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UACL > SEC Filings for UACL > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for UNIVERSAL TRUCKLOAD SERVICES, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for UNIVERSAL TRUCKLOAD SERVICES, INC.


7-Nov-2012

Quarterly Report


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, 2011, 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 transportation services to customers throughout the United States and in the Canadian provinces of Ontario and Quebec. Our trucking services include flatbed and dry van operations, and rail-truck and steamship-truck intermodal support services. We also offer brokerage services, which allows us to supplement our capacity and provide our customers with freight transportation by using third party capacity, as well as full service international freight forwarding and customs house brokerage services. Following our acquisition of LINC Logistics Company on October 1, 2012, we have increased the scope of our service offerings by adding a leading provider of custom-developed third-party logistics solutions with operations in the United States, Canada and Mexico. Our value-added logistics services now include material handling and consolidation, sequencing and sub-assembling, kitting and repacking, and returnable container management.

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 September 29, 2012, approximately 85.8% and 85.6%, respectively, of our total operating expenses were variable in nature and our capital expenditures were $4.7 million and $11.0 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, 2011 and the Unaudited Consolidated Financial Statements and related notes contained in this quarterly report on Form 10-Q.


Results of Operations

The following table sets forth items derived from our consolidated statements of
income for the thirteen and thirty-nine weeks ended September 29, 2012 and
October 1, 2011, as a percentage of operating revenues:



                                            Thirteen Weeks Ended                         Thirty-nine Weeks Ended
                                     September 29,            October 1,           September 29,            October 1,
                                         2012                    2011                  2012                    2011
Operating revenues                              100 %                 100 %                   100 %                 100 %
Operating expenses:
Purchased transportation                       76.4                  77.0                    76.6                  77.0
Commissions expense                             5.7                   5.9                     5.7                   6.0
Other operating expenses                        2.1                   1.9                     2.2                   2.0
Selling, general and
administrative                                  7.6                   7.0                     7.8                   7.4
Insurance and claims                            2.3                   2.2                     2.2                   2.4
Depreciation and amortization                   1.6                   1.6                     1.6                   1.7

Total operating expenses                       95.7                  95.5                    96.2                  96.5

Operating income                                4.3                   4.5                     3.8                   3.5
Interest income, net                             -                     -                       -                     -
Other non-operating income                      0.6                   0.1                     0.4                   0.3

Income before provision for
income taxes                                    4.9                   4.6                     4.2                   3.8
Provision for income taxes                      1.9                   1.7                     1.6                   1.4

Net income                                      3.0 %                 2.9 %                   2.6 %                 2.3 %

Thirty-nine Weeks Ended September 29, 2012 Compared to Thirty-nine Weeks Ended October 1, 2011

Operating revenues. Operating revenues for the thirty-nine weeks ended September 29, 2012 increased by $19.1 million, or 3.6%, to $544.2 million from $525.1 million for the thirty-nine weeks ended October 1, 2011. The increase in operating revenues is primarily attributable to an increase in the number of loads in our brokerage and intermodal operations, increases in our operating revenues per loaded mile, and an increase in fuel surcharges. The number of loads from our combined truckload, brokerage and intermodal operations was 609,000 for the thirty-nine weeks ended September 29, 2012 compared to 601,000 for thirty-nine weeks ended October 1, 2011. For the thirty-nine weeks ended September 29, 2012, our operating revenue per loaded mile, excluding fuel surcharges, from our combined truckload and brokerage operations increased to $2.61 from $2.42 for the thirty-nine weeks ended October 1, 2011. Included in operating revenues are fuel surcharges of $69.3 million for the thirty-nine weeks ended September 29, 2012 compared to $66.2 million for the thirty-nine weeks ended October 1, 2011. Included in operating revenue is approximately $5.2 million of revenues attributable to our acquisitions made since the first quarter 2011, which consists of $1.3 million in truckload operations, $0.7 million in brokerage operations, and $3.2 million in intermodal support services. Excluding the effects of these acquisitions, revenue from our truckload operations increased by $2.1 million, or 0.7%, to $321.1 million for the thirty-nine weeks ended September 29, 2012 from $319.0 million for the thirty-nine weeks ended October 1, 2011. Excluding the effects of these acquisitions, revenue from our brokerage operations increased by $8.2 million, or 6.4%, to $135.7 million for the thirty-nine weeks ended September 29, 2012 compared to $127.5 million for the thirty-nine weeks ended October 1, 2011. Excluding the effects of these acquisitions, revenue from our intermodal support services increased by $3.6 million, or 4.6%, to $82.2 million for the thirty-nine weeks ended September 29, 2012 from $78.6 million for the thirty-nine weeks ended October 1, 2011.

