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Pacer International Inc. Reports Operating Results (10-Q)

May 08, 2009 | About:
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Pacer International Inc. (PACR) filed Quarterly Report for the period ended 2009-03-31.

Pacer International Inc. is a leading North American non-asset based logistics provider offers logistics and other services to facilitate the movement of freight from origin to destination. Its services include retail intermodal marketing trucking freight consolidation and handling international freight forwarding and supply-chain management services and wholesale stacktrain services (two-tiered rail transportation for containerized shipments). Pacer International is headquartered in Concord California. Pacer International Inc. has a market cap of $144 million; its shares were traded at around $4.12 with a P/E ratio of 2.7 and P/S ratio of 0.1. Pacer International Inc. had an annual average earning growth of 7.5% over the past 5 years.

Highlight of Business Operations:

Pacer continues to be negatively impacted by the economic recession that began in 2008. Our intermodal traffic volumes were down 19.5% in the first quarter of 2009 compared to the 2008 period, creating excess capacity in the market resulting in aggressive price competition and reduced margins. Our overall revenues declined 28.7% in the 2009 period to $358.6 million from $502.8 million in the 2008 period. We recorded a $223.1 million operating loss for the 2009 period including an estimated non-cash pre-tax goodwill impairment charge (discussed below) related to both operating segments of $200.4 million compared to $23.1 million of operating income in the 2008 period. The analysis estimating the impairment charge will be finalized in the second quarter of 2009. We used $27.1 million of cash in operating activities in the 2009 period compared to providing $20.1 million of cash from operations in the 2008 period. Excluding the goodwill impairment charge, we recorded a $22.7 million operating loss for the 2009 period.

accordingly, performed a testing of the carrying values of goodwill for both the intermodal and logistics reporting units as of March 31, 2009. After this testing, we concluded that the carrying value of our intermodal and logistics reporting units (including goodwill) exceeded the fair value of each respective reporting unit. As a result, we recorded an estimated total non-cash impairment charge of $200.4 million, $163.7 million net of tax, or $4.71 per share, during the first quarter of 2009. We recorded $169.0 million of the pre-tax charge in the intermodal reporting unit and $31.4 million in the logistics reporting unit. See below for further discussion.

Our intermodal segment recorded a $183.6 million operating loss for the quarter including the goodwill impairment charge compared to operating income of $30.4 million for the first quarter of 2008. Operating loss for the intermodal segment for the 2009 period, excluding the impairment charge, was $14.6 million. The primary drivers of the decrease were excess capacity, declining prices and traffic volumes.

Our logistics segment recorded a $34.7 million operating loss for the quarter including the goodwill impairment charge compared to an operating loss of $0.8 million during the first quarter of 2008. Operating loss for the logistics segment for the 2009 period, excluding the impairment charge, was $3.3 million. The primary drivers of the decrease were excess capacity, declining prices and traffic volumes.

Goodwill. We adopted Financial Accounting Standards Board Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (SFAS 142) on December 29, 2001 (the first day of our fiscal 2002). Based on a combination of factors, including the continued, sustained decline in our stock price and market capitalization during the first quarter of 2009, the operating results of our intermodal and logistics reporting units during that quarter, and the effect that the current economic recession is expected to have on the operating results of both business segments until at least the end of 2009, we concluded that a goodwill impairment triggering event had occurred in the 2009 period for purposes of SFAS 142, and, accordingly, performed a testing of the carrying values of goodwill for both the intermodal and logistics reporting units as of March 31, 2009. After this testing, we concluded that the carrying value of our intermodal and logistics reporting units (including goodwill) exceeded the fair value of each respective reporting unit. Accordingly, we undertook the second step of the goodwill impairment analysis and determined that the implied fair value of each reporting units goodwill was $0 using the methodology required by SFAS 157. As a result, we recorded an estimated non-cash goodwill impairment charge of $200.4 million, $163.7 million net of tax, or $4.71 per share, 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.

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