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 October 1, 2011

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 October 31, 2011 was 15,555,183.

 

 

 

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PART I – FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Balance Sheets

(In thousands, except share data)

 

		October 1, 2011				December 31, 2010
Assets
Current assets:
Cash and cash equivalents		$	1,376			$	6,261
Marketable securities			15,275				15,041
Accounts receivable – net of allowance for doubtful accounts of $3,485 and $4,540, respectively			87,385				68,833
Due from CenTra and affiliates			254				80
Prepaid income taxes			3,026				1,821
Prepaid expenses and other			6,086				6,488
Deferred income taxes			4,141				2,973
Total current assets			117,543				101,497
Property and equipment			121,969				116,461
Less accumulated depreciation			(41,860	)			(38,255	)
Property and equipment – net			80,109				78,206
Goodwill			17,722				17,231
Intangible assets – net of accumulated amortization of $18,377 and $15,803, respectively			10,319				11,977
Other assets			2,895				3,137
Total assets		$	228,588			$	212,048
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable		$	38,817			$	23,773
Line of credit			4,253				—
Accrued expenses and other current liabilities			20,340				18,521
Total current liabilities			63,410				42,294
Long-term liabilities:
Deferred income taxes			6,311				5,425
Other long-term liabilities			1,251				118
Total long-term liabilities			7,562				5,543
Shareholders’ equity:
Common stock, no par value. Authorized 40,000,000 shares; 16,122,483 shares issued; 15,555,183 and 15,667,483 shares outstanding at October 1, 2011 and December 31, 2010, respectively			16,122				16,122
Paid-in capital			79,914				79,914
Treasury Stock, at cost; 567,300 and 455,000 shares at October 1, 2011 and December 31, 2010, respectively			(8,325	)			(6,625	)
Retained earnings			69,273				72,559
Accumulated other comprehensive income, net of income taxes of $(388) and $(1,524), respectively			632				2,241
Total shareholders’ equity			157,616				164,211
Total liabilities and shareholders’ equity		$	228,588			$	212,048

See accompanying notes to unaudited consolidated financial statements.

 

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Income

October 1, 2011 and October 2, 2010

(In thousands, except per share data)

 

		Thirteen Weeks Ended								Thirty-nine Weeks Ended
		2011				2010				2011				2010
Operating revenues:
Truckload		$	110,896			$	94,980			$	319,007			$	278,246
Brokerage			48,588				39,186				127,558				106,347
Intermodal			28,062				22,296				78,572				65,217
Total operating revenues			187,546				156,462				525,137				449,810
Operating expenses:
Purchased transportation			144,413				119,333				404,503				341,634
Commissions expense			10,974				10,072				31,555				28,933
Other operating expense			3,519				3,020				10,458				10,269
Selling, general, and administrative			13,116				11,877				39,062				37,761
Insurance and claims			4,155				4,715				12,481				12,845
Depreciation and amortization			2,947				2,790				8,715				8,175
Total operating expenses			179,124				151,807				506,774				439,617
Income from operations			8,422				4,655				18,363				10,193
Interest income			13				33				61				99
Interest expense			(9	)			(2	)			(13	)			(18	)
Other non-operating income (expense), net			233				225				1,391				5,820
Income before provision for income taxes			8,659				4,911				19,802				16,094
Provision for income taxes			3,224				1,979				7,533				6,524
Net income		$	5,435			$	2,932			$	12,269			$	9,570
Earnings per common share:
Basic		$	0.35			$	0.18			$	0.79			$	0.60
Diluted		$	0.35			$	0.18			$	0.79			$	0.60
Weighted average number of common shares outstanding:
Basic			15,574				15,925				15,607				15,962
Diluted			15,574				15,925				15,607				15,962
Dividends paid per common share		$	1.00			$	—			$	1.00			$	—
Other-than-temporary impairment losses:
Total other-than-temporary impairment losses		$	—			$	—			$	—			$	—
Portion of loss recognized in other comprehensive income			—				—				—				—
Net impairment loss recognized in earnings		$	—			$	—			$	—			$	—

See accompanying notes to unaudited consolidated financial statements.

 

3

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Cash Flows

Thirty-nine Weeks ended October 1, 2011 and October 2, 2010

(In thousands)

 

		2011				2010
Cash flows from operating activities:
Net income		$	12,269			$	9,570
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			8,715				8,175
Gains on sale of marketable securities			(916	)			(5,370	)
(Gain) losses on disposal of property and equipment			(102	)			168
Provision for doubtful accounts			1,135				968
Deferred income taxes			854				(1,962	)
Change in assets and liabilities:
Accounts receivable			(19,687	)			(10,546	)
Prepaid income taxes, prepaid expenses, and other assets			(561	)			1,771
Due from CenTra and affiliates			(174	)			(192	)
Accounts payable, accrued expenses and other current liabilities			16,817				418
Other long-term liabilities			1,133				315
Net cash provided by operating activities			19,483				3,315
Cash flows from investing activities:
Capital expenditures			(8,850	)			(7,577	)
Proceeds from the sale of property and equipment			817				245
Purchases of marketable securities			(3,309	)			(2,462	)
Proceeds from sale of marketable securities			1,246				11,364
Payment of earnouts related to acquisitions			—				(183	)
Acquisition of businesses			(1,050	)			(400	)
Net cash (used in) provided by investing activities			(11,146	)			987
Cash flows from financing activities:
Borrowings under credit agreement			4,253				—
Payment of earnout obligations related to acquisitions			(220	)			(267	)
Repayment of long-term debt			—				(550	)
Dividends paid			(15,555	)			—
Purchases of treasury stock			(1,700	)			(1,458	)
Net cash used in financing activities			(13,222	)			(2,275	)
Net (decrease) increase in cash and cash equivalents			(4,885	)			2,027
Cash and cash equivalents – beginning of period			6,261				953
Cash and cash equivalents – end of period		$	1,376			$	2,980
Supplemental cash flow information:
Cash paid for interest		$	5			$	18
Cash paid for income taxes		$	7,379			$	8,572
Acquisition of businesses:
Fair value of assets acquired, including goodwill		$	1,406			$	5,884
Liabilities assumed			—				(2,453	)
Advances made for acquisitions of businesses in 2009			—				(2,647	)
Cash paid in 2010 for 2009 acquisitions of businesses			—				150
Acquisition obligations			(356	)			(534	)
Net cash paid for acquisitions of businesses		$	1,050			$	400

See accompanying notes to unaudited consolidated financial statements.

