ITEM 1. FINANCIAL STATEMENTS
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
|
|
|
|
|
|
|
(in millions, except share and per share data)
|
June 30, 2013
|
|
December 31, 2012
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
Cash and cash equivalents
|
$
|
26.8
|
|
|
$
|
20.2
|
|
Accounts receivable, net of allowances of $1.0 million
|
109.9
|
|
|
132.7
|
|
Prepaid expenses and other
|
11.1
|
|
|
9.4
|
|
Deferred income taxes
|
2.6
|
|
|
2.4
|
|
Total current assets
|
150.4
|
|
|
164.7
|
|
Property and equipment
|
|
|
|
Property and equipment, cost
|
105.3
|
|
|
108.8
|
|
Accumulated depreciation
|
(57.9
|
)
|
|
(62.0
|
)
|
Property and equipment, net
|
47.4
|
|
|
46.8
|
|
Other assets
|
|
|
|
Deferred income taxes
|
10.3
|
|
|
12.6
|
|
Other assets
|
9.8
|
|
|
9.9
|
|
Total other assets
|
20.1
|
|
|
22.5
|
|
Total assets
|
$
|
217.9
|
|
|
$
|
234.0
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
Current liabilities
|
|
|
|
Accounts payable and other accrued liabilities
|
92.8
|
|
|
112.5
|
|
Long-term liabilities
|
|
|
|
Other
|
1.1
|
|
|
1.3
|
|
Total liabilities
|
93.9
|
|
|
113.8
|
|
Stockholders’ equity
|
|
|
|
Preferred stock, par value $0.01 per share; 50,000,000 shares authorized; none issued and outstanding
|
—
|
|
|
—
|
|
Common stock, par value $0.01 per share; 150,000,000 shares authorized; 35,325,993 and 35,085,577 issued and outstanding
|
0.4
|
|
|
0.4
|
|
Additional paid-in capital
|
306.4
|
|
|
305.7
|
|
Accumulated deficit
|
(182.7
|
)
|
|
(185.9
|
)
|
Accumulated other comprehensive loss
|
(0.1
|
)
|
|
—
|
|
Total stockholders’ equity
|
124.0
|
|
|
120.2
|
|
Total liabilities and stockholders’ equity
|
$
|
217.9
|
|
|
$
|
234.0
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
(in millions, except share and per share data)
|
June 30,
2013
|
|
June 30,
2012
|
|
June 30,
2013
|
|
June 30,
2012
|
Revenues
|
$
|
238.0
|
|
|
$
|
368.3
|
|
|
$
|
470.7
|
|
|
$
|
714.2
|
|
Operating expenses:
|
|
|
|
|
|
|
|
Cost of purchased transportation and services
|
181.2
|
|
|
310.5
|
|
|
359.1
|
|
|
599.5
|
|
Direct operating expenses
|
24.1
|
|
|
25.4
|
|
|
47.0
|
|
|
50.4
|
|
Selling, general and administrative expenses
|
29.9
|
|
|
29.9
|
|
|
59.7
|
|
|
61.8
|
|
Other income
|
(0.2
|
)
|
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
Total operating expenses
|
235.0
|
|
|
365.8
|
|
|
465.3
|
|
|
711.7
|
|
Income from operations
|
3.0
|
|
|
2.5
|
|
|
5.4
|
|
|
2.5
|
|
Interest expense
|
(0.2
|
)
|
|
(0.3
|
)
|
|
(0.5
|
)
|
|
(0.8
|
)
|
Income before income taxes
|
2.8
|
|
|
2.2
|
|
|
4.9
|
|
|
1.7
|
|
Income tax expense
|
(0.9
|
)
|
|
(0.9
|
)
|
|
(1.7
|
)
|
|
(0.7
|
)
|
Net income
|
$
|
1.9
|
|
|
$
|
1.3
|
|
|
$
|
3.2
|
|
|
$
|
1.0
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
Earnings per share
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
Weighted average shares outstanding
|
35,328,056
|
|
|
35,090,580
|
|
|
35,242,047
|
|
|
35,052,353
|
|
Diluted:
|
|
|
|
|
|
|
|
Earnings per share
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
Weighted average shares outstanding
|
35,567,100
|
|
|
35,354,393
|
|
|
35,525,962
|
|
|
35,314,237
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
$
|
0.2
|
|
|
$
|
(0.1
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
(0.4
|
)
|
Comprehensive income
|
$
|
2.1
|
|
|
$
|
1.2
|
|
|
$
|
3.1
|
|
|
$
|
0.6
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions, except share amounts)
|
Common Stock
|
|
Additional
Paid-in
|
|
|
|
Accumulated
Other
Comprehensive
|
|
Total
Stockholders’
|
No. of
|
|
|
|
Accumulated
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Loss
|
|
Equity
|
Balance December 31, 2012
|
35,085,577
|
|
|
$
|
0.4
|
|
|
$
|
305.7
