UNIVERSAL LOGISTICS HOLDINGS, INC. 10-Q

ITEM 1: FINANCIAL STATEMENTS UNIVERSAL LOGISTICS HOLDINGS, INC. Unaudited Consolidated Balance Sheets (In thousands, except share data) July 3, 2021 December 31, 2020 Assets Current assets: Cash and cash equivalents $ 13,098 $ 8,763 Marketable securities 7,915 6,534 Accounts receivable – net of allowance for doubtful accounts of $ 5,676 and $ 5,140 , respectively 285,432 259,154 Other receivables 26,075 22,422 Prepaid expenses and other 25,613 23,427 Due from affiliates 1,026 1,224 Total current assets 359,159 321,524 Property and equipment – net of accumulated depreciation of $ 314,451 and $ 298,789 , respectively 350,340 364,795 Operating lease right-of-use asset 100,376 97,820 Goodwill 170,730 170,730 Intangible assets – net of accumulated amortization of $ 100,565 and $ 93,574 , respectively 95,245 102,236 Deferred income taxes 2,159 2,159 Other assets 4,211 3,785 Total assets $ 1,082,220 $ 1,063,049 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 104,258 $ 97,916 Current portion of long-term debt 60,008 59,713 Current portion of operating lease liabilities 23,264 21,920 Accrued expenses and other current liabilities 41,364 39,588 Insurance and claims 26,987 25,022 Due to affiliates 13,979 17,093 Income taxes payable 5,348 11,555 Total current liabilities 275,208 272,807 Long-term liabilities: Long-term debt, net of current portion 372,149 400,407 Operating lease liabilities, net of current portion 80,988 78,093 Deferred income taxes 64,426 64,426 Other long-term liabilities 7,541 7,743 Total long-term liabilities 525,104 550,669 Shareholders' equity: Common stock, no par value. Authorized 100,000,000 shares; 30,986,702 and 30,979,827 shares issued; 26,919,455 and 26,912,580 shares outstanding, respectively 30,988 30,981 Paid-in capital 4,639 4,484 Treasury stock, at cost; 4,067,247 shares ( 82,385 ) ( 82,385 ) Retained earnings 335,252 293,643 Accumulated other comprehensive (loss): Interest rate swaps, net of income taxes of $( 107 ) and $( 142 ), respectively ( 313 ) ( 476 ) Foreign currency translation adjustments ( 6,273 ) ( 6,674 ) Total shareholders’ equity 281,908 239,573 Total liabilities and shareholders’ equity $ 1,082,220 $ 1,063,049 See accompanying notes to consolidated financial statements. 2 UNIVERSAL LOGISTICS HOLDINGS, INC. Unaudited Consolidated Statements of Income (In thousands, except per share data) Thirteen Weeks Ended Twenty-six Weeks Ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Operating revenues: Truckload services $ 58,880 $ 40,523 $ 118,582 $ 99,421 Brokerage services 102,532 62,782 199,451 148,681 Intermodal services 106,601 82,881 210,318 193,203 Dedicated services 50,396 18,031 98,357 49,610 Value-added services 104,374 53,763 211,307 149,227 Total operating revenues 422,783 257,980 838,015 640,142 Operating expenses: Purchased transportation and equipment rent 198,031 128,611 387,363 309,467 Direct personnel and related benefits 111,000 57,592 218,552 154,980 Operating supplies and expenses 32,713 16,962 69,805 47,657 Commission expense 8,570 5,024 15,894 12,194 Occupancy expense 9,389 8,984 17,569 17,815 General and administrative 9,693 6,580 18,869 15,504 Insurance and claims 5,735 4,858 12,070 9,730 Depreciation and amortization 16,339 18,530 35,424 38,048 Total operating expenses 391,470 247,141 775,546 605,395 Income from operations 31,313 10,839 62,469 34,747 Interest income 14 15 32 23 Interest expense ( 2,940 ) ( 3,453 ) ( 6,121 ) ( 7,670 ) Other non-operating income (expense) 6,079 811 7,085 ( 2,794 ) Income before income taxes 34,466 8,212 63,465 24,306 Income tax expense 8,862 2,044 16,205 5,975 Net income $ 25,604 $ 6,168 $ 47,260 $ 18,331 Earnings per common share: Basic $ 0.95 $ 0.23 $ 1.76 $ 0.68 Diluted $ 0.95 $ 0.23 $ 1.75 $ 0.68 Weighted average number of common shares outstanding: Basic 26,919 26,919 26,918 27,074 Diluted 26,936 26,919 26,933 27,074 Dividends declared per common share $ 0.105 $ - $ 0.210 $ 0.105 See accompanying notes to consolidated financial statements. 3 UNIVERSAL LOGISTICS HOLDINGS, INC. Unaudited Consolidated Statements of Comprehensive Income (In thousands) Thirteen Weeks Ended Twenty-six Weeks Ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Net Income $ 25,604 $ 6,168 $ 47,260 $ 18,331 Other comprehensive income (loss): Unrealized changes in fair value of interest rate swaps, net of income taxes of $ 2 , $( 11 ), $ 35 and $( 146 ), respectively 30 ( 24 ) 163 ( 472 ) Foreign currency translation adjustments ( 666 ) 1,824 401 1,144 Total other comprehensive income (loss) ( 636 ) 1,800 564 672 Total comprehensive income $ 24,968 $ 7,968 $ 47,824 $ 19,003 See accompanying notes to consolidated financial statements. 4 UNIVERSAL LOGISTICS HOLDINGS, INC. Unaudited Consolidated Statements of Cash Flows (In thousands) Twenty-six Weeks Ended July 3, 2021 July 4, 2020 Cash flows from operating activities: Net income $ 47,260 $ 18,331 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 35,424 38,048 Noncash lease expense 12,873 14,724 (Gain) loss on marketable equity securities ( 1,384 ) 2,534 Gain on disposal of property and equipment ( 721 ) ( 591 ) Amortization of debt issuance costs 240 294 Stock-based compensation 162 195 Provision for doubtful accounts 2,597 1,348 Deferred income taxes ( 21 ) ( 2,208 ) Change in assets and liabilities: Trade and other accounts receivable ( 32,999 ) 25,543 Prepaid expenses and other assets ( 2,460 ) ( 2,693 ) Principal reduction in operating lease liabilities ( 12,232 ) ( 14,310 ) Accounts payable, accrued expenses and other current liabilities, insurance and claims, and income taxes payable 7,637 26,013 Due to/from affiliates, net ( 2,916 ) 1,690 Other long-term liabilities ( 4 ) ( 498 ) Net cash provided by operating activities 53,456 108,420 Cash flows from investing activities: Capital expenditures ( 16,941 ) ( 42,369 ) Proceeds