Pacer International Inc. Reports Operating Results (10-Q/A)
Pacer International Inc. has a market cap of $115.54 million; its shares were traded at around $3.31 with and P/S ratio of 0.06. Pacer International Inc. had an annual average earning growth of 7.5% over the past 5 years.PACR is in the portfolios of Bruce Kovner of Caxton Associates, Chuck Royce of ROYCE & ASSOCIATES, Richard Snow of Snow Capital Management, L.P..
Highlight of Business Operations: As a result of such reviews on January 19, 2010, the Company concluded that under ASC 470-10-45-5A amounts outstanding under the A&R Credit Agreement should be classified as a current liability on our consolidated balance sheet at September 30, 2009. Accordingly, as discussed in Note 3 to the Condensed Consolidated Financial Statements, we have restated our unaudited quarterly condensed consolidated balance sheet at September 30, 2009 to reflect amounts outstanding under the A&R Credit Agreement as of such date as a current liability. This restatement impacts the Condensed Consolidated Balance Sheet by reclassifying $54.4 million of debt to current from long-term as of September 30, 2009, as well as reduces the amount of reported working capital at September 30, 2009 from $56.9 million (as reported before the restatement) to $2.5 million. In addition, Notes 4 and 12 to the Condensed Consolidated Financial Statements, the contractual obligation table included in this MD&A and the Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2009 included in Exhibit 99.1 to the Form 10-Q/A Pro Forma Condensed Consolidated Financial Statements are also impacted.
General. Pacer has made significant progress since the beginning the third quarter of 2009 in laying the foundation for our future. As discussed below, we entered into new multi-year agreements with UP for servicing our domestic big box (48- and 53-ft. container) shipments, entered into an amended and restated credit facility, closed the sale of certain assets of our truck services unit, and accelerated our cost cutting efforts through organizational consolidation. In addition, during the third quarter, traffic volumes began to improve to the extent that we earned $0.7 million in income from operations for the quarter, up from a loss of $11.8 million in the second quarter of 2009. Our wholesale and retail intermodal volumes were up 9.6% and 7.4%, respectively, compared to the second quarter of 2009. The economic recession continues to negatively impact our financial results. While we have seen some improvement in traffic volumes during the third quarter of 2009 compared to the second quarter of 2009, volumes continue to be below those in the comparable 2008 quarter. For the third quarter of 2009, revenues were 24.9% below the 2008 quarter with both segments reporting declines. Income from operations was down $28.6 million overall compared to the 2008 quarter with our intermodal segment reporting a $30.0 million reduction in operating income and our logistics segment reporting a $1.9 million reduction in operating income as compared to the 2008 quarter. The primary drivers of the overall reduced financial results are the depressed traffic volumes, aggressive price competition, continuing excess capacity and reduced fuel surcharges.
Cost Reductions. In view of the significant effect that the current economic recession has had on the transportation needs of customers and on our industry in general, we are continuing to take further steps to reduce costs and conserve cash while also seeking to simplify and streamline our organization without sacrificing the quality of service delivery. Since the end of 2008 and through the first nine months of 2009, we have reduced employment through attrition or severance, including through the sale of truck services assets, by 425 people and recorded $4.3 million in severance expense, and, as reported in our first and second quarter reports, reduced wage levels for the remaining personnel by up to 10% and discontinued the 401(k) company matching contributions, effective in April 2009. In addition, we had previously discontinued our $0.15 per share quarterly cash dividend in order to conserve cash. These measures will remain in effect until our financial performance improves. With the implementation of the SAP finance and accounting modules throughout our business units, we have completed the consolidation of our cartage accounting functions in Dublin, Ohio, and we are in the process of consolidating additional decentralized accounting functions. As described in Note 6 to our Condensed Consolidated Financial Statements, we plan to further reduce our workforce, consolidate operations and offices, and will record additional charges in the fourth quarter of 2009 for costs associated with these activities. These charges, which when combined with charges already incurred, are expected to range from $4.5 million to $5.0 million and consist of severance and lease termination costs. In addition, we are implementing additional actions that are expected to result in approximately $12 million in additional annualized SG&A savings in response to the new arrangements with UP.
SAP License Amendment. On June 25, 2009, we entered into an amendment to the software license agreement with SAP America, Inc. (SAP) dated September 30, 2007, under which the software licensed was reduced from the full enterprise suite of applications to the financial and accounting applications that have been successfully implemented. In connection with this amendment, we received a cash payment of $22.5 million and wrote-off $22.4 million of previously capitalized software and associated costs related to the development of the SAP transportation operations modules. The write-off, net of the cash received, is included in Selling, General and Administrative Expenses.
Deferred Tax Assets. At September 30, 2009, we have recorded net deferred tax assets of $45.2 million and have not recorded a valuation reserve as we believe that future earnings will more likely than not be sufficient to fully utilize the assets. The minimum amount of future taxable income required to realize this asset is approximately $120 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, 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 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 about the goodwill accounting processes, see Note 1 to the Condensed Consolidated Financial Statements.
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