|
|
|
$
|
(185.9
|
)
|
|
$
|
—
|
|
|
$
|
120.2
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
3.2
|
|
|
—
|
|
|
3.2
|
|
Foreign currency translation adjustment
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
Stock based compensation
|
—
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
Tax impact of stock based compensation
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Issuance of common stock for vesting of restricted and performance stock units
|
167,567
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Issuance of restricted stock
|
76,818
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Repurchase and retirement of Pacer common stock
|
(3,969
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance June 30, 2013
|
35,325,993
|
|
|
$
|
0.4
|
|
|
$
|
306.4
|
|
|
$
|
(182.7
|
)
|
|
$
|
(0.1
|
)
|
|
$
|
124.0
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
(in millions)
|
June 30,
2013
|
|
June 30,
2012
|
Cash flows from operating activities
|
|
|
|
Net income
|
$
|
3.2
|
|
|
$
|
1.0
|
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
|
|
|
Depreciation and amortization
|
4.2
|
|
|
3.7
|
|
Amortization of deferred gain on sale lease-back transactions
|
(0.5
|
)
|
|
(0.4
|
)
|
Deferred taxes
|
1.8
|
|
|
0.4
|
|
Stock based compensation expense
|
1.3
|
|
|
0.9
|
|
Change in operating assets and liabilities
|
|
|
|
Accounts receivable, net
|
22.8
|
|
|
(13.5
|
)
|
Prepaid expenses and other
|
(1.7
|
)
|
|
(7.0
|
)
|
Accounts payable and other accrued liabilities
|
(19.7
|
)
|
|
4.9
|
|
Other assets
|
0.1
|
|
|
0.4
|
|
Other liabilities
|
(0.1
|
)
|
|
(0.7
|
)
|
Net cash provided by (used in) operating activities
|
11.4
|
|
|
(10.3
|
)
|
Cash flows from investing activities
|
|
|
|
Capital expenditures
|
(4.5
|
)
|
|
(6.4
|
)
|
Purchase of railcar assets
|
—
|
|
|
(28.4
|
)
|
Net proceeds from sale lease-back transaction
|
—
|
|
|
30.2
|
|
Proceeds from sales of property and equipment
|
—
|
|
|
0.1
|
|
Net cash used in investing activities
|
(4.5
|
)
|
|
(4.5
|
)
|
Cash flows from financing activities
|
|
|
|
Repurchase and retirement of Pacer common stock
|
—
|
|
|
(0.1
|
)
|
Withholding tax paid upon vesting of restricted and performance stock units
|
(0.3
|
)
|
|
(0.1
|
)
|
Net cash used in financing activities
|
(0.3
|
)
|
|
(0.2
|
)
|
Net increase (decrease) in cash and cash equivalents
|
6.6
|
|
|
(15.0
|
)
|
Cash and cash equivalents at beginning of period
|
20.2
|
|
|
24.0
|
|
Cash and cash equivalents at end of period
|
$
|
26.8
|
|
|
$
|
9.0
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. INTERIM FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements as of
June 30, 2013
and
December 31, 2012
and for the three and six month periods ended
June 30, 2013
and
2012
for Pacer International, Inc. and subsidiaries (referred to in these notes to the condensed consolidated financial statements as "Pacer", "the Company", "we", "us", or, "our") have been prepared in accordance with United States generally accepted accounting principles ("GAAP") and with the instructions to Form 10-Q and Article 10 of the Securities and Exchange Commission ("SEC") Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair statement of the financial condition and results of operations at the dates and for the interim periods presented, have been included. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for any full fiscal year. These unaudited condensed consolidated financial statements and footnotes should be read in conjunction with the audited consolidated financial statements of the Company included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2012
(the "2012 Annual Report") as filed with the SEC.
