ULH

Business Context and Reporting Period

Company: Universal Truckload Services, Inc. (UTSI)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 26, 2009 (Thirteen and Thirty-Nine Weeks)
Business Overview: UTSI is an asset-light provider of transportation services, including flatbed and dry van trucking, intermodal, and brokerage services. The company operates primarily through a network of independent sales agents and owner-operators.

Key Financial Metrics

Note: Working Capital calculated as Total Current Assets minus Total Current Liabilities.

Material Changes vs. Prior Period

• Revenue Decline: Operating revenues for the 39 weeks ended September 26, 2009, decreased by 37.6% ($219.1 million) compared to the prior year. This was driven by a 26% drop in load volume (480,000 vs. 649,000 loads), reduced fuel surcharges, and lower revenue per loaded mile due to the economic recession.
• Profitability Compression: Net income for the 39-week period fell 74.4% to $3.1 million. Operating margins contracted from 3.7% in 2008 to 1.7% in 2009.
• Cash Position: Cash and cash equivalents dropped significantly from $28.8 million at year-end 2008 to $1.3 million at September 26, 2009. This decrease was primarily due to a $16.0 million special dividend paid in Q1 2009 and $20.6 million in capital expenditures.
• Expense Management: Despite revenue declines, the company reduced Selling, General, and Administrative (SG&A) expenses by 13.9% through headcount reductions, pay cuts, and unpaid time-off initiatives. Purchased transportation expenses decreased 40.3%, tracking with revenue volume.

Guidance, Outlook, and Risks

• Capital Expenditures: The company incurred $20.6 million in capital expenditures for the 39-week period, largely driven by a $15.2 million purchase of a facility in South Kearny, NJ. Remaining 2009 capital expenditure guidance is $1.0 million to $2.2 million for real property and $1.8 million to $2.3 million for equipment.
• Liquidity: Management expects working capital and a $20 million unsecured line of credit with KeyBank to be sufficient for the next 12 months. No dividends are anticipated in the foreseeable future.
• Debt Covenants: The company is in compliance with its debt covenants, which require a tangible net worth of at least $100 million and a debt-to-tangible-net-worth ratio not exceeding 1:1.
• Market Risks:
  • Fuel Prices: Fluctuations in diesel prices impact owner-operator retention. While fuel surcharges are passed to customers, they may not fully protect operators from cost spikes.
  • Investment Portfolio: The company holds $15.96 million in marketable equity securities. While $1.26 million in other-than-temporary impairment losses were recognized in 2009, $0.37 million in unrealized losses remain classified as temporary. Further market declines could trigger additional impairment charges.
• Acquisitions: The company acquired assets of David Ohlrich Agency and Pacer Transport in 2009 for a total of $2.27 million, contributing approximately $8.2 million to year-to-date revenues.

Investor Verification Checklist

• Cash Burn Rate: Verify the sustainability of operations given the drop in cash reserves from $28.8M to $1.3M and the cessation of dividends.
• Debt Covenant Compliance: Confirm continued adherence to the $100 million tangible net worth requirement, especially given the decline in retained earnings.
• Investment Impairments: Monitor the $8.5 million of equity securities currently in a cumulative loss position for potential reclassification to other-than-temporary impairments.
• Revenue Recovery: Assess the impact of the economic recession on load volumes and the effectiveness of cost-cutting measures in maintaining margins.
• Related Party Transactions: Review ongoing costs associated with CenTra and affiliates, which totaled $3.5 million for the 39-week period.