from the sale of property and equipment 3,878 2,509 Purchases of marketable securities ( 114 ) ( 360 ) Proceeds from sale of marketable securities 117 — Net cash used in investing activities ( 13,060 ) ( 40,220 ) Cash flows from financing activities: Proceeds from borrowing - revolving debt 191,947 141,801 Repayments of debt - revolving debt ( 192,820 ) ( 203,053 ) Proceeds from borrowing - term debt 3,946 35,295 Repayments of debt - term debt ( 31,276 ) ( 28,182 ) Borrowings under margin account — 256 Repayments under margin account — ( 256 ) Dividends paid ( 8,480 ) ( 5,731 ) Capitalized financing costs — ( 46 ) Purchases of treasury stock — ( 5,000 ) Net cash used in financing activities ( 36,683 ) ( 64,916 ) Effect of exchange rate changes on cash and cash equivalents 622 ( 3,033 ) Net increase in cash 4,335 251 Cash and cash equivalents – beginning of period 8,763 7,726 Cash and cash equivalents – end of period $ 13,098 $ 7,977 Supplemental cash flow information: Cash paid for interest $ 5,993 $ 7,033 Cash paid for income taxes $ 22,909 $ 457 See accompanying notes to consolidated financial statements. 5 UNIVERSAL LOGISTICS HOLDINGS, INC. Unaudited Consolidated Statements of Shareholders’ Equity (In thousands, except per share data) Common stock Paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Total Balances – December 31, 2019 $ 30,972 $ 4,298 $ ( 77,247 ) $ 251,204 $ ( 4,010 ) $ 205,217 Net income — — — 12,163 — 12,163 Comprehensive (loss) — — — — ( 1,128 ) ( 1,128 ) Dividends ($ 0.105 per share) — — — ( 2,865 ) — ( 2,865 ) Stock based compensation 9 186 — — — 195 Purchases of treasury stock — — ( 4,919 ) — — ( 4,919 ) Balances - April 4, 2020 30,981 4,484 ( 82,166 ) 260,502 ( 5,138 ) 208,663 Net income — — — 6,168 — 6,168 Comprehensive income — — — — 1,800 1,800 Purchases of treasury stock — — ( 81 ) — — ( 81 ) Balances – July 4, 2020 $ 30,981 $ 4,484 $ ( 82,247 ) $ 266,670 $ ( 3,338 ) $ 216,550 Balances – December 31, 2020 $ 30,981 $ 4,484 $ ( 82,385 ) $ 293,643 $ ( 7,150 ) $ 239,573 Net income — — — 21,656 — 21,656 Comprehensive income — — — — 1,200 1,200 Dividends ($ 0.105 per share) — — — ( 2,865 ) — ( 2,865 ) Stock based compensation 7 155 162 Balances - April 3, 2021 30,988 4,639 ( 82,385 ) 312,434 ( 5,950 ) 259,726 Net income — — — 25,604 — 25,604 Comprehensive income — — — — ( 636 ) ( 636 ) Dividends ($ 0.105 per share) — — — ( 2,786 ) — ( 2,786 ) Balances – July 3, 2021 $ 30,988 $ 4,639 $ ( 82,385 ) $ 335,252 $ ( 6,586 ) $ 281,908 See accompanying notes to consolidated financial statements. 6 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements (1) Basis of Presentation The accompanying unaudited consolidated financial statements of Universal Logistics Holdings, Inc. and its wholly owned subsidiaries (collectively, “Universal” or the “Company”) have been prepared by the Company’s management. In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. All intercompany transactions and balances have been eliminated in consolidation. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, should be read in conjunction with the consolidated financial statements as of December 31, 2020 and 2019 and for each of the years in the three-year period ended December 31, 2020 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. Our fiscal year ends on December 31 and consists of four quarters, each with thirteen weeks. COVID-19 In March of 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a pandemic. The Company remains committed to doing its part to protect its employees, customers, vendors and the general public from the spread of COVID-19. We will continue to adapt our operations as required to ensure safety while continuing to provide a high level of service to our customers. The Company makes estimates and assumptions that affect reported amounts and disclosures included in its financial statements and accompanying notes and assesses certain accounting matters that require consideration of forecasted financial information. The Company's assumptions about future conditions important to these estimates and assumptions are subject to uncertainty, including the impacts of the COVID-19 pandemic. Although we estimate COVID-19 had the largest impact on our business during the second quarter 2020, we are unable to predict with any certainty the future impact COVID-19 may have on our operational and financial performance. The Company will continue to monitor these conditions in future periods as new information becomes available and will update its analyses accordingly. (2) Recent Accounting Pronouncements In March 2020, the FASB issued ASU No. 2020-04 (“ASU 2020-04”), Reference Rate Reform (Topic 848): “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for reference rate reform on financial reporting. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. The Company has evaluated the provisions of this standard and determined that it is applicable to our primary term loan and revolving credit facility, real estate promissory notes and investment margin credit facility. The London Interbank Offered Rate (“LIBOR”) is the basis for interest charges on outstanding borrowings for both our line of credit and investment margin account. The scheduled discontinuation of LIBOR is not expected to materially alter any provisions of either of these debt instruments, except for the identification of a replacement reference rate. The Company has evaluated the new guidance and does not expect it to have a material impact on its financial condition, results of operations, or cash flows. In June 2016, the FASB issued ASU 2016-13 (“ASU 2016-13”), Accounting for Credit Losses (Topic 326). ASU 2016-13 requires the use of an “expected loss” model on certain types of financial instruments. The standard also amends the impairment model for available-for-sale debt securities and requires estimated credit losses to be recorded as allowances instead of reductions to amortized cost of the securities. The new standard will become effective for us beginning with the first quarter 2023. The Company is evaluating the new guidance but does not expect it to have a material impact on our consolidated financial statements. 