Universal Truckload Services, Inc. — Q3 2012 Form 10-Q
Reporting period: 13 and 39 weeks ended September 29, 2012, compared with periods ended October 1, 2011. The filing is by Universal Truckload Services, Inc. (the company named in the filing). Financial amounts below are in millions of dollars except per-share data.
Business context and period results
The company provides asset-light truckload, brokerage and intermodal transportation services. On October 1, 2012, after the reporting period, it acquired LINC Logistics Company, expanding into value-added and specialized third-party logistics services. The company says approximately 85.6% of its year-to-date operating expenses were variable in nature.
| Metric | Q3 2012 | Q3 2011 | 39 weeks 2012 | 39 weeks 2011 |
|---|---|---|---|---|
| Revenue | $183.3 | $187.5 | $544.2 | $525.1 |
| Operating income | $7.8 | $8.4 | $20.7 | $18.4 |
| Net income | $5.5 | $5.4 | $14.1 | $12.3 |
| Diluted EPS | $0.36 | $0.35 | $0.91 | $0.79 |
| Operating margin | 4.3% | 4.5% | 3.8% | 3.5% |
| Net margin | 3.0% | 2.9% | 2.6% | 2.3% |
Financial performance and changes
- Quarter: Revenue fell 2.2%, with fewer truckload and brokerage loads and lower fuel surcharges partly offset by higher revenue per loaded mile. Combined loads declined to 204,000 from 208,000. Operating income decreased 7.4%; net income rose 1.4%, helped by higher other non-operating income.
- Year to date: Revenue increased 3.6%, driven by increased brokerage and intermodal loads, higher revenue per loaded mile, and fuel surcharges. Combined loads rose to 609,000 from 601,000. Operating income grew 12.6% and net income 15.0%.
- Year-to-date purchased transportation declined to 76.6% of revenue from 77.0%, while SG&A increased to 7.8% from 7.4%. Other operating expense rose to 2.2% from 2.0%. Management attributed cost-ratio improvement mainly to lower transportation costs; higher SG&A primarily reflected salaries and wages.
- Other non-operating income was $2.4 million year to date, including $1.9 million in realized gains on marketable securities, versus $1.4 million and $0.9 million, respectively, in 2011. The effective tax rate was 38.8%, compared with 38.0%.
Cash flow, liquidity and debt
- For the 39 weeks, operating cash flow was $21.0 million, capital expenditures were $11.0 million, investing cash use was $5.0 million, and financing cash use was $16.6 million. Financing use included a $15.5 million special cash dividend and $1.0 million of treasury-stock purchases. Cash declined by $0.7 million to $0.2 million.
- At September 29, current assets were $130.0 million and current liabilities $83.4 million; marketable securities were $11.2 million. There was no outstanding borrowing under the company’s existing lines at quarter-end. The new Comerica facility had no drawings at September 29 because the LINC merger was still pending.
- At the October 1 LINC closing, the company borrowed approximately $149.1 million under a new facility providing up to $220 million: $110 million revolver, $60 million equipment facility and $50 million term loan. Borrowings are secured by substantially all assets of the company and material U.S. subsidiaries, and are subject to leverage and fixed-charge coverage covenants. Interest rates vary with LIBOR or a base rate and the company’s leverage ratio.
- Management expected working capital and available borrowing capacity to meet operating and capital needs for at least 12 months, assuming continued profitability. It projected remaining 2012 capital expenditures, excluding acquisitions, of $3.7–$5.8 million.
LINC acquisition, outlook and risks
- LINC was owned by entities related to the Moroun family, which also controls Universal. Universal issued 14,527,332 shares and borrowed approximately $149.1 million at closing to repay LINC debt, dividends payable and debt issuance costs. The common-control acquisition will be accounted for using carrying amounts, with future financial statements retrospectively revised to include LINC in prior periods.
- Unaudited pro forma results assuming LINC had been combined from January 1 were revenue of $777.5 million and EPS of $1.13 for the 39 weeks ended September 29, 2012, versus $742.7 million and $1.00 for the comparable 2011 period. These illustrative figures exclude estimated merger transaction costs of $8.3 million; $6.0 million was recorded in prepaid expenses and accrued liabilities at September 29 and was expected to be expensed in Q4 2012.
- Management provided no earnings or revenue guidance. It said it intended to retain future earnings and did not anticipate cash dividends in the foreseeable future. The company remains exposed to equity-market value fluctuations in its securities portfolio; $347,000 of unrealized losses were considered temporary. Ordinary-course injury and property-damage claims are generally insured or provided for, but materially different outcomes from estimates could affect results or cash flows.
- The filing reports a correction to the presentation of insurance claims liabilities and related recoveries, with management concluding the prior-period effect was immaterial. The reported amounts were presented separately on the balance sheet. Related-party dealings include services purchased from CenTra and affiliates, and legal services from a firm whose partner serves on the board.
Important facts for investors to verify
- How the $149.1 million post-close borrowing affects leverage, interest expense, covenant headroom and liquidity.
- The completed common-control accounting and retrospective presentation of LINC, including any resulting changes to historical comparisons.
- Actual merger transaction costs versus the $8.3 million estimate and their impact on Q4 earnings.
- Whether Q3’s lower revenue and load volumes persist, and whether year-to-date transportation-cost improvements continue.
- Developments in the securities portfolio, self-insured claims, and other contingencies, as well as the terms and amounts of ongoing related-party transactions.