Covenant Transport, a truckload carrier based in Chattanooga, TN, took a $9.5 million charge in the fourth quarter of 2001 to cover the cost of falling used-truck values – contributing to a net loss for the quarter of $8.3 million.
The carrier added that the poor economy hurt both its revenues and earnings in the fourth quarter as well. Covenant said its revenue for the quarter decreased 6% to $136 million, down from $144.9 million in the fourth quarter of 2000. Net income fell 68% to $1.3 million in the quarter, down from $3.9 million in the same period in 2000, before the charge to cover falling used-truck values. With the charge, Covenant posted a net loss of $8.3 million.
For 2001, the numbers were not much better. Covenant said its revenues for all of 2001 decreased 1% to $547 million, falling from $552.4 million during 2000. Net income before the impairment charge dropped 76% to $2.9 million, way down from $111.9 million in 2000. Including the impairment charge, Covenant posted a net loss of $6.7 for 2001.
“For the past several quarters, the nationwide inventory of used tractors has far exceeded demand. As a result, the market value of used tractors has fallen significantly below both historical levels and the carrying values on our financial statements,” said David Parker, Covenant president & CEO. “We had extended the trade cycle of our tractors from three years to four years, which delayed any significant disposals into 2002 and later years. The market for used tractors has not improved significantly since that time.”
Parker said Covenant is negotiating a purchase and trade agreement with Freightliner Corp. for calendar years 2002 and 2003 covering the sale of all of its model year 1998 through 2000 tractors and the purchase of an equal number of replacement units.