7 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (3) Revenue Recognition The Company broadly groups its services into the following categories: truckload, brokerage, intermodal, dedicated and value-added. We disaggregate these categories and report our service lines separately on the Consolidated Statements of Income. Truckload services include dry van, flatbed, heavy-haul and refrigerated operations. We transport a wide variety of general commodities, including automotive parts, machinery, building materials, paper, food, consumer goods, furniture, steel and other metals on behalf of customers in various industries. Truckload services also include our final mile and ground expedited services. To complement our available capacity, we provide customers freight brokerage services by utilizing third-party transportation providers to move freight. Brokerage services also include full-service domestic and international freight forwarding and customs brokerage. Intermodal services include rail-truck, steamship-truck and support services. Our intermodal support services are primarily short- to medium-distance delivery of rail and steamship containers between the railhead or port and the customer and drayage services. Dedicated services are primarily provided in support of automotive and retail customers using van equipment. Our dedicated services are primarily short-run or round-trip moves within a defined geographic area. Transportation services are short-term in nature; agreements governing their provision generally have a term of less than one year . They do not contain significant financing components. The Company recognizes revenue over the period transportation services are provided to the customer, including service performed as of the end of the reporting period for loads currently in-transit, in order to recognize the value that is transferred to a customer over the course of the transportation service. We determine revenue in-transit using the input method, under which revenue is recognized based on the duration of time that has lapsed from the departure date (start of transportation services) to the arrival date (completion of transportation services). Measurement of revenue in-transit requires the application of significant judgment. We calculate the estimated percentage of an order’s transit time that is complete at period end, and we apply that percentage of completion to the order’s estimated revenue. Value-added services, which are typically dedicated to individual customer requirements, include material handling, consolidation, sequencing, sub-assembly, cross-dock services, kitting, repacking, warehousing and returnable container management. Value-added revenues are substantially driven by the level of demand for outsourced logistics services. Major factors that affect value-added service revenue include changes in manufacturing supply chain requirements and production levels in specific industries, particularly the North American automotive and Class 8 heavy-truck industries. Revenue is recognized as control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration the Company expects to receive in exchange for its services. We have elected to use the “right to invoice” practical expedient to recognize revenue, reflecting that a customer obtains the benefit associated with value-added services as they are provided. The contracts in our value-added services businesses are negotiated agreements, which contain both fixed and variable components. The variability of revenues is driven by volumes and transactions, which are known as of an invoice date. Value-added service contracts typically have terms that extend beyond one year, and they do not include financing components. The following table provides information related to contract balances associated with our contracts with customers (in thousands): July 3, 2021 December 31, 2020 Prepaid expenses and other - contract assets $ 1,873 $ 2,520 We generally receive payment for performance obligations within 45 days of completion of transportation services and 65 days for completion of value-added services. Contract assets in the table above generally relate to revenue in-transit at the end of the reporting period. 8 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (4) Marketable Securities The Company accounts for its marketable equity securities in accordance with ASC Topic 321 “ Investments- Equity Securities .” ASC Topic 321 requires companies to measure equity investments at fair value, with changes in fair value recognized in net income. The Company’s investments in marketable securities consist of equity securities with readily determinable fair values. The cost of securities sold is based on the specific identification method, and interest and dividends on securities are included in non-operating income (expense). Marketable equity securities are carried at fair value, with gains and losses in fair market value included in the determination of net income. The fair value of marketable equity securities is determined based on quoted market prices in active markets, as described in Note 7. The following table sets forth market value, cost, and unrealized gains on equity securities (in thousands): July 3, 2021 December 31, 2020 Fair value $ 7,915 $ 6,534 Cost 6,426 6,579 Unrealized gain (loss) $ 1,489 $ ( 45 ) The following table sets forth the gross unrealized gains and losses on the Company’s marketable securities (in thousands): July 3, 2021 December 31, 2020 Gross unrealized gains $ 2,434 $ 1,627 Gross unrealized