately) increased to 7.7% for the thirteen weeks ended March 30, 2013 from 6.9% for the thirteen weeks ended March 31, 2012. These expenses include items such as fuel, maintenance, insurance, communications, utilities and other general expenses, and generally relate to fluctuations in customer demand. The increase is primarily due to an increase in fuel expenses on company owned tractors of $0.4 million and increased travel and meals costs of $0.3 million primarily due to new business at our value-added locations. Additional elements of the increase in operating expenses (exclusive of items shown separately) include increases in utilities, office and dock supplies.

Occupancy expense. Occupancy expense for the thirteen weeks ended March 30, 2013 remained consistent at $5.0 million compared to the thirteen weeks ended March 31, 2012. As a percentage of operating revenue, operating expense remained flat at 2.0%. There were no significant or unusual items impacting occupancy expense.

Selling, general and administrative. Selling, general and administrative expense for the thirteen weeks ended March 30, 2013 increased by $0.4 million, or 5.4%, to $7.8 million from $7.4 million for the thirteen weeks ended March 31, 2012. As a percentage of operating revenues, selling, general and administrative expense increased to 3.1% for the thirteen weeks ended March 30, 2013 compared to 2.9% for the thirteen weeks ended March 31, 2012. The largest component of selling, general and administrative expense, salaries and wages, were relatively flat, while there were increases in bad debts and uncollectible agent loans of $0.1 million and other selling, general and administrative expense of $0.3 million. These increases were partially offset by an increase in gains on the sale of equipment of $0.1 million. Minor fluctuations in other expense categories reflect our efforts to maintain stable overhead expenditures while expanding the business.

Insurance and claims. Insurance and claims expense for the thirteen weeks ended March 30, 2013 decreased by $0.8 million, or 14.5%, to $4.7 million from $5.5 million for the thirteen weeks ended March 31, 2012. As a percentage of operating revenues, insurance and claims decreased to 1.9% for the thirteen weeks ended March 30, 2013 from 2.1% for the thirteen weeks ended March 31, 2012. The absolute decrease was primarily the result of decreases in auto liability insurance premiums and claims expense of $0.6 million and in our cargo claims expense of $0.2 million.

 

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Depreciation and amortization. Depreciation and amortization expense for the thirteen weeks ended March 30, 2013 increased by $0.6 million, or 13.3%, to $5.1 million from $4.5 million for the thirteen weeks ended March 31, 2012. The absolute increase is primarily the result of additional depreciation totaling $0.7 million on our capital expenditures made throughout 2012, particularly related to enhancements to our Mexican assembly line placed in service in December 2012. This increase was partially offset by a decrease in amortization of $0.1 million due to certain intangible assets becoming fully amortized.

Interest expense, net. Net interest expense was $1.1 million for the thirteen weeks ended March 30, 2013 compared to $0.8 million for the thirteen weeks ended March 31, 2012. As of March 30, 2013 we had outstanding borrowings totaling $136.0 million compared to $84.7 million at March 31, 2012, which was borrowed pursuant to previous credit agreements.

Other non-operating income (expense), net. Other non-operating income for the thirteen weeks ended March 30, 2013 was $0.1 million compared to $0.5 million for the thirteen weeks ended March 31, 2012. Included in other non-operating income for the thirteen weeks ended March 30, 2013 were $0.1 million in pre-tax gains on the sales of marketable equity securities compared to $0.4 million in the thirteen weeks ended March 31, 2012.

Provision for income taxes. Provision for income taxes for the thirteen weeks ended March 30, 2013 was $6.9 million compared to $2.7 million for the thirteen weeks ended March 31, 2012, based on an effective tax rate of 37.8% and 15.6%, respectively. Prior to the merger, LINC elected to be treated as a “Subchapter S corporation” for federal income tax purposes. As a result, the financial results related to LINC the first quarter of 2012 incurred no federal income tax liabilities or, in many jurisdictions, state or local tax liabilities.

Liquidity and Capital Resources

Our primary sources of liquidity are funds generated by operations, our availability under our $110 million revolving credit and $60 million equipment credit facilities, our ability to borrow on margin against our marketable securities held at UBS, and proceeds from the sales of marketable securities. Additionally, our revolving credit facility includes an accordion feature which would allow us to increase availability by up to $20 million upon our request and approval of the lenders.

