Pacer International Inc. Reports Operating Results (10-Q)
Pacer International Inc. has a market cap of $195.55 million; its shares were traded at around $5.6 with a P/E ratio of 15.14 and P/S ratio of 0.12. PACR is in the portfolios of Bruce Kovner of Caxton Associates, Chuck Royce of Royce& Associates.
Highlight of Business Operations: Income from operations for the first nine months of 2010 was $7.1 million compared to a loss from operations of $234.2 million for the 2009 period which included a $200.4 million non-cash goodwill impairment charge. Excluding the $200.4 million non-cash goodwill impairment charge recorded in the first quarter of 2009 and all severance expenses in the 2010 and 2009 periods, Pacers adjusted operating income for the first nine months of 2010 improved by $39.5 million as compared to the 2009 period. A reconciliation of GAAP financial results to adjusted financial results included in this Quarterly Report which exclude the impact of the goodwill impairment and severance charges is contained elsewhere in this Quarterly Report. Our cash flow from operations also continues to improve and was $24.6 million more in the first nine months of 2010 compared to the 2009 period.
During the third quarter, our results were negatively impacted by Hurricane Alex, which caused significant track damage in Mexico. Service embargoes, network congestion and our inability to return equipment from Mexico on a timely basis significantly disrupted our Mexican rail operations for over 45 days, which in turn resulted in significant equipment imbalances throughout our entire rail network. We estimate that the impact of Hurricane Alex reduced intermodal operating income between $3.5 million and $4.0 million during the third quarter of 2010. As part of our increased focus on network optimization, we continually monitor equipment turns and saw the impact of Hurricane Alex on equipment turns in the third quarter, which decreased by 15.1% from the second quarter. Equipment turns (i.e., the number of revenue generating loads a container makes in a lane each month) measures equipment efficiency.
Deferred Tax Assets. At September 30, 2010, we have recorded net deferred tax assets of $37.2 million and have not recorded a valuation reserve as we believe that future earnings will be sufficient to fully utilize the assets. The minimum amount of future taxable income required to realize this asset is approximately $97.9 million. Should we not be able to generate this future income, we would be required to record valuation allowances against the deferred tax assets resulting in additional income tax expense in our Statement of Operations.
Goodwill. The Company complies with FASB ASC Topic 350 Intangibles Goodwill and Other and Topic 820 Fair Value Measurements and Disclosures to evaluate goodwill. Based on a combination of factors, including the continued, sustained decline in our stock price and market capitalization during the first quarter of 2009, and the operating results of our intermodal and logistics reporting units during that quarter, we concluded that a goodwill impairment triggering event had occurred in the first quarter of 2009 for purposes of ASC Topic 350, and, accordingly, performed a testing of the carrying values of goodwill for both the intermodal and logistics reporting units as of March 31, 2009. As a result, we recorded a non-cash goodwill impairment charge of $200.4 million in the 2009 first quarter ($169.0 million of the pre-tax charge was recorded in the intermodal reporting unit and $31.4 million in the logistics reporting unit). After the charge, there was no remaining goodwill assigned to either the intermodal or logistics reporting units. For more information, see Note 1 to the Condensed Consolidated Financial Statements.
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