Purchased transportation. Purchased transportation expense for the thirty-nine weeks ended September 29, 2012 increased by $12.4 million, or 3.1%, to $416.9 million from $404.5 million for the thirty-nine weeks ended October 1, 2011. As a percentage of operating revenues, purchased transportation expense decreased to 76.6% for the thirty-nine weeks ended September 29, 2012 from 77.0% for the thirty-nine weeks ended October 1, 2011. 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 decrease in purchased transportation as a percent of operating revenues is primarily due to a decrease in the cost of transportation in our truckload and brokerage businesses.


Commissions expense. Commissions expense for the thirty-nine weeks ended September 29, 2012 decreased by $0.4 million, or 1.3%, to $31.2 million from $31.6 million for the thirty-nine weeks ended October 1, 2011. As a percentage of operating revenues, commissions expense decreased to 5.7% for the thirty-nine weeks ended September 29, 2012 compared to 6.0% for thirty-nine weeks ended October 1, 2011. 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 thirty-nine weeks ended September 29, 2012 increased by $1.7 million, or 16.2%, to $12.2 million from $10.5 million for the thirty-nine weeks ended October 1, 2011. As a percentage of operating revenues, other operating expense increased to 2.2% for the thirty-nine weeks ended September 29, 2012 compared to 2.0% for thirty-nine weeks ended October 1, 2011. The absolute increase was primarily due to an increase in repairs and maintenance expense of $1.3 million, permit costs of $0.1 million, highway use and fuel expense of $0.1 million, property and other operating taxes of $0.1 million, and other operating expenses of $0.3 million. These increases were partially offset by a decrease in license plate expense of $0.2 million.

Selling, general and administrative. Selling, general and administrative expense for the thirty-nine weeks ended September 29, 2012 increased by $3.1 million, or 7.9%, to $42.2 million from $39.1 million for the thirty-nine weeks ended October 1, 2011. As a percentage of operating revenues, selling, general and administrative expense increased to 7.8% for the thirty-nine weeks ended September 29, 2012 compared to 7.4% for thirty-nine weeks ended October 1, 2011. The absolute increase was primarily the result of increases in salaries and wage expense of $2.8 million, travel and entertainment of $0.1 million, communication costs of $0.4 million, and professional fees of $0.1 million. These increases were partially offset by a decrease in our provision for bad debts of $0.4 million.

Insurance and claims. Insurance and claims expense for the thirty-nine weeks ended September 29, 2012 decreased by $0.3 million, or 2.4%, to $12.2 million from $12.5 million for the thirty-nine weeks ended October 1, 2011. As a percentage of operating revenues, insurance and claims decreased to 2.2% for the thirty-nine weeks ended September 29, 2012 from 2.4% for the thirty-nine weeks ended October 1, 2011. The absolute decrease is primarily the result of a decrease in our auto liability insurance premiums and claims expense of $0.4 million, which was partially offset by an increase in our cargo claims expense of $0.1 million.

Depreciation and amortization. Depreciation and amortization for the thirty-nine weeks ended September 29, 2012 increased by $0.2 million, or 2.3%, to $8.9 million from $8.7 million for the thirty-nine weeks ended October 1, 2011. As a percent of operating revenues, depreciation and amortization decreased to 1.6% for the thirty-nine weeks ended September 29, 2012 from 1.7% for the thirty-nine weeks ended October 1, 2011. The absolute increase is primarily the result of additional depreciation of $0.5 million on our capital expenditures, which was partially offset by a decrease in amortization of $0.3 million.