 

4

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Unaudited Consolidated Statements of Cash Flows – Continued

Thirty-nine Weeks ended October 1, 2011 and October 2, 2010

Non-cash financing transactions (Note 3):

During each of the thirty-nine week periods ended October 1, 2011 and October 2, 2010, the Company recorded the forgiveness of the loan from the County of Cuyahoga, Ohio of $90,000 as a reduction of the loan and as a reduction of the underlying land improvements.

See accompanying notes to unaudited consolidated financial statements.

 

5

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements

 

(1)	Basis of Presentation

Pursuant to the rules and regulations of the Securities and Exchange Commission, the accompanying unaudited consolidated financial statements of Universal Truckload Services, Inc. and its wholly owned subsidiaries, or the Company or UTSI, 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, 2010 and 2009 and for each of the years in the three-year period ended December 31, 2010 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)	Transactions with CenTra and Affiliates

Through December 31, 2004, UTSI was a wholly owned subsidiary of CenTra, Inc., or CenTra. On December 31, 2004, CenTra distributed all of UTSI’s common stock to the sole shareholders of CenTra, Matthew T. Moroun and a trust controlled by Manuel J. Moroun, collectively the Morouns. Subsequent to the initial public offering in 2005, the Morouns retained and continue to hold a controlling interest in UTSI. CenTra provides management services to UTSI, including legal, human resources, and tax services. The cost of these services is based on the estimated utilization of the specific services and is allocated to the Company. Management believes the allocation method is 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 management services described above, UTSI purchases other services from CenTra and affiliates. Following is a schedule of cost incurred for services provided by CenTra and affiliates. The amounts charged to UTSI for the thirteen weeks and thirty-nine weeks ended October 1, 2011 and October 2, 2010 are presented in the table below (in thousands):

 

		Thirteen weeks ended								Thirty-nine weeks ended
		October 1, 2011				October 2, 2010				October 1, 2011				October 2, 2010
Management services		$	243			$	266			$	736			$	803
Building and terminal rents			142				137				427				402
Maintenance services			21				38				137				162
Personal liability and property damage insurance			3,757				3,776				10,906				10,531
Health and other insurance			838				899				2,567				2,799
Total		$	5,001			$	5,116			$	14,773			$	14,697

 

6

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(2)	Transactions with CenTra and Affiliates—continued

Operating revenues from freight services provided to CenTra for the thirteen and thirty-nine weeks ended October 1, 2011 were $97,000 and $834,000. Operating revenues from freight services provided to CenTra for the thirteen and thirty-nine weeks ended October 2, 2010 were $57,000 and $81,000.

During the thirteen and thirty-nine weeks ended October 1, 2011, the Company charged CenTra approximately $77,000 and $227,000, respectively, for vehicle maintenance services performed during the period. For the thirteen and thirty-nine weeks ended October 2, 2010, the Company charged CenTra approximately $80,000 and $165,000, respectively, for such services during the period.

As of October 1, 2011 and December 31, 2010, amounts due from CenTra and affiliates were $254,000 and $80,000, respectively.

During the thirty-nine weeks ended October 1, 2011, the Company purchased five tractors from an affiliate of CenTra for $175,000.

The Company also retained the law firm of Sullivan Hincks & Conway to provide legal services during the period. Daniel C. Sullivan, a member of the Company’s board of directors, or the Board, is a partner at Sullivan Hincks & Conway. Amounts paid for legal services during the thirteen and thirty-nine weeks ended October 1, 2011 were $60,000 and $293,000, respectively. Amount paid for legal services during the thirteen and thirty-nine weeks ended October 2, 2010 was $181,000 and $218,000, respectively.

 

(3)

Debt

On October 28, 2010, the Company and KeyBank National Association, or KeyBank, entered into an Amended and Restated Loan Agreement and Promissory Note, collectively referred to as the Agreement, for the period October 25, 2010 to October 24, 2011, thereby replacing the previous loan agreements. Under the Agreement, the Company’s maximum permitted borrowings and letters of credit in the aggregate may not exceed $20 million. The line of credit is unsecured and bears interest at a rate equal to the lesser of the Prime Rate minus 0.50% or LIBOR plus 1.00% (effective rate of 1.24% at October 1, 2011). The Agreement contains various financial and restrictive covenants to be maintained by the Company including requirements to maintain a tangible net worth of at least $85 million, a debt to tangible net worth ratio not to exceed 1 to 1, and quarterly net profits of at least one dollar. For purposes of this Agreement, tangible net worth is defined as total assets, excluding all intangible assets, less total debt. The Agreement also may, in certain circumstances, limit our ability to pay dividends or distributions utilizing our line of credit. The Agreement also contains customary representations and warranties, affirmative and negative covenants and events of default. As of October 1, 2011, the Company was in compliance with its debt covenants. The Company did not have any amounts outstanding under its line of credit at October 1, 2011 or December 31, 2010, and there were letters of credit aggregating $650,000 and $1,300,000 issued against the line, respectively.