losses ( 945 ) ( 1,672 ) Net unrealized gains (losses) $ 1,489 $ ( 45 ) The following table shows the Company’s net realized gains (loss) on marketable equity securities (in thousands): Thirteen weeks ended Twenty-six weeks ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Realized gain Sale proceeds $ — $ — $ 117 $ — Cost basis of securities sold — — 92 — Realized gain $ — $ — $ 25 $ — Realized gain, net of taxes $ — $ — $ 19 $ — During the thirteen-week and twenty-six week periods ended July 3, 2021, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $ 385,000 and $ 1,359,000 , respectively, which was reported in other non-operating income (expense) for the period. During the thirteen-week and twenty-six week periods ended July 4, 2020, our marketable equity securities portfolio experienced a net unrealized pre-tax gain (loss) in market value of approximately $ 875,000 and $( 2,534,000 ), respectively, which was reported in other non-operating income (expense) for the period. 9 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued ( 5 ) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities are comprised of the following (in thousands): July 3, 2021 December 31, 2020 Accrued payroll $ 14,564 $ 11,536 Accrued payroll taxes 11,094 11,601 Driver escrow liabilities 4,020 4,045 Legal settlements and claims 5,635 3,700 Commissions, taxes and other 6,051 8,706 Total $ 41,364 $ 39,588 ( 6 ) Debt Debt is comprised of the following (in thousands): Interest Rates at July 3, 2021 July 3, 2021 December 31, 2020 Outstanding Debt: Credit and Security Agreement (1) Term Loan 1.85 % $ 125,625 $ 131,250 Revolver 1.85 % 150,453 151,326 Equipment Financing (2) 2.25% to 5.13% 112,158 129,870 Real Estate Financing (3) 1.95% to 2.35% 45,255 49,248 Margin Facility (4) 1.20 % — — Unamortized debt issuance costs ( 1,334 ) ( 1,574 ) 432,157 460,120 Less current portion of long-term debt 60,008 59,713 Total long-term debt, net of current portion $ 372,149 $ 400,407 (1) Our Credit and Security Agreement (the “Credit Agreement”) provides for maximum borrowings of $ 350 million in the form of a $ 150 million term loan and a $ 200 million revolver. Term loan proceeds were advanced on November 27, 2018 and mature on November 26, 2023 . The term loan will be repaid in consecutive quarterly installments, as defined in the Credit Agreement, commencing March 31, 2019 , with the remaining balance due at maturity. Borrowings under the revolving credit facility may be made until and mature on November 26, 2023 . Borrowings under the Credit Agreement bear interest at LIBOR or a base rate plus an applicable margin for each based the Company’s leverage ratio. The Credit Agreement is secured by a first priority pledge of the capital stock of applicable subsidiaries, as well as first priority perfected security interest in cash, deposits, accounts receivable, and selected other assets of the applicable borrowers. The Credit Agreement includes customary affirmative and negative covenants and events of default, as well as financial covenants requiring minimum fixed charge coverage and leverage ratios, and customary mandatory prepayments provisions. At July 3, 2021, we were in compliance with all covenants under the facility, and $ 49.5 million was available for borrowing on the revolver . 10 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued ( 6 ) Debt – continued (2) Our Equipment Financing consists of a series of promissory notes issued by a wholly owned subsidiary. The equipment notes, which are secured by liens on specific titled vehicles, include certain affirmative and negative covenants, are generally payable in 60 monthly installments and bear interest at fixed rates ranging from 2.25 % to 5.13 %. (3) Our Real Estate Financing consists of a series of promissory notes issued by a wholly owned subsidiary. The promissory notes, which are secured by first mortgages and assignment of leases on specific parcels of real estate and improvements, include certain affirmative and negative covenants and are generally payable in 120 monthly installments. Each of the notes bears interest at a variable rate ranging from LIBOR plus 1.85 % to LIBOR plus 2.25 % . At July 3, 2021, we were in compliance with all covenants. (4) Our Margin Facility is a short-term line of credit secured by our portfolio of marketable securities. It bears interest at LIBOR plus 1.10 % . The amount available under the line of credit is based on a percentage of the market value of the underlying securities. At July 3, 2021, the maximum available borrowings under the line of credit were $ 4.2 million. The Company is also party to two interest rate swap agreements that qualify for hedge accounting. The Company executed the swap agreements to fix a portion of the interest rates on its variable rate debt that have a combined notional amount of $ 12.0 million at July 3, 2021. Under the swap agreements, the Company receives interest at the one-month LIBOR rate plus 2.25 % and pays a fixed rate. The first swap became effective in October 2016 , has a rate of 4.16 % (amortizing notional amount of $ 10.0 million) and expires in July 2026 . The second swap became effective in October 2016 , has a rate of 3.83 % (amortizing notional amount of $ 2.0 million) and expires in May 2022 . At July 3, 2021, the fair value of the swap agreements was a liability of $ 0.4 million. Since these swap agreements qualify for hedge accounting, the changes in fair value are recorded in other comprehensive income (loss), net of tax. See Note 7 for additional information pertaining to interest rate swaps. ( 7 ) Fair Value Measurements and Disclosures FASB ASC Topic 820, “ Fair Value Measurements and Disclosures, ” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date and expanded disclosures with respect to fair value measurements. 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. 