Interest expense (income), net. Net interest income for the thirty-nine weeks ended September 29, 2012 was $19 thousand compared to $48 thousand for the thirty-nine weeks ended October 1, 2011.

Other non-operating income. Other non-operating income for the thirty-nine weeks ended September 29, 2012 was $2.4 million compared to $1.4 million for the thirty-nine weeks ended October 1, 2011. Included in other non-operating income for the thirty-nine weeks ended September 29, 2012 were $1.9 million of gains on the sales of marketable securities compared to $0.9 million for the thirty-nine weeks ended October 1, 2011.

Provision for income taxes. Provision for income taxes for the thirty-nine weeks ended September 29, 2012 increased by $1.4 million to $8.9 million from $7.5 million for the thirty-nine weeks ended October 1, 2011. The increase was primarily attributable to an increase in our taxable income and an increase in our effective tax rate. For the thirty-nine weeks ended September 29, 2012 and October 1, 2011, we had an effective income tax rate of 38.8% and 38.0%, respectively, based upon our income before provision for income taxes.

Thirteen Weeks Ended September 29, 2012 Compared to Thirteen Weeks Ended October 1, 2011

Operating revenues. Operating revenues for the thirteen weeks ended September 29, 2012 decreased by $4.2 million, or 2.2%, to $183.3 million from $187.5 million for the thirteen weeks ended October 1, 2011. The decrease in operating revenues is primarily attributable to a decrease in the number of loads in our truckload and brokerage operations, and a decrease in fuel surcharges, which were partially offset by an increase in our operating revenues per loaded mile. The number of loads from our combined truckload, brokerage and intermodal operations was


204,000 for the thirteen weeks ended September 29, 2012 compared to 208,000 for thirteen weeks ended October 1, 2011. Included in operating revenues are fuel surcharges of $23.0 million for the thirteen weeks ended September 29, 2012 compared to $23.3 million for the thirteen weeks ended October 1, 2011. For the thirteen weeks ended September 29, 2012, our operating revenue per loaded mile, excluding fuel surcharges, from our combined truckload and brokerage operations increased to $2.67 from $2.55 for the thirteen weeks ended October 1, 2011. Revenue from our truckload operations decreased by $2.7 million, or 2.4%, to $108.2 million for the thirteen weeks ended September 29, 2012 from $110.9 million for the thirteen weeks ended October 1, 2011. Revenue from our brokerage operations decreased by $4.5 million, or 9.3%, to $44.1 million for the thirteen weeks ended September 29, 2012 compared to $48.6 million for the thirteen weeks ended October 1, 2011. Included in operating revenues is approximately $2.1 million of intermodal revenues attributable to our acquisition made in the second quarter of 2012. Excluding the effects of this acquisition, revenue from our intermodal support services increased by $0.8 million, or 2.8%, to $28.9 million for the thirteen weeks ended September 29, 2012 from $28.1 million for the thirteen weeks ended October 1, 2011.

Purchased transportation. Purchased transportation expense for the thirteen weeks ended September 29, 2012 decreased by $4.4 million, or 3.0%, to $140.0 million from $144.4 million for the thirteen weeks ended October 1, 2011. As a percentage of operating revenues, purchased transportation expense decreased to 76.4% for the thirteen weeks ended September 29, 2012 from 77.0% for the thirteen weeks ended October 1, 2011. The absolute decrease was primarily due to the decrease 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 decrease in purchased transportation as a percent of operating revenues is primarily due to a decrease in the cost of transportation in our truckload and brokerage businesses.

Commissions expense. Commissions expense for the thirteen weeks ended September 29, 2012 decreased by $0.5 million, or 4.5%, to $10.5 million from $11.0 million for the thirteen weeks ended October 1, 2011. As a percentage of operating revenues, commissions expense decreased to 5.7% for the thirteen weeks ended September 29, 2012 compared to 5.9% for thirteen weeks ended October 1, 2011. The absolute decrease was primarily due to the decrease 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 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 September 29, 2012 increased by $0.4 million, or 11.4%, to $3.9 million from $3.5 million for the thirteen weeks ended October 1, 2011. As a percentage of operating revenues, other operating expense increased to 2.1% for the thirteen weeks ended September 29, 2012 compared to 1.9% for the thirteen weeks ended September 29, 2011. The absolute increase was primarily due to increases in repairs and maintenance cost of $0.5 million and property and other operating expenses of $0.1 million. These increases were partially offset by a decrease in license plate expense of $0.1 million and permit expense of $0.1 million.