Critical accounting policies are summarized in Note 1 of the Notes to Consolidated Financial Statements in our 2012 Annual Report. Except as set forth below, there have been no material changes from the previously described critical accounting policies.
Revenue Recognition
We recognize revenue when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. We maintain signed contracts with many of our customers and have bills of lading specifying shipment details, including the rates charged for our services. Revenues are presented net of sales and volume discounts.
Our transportation service revenue is recognized after the services have been completed, meaning delivery has occurred and the shipping terms of the contract have been satisfied. Our warehousing, distribution and supply chain services revenues are recognized as the storage or service is rendered.
Our cross-border agreement with Union Pacific represents a multiple-deliverables arrangement. Deliverables under the arrangement represent separate units of accounting that have stand-alone value and no customer-negotiated refunds or return rights exist for the delivered services. These deliverables consist of network management fees and equipment use fees. We allocate revenue to each deliverable based on the relative selling price method. The relative selling price method is based on a hierarchy consisting of vendor-specific objective evidence (VSOE), if available, third-party evidence (TPE), if VSOE is not available, or estimated selling prices (ESP), if neither VSOE nor TPE is available.
VSOE was not available for either the network management fees or the equipment fees. TPE was established for the equipment fees by evaluating similar and interchangeable competitor services in stand-alone sales. TPE could not be established for the network management fees. Therefore, we determined ESP for the network management fees by considering several external and internal factors including, but not limited to, pricing practices, similar product offerings, margin objectives, and internal costs. ESP for each element is updated, when appropriate, to ensure that it reflects recent pricing experience.
Revenue is recognized for each of the deliverables when the revenue recognition conditions discussed above are met.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management of the Company to make estimates and assumptions related to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant estimates include recognition of revenue, costs of purchased transportation and services, allowance for doubtful accounts, accounting for income taxes and valuation of deferred tax assets, the economic useful lives of our property and equipment and contingencies. Actual results could differ from those estimates.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-02, “
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income
.” This ASU requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures that provide additional detail about those amounts. These requirements are to be applied to each component of accumulated other comprehensive income. ASU 2013-02 is effective for reporting periods beginning after December 15, 2012. The Company adopted ASU 2013-02 effective January 1, 2013. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, "
Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity
," ("ASU 2013-05"). ASU 2013-05 addresses the accounting for releasing a cumulative translation adjustment to net income when a parent either sells a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets within a foreign entity. The cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets resides. ASU 2013-05 is effective for reporting periods beginning after December 15, 2013. The Company does not anticipate that the adoption of this standard will have a material impact on its consolidated financial statements.
Reclassification
Certain reclassifications have been made to the 2012 three month and six month condensed consolidated financial statements in order to conform to the 2013 presentation, including the reclassification of certain expenses from selling, general and administrative expenses to costs of purchased transportation and services and direct operating expenses. The Company also reclassified depreciation and amortization to direct operating expenses and selling, general and administrative expenses. The reclassifications had no impact on previously reported income.