11 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued ( 7 ) Fair Value Measurements and Disclosures – continued We have segregated all financial assets and liabilities 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): July 3, 2021 Level 1 Level 2 Level 3 Fair Value Measurement Assets Cash equivalents $ 9 $ — $ — $ 9 Marketable securities 7,915 — — 7,915 Total $ 7,924 $ — $ — $ 7,924 Liabilities Interest rate swaps $ — $ 420 $ — $ 420 Total $ — $ 420 $ — $ 420 December 31, 2020 Level 1 Level 2 Level 3 Fair Value Measurement Assets Cash equivalents $ 9 $ — $ — $ 9 Marketable securities 6,534 — — 6,534 Total $ 6,543 $ — $ — $ 6,543 Liabilities Interest rate swaps $ — $ 619 $ — $ 619 Total $ — $ 619 $ — $ 619 The valuation techniques used to measure fair value for the items in the tables above are as follows: • Cash equivalents – This category consists of money market funds which are listed as Level 1 assets and measured at fair value based on quoted prices for identical instruments in active markets. • Marketable securities – Marketable securities represent equity securities, which consist of common and preferred stocks, are actively traded on public exchanges and are listed as Level 1 assets. Fair value was measured based on quoted prices for these securities in active markets. • Interest rate swaps – The fair value of our interest rate swaps is determined using a methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. The fair value measurement also incorporates credit valuation adjustments to appropriately reflect both the Company’s nonperformance risk and the respective counterparty’s nonperformance risk. Our Credit Agreement and our Real Estate Financing consist of variable rate borrowings. We categorize these borrowings as Level 2 in the fair value hierarchy. The carrying value of these borrowings approximate fair value because the applicable interest rates are adjusted frequently based on short-term market rates. For our Equipment Financing, the fair values are estimated using discounted cash flow analyses, based on our current incremental borrowing rates for similar types of borrowing arrangements. We categorize these borrowings as Level 2 in the fair value hierarchy. The carrying value and estimated fair value of these promissory notes at July 3, 2021 is summarized as follows: Carrying Value Estimated Fair Value Equipment promissory notes $ 112,158 $ 114,406 We have not elected the fair value option for any of our financial instruments. 12 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (8) Leases On January 1, 2019, we adopted ASU 2016-02, Leases, which required us to recognize a right-of-use asset and a corresponding lease liability on our balance sheet for most leases classified as operating leases under previous guidance. Right-of-use assets represent our right to use an underlying asset over the lease term and lease liabilities represent the obligation to make lease payments resulting from the lease agreement. We recognize a right-of-use asset and a lease liability on the effective date of a lease agreement. As of July 3, 2021, our obligations under operating lease arrangements primarily related to the rental of office space, warehouses, freight distribution centers, terminal yards and equipment. Our lease obligations typically do not include options to purchase the leased property, nor do they contain residual value guarantees or material restrictive covenants. Options to extend or terminate an agreement are included in the lease term when it becomes reasonably certain the option will be exercised. As of July 3, 2021, we were not reasonably certain of exercising any renewal or termination options, and as such, no adjustments were made to the right-of-use lease assets or corresponding liabilities. We did not separate lease and nonlease components of contracts for purposes of determining the right-of use lease asset and corresponding liability. Variable lease components that do not depend on an index or a rate, and variable nonlease components were also not contemplated in the calculation of the right-of-use asset and corresponding liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which we pay the lessors an estimate that is adjusted to actual expense on a quarterly or annual basis depending on the underlying contract terms. For equipment leases, variable lease costs may include additional fees associated with using equipment in excess of estimated amounts. Leases with an initial term of 12 months or less, short-term leases, are not recorded on the balance sheet. Lease expense for short-term and long-term operating leases is recognized on a straight-line basis over the lease term. The following table summarizes our lease costs for the thirteen weeks and twenty-six weeks ended July 3, 2021 and July 4, 2020 (in thousands): Thirteen weeks ended July 3, 2021 With Affiliates With Third Parties Total Lease cost Operating lease cost $ 2,514 $ 5,840 $ 8,354 Short-term lease cost 26 2,840 2,866 Variable lease cost 210 799 1,009 Sublease income - ( 265 ) ( 265 ) Total lease cost $ 2,750 $ 9,214 $ 11,964 Thirteen weeks ended July 4, 2020 With Affiliates With Third Parties Total Lease cost Operating lease cost $ 2,434 $ 5,840 $ 8,274 Short-term lease cost 166 1,074 1,240 Variable lease cost 40 970 1,010 Sublease income - ( 724 ) ( 724 ) Total lease cost $ 2,640 $ 7,160 $ 9,800 13 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (8) Leases – continued Twenty-six weeks ended July 3, 2021 With Affiliates With Third Parties Total Lease cost Operating lease cost $ 5,041 $ 11,642 $ 16,683 Short-term lease cost 27 3,996 4,023 Variable lease cost 420 1,388 1,808 Sublease income - ( 1,024 ) ( 1,024 ) Total lease cost $ 5,488 $ 16,002 $ 21,490 Twenty-six weeks ended July 4, 2020 With Affiliates With Third Parties Total Lease cost Operating lease cost $ 5,270 $ 11,799 $ 17,069 