On May 1, 2006, UTS Realty, LLC, or Realty, a wholly owned subsidiary of the Company, received a $1,000,000 loan from the County of Cuyahoga, Ohio, or the County, to be used for improvements to its Cleveland, Ohio container storage facility. The loan agreement requires quarterly interest payments at an annual rate of 5.0%. Through January 31, 2011, subject to certain conditions, the County forgave $450,000 of the principal amount owed. On January 31, 2007, the Company began recording the forgiveness as a reduction of the loan and as a reduction in the cost of the underlying improvements at a rate of $90,000 per annum. The remaining principal was due at maturity on January 31, 2011; however, in June 2010, the Company repaid $550,000 of the remaining principal balance. As of October 1, 2011 and December 31, 2010, the outstanding balance under the loan was $0 and $90,000 (presented under other current liabilities), respectively.

 

7

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(3)	Debt – continued

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 0.84% (effective rate of 1.08% at October 1, 2011), and interest is 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 October 1, 2011 and December 31, 2010, the outstanding balance under the line of credit was $4,253,000 and $0, respectively. At October 1, 2011, the maximum available borrowings against the line of credit were $4,525,000. The carrying amount for the line of credit approximates fair value because the interest rate on the line of credit is adjusted frequently.

 

(4)	Earnings Per Share

Basic earnings per common share amounts are based on the weighted average number of common shares outstanding, and diluted earnings per share amounts are based on the weighted average number of common shares outstanding plus the incremental shares that would have been outstanding upon the assumed exercise of all dilutive stock options.

The following table provides a reconciliation of the number of weighted average common shares outstanding used to calculate basic earnings per share to the weighted average number of common shares and common share equivalents outstanding used in calculating diluted earnings per share (in thousands):

 

		Thirteen Weeks Ended								Thirty-nine Weeks Ended
		October 1, 2011				October 2, 2010				October 1, 2011				October 2, 2010
Weighted average number of common shares			15,574				15,925				15,607				15,962
Incremental shares from assumed exercise of stock options			—				—				—				—
Weighted average number of common shares and common share equivalents			15,574				15,925				15,607				15,962

For both the thirteen and thirty-nine weeks ended October 1, 2011 and October 2, 2010, 187,500 options to purchase shares of common stock were excluded from the calculation of diluted earnings per share because such options were anti-dilutive.

 

(5)	Stock Based Compensation

In December 2004, the Board 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 February 11, 2005, UTSI granted 260,000 options to certain of its employees. The stock options granted vested immediately, have a life of seven years and have an exercise price of $22.50 per share. Prior to January 1, 2006, the Company accounted for stock options issued under the Plan pursuant to the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. No stock-based employee compensation was reflected in net income prior to fiscal year 2006, as all options granted under the Plan had an exercise price equal to the fair market value of the underlying common stock on the date of grant. The intrinsic value of all outstanding options as of October 1, 2011 and October 2, 2010 was $0.

 

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(5)	Stock Based Compensation – continued

The following table summarizes the stock option activity and related information for the period indicated:

 

		Options				Weighted Average Exercise Price
Balance at January 1, 2011			187,500			$	22.50
Granted			—				—
Exercised			—				—
Expired			—				—
Forfeited			—				—
Balance at October 1, 2011			187,500			$	22.50
Exercisable			187,500			$	22.50

 

(6)	Comprehensive Income

Comprehensive income includes the following (in thousands):

 

		Thirteen Weeks Ended								Thirty-nine Weeks Ended
		October 1, 2011				October 2, 2010				October 1, 2011				October 2, 2010
Net income		$	5,435			$	2,932			$	12,269			$	9,570
Other comprehensive income (loss):
Unrealized holding gains (losses) on available-for-sale investments arising during the period, net of income tax			(1,633	)			909				(1,042	)			4,297
(Gains) on available-for-sale investments reclassified into income:
Realized gains, net of income tax			(52	)			—				(568	)			(3,193	)
Net gain (loss) recognized in other comprehensive income			(1,685	)			909				(1,610	)			1,104
Total comprehensive income		$	3,750			$	3,841			$	10,659			$	10,674

Accumulated other comprehensive income at October 1, 2011 of $632,000 represents the net unrealized holding gains on available–for-sale investments of $1,020,000 net of related income tax expense of $388,000. At October 1, 2011, the gross unrealized holding gains and gross unrealized holding losses on available-for-sale investments were $2,178,000 and $1,158,000, respectively.

Accumulated other comprehensive income at December 31, 2010 of $2,241,000 represents the unrealized holding gains on available–for-sale investments of $3,765,000, net of related income tax expense of $1,524,000. At December 31, 2010, the gross unrealized holding gains and gross unrealized holding losses on available-for-sale investments were $3,993,000 and $228,000, respectively.

 

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(7)	Acquisitions

In March 2011, the Company acquired certain assets of Hart Transportation, Inc., or Hart, based in Jacksonville, Florida through a Limited Asset Purchase Agreement for approximately $1,406,000. Hart is primarily a regional provider of van and flatbed services throughout the Southeastern United States. Included in the purchase price is approximately $356,000 of additional consideration estimated to be paid to the former owner of Hart based on a percentage of revenues generated during the period from April 1, 2011 to March 31, 2014. As of October 1, 2011, the fair value of the earnout liability was $301,000. The Company used cash and cash equivalents to finance the acquisition. Pursuant to the acquisition, Hart operates as part of Universal Am-Can, Ltd.

The pro forma effect of this acquisition has been omitted, as the effect is immaterial to the Company’s results of operations, financial position and cash flows. The allocation of the purchase price is as follows (in thousands):

 

Intangible assets		$	915
Goodwill (tax deductible)			491
		$	1,406

The intangible assets acquired represent the acquired companies’ customer relationships and are being amortized over a period of seven years.

Goodwill represents the expected synergies to be achieved through the integration of the acquired companies into UTSI, and intangible assets that do not qualify for separate accounting recognition under generally accepted accounting principles.

The operating results of the acquired company have been included in the consolidated statements of income since its acquisition date; however, it has not been separately disclosed as it is deemed immaterial.