Selling, general and administrative. Selling, general and administrative expense for the thirteen weeks ended September 29, 2012 increased by $0.8 million, or 6.1%, to $13.9 million from $13.1 million for the thirteen weeks ended October 1, 2011. As a percentage of operating revenues, selling, general and administrative expense increased to 7.6% for the thirteen weeks ended September 29, 2012 compared to 7.0% for thirteen weeks ended October 1, 2011. The absolute increase was primarily the result of increases in salaries and wage expense of $0.6 million, communication costs of $0.1 million, professional fees of $0.2 million, travel and entertainment of $0.1 million, and loss on sale of property of $0.2 million. These increases were partially offset by a decrease in our provision for bad debts of $0.4 million.

Insurance and claims. Insurance and claims expense for the thirteen weeks ended September 29, 2012 remained consistent at $4.2 million compared to the thirteen weeks ended October 1, 2011. As a percentage of operating revenues, insurance and claims expense increased to 2.3% for the thirteen weeks ended September 29, 2012 from 2.2% for the thirteen weeks ended October 1, 2011.

Depreciation and amortization. Depreciation and amortization for the thirteen weeks ended September 29, 2012 increased by $0.1 million, or 1.0%, to $3.0 million from $2.9 million for the thirteen weeks ended October 1, 2011. As a percent of operating revenues, depreciation and amortization remained constant at 1.6% for the thirteen weeks ended September 29, 2012 and October 1, 2011. The absolute increase is primarily the result of additional depreciation on our capital expenditures of $124 thousand, which was partially offset by a decrease in amortization of $94 thousand.


Interest expense (income), net. Net interest income for the thirteen weeks ended September 29, 2012 was $6 thousand compared to $4 thousand for the thirteen weeks ended October 1, 2011.

Other non-operating income. Other non-operating income for the thirteen weeks ended September 29, 2012 was $1.2 million compared to $0.2 million for the thirteen weeks ended October 1, 2011. Included in other non-operating income for the thirteen weeks ended September 29, 2012 were $1.0 million of gains on the sales of marketable securities.

Provision for income taxes. Provision for income taxes for the thirteen weeks ended September 29, 2012 increased by $0.3 million to $3.5 million from $3.2 million for the thirteen weeks ended October 1, 2011. The increase was primarily attributable to an increase in our taxable income and an increase in our effective tax rate. For the thirteen weeks ended September 29, 2012 and October 1, 2011, we had an effective income tax rate of 38.7% and 37.2%, respectively, based upon our income before provision for income taxes.

Purchase of LINC Logistics Company

On October 1, 2012, the Company completed the acquisition of LINC Logistics Company ("LINC"). Each outstanding share of LINC common stock was converted into the right to receive consideration consisting of 0.700 of a share of common stock of the Company and cash in lieu of fractional shares. This resulted in the issuance of 14,527,332 shares of the Company's common stock and payment of $27.60 of cash in lieu of fractional shares. To consummate the acquisition, at closing Universal borrowed approximately $149.1 million pursuant to its new $220 million credit facility. Funds were used to repay LINC's outstanding indebtedness, dividends payable and debt issuance costs.

An overview of LINC's standalone financial performance for the thirty-nine weeks ended September 29, 2012 appears below, followed by a presentation of our unaudited pro forma condensed combined statements of income as if we had acquired LINC on January 1, 2011. The unaudited pro forma condensed combined financial results presented are based on the assumptions and adjustments described in the accompanying notes. The unaudited pro forma condensed combined financial results are presented for illustrative purposes and do not purport to represent what the results of operations would actually have been if the acquisition occurred as of the dates indicated or what financial results would be for any future periods.