Short-term lease cost 407 2,271 2,678 Variable lease cost 267 1,763 2,030 Sublease income - ( 1,603 ) ( 1,603 ) Total lease cost $ 5,944 $ 14,230 $ 20,174 The following table summarizes other lease related information as of and for the twenty-six week periods ended July 3, 2021 and July 4, 2020 (in thousands): July 3, 2021 With Affiliates With Third Parties Total Other information Cash paid for amounts included in the measurement of operating leases $ 4,831 $ 11,310 $ 16,141 Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,526 $ 12,880 $ 16,406 Weighted-average remaining lease term (in years) 5.8 4.7 5.1 Weighted-average discount rate 7.1 % 5.6 % 6.1 % July 4, 2020 With Affiliates With Third Parties Total Other information Cash paid for amounts included in the measurement of operating leases $ 5,193 $ 11,341 $ 16,534 Right-of-use asset change due to lease termination $ - $ ( 1,409 ) $ ( 1,409 ) Right-of-use assets obtained in exchange for new operating lease liabilities $ 1,941 $ 15,147 $ 17,088 Weighted-average remaining lease term (in years) 6.6 4.7 5.3 Weighted-average discount rate 7.8 % 4.5 % 5.7 % 14 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (8) Leases – continued Future minimum lease payments under these operating leases as of July 3, 2021, are as follows (in thousands): With Affiliates With Third Parties Total Year one $ 8,522 $ 19,879 $ 28,401 Year two 7,090 16,077 23,167 Year three 6,731 13,491 20,222 Year four 6,345 12,386 18,731 Year five 3,601 10,376 13,977 Thereafter 9,724 6,992 16,716 Total required lease payments $ 42,013 $ 79,201 $ 121,214 Less amounts representing interest ( 16,962 ) Present value of lease liabilities $ 104,252 ( 9 ) Transactions with Affiliates CenTra, Inc. (“CenTra”), an affiliate of the Company that is owned by our controlling shareholder, provides administrative support services to Universal in the ordinary course of business, including legal, human resources, IT infrastructure and other requested services. The cost of these services is based on the actual or estimated utilization of the specific service. Universal also purchases other services from affiliates owned by our controlling shareholder, including CenTra. Following is a schedule of costs incurred and included in operating expenses for services provided by affiliates for the thirteen weeks and twenty-six weeks ended July 3, 2021 and July 4, 2020, respectively (in thousands): Thirteen weeks ended Twenty-six weeks ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Administrative support services $ 1,882 $ 343 $ 1,997 $ 532 Truck fuel, tolls and maintenance 233 104 411 410 Real estate rent and related costs 3,357 3,506 6,271 6,814 Insurance and employee benefit plans 11,807 7,353 23,303 20,507 Purchased transportation and equipment rent 10 6 19 11 Total $ 17,289 $ 11,312 $ 32,001 $ 28,274 We pay CenTra and related affiliates the direct variable cost of maintenance, fueling and other operational support costs for services delivered at our affiliate’s trucking terminals that are geographically remote from our own facilities. Such costs are billed when incurred, paid on a routine basis, and reflect actual labor utilization, repair parts costs or quantities of fuel purchased. In connection with our transportation services, we also pay tolls and other fees for international bridge crossings to certain related entities which are under common control with CenTra. 15 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued ( 9 ) Transactions with Affiliates - continued We also lease 28 facilities from related parties. Our occupancy is based on either month-to-month or contractual, multi-year lease arrangements that are billed and paid monthly. Leasing properties from a related party affords us significant operating flexibility; however, we are not limited to such arrangements. See Note 8, “Leases” for further information regarding the cost of leased properties. We purchase workers’ compensation, property and casualty, cargo, warehousing and other general liability insurance from an insurance company owned by our controlling shareholder. Our employee health care benefits and 401(k) programs are also provided by this affiliate. Other services from affiliates, including contracted transportation services, are delivered to us on a per-transaction basis or pursuant to separate contractual arrangements provided in the ordinary course of business. At July 3, 2021 and December 31, 2020, amounts due to affiliates were $ 14.0 million and $ 17.1 million, respectively. In our Consolidated Balance Sheets, we record our insured claims liability and the related recovery from an affiliate insurance provider in insurance and claims, and other receivables. At July 3, 2021 and December 31, 2020, there were $ 14.6 million and $ 13.3 million, respectively, included in each of these accounts for insured claims. We purchased wheels and tires from an affiliate during the twenty-six weeks ended July 4, 2020 totaling $ 618,000 . There were no such purchases made during the twenty-six weeks ended July 3, 2021. Services provided by Universal to Affiliates We periodically assist our affiliates by providing selected transportation and logistics services in connection with their specific customer contracts or purchase orders. Following is a schedule of services provided to affiliates for the thirteen weeks and twenty-six weeks ended July 3, 2021 and July 4, 2020 (in thousands): Thirteen weeks ended Twenty-six weeks ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Purchased transportation and equipment rent $ 209 $ 221 $ 258 $ 356 Total $ 209 $ 221 $ 258 $ 356 At July 3, 2021 and December 31, 2020, amounts due from affiliates were $ 1.0 million and $ 1.2 million, respectively. ( 1 0 ) Stock Based Compensation On April 23, 2014, our Board of Directors adopted our 2014 Amended and Restated Stock Incentive Plan. The Plan