 

(8)	Fair Value Measurements

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.

 

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(8)	Fair Value Measurements- continued

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):

 

		October 1, 2011
		Level 1				Level 2				Level 3				Fair Value Measurement
Assets
Cash equivalents		$	821			$	—			$	—			$	821
Marketable securities			15,275				—				—				15,275
Total		$	16,096			$	—			$	—			$	16,096

 

		December 31, 2010
		Level 1				Level 2				Level 3				Fair Value Measurement
Assets
Cash equivalents		$	59			$	—			$	—			$	59
Marketable securities			15,041				—				—				15,041
Total		$	15,100			$	—			$	—			$	15,100

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 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.

The carrying amount for the line of credit approximates fair value because the interest rate on the line of credit is adjusted frequently.

 

(9)	Marketable Securities

At October 1, 2011, marketable securities, all of which are available-for-sale, consist of common stocks. Marketable securities are carried at fair value, with unrealized gains and losses, net of related income taxes, reported as accumulated other comprehensive income (loss), 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).

 

11

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(9)	Marketable Securities- continued

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 October 1, 2011
Equity Securities		$	14,255			$	2,178			$	(1,158	)		$	15,275
At December 31, 2010
Equity Securities		$	11,276			$	3,993			$	(228	)		$	15,041

Included in equity securities at October 1, 2011 are securities with a fair value of $4,334,000 with a cumulative loss position of $1,158,000, 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 following table shows the gross unrealized holding losses and fair value 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 at October 1, 2011 (in thousands):

 

		Less than 12 Months								12 Months or Greater								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Equity securities		$	3,504			$	808			$	830			$	350			$	4,334			$	1,158

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, pharmaceutical, and transportation industries. The fair value and unrealized losses are distributed in 27 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 October 1, 2011.

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 drop in market prices or other unstable market conditions could cause a loss in the value of the Company’s marketable securities.

 

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(10)	Recent Accounting Pronouncements

In September 2011, the FASB issued Accounting Standards Update, or ASU, 2011-08, which allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this amendment, if the Company chooses that option, the Company would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This amendment includes a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This ASU is effective for impairment tests performed during entities’ fiscal years that begin after December 15, 2011, which for the Company will be the impairment test performed as of the last day of our 2nd fiscal quarter in 2012. The Company believes once applied, the adoption of the ASU will not have a significant impact on the Company’s financial position, results of operations, or cash flows.

 

(11)	Contingencies

The Company is involved in claims and litigation arising in the ordinary course of business. These matters primarily involve claims for personal injury and property damage incurred in the transportation of freight. Based on knowledge of the facts and, in certain cases, opinions of outside counsel, the Company believes all such litigation is adequately covered by insurance or otherwise provided for and that adverse results in one or more of those cases would not have a materially adverse effect on its financial condition, operating results and cash flows. However, if the ultimate outcome of these matters, after provisions thereof, is materially different from the Company’s estimates, they could have a material effect on the Company’s operating results and cash flows in any given quarter or year.

 

(12)

Dividends

On September 6, 2011, the Board declared a special one-time cash dividend of $1.00 per common share payable to shareholders of record on September 16, 2011. The payment of this dividend did not violate any of the Company’s financial covenants under the Company’s Loan Agreement with KeyBank. The Company currently intends to retain future earnings to finance the growth, development and expansion of its business and does not anticipate paying cash dividends in the future. Any future determination to pay dividends will be at the discretion of the Board and will depend on its financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board deems relevant.

 

(13)	Subsequent Events

The Company evaluated subsequent events through the time of filing this Quarterly Report on Form 10-Q. Except for the following matter, we are not aware of any significant events that occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on the Unaudited Consolidated Financial Statements.

 

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UNIVERSAL TRUCKLOAD SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements – Continued

 

(12)	Subsequent Events—continued

On October 24, 2011, the Company and KeyBank, entered into a Change in Terms Agreement to the Amended and Restated Loan Agreement and Promissory Note dated October 25, 2010, collectively referred to as the New Agreement, whereby the maturity date of the existing Amended and Restated Loan Agreement and Promissory Note was extended to October 23, 2012. Under the New Agreement, the Company’s maximum permitted borrowings and letters of credit in the aggregate may not exceed $20 million. The line of credit is unsecured, and bears interest at a rate equal to the lesser of the Prime Rate minus 0.50% or LIBOR plus 1.00%. The New Agreement contains various financial and restrictive covenants to be maintained by the Company including requirements to maintain a tangible net worth of at least $85 million, a debt to tangible net worth ratio not to exceed 1 to 1, and quarterly net profits of at least one dollar. For purposes of this Agreement, tangible net worth is defined as total assets, excluding all intangible assets, less total debt. The New Agreement also may, in certain circumstances, limit our ability to pay dividends or distributions utilizing our line of credit. The New Agreement also contains customary representations and warranties, affirmative and negative covenants and events of default.

 

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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, 2010, 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 primarily an asset-light provider of transportation services to shippers throughout the United States and in the Canadian provinces of Ontario and Quebec. Our over-the-road trucking services include both flatbed and dry van operations and we provide rail-truck and steamship-truck intermodal support services. We also offer truck brokerage services, which allow us to supplement our capacity and provide our customers with transportation of freight not handled by our owner-operators. In addition, we offer full service international freight forwarding and customs house brokerage services.

Our use of agents and owner-operators reduces our need to provide non-driver facilities and tractor and trailer fleets. The primary physical assets we provide to our agents and owner-operators include a portion of our trailer fleet, our headquarters facility, our management information systems and our intermodal depot facilities. Our business model provides us with a highly variable cost structure, allows us to grow organically using relatively small amounts of cash, gives us a higher return on assets compared to many of our asset-based competitors and preserves an entrepreneurial spirit among our agents and owner-operators that we believe leads to improved operating performance. For the thirteen and thirty-nine weeks ended October 1, 2011, approximately 86.8% and 86.1%, respectively, of our total operating expenses were variable in nature and our capital expenditures were $2.9 million and $8.9 million, respectively.