Executive Overview of LINC's Financial Performance for the thirty-nine weeks ended September 29, 2012

LINC generates substantially all of its revenue through fees charged to customers for the customized logistics services it provides. Its agreements with customers typically follow one of two patterns: contractual or transactional. Contractual agreements for the delivery of value-added services or transportation services on an exclusive basis generated 92.2% of total 2011 revenues. Transactional agreements comprise the balance of LINC's revenues and are associated with individual freight shipments coordinated by its specialized services operations. LINC's business and its revenue trends are substantially driven by the level of demand for outsourced logistics services generally as well as by the strength of the North American automotive industry. In recent years, it has targeted and developed customers in other industry sectors. As a result, broader macroeconomic factors have increased in importance.

LINC's operating revenues for the thirty-nine weeks ended September 29, 2012 increased $15.7 million, or 7.2%, to $233.3 million, compared to revenues of $217.6 million for the thirty-nine weeks ended October 1, 2011. The net increase in demand for services on a year-over-year basis reflects approximately $20.0 million generated by new value-added services operations, including for existing and new customers, and approximately $6.8 million in volume increases at existing operations. These gains were partially offset by an aggregate $10.9 million of reduced transportation services, which includes the discontinuation of certain lower margin transportation routes provided to a Tier I automotive supplier, the discontinuation of a small freight management program administered on behalf of Ford Motor Company in connection with its diversity program, and the discontinuation of a Canadian shuttle operation.

LINC achieved operating income for the thirty-nine weeks ended September 29, 2012, totaling $34.8 million, a 5.9% increase over operating income of $32.9 million for the thirty-nine weeks ended October 1, 2011. It achieved an operating margin of 14.9% for the thirty-nine weeks ended September 29, 2012, compared to 15.1% for the thirty-nine weeks ended October 1, 2011. In the fiscal quarter ended June 30, 2012, LINC attempted and then terminated efforts to complete an initial public offering of its common stock. IPO-related expenses totaling $1.9 million that were incurred prior to or during the fiscal quarter ended June 30, 2012 were charged to selling, general and administrative expense. Excluding IPO-related charges, operating income for the thirty-nine weeks ended September 29, 2012 totaled $36.7 million, or 15.8% of revenue.


Direct personnel and related benefits. Direct personnel and related benefits costs are the largest component of LINC's cost structure and increase or decrease proportionately with the expansion, addition or closing of operating facilities. LINC's direct personnel and related benefits expenses increased $13.8 million, or 16.1%, to $99.1 million for the thirty-nine weeks ended September 29, 2012, compared to $85.4 million for the thirty-nine weeks ended October 1, 2011. Trends in these expenses are generally correlated with changes in operating facilities and headcount requirements, increasing with the level of demand for LINC's logistics services. Expressed as a percentage of revenue, direct personnel and related benefits expenses increased to 42.5% of revenue for the thirty-nine weeks ended September 29, 2012, compared to 39.2% in the comparable prior-year period.

Purchased transportation and equipment rent. Purchased transportation and equipment rent reflects amounts LINC paid to transportation owner-operators or other third-party equipment providers to haul freight and, to the extent required to deliver certain logistics services, the cost of equipment leased under short-term contracts from third parties. The expense also includes the amount of fuel surcharges that LINC receives from its customers and passes through to its owner-operators. Purchased transportation and equipment rental costs decreased $4.4 million, a 10.7% decline, to $36.4 million for the thirty-nine weeks ended September 29, 2012, compared to $40.7 million for the thirty-nine weeks ended October 1, 2011. Trends in these expenses are generally correlated with changes in demand for transportation services and specialized services, which decreased 7.2%, to $102.3 million in aggregate revenue for thirty-nine weeks ended September 29, 2012, compared to $110.3 million for the thirty-nine weeks ended October 1, 2011. As a percentage of revenue, purchased transportation and equipment rent decreased to 15.6% of revenue for the thirty-nine weeks ended September 29, 2012, compared to 18.7% for the thirty-nine weeks ended October 1, 2011. The decline is due to the reduction in . . .

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