was approved at the 2014 annual meeting of shareholders and became effective as of the date our Board adopted it. The 2014 Plan replaced our 2004 Stock Incentive Plan and carried forward the shares of common stock that remained available for issuance under the 2004 Plan. The grants under the Plan may be made in the form of options, restricted stock awards, restricted stock purchase rights, stock appreciation rights, phantom stock units, restricted stock units or shares of unrestricted common stock. On February 5, 2020, the Company granted 5,000 shares of restricted stock to our Chief Financial Officer. The restricted stock award has a fair value of $ 17.74 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest on February 20, 2024, subject to his continued employment with the Company. On January 10, 2020, the Company granted 60,000 shares of restricted stock to our Chief Executive Officer. The restricted stock award has a fair value of $ 18.82 per share, based on the closing price of the Company’s stock on the grant date. The shares will vest in installments of 20,000 shares on January 10, 2024 and January 10, 2026, and installments of 10,000 shares on January 10, 2027 and January 10, 2028, subject to his continued employment with the Company. On February 20, 2019, the Company granted 44,500 shares of restricted stock to certain of its employees, including 10,000 shares to our Chief Financial Officer. The restricted stock awards have a grant date fair value of $ 23.56 per share, based on the closing price of the Company’s stock, and any non-vested shares under the awards vest in four equal increments on each February 20 in 2020, 2021, 2022 and 2023. The vesting of restricted stock awards to a grantee may be accelerated under certain conditions, including retirement. 16 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (1 0 ) Stock Based Compensation - continued The following table summarizes the status of the Company’s non-vested shares and related information for the period indicated: Shares Weighted Average Grant Date Fair Value Non-vested at January 1, 2021 85,625 $ 19.90 Granted — $ - Vested ( 6,875 ) $ 23.56 Forfeited — $ - Balance at July 3, 2021 78,750 $ 19.58 In each of the twenty-six week periods ended July 3, 2021 and July 4, 2020, the total grant date fair value of vested shares recognized as compensation costs was $ 0.2 million. As of July 3, 2021, there was approximately $ 1.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized on a straight-line basis over the remaining vesting period. As a result, the Company expects to recognize stock-based compensation expense of $ 0.2 million in each year of 2022 and 2023, and $ 0.4 million in 2024, $ 0.3 million in 2026, and $ 0.2 million in each 2027 and 2028. ( 1 1 ) Earnings Per Share Basic earnings per common share amounts are based on the weighted average number of common shares outstanding, excluding outstanding non-vested restricted stock. Diluted earnings per common share include dilutive common stock equivalents determined by the treasury stock method. For the thirteen weeks and twenty-six weeks ended July 3, 2021, there were 16,704 and 15,689 weighted average non-vested shares of restricted stock, respectively, included in the denominator for the calculation of diluted earnings per share. For the thirteen weeks and twenty-six weeks ended July 4, 2020, no shares of non-vested restricted stock were included in the denominator for the calculation of diluted earnings per share. In each of the thirteen weeks and twenty-six weeks ended July 4, 2020, we excluded 85,625 shares of non-vested restricted stock from the calculation of diluted earnings per share because such shares were anti-dilutive. No such shares were excluded from the calculation of diluted earnings per share during the thirteen weeks or twenty-six weeks ended July 3, 2021. (1 2 ) Dividends On April 29, 2021 , our Board of Directors declared a cash dividend of $ 0.105 per share of common stock, payable on July 6, 2021 to shareholders of record at the close of business on June 7, 2021 . Declaration of future cash dividends is subject to final determination by the Board of Directors each quarter after its review of our financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant. 17 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (1 3 ) Segment Reporting In December 2020, we changed the way we aggregate our business units and adopted a new segment reporting structure. As part of the new structure, we separated our previous transportation segment into three reportable segments: trucking, intermodal, and company-managed brokerage. In addition, we changed the name of our previous logistics segment to contract logistics. As a result, we now report our financial results in four distinct reportable segments: contract logistics, intermodal, trucking, and company-managed brokerage, which are based primarily on the services each segment provides. This presentation reflects the manner in which management evaluates our operating segments, including an evaluation of economic characteristics and applicable aggregation criteria. Operations aggregated in our contract logistics segment deliver value-added and/or dedicated transportation services to support in-bound logistics to original equipment manufacturers (OEMs) and major retailers on a contractual basis, generally pursuant to terms of one year or longer. Our intermodal segment is associated with local and regional drayage moves coordinated by company-managed terminals using a mix of owner-operators, company equipment and third-party capacity providers (broker carriers). Operations aggregated in our trucking segment are associated with individual freight shipments coordinated by our agents and company-managed terminals using a mix of owner-operators, company equipment and broker carriers. Our company-managed brokerage