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, 2010 and the Unaudited Consolidated Financial Statements and related notes contained in this quarterly report on Form 10-Q.

 

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Results of Operations

The following table sets forth items derived from our consolidated statements of income for the thirteen and thirty-nine weeks ended October 1, 2011 and October 2, 2010, as a percentage of operating revenues:

 

		Thirteen Weeks Ended								Thirty-nine Weeks Ended
		October 1, 2011				October 2, 2010				October 1, 2011				October 2, 2010
Operating revenues			100	%			100	%			100	%			100	%
Operating expenses:
Purchased transportation			77.0				76.3				77.0				76.0
Commissions expense			5.9				6.4				6.0				6.4
Other operating expenses			1.9				1.9				2.0				2.3
Selling, general and administrative			7.0				7.6				7.4				8.4
Insurance and claims			2.2				3.0				2.4				2.9
Depreciation and amortization			1.6				1.8				1.7				1.8
Total operating expenses			95.5				97.0				96.5				97.7
Operating income			4.5				3.0				3.5				2.3
Interest income, net			—				—				—				—
Other non-operating income			0.1				0.1				0.3				1.3
Income before provision for income taxes			4.6				3.1				3.8				3.6
Provision for income taxes			1.7				1.3				1.4				1.5
Net income			2.9	%			1.9	%			2.3	%			2.1	%

Thirty-nine Weeks Ended October 1, 2011 Compared to Thirty-nine Weeks Ended October 2, 2010

Operating revenues. Operating revenues for the thirty-nine weeks ended October 1, 2011 increased by $75.3 million, or 16.7%, to $525.1 million from $449.8 million for the thirty-nine weeks ended October 2, 2010. The increase in operating revenues is primarily attributable to an increase in the number of loads in our truckload, brokerage and intermodal operations, an increase in fuel surcharges, and increases in our operating revenues per loaded mile. The number of loads from our combined truckload, brokerage and intermodal operations was 601,000 for the thirty-nine weeks ended October 1, 2011 compared to 555,000 for thirty-nine weeks ended October 2, 2010. Included in operating revenues are fuel surcharges of $66.2 million for the thirty-nine weeks ended October 1, 2011 compared to $40.1 million for the thirty-nine weeks ended October 2, 2010. For the thirty-nine weeks ended October 1, 2011, our operating revenue per loaded mile, excluding fuel surcharges, from our combined truckload and brokerage operations increased to $2.42 from $2.16 for the thirty-nine weeks ended October 2, 2010. Included in truckload revenues is approximately $6.7 million of revenues attributable to our acquisition made in the first quarter 2011. Excluding the effects of this acquisition, revenue from our truckload operations increased by $34.0 million, or 12.2%, to $312.3 million for the thirty-nine weeks ended October 1, 2011 from $278.2 million for the thirty-nine weeks ended October 2, 2010. Included in brokerage revenues is approximately $0.4 million of revenues attributable to our acquisition made in the first quarter 2011. Excluding the effects of this acquisition, revenue from our brokerage operations increased by $20.9 million, or 19.6%, to $127.2 million for the thirty-nine weeks ended October 1, 2011 compared to $106.3 million for the thirty-nine weeks ended October 2, 2010. Intermodal revenue increased by $13.4 million, or 20.5%, to $78.6 million for the thirty-nine weeks ended October 1, 2011 from $65.2 million for the thirty-nine weeks ended October 2, 2010.

Purchased transportation. Purchased transportation expense for the thirty-nine weeks ended October 1, 2011 increased by $62.9 million, or 18.4%, to $404.5 million from $341.6 million for the thirty-nine weeks ended October 2, 2010. As a percentage of operating revenues, purchased transportation expense increased to 77.0% for the thirty-nine weeks ended October 1, 2011 from 76.0% for the thirty-nine weeks ended October 2, 2010. The absolute increase was primarily due to the increase in our operating revenues. Purchased transportation expense generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers. The increase in purchased transportation as a percent of operating revenues is primarily due to an increase in fuel surcharges, which are passed through to owner-operators.

 

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Commissions expense. Commissions expense for the thirty-nine weeks ended October 1, 2011 increased by $2.6 million, or 9.1%, to $31.5 million from $28.9 million for the thirty-nine weeks ended October 2, 2010. As a percentage of operating revenues, commissions expense decreased to 6.0% for the thirty-nine weeks ended October 1, 2011 compared to 6.4% for thirty-nine weeks ended October 2, 2010. The absolute increase was primarily due to the increase in our operating revenues. Commissions expense generally increases or decreases in proportion to the revenues. As a percentage of revenues, the decrease in commissions expense is due to an increase in fuel surcharges, which are passed on through to our owner operators, and as such, no commission is paid.

Other operating expense. Other operating expense for the thirty-nine weeks ended October 1, 2011 increased by $0.2 million, or 1.8%, to $10.5 million from $10.3 million for the thirty-nine weeks ended October 2, 2010. As a percentage of operating revenues, other operating expense decreased to 2.0% for the thirty-nine weeks ended October 1, 2011 compared to 2.3% for thirty-nine weeks ended October 2, 2010. The absolute increase was primarily due to increases in repairs and maintenance cost of $0.2 million and permit costs of $0.4 million. These increases were partially offset by decreases in property and other operating taxes of $0.2 million and other operating expenses of $0.2 million.