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 March 30, 2013, our capital expenditures totaled $2.7 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 end of 2013, exclusive of acquisitions of businesses, we expect to incur capital expenditures in the range of 2% to 3% of operating revenues for the acquisition of transportation equipment, to support our value-added service operations and for the acquisition of real property acquisitions and improvements to our existing terminal yard and container facilities.

We expect that our cash flow from operations, working capital and available borrowings will be sufficient to meet our capital commitments and fund our operational needs for at least the next twelve months. Based on the availability of borrowings under our credit facilities, against our marketable security portfolio and other financing sources. and assuming the continuation of our current level of profitability, we do not expect that we will experience any liquidity constraints in the foreseeable future.

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.

We currently intend to retain our future earnings to finance our growth.

 

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Revolving Credit and Term Loan Agreement

On August 30, 2012, we entered into a Revolving Credit and Term Loan Agreement, or the Credit Agreement, with and among the lenders parties thereto and Comerica Bank, as administrative agent, to provide for aggregate borrowing facilities of up to $220 million. The Credit Agreement consists of a $110 million revolving credit facility (which amount may be increased by up to $20 million upon request of the Company and approval of the lenders), a $60 million equipment credit facility, and a $50 million term loan. Additionally, the Credit Agreement provides for up to $5 million in letters of credit, which would, if drawn upon, reduce availability under the revolving credit facility. Borrowings under the revolving credit facility may be made until, and mature on, August 28, 2017. Borrowings under the equipment credit facility may be made until August 28, 2015, and such borrowings made in any year shall be repaid in 28 quarterly installments beginning on January 1 of the year after the applicable borrowing was made. Borrowings under the term loan facility shall mature on August 28, 2017. Borrowings under the Credit Agreement bear interest at LIBOR or a base rate, plus an applicable margin for each. The applicable margin fluctuates based on the Company’s total debt to EBITDA ratio, as defined in the Credit Agreement.

The Credit Agreement requires us to repay the borrowings made under the term loan facility and the equipment credit facility as follows: 50% (which percentage shall be reduced to 0% subject to the Company attaining a certain leverage ratio) of our annual excess cash flow, as defined; 100% of net cash proceeds of certain asset sales; and 100% of certain insurance and condemnation proceeds. We may voluntarily repay outstanding loans under each of the facilities at any time, subject to certain customary “breakage” costs with respect to LIBOR-based borrowings. In addition, we may elect to permanently terminate or reduce all or a portion of the revolving credit facility.

All obligations under the Credit Agreement are unconditionally guaranteed by our material U.S. subsidiaries and the obligations of the Company and such subsidiaries under the Credit Agreement and such guarantees are secured by, subject to certain exceptions, substantially all of their assets. The Credit Agreement also may, in certain circumstances, limit our ability to pay dividends or distributions. The Credit Agreement includes financial covenants requiring us to maintain maximum leverage ratios and a minimum fixed charge coverage ratio, as well as customary affirmative and negative covenants and events of default. At March 30, 2013, the Company was in compliance with its debt covenants. As of March 30, 2013, there were no letters of credit issued under the Credit Agreement, and the outstanding balance was $136.0 million. Excess availability as defined by the Credit Agreement at such date was $45.5 million.

Secured Line of Credit

The Company maintains a secured borrowing facility at UBS Financial Services, Inc., or UBS, using its marketable securities as collateral for the short-term line of credit. The line of credit bears an interest rate equal to LIBOR plus 0.85%, and interest is adjusted and billed monthly. No principal payments are due on the borrowing; however, the line of credit is callable at any time. The amount available under the line of credit is based on a percentage of the market value of the underlying securities. If the equity value in the account falls below the minimum requirement, the Company must restore the equity value, or UBS may call the line of credit. As of March 30, 2013 the outstanding balance under the line of credit was $0, and the maximum available borrowings against the line of credit were $5.0 million.

Discussion of Cash Flows

At March 30, 2012, we had cash and cash equivalents of $4.8 million compared to $2.6 million at December 31, 2012. Net cash provided by operating activities was $14.2 million, while we used $2.1 million in investing activities and $10.0 million in financing activities.