segment provides for the pick-up and delivery of individual freight shipments using broker carriers, coordinated by our company-managed operations. Other non-reportable segments are comprised of the Company’s subsidiaries that provide support services to other subsidiaries. Separate balance sheets are not prepared by segment, and we do not provide asset information by segment to the chief operating decision maker. The following tables summarize information about our reportable segments for the thirteen week and twenty-six week periods ended July 3, 2021 and July 4, 2020 (in thousands): Operating Revenues Thirteen weeks ended Twenty-six weeks ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Contract logistics $ 154,770 $ 71,794 $ 309,664 $ 198,837 Intermodal 106,601 82,881 210,318 193,203 Trucking 99,778 63,004 194,678 154,573 Company-managed brokerage 60,431 39,946 121,537 92,727 Other 1,203 355 1,818 802 Total operating revenues $ 422,783 $ 257,980 $ 838,015 $ 640,142 Eliminated Inter-segment Revenues Thirteen weeks ended Twenty-six weeks ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Contract logistics $ 92 $ 1,121 $ 379 $ 1,356 Intermodal 1,308 306 2,385 643 Trucking 7,095 1,429 12,551 2,111 Company-managed brokerage 443 362 980 954 Total operating revenues $ 8,938 $ 3,218 $ 16,295 $ 5,064 Income from Operations Thirteen weeks ended Twenty-six weeks ended July 3, 2021 July 4, 2020 July 3, 2021 July 4, 2020 Contract logistics $ 15,946 $ 750 $ 32,766 $ 12,440 Intermodal 6,152 4,739 14,646 13,739 Trucking 6,482 3,594 11,672 8,094 Company-managed brokerage 2,445 1,702 2,886 305 Other 288 54 499 169 Total operating revenues $ 31,313 $ 10,839 $ 62,469 $ 34,747 18 UNIVERSAL LOGISTICS HOLDINGS, INC. Notes to Unaudited Consolidated Financial Statements - Continued (1 4 ) Commitments and Contingencies Our principal commitments relate to long-term real estate leases and payment obligations to equipment vendors. On March 17, 2021, the Company received a complaint from the National Labor Relations Board (the “NLRB”) based on charged alleged by the International Brotherhood of Teamsters against four of the Company’s operating subsidiaries. The charges stem from the Company’s decision to close underperforming operations in California in December 2019. The Teamsters allege, among other things, that the Company’s subsidiaries engaged in unfair labor practices and failure to negotiate in good faith and are seeking reinstatement of terminated individuals with back pay. The gross amount of the claim for back pay is approximately $ 5.9 million. The amount of the back pay does not, however, take into consideration any of the offsetting earnings made by terminated individuals since their separation from the Company. In April 2021, the Company answered the complaint by denying it engaged in any unfair labor practices and maintaining that the Company closed the underperforming California terminal due to financial reasons. In June 2021, the Company participated in the first phase of hearings with the NLRB. The hearing will be continued in late July and is expected to be completed shortly thereafter. The Company currently estimates the possible range of financial exposure in the matter to be between $ 0.8 million and $ 5.9 million. Based on the Company’s best estimate of the liability at this time, the Company has recorded an accrued liability for this matter of $ 1.9 million. While the outcome of these claims cannot be predicted with any certainty, management does not believe the outcome of any of these matters will have a material adverse effect on our business, financial position, results of operations or cash flows. On June 1, 2021, the Company entered into a settlement agreement with various parties, including a former agent of the Company. The agreement resolves all breach of contract, tortious interference, and other claims previously asserted by the Company against the defendants. Under the terms of the agreement, the Company agreed to accept $ 6.0 million in cash payable in three equal tranches of $ 2.0 million on June 21, 2021, September 30, 2021 and December 31, 2021. As a result of the settlement, during the second quarter 2021, the Company recorded a $ 5.7 million gain in other non-operating income. On June 9, 2021, the Company received the first payment of $ 2.0 million. The Company is involved in certain other claims and pending litigation arising from the ordinary conduct of business. We also provide accruals for claims within our self-insured retention amounts. Based on the knowledge of the facts, and in certain cases, opinions of outside counsel, in the Company’s opinion the resolution of these claims and pending litigation will not have a material effect on our financial position, results of operations or cash flows. However, if we experience claims that are not covered by our insurance or that exceed our estimated claim reserve, it could increase the volatility of our earnings and have a materially adverse effect on our financial condition, results of operations or cash flows. At July 3, 2021, approximately 40 % of our employees in the United States, Canada and Colombia, and 86 % of our employees in Mexico were subject to collective bargaining agreements that are renegotiated periodically, 21 % of which are subject to contracts that expire in 2021. (1 5 ) Subsequent Events On July 29, 2021 , our Board of Directors declared the regular quarterly cash dividend of $ 0.105 per share of common stock, payable to shareholders of record at the close of business on September 6, 2021 and is expected to be paid on October 4, 2021 . Declaration of future cash dividends is subject to final determination by the Board of Directors each quarter after its review of our financial condition, results of operations, capital requirements, any legal or contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant. 19