Selling, general and administrative. Selling, general and administrative expense for the thirty-nine weeks ended October 1, 2011 increased by $1.3 million, or 3.4%, to $39.1 million from $37.8 million for the thirty-nine weeks ended October 2, 2010. As a percentage of operating revenues, selling, general and administrative expense decreased to 7.4% for the thirty-nine weeks ended October 1, 2011 compared to 8.4% for thirty-nine weeks ended October 2, 2010. The absolute increase was primarily the result of increases in salaries and wage expense of $1.4 million and other selling, general, and administrative costs of $0.8 million. These increases were partially offset by decreases in our provision for bad debts and uncollectible agent loans of $0.3 million and building rents of $0.5 million, as well as a decrease in the gains on the sale of equipment of $0.2 million.

Insurance and claims. Insurance and claims expense for the thirty-nine weeks ended October 1, 2011 decreased by $0.3 million, or 2.8%, to $12.5 million from $12.8 million for the thirty-nine weeks ended October 2, 2010. As a percentage of operating revenues, insurance and claims decreased to 2.4% for the thirty-nine weeks ended October 1, 2011 from 2.9% for the thirty-nine weeks ended October 2, 2010. The absolute decrease is the result of decreases in our cargo claims expense of $0.1 million, other contractor insurance and safety costs of $0.1 million and in our auto liability insurance premiums and claims expense of $0.1 million.

Depreciation and amortization. Depreciation and amortization for the thirty-nine weeks ended October 1, 2011 increased by $0.5 million, or 6.6%, to $8.7 million from $8.2 million for the thirty-nine weeks ended October 2, 2010. As a percent of operating revenues, depreciation and amortization decreased to 1.7% for the thirty-nine weeks ended October 1, 2011 from 1.8% for the thirty-nine weeks ended October 2, 2010. The absolute increase is primarily the result of additional depreciation on our capital expenditures made throughout 2010 and 2011.

Interest expense (income), net. Net interest income for the thirty-nine weeks ended October 1, 2011 was $48 thousand compared to $81 thousand for the thirty-nine weeks ended October 2, 2010.

Other non-operating income. Other non-operating income for the thirty-nine weeks ended October 1, 2011 was $1.4 million compared to $5.8 million for the thirty-nine weeks ended October 2, 2010. Included in other non-operating income for the thirty-nine weeks ended October 1, 2011 were $0.9 million of gains on the sales of marketable securities compared to $5.4 million for the thirty-nine weeks ended October 2, 2010.

Provision for income taxes. Provision for income taxes for the thirty-nine weeks ended October 1, 2011 increased by $1.0 million to $7.5 million from $6.5 million for the thirty-nine weeks ended October 2, 2010. The increase was primarily attributable to an increase in our taxable income, which was partially offset by a decrease in our effective tax rate. For the thirty-nine weeks ended October 1, 2011 and October 2, 2010, we had an effective income tax rate of 38.0% and 40.5%, respectively, based upon our income before provision for income taxes. Included in the thirty-nine weeks ended October 2, 2010 was additional income tax expense due to prior period adjustments to our state income taxes.

Thirteen Weeks Ended October 1, 2011 Compared to Thirteen Weeks Ended October 2, 2010

Operating revenues. Operating revenues for the thirteen weeks ended October 1, 2011 increased by $31.0 million, or 19.9%, to $187.5 million from $156.5 million for the thirteen weeks ended October 2, 2010. The increase in operating revenues is primarily attributable to an increase in the number of loads in our truckload, brokerage and intermodal operations, an increase in fuel surcharges, and increases in our operating revenues per loaded mile. The

 

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number of loads from our combined truckload, brokerage and intermodal operations was 208,000 for the thirteen weeks ended October 1, 2011 compared to 186,000 for thirteen weeks ended October 2, 2010. Included in operating revenues are fuel surcharges of $23.3 million for the thirteen weeks ended October 1, 2011 compared to $13.8 million for the thirteen weeks ended October 2, 2010. For the thirteen weeks ended October 1, 2011, our operating revenue per loaded mile, excluding fuel surcharges, from our combined truckload and brokerage operations increased to $2.55 from $2.34 for the thirteen weeks ended October 2, 2010. Included in truckload revenues is approximately $2.8 million of revenues attributable to our acquisition made in the first quarter 2011. Excluding the effects of this acquisition, revenue from our truckload operations increased by $13.0 million, or 13.8%, to $108.0 million for the thirteen weeks ended October 1, 2011 from $95.0 million for the thirteen weeks ended October 2, 2010. Included in brokerage revenues is approximately $0.3 million of revenues attributable to our acquisition made in the first quarter 2011. Excluding the effects of this acquisition, revenue from our brokerage operations increased by $9.1 million, or 23.3%, to $48.3 million for the thirteen weeks ended October 1, 2011 compared to $39.2 million for the thirteen weeks ended October 2, 2010. Intermodal revenue increased by $5.8 million, or 25.9%, to $28.1 million for the thirteen weeks ended October 1, 2011 from $22.3 million for the thirteen weeks ended October 2, 2010.

Purchased transportation. Purchased transportation expense for the thirteen weeks ended October 1, 2011 increased by $25.1 million, or 21.0%, to $144.4 million from $119.3 million for the thirteen weeks ended October 2, 2010. As a percentage of operating revenues, purchased transportation expense increased to 77.0% for the thirteen weeks ended October 1, 2011 from 76.3% for the thirteen weeks ended October 2, 2010. The absolute increase was primarily due to the increase in our operating revenues. Purchased transportation expense generally increases or decreases in proportion to the revenues generated through owner-operators and other third party providers. The increase in purchased transportation as a percent of operating revenues is primarily due to an increase in fuel surcharges, which are passed through to owner-operators, which was partially offset by a decrease in our truckload purchased transportation rates.

