Universal Truckload Services, Inc. — 2011 Form 10-K
Entity note: The filing is for Universal Truckload Services, Inc. (NASDAQ: UACL), not Universal Logistics Holdings, Inc. It covers the fiscal year ended December 31, 2011; fourth-quarter results are also reported below. Unless otherwise stated, amounts are in U.S. dollars.
Business context and reporting period
The company provides truckload, freight brokerage and intermodal transportation services in the United States and parts of Canada. Its asset-light model relies primarily on independent agents and owner-operators; about 85.9% of 2011 operating expenses were variable. Truckload, brokerage and intermodal contributed 60.5%, 24.8% and 14.7% of annual revenue, respectively.
Financial performance and liquidity
| Metric | 2011 | 2010 |
|---|---|---|
| Operating revenue | $699.8 million | $605.9 million |
| Operating income / margin | $24.4 million / 3.5% | $15.4 million / 2.5% |
| Net income / net margin | $15.8 million / 2.3% | $12.7 million / 2.1% |
| Diluted EPS | $1.01 | $0.80 |
| Cash from operations | $34.2 million | $12.5 million |
| Capital expenditures | $21.0 million | $10.3 million |
- Revenue increased 15.5%; management cited higher load volume, fuel surcharges and revenue per loaded mile. Loads across truckload, brokerage and intermodal rose to about 798,000 from 740,000. Fuel surcharges were $88.6 million versus $54.2 million.
- Operating income rose 58.8%. Purchased transportation increased to 76.9% of revenue from 76.1%, partly reflecting fuel surcharges passed through to contractors. Lower commissions, SG&A, insurance and claims, and depreciation as a share of revenue supported margin improvement.
- Other non-operating income fell to $1.8 million from $6.0 million, principally because realized gains on securities sales declined to $1.1 million from $5.4 million. The effective tax rate was 39.7%.
- Fourth-quarter 2011 revenue was $174.6 million, operating income $6.0 million, net income $3.5 million and diluted EPS $0.23. Versus fourth-quarter 2010, revenue rose about 11%, operating income 16% and net income 12%.
- Year-end cash was $0.9 million; marketable securities were $16.1 million. Total assets were $228.9 million and shareholders’ equity $162.1 million. The company had no outstanding borrowings on either credit facility; reported debt including current maturities was zero.
- Operating cash flow funded investment and distributions. Financing cash use included a $15.6 million special dividend and $1.7 million of treasury-stock purchases. The board declared a one-time $1.00-per-share dividend in September 2011; management said it did not anticipate regular cash dividends.
Material changes, outlook and notable items
- The company acquired Hart Transportation assets in March 2011 for approximately $1.4 million, including contingent consideration. Acquisition-related revenue was about $10.1 million. It also added 400 domestic intermodal containers.
- Management forecast 2012 capital expenditures of $1.0–$1.6 million for real property and facility improvements, plus $16.7–$17.7 million for tractors, trailers, containers, chassis and other equipment. It expected working capital and available borrowing capacity to meet needs for at least 12 months, assuming continued profitability. No revenue or earnings guidance was provided.
- The unsecured KeyBank facility had a $20 million aggregate limit and maturity extended to October 23, 2012. A securities-backed UBS facility had up to $8.4 million available and was callable. The filing reports different KeyBank letters-of-credit balances in separate sections—$140,000 in MD&A and $50,000 in the debt note—so the balance is unclear.
- Key risks include recruiting and retaining owner-operators (2011 turnover was about 67%), dependence on agents (top 100 agents generated 49.4% of revenue), fuel and insurance costs, competition and economic cycles, self-insured claims, regulatory changes, acquisition execution and possible employee reclassification of contractors. The company also held $16.1 million in equity securities, exposed to market-value declines; a 10% price decline would reduce carrying value by about $1.6 million.
- Goodwill impairment testing found no impairment in 2011. Unrealized securities losses of $0.7 million were considered temporary. The company disclosed ordinary-course litigation and environmental risks but said it did not expect identified matters to have a material effect. KPMG gave unqualified opinions on the financial statements and internal controls; management concluded controls were effective.
Important facts for investors to verify
- Confirm the registrant identity: this filing names Universal Truckload Services, Inc., not Universal Logistics Holdings, Inc.
- Reconcile the $50,000 versus $140,000 reported KeyBank letters of credit and confirm current facility terms, availability and covenant compliance.
- Review the quality and durability of operating cash flow, particularly the effects of working-capital movements and the special dividend.
- Assess whether revenue and margins can withstand higher contractor compensation, fuel, insurance and brokerage costs, and whether owner-operator and agent attrition affects capacity.
- Monitor the market value and impairment assessments of the equity portfolio, as well as self-insured claims, tax contingencies and acquisition earnouts.