The $14.2 million in net cash provided by operations was primarily attributed to $11.4 million of net income which reflects non-cash depreciation and amortization, gains on the sales of marketable securities and property and equipment, provisions for doubtful accounts, and a change in deferred income taxes totaling $6.1 million, net. Net cash provided by operating activities also reflects an aggregate increase in net working capital totaling $3.3 million. The increase in the working capital position is primarily the result of increases in accounts receivable, increases in prepaid expenses and other assets and a decrease in accounts payable and other current liabilities, insurance and claims accruals, and other long-term liabilities. Affiliate transactions increase net cash provided by operating activities during the thirteen weeks ended March 30, 2013 by $2.5 million. The increase consisted of an increase in accounts payable to affiliates of $2.1 million, while accounts receivable from affiliates decreased of $0.4 million.

The $2.1 million in net cash used in investing activities consisted of $2.7 million of capital expenditures, partially offset by $0.3 million in proceeds from the sales of marketable securities and $0.3 million in proceeds from the sale of property and equipment.

 

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We also used $10.0 million in net cash in financing activities to pay down our outstanding indebtedness. As of March 30, 2013, we had outstanding borrowings totaling $136.0 million compared to $146.0 million at December 31, 2012.

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, 2012. There have been no changes in the accounting policies followed by us during the thirteen weeks ended March 30, 2013.

Seasonality

Our operations are subject to seasonal trends common to the trucking industry. Results of operations in the first quarter are typically lower than the second, third and fourth quarters.

 

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 March 30, 2013. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

ITEM 4: CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to paragraph (b) of Rule 13a-15 or 15d-15 of the Securities Exchange Act of 1934, as amended (or the Exchange Act). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 30, 2013, our disclosure controls and procedures were effective in causing the material information required to be disclosed in the reports that it files or submits under the Exchange Act to be recorded, processed, summarized and reported, to the extent applicable, within the time periods required for us to meet the Securities and Exchange Commission’s (or SEC) filing deadlines for these reports specified in the SEC’s rules and forms.

Internal Controls

There have been no changes in our internal controls over financial reporting during the thirteen weeks ended March 30, 2013 identified in connection with our evaluation that has materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

 

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PART II — OTHER INFORMATION

 

ITEM 1: LEGAL PROCEEDINGS

Information with respect to legal proceedings and other exposures appears in Part I, Item 1, Note (13) of the “Notes to Unaudited Consolidated Financial Statements,” and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

ITEM 1A: RISK FACTORS

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, 2012.

 

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.

 

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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   Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3(i)-1 and 3(i)-2 to the Registrant’s Current Report filed on November 1, 2012 (Commission File No. 000-51142))
    3.2   Amended and Restated Bylaws, as amended effective April 22, 2009 (Incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 24, 2009 (Commission File No. 000-51142))
    4.1   Amended and Restated Registration Rights Agreement, dated as of July 25, 2012, among Registrant, Matthew T. Moroun, the Manuel J. Moroun Revocable Trust U/A March 24, 1977, as amended and restated on December 22, 2004 and the M.J. Moroun 2012 Annuity Trust dated April 30, 2012 ((Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed July 26, 2012 (Commission File No. 000-51142))
  10.1+   Employment agreement, dated January 16, 2013, by and between Universal Truckload Service, Inc. and Donald B. Cochran (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 18, 2013 (Commission File No. 000-51142))
  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**   XBRL Instance Document
101.SCH**   XBRL Schema Document
101.CAL**   XBRL Calculation Linkbase Document
101.DEF**   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**   XBRL Labels Linkbase Document
101.PRE**   XBRL Presentation Linkbase Document

 

* Filed herewith.
** Furnished herewith
+ Indicates a management contract, compensatory plan or arrangement.

 

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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 Truckload Services, Inc.

(Registrant)

Date: May 9, 2013     By:   /s/ David A. Crittenden
      David A. Crittenden, Chief Financial Officer and Treasurer
Date: May 9, 2013     By:   /s/ H.E. “Scott” Wolfe
      H.E. “Scott” Wolfe, Chief Executive Officer

 

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