Commissions expense. Commissions expense for the thirteen weeks ended October 1, 2011 increased by $0.9 million, or 9.0%, to $11.0 million from $10.1 million for the thirteen weeks ended October 2, 2010. As a percentage of operating revenues, commissions expense decreased to 5.9% for the thirteen weeks ended October 1, 2011 compared to 6.4% for thirteen weeks ended October 2, 2010. The absolute increase was primarily due to the increase in our operating revenues. Commissions expense generally increases or decreases in proportion to the revenues. As a percentage of revenues, the decrease in commissions expense is due to an increase in fuel surcharges, which are passed on through to our owner operators, and an increase in revenues generated by our employee managed terminals, and as such, no commissions are paid.

Other operating expense. Other operating expense for the thirteen weeks ended October 1, 2011 increased by $0.5 million, or 16.5%, to $3.5 million from $3.0 million for the thirteen weeks ended October 2, 2010. As a percentage of operating revenues, other operating expense remained consistent at 1.9% for both the thirteen weeks ended October 1, 2011 and October 2, 2010. The absolute increase was primarily due to increases in repairs and maintenance cost of $0.4 million and permit costs of $0.1 million.

Selling, general and administrative. Selling, general and administrative expense for the thirteen weeks ended October 1, 2011 increased by $1.2 million, or 10.4%, to $13.1 million from $11.9 million for the thirteen weeks ended October 2, 2010. As a percentage of operating revenues, selling, general and administrative expense decreased to 7.0% for the thirteen weeks ended October 1, 2011 compared to 7.6% for thirteen weeks ended October 2, 2010. The absolute increase was primarily the result of increases in salaries and wage expense of $0.6 million, other selling, general, and administrative costs of $0.6 million, and our provisions for bad debts and uncollectible agent loans of $0.4 million. These increases were partially offset by decreases in building rents of $0.1 million and professional fees of $0.2 million, as well as a decrease in the gains on the sale of equipment of $0.1 million.

Insurance and claims. Insurance and claims expense for the thirteen weeks ended October 1, 2011 decreased by $0.5 million, or 11.9%, to $4.2 million from $4.7 million for the thirteen weeks ended October 2, 2010. As a percentage of operating revenues, insurance and claims expense decreased to 2.2% for the thirteen weeks ended October 1, 2011 from 3.0% for the thirteen weeks ended October 2, 2010. The absolute decrease is the result of decreases in our cargo claims expense of $0.2 million and in our auto liability insurance premiums and claims expense of $0.3 million.

Depreciation and amortization. Depreciation and amortization for the thirteen weeks ended October 1, 2011 increased by $0.1 million, or 5.6%, to $2.9 million from $2.8 million for the thirteen weeks ended October 2, 2010. As a percent of operating revenues, depreciation and amortization decreased to 1.6% for the thirteen weeks ended October 1, 2011 from 1.8% for the thirteen weeks ended October 2, 2010. The absolute increase is primarily the result of additional depreciation on our capital expenditures made throughout 2010 and 2011.

 

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Interest expense (income), net. Net interest income for the thirteen weeks ended October 1, 2011 was $4 thousand compared to $31 thousand for the thirteen weeks ended October 2, 2010.

Other non-operating income. Other non-operating income for the thirteen weeks ended October 1, 2011 was $233 thousand compared to $225 thousand for the thirteen weeks ended October 2, 2010.

Provision for income taxes. Provision for income taxes for the thirteen weeks ended October 1, 2011 increased by $1.2 million to $3.2 million from $2.0 million for the thirteen weeks ended October 2, 2010. The increase was primarily attributable to an increase in our taxable income, which was partially offset by a decrease in our effective tax rate. For the thirteen weeks ended October 1, 2011 and October 2, 2010, we had an effective income tax rate of 37.2% and 40.3%, respectively, based upon our income before provision for income taxes. Included in the thirteen weeks ended October 2, 2010 was additional income tax expense due to prior period adjustments to our state income taxes.

Liquidity and Capital Resources

Our primary sources of liquidity are funds generated by operations, our ability to borrow on margin against our marketable securities held at UBS, proceeds from the sales of marketable securities, and our revolving unsecured line of credit with KeyBank.

We employ a primarily asset-light operating strategy. Substantially all of the tractors and more than 50% of the trailers utilized in our business are provided by our owner-operators and we have no capital expenditure requirements relating to this equipment. As a result, our capital expenditure requirements are limited in comparison to most large trucking companies which maintain sizable fleets of owned tractors and trailers, requiring significant capital expenditures.

The Company continues to expand its domestic intermodal operations through the acquisition of 53’ containers. During the thirty-nine weeks ended October 1, 2011, the Company added 135 53’ containers to its fleet. Through the end of 2011, the Company expects to add an additional 165 53’ containers to provide for expansion in this business line. We expect to have limited capital expenditure requirements relating to the maintenance of this equipment; however, we will continue to acquire additional containers to meet our business needs.

During the thirteen and thirty-nine weeks ended October 1, 2011, we made capital expenditures totaling $2.9 million and $8.9 million, respectively. These expenditures primarily consisted of tractors, trailers, containers and computer, office, and miscellaneous equipment.

Through the end of 2011, exclusive of acquisitions, if any, we expect to incur capital expenditures of $1.0 million to $1.5 million relating to real property acquisitions and improvements to our existing facilities and the acquisition of additional terminal yards or container facilities. We also expect to incur capital expenditures of $11.0 million to $11.5 million for tractors, trailers, containers, chassis, and other equipment.

We expect that our 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 under our line of credit, 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. Any such opportunities will be financed from available cash and cash equivalents and our unsecured line of credit.

We currently intend to retain our future earnings to finance our growth and do not anticipate paying cash dividends in the foreseeable future.

 

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Unsecured Line of Credit

On October 28, 2010, the Company and KeyBank National Association, or KeyBank, entered into an Amended and Restated Loan Agreement and Promissory Note, collectively referred to as the Agreement, for the period October 25, 2010 to October 24, 2011, thereby replacing the previous loan agreements. Under the Agreement, the Company’s maximum permitted borrowings and letters of credit in the aggregate may not exceed $20 million. The line of credit is unsecured, and bears interest at a rate equal to the lesser of the Prime Rate minus 0.50% or LIBOR plus 1.00% (effective rate of 1.24% at October 1, 2011). The Agreement contains various financial and restrictive covenants to be maintained by the Company including requirements to maintain a tangible net worth of at least $85 million, a debt to tangible net worth ratio not to exceed 1 to 1, and quarterly net profits of at least one dollar. For purposes of this Agreement, tangible net worth is defined as total assets, excluding all intangible assets, less total debt. The Agreement also may, in certain circumstances, limit our ability to pay dividends or distributions utilizing our line of credit. The Agreement also contains customary representations and warranties, affirmative and negative covenants and events of default. As of October 1, 2011, the Company was in compliance with its debt covenants. The Company did not have any amounts outstanding under its line of credit at October 1, 2011, and there were letters of credit aggregating $650,000 issued against the line.

On October 24, 2011, the Company and KeyBank National Association, or KeyBank, entered into a Change in Terms Agreement to the Amended and Restated Loan Agreement and Promissory Note dated October 25, 2010, collectively referred to as the New Agreement, whereby the maturity date of the existing Amended and Restated Loan Agreement and Promissory Note was extended to October 23, 2012. Under the New Agreement, the Company’s maximum permitted borrowings and letters of credit in the aggregate may not exceed $20 million. The line of credit is unsecured, and bears interest at a rate equal to the lesser of the Prime Rate minus 0.50% or LIBOR plus 1.00%. The New Agreement contains various financial and restrictive covenants to be maintained by the Company including requirements to maintain a tangible net worth of at least $85 million, a debt to tangible net worth ratio not to exceed 1 to 1, and quarterly net profits of at least one dollar. For purposes of this New Agreement, tangible net worth is defined as total assets, excluding all intangible assets, less total debt. The New Agreement also may, in certain circumstances, limit our ability to pay dividends or distributions utilizing our line of credit. The New Agreement also contains customary representations and warranties, affirmative and negative covenants and events of default.

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 0.84% (effective rate of 1.08% at October 1, 2011), and interest is 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 October 1, 2011 the outstanding balance under the line of credit was $4,253,000. At October 1, 2011, the maximum available borrowings against the line of credit were $4,525,000.

Discussion of Cash Flows

At October 1, 2011, we had cash and cash equivalents of $1.4 million compared to $6.3 million at December 31, 2010. The decrease in cash and cash equivalents of $4.9 million for the thirty-nine weeks ended October 1, 2011 resulted from $11.2 million in cash used in investing activities and $13.2 million of in cash used in financing activities. This was partially offset by $19.5 million in cash provided by operating activities.

The $11.2 million in net cash used in investing activities for the thirty-nine weeks ended October 1, 2011 consisted of $8.9 million of capital expenditures, $3.3 million in purchases of marketable securities, and $1.0 million for the acquisition of businesses, offset by $1.2 million in proceeds from the sales of marketable securities and $0.8 million in proceeds from the sale of property and equipment.

The $13.2 million in cash used in financing activities for the thirty-nine weeks ended October 1, 2011 consisted of a $15.6 million special one-time cash dividend, $1.7 million in the purchases of treasury stock and $0.2 million for the payments of earnout obligations, offset by $4.3 million of margin borrowings on our secured short-term line of credit.

 

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The $19.5 million in net cash provided by operations was primarily attributed to $12.3 million of net income adjusted for $8.7 million of non-cash charges for depreciation and amortization, a $0.9 million gain on the sales of marketable securities, $0.9 million in changes in deferred income taxes, $1.1 million of non-cash charges for provisions for doubtful accounts, and an increase in the working capital position of the Company of $2.5 million. The increase in the working capital position is primarily the result of an increase in accounts receivable due to increased revenue and an increase in prepaid expenses and other assets. These increases are partially offset by increases in accounts payable and other current liabilities, and other long-term liabilities.

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, 2010. There have been no changes in the accounting policies followed by us during the thirty-nine weeks ended October 1, 2011.

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 remaining 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 or thirty-nine weeks ended October 1, 2011. For additional information, please see the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

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 October 1, 2011, 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’s, 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 thirty-nine weeks ended October 1, 2011 identified in connection with our evaluation that have 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 (11) 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, 2010.

 

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, 2010.

 

ITEM 2:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information regarding the Company’s purchases of its Common Stock during the period from July 3, 2011 to October 1, 2011, the Company’s third fiscal quarter:

 

Fiscal Period		Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Program				Maximum Number of Shares that May Yet be Purchased Under the Program
Jul. 2, 2011											526,900				273,100
Jul. 3, 2011 – Jul. 30, 2011			1,700			$	15.89				528,600				271,400
Jul. 31, 2011 – Aug. 27, 2011			38,700				14.07				567,300				232,700
Aug. 28, 2011 – Oct. 1, 2011			—				—				567,300				232,700
Total			40,400			$	14.15				567,300				232,700

 

ITEM 3:

DEFAULTS UPON SENIOR SECURITIES

None.

 

ITEM 4:

(REMOVED AND RESERVED)

None.

 

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		Amended and Restated Articles of Incorporation (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-1 filed on November 15, 2004 (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		Registration Rights Agreement, dated as of December 31, 2004, among the Registrant, Matthew T. Moroun and The Manuel J. Moroun Trust (Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1 filed on January 7, 2005 (Commission File No. 000-51142))
10.1		Change in Terms Agreement between Universal Truckload Services, Inc. and KeyBank National Association dated October 24, 2011 ((Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 27, 2011 (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.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: November 9, 2011				/s/ Robert E. Sigler
By:				Robert E. Sigler, Vice President, Chief
				Financial Officer, Secretary and Treasurer

 

Date: November 9, 2011				/s/ Donald B. Cochran
By:				Donald B. Cochran, President and Chief
				Executive Officer

 

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