The following table summarizes the specific reclassifications discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Three Months Ended June 30, 2012
|
|
Six Months Ended June 30, 2012
|
|
Originally Reported
|
|
Reclassification Amount
|
|
As Reclassified
|
|
Originally Reported
|
|
Reclassification Amount
|
|
As Reclassified
|
Cost of purchased transportation and services
|
$
|
307.1
|
|
|
$
|
3.4
|
|
|
$
|
310.5
|
|
|
$
|
592.9
|
|
|
$
|
6.6
|
|
|
$
|
599.5
|
|
Direct operating expenses
|
22.6
|
|
|
2.8
|
|
|
25.4
|
|
|
44.9
|
|
|
5.5
|
|
|
50.4
|
|
Selling, general and administrative expenses
|
34.2
|
|
|
(4.3
|
)
|
|
29.9
|
|
|
70.2
|
|
|
(8.4
|
)
|
|
61.8
|
|
Depreciation and amortization
|
$
|
1.9
|
|
|
$
|
(1.9
|
)
|
|
$
|
—
|
|
|
$
|
3.7
|
|
|
$
|
(3.7
|
)
|
|
$
|
—
|
|
NOTE 2. BANK BORROWINGS
Pursuant to Accounting Standards Codification ("ASC") 470, any borrowings under our revolving credit agreement dated December 30, 2010, as amended on July 6, 2012 (the "2010 Credit Agreement"), would be classified as long-term debt. At
June 30, 2013
, no borrowings were outstanding.
The interest rate under the 2010 Credit Agreement was
4.0%
per annum as of
June 30, 2013
. Letter of credit fees are charged monthly at a rate equal to the applicable margin on Eurodollar rate loans.
As
of
June 30, 2013
,
$65.0 million
was available under the 2010 Credit Agreement pursuant to the borrowing base formula set forth in the 2010 Credit Agreement, net of
$11.5 million
of ou
tstanding letters of credit.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
NOTE 3. LONG-TERM INCENTIVE PLANS
Stock Options
During the six month period ended
June 30, 2013
, the Company granted stock options under the 2012 Omnibus Incentive Plan (the "2012 Plan") to certain key employees and officers. The options vest
three years
after grant date, have a
seven
year life, and an exercise price equal to the Company's stock price on the grant date. During the six month period ended
June 30, 2013
, the Company granted additional stock options under the 2012 Plan to the Chief Executive Officer. These options have a
three
year graded vesting schedule after grant date, a
seven
year life, and various exercise prices ranging from the Company's stock price on the date of grant to
$9.00
per share. The fair value of options granted in 2013 was estimated using the Black-Scholes valuation model and the assumptions noted in the following table.
|
|
|
|
|
|
2013
|
Black-Scholes option-pricing model assumptions:
|
|
Weighted average risk-free interest rate
|
0.8
|
%
|
Weighted average volatility
|
42.7
|
%
|
Weighted average dividend yield
|
N/A
|
|
Weighted average expected option term
|
5 years
|
|
Weighted average fair value per share of options granted
|
$
|
1.61
|
|
The expected term of the stock options is determined by considering certain factors such as the vesting period of the award, historical experience, volatility of the stock price and other relevant factors. The expected volatility is based on a combination of the changes in weekly prices of the Company's and selected competitors' stock over a historical period preceding each grant date. The risk free interest rate is based on the implied yield on U.S. Treasury issues with a term equal to the expected term of the option.
The following table summarizes the stock option activity for the six month period ended
June 30, 2013
:
|
|
|
|
|
|
|
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
Balance at December 31, 2012
|
835,942
|
|
|
$
|
8.85
|
|
Granted
|
1,845,523
|
|
|
4.60
|
|
Canceled or expired
|
(145,552
|
)
|
|
6.58
|
|
Exercised
|
—
|
|
|
—
|
|
Balance at June 30, 2013
|
2,535,913
|
|
|
5.88
|
|
Options exercisable, at June 30, 2013
|
189,000
|
|
|
$
|
19.26
|
|
The total intrinsic value of stock options exercisable as of
June 30, 2013
was $
0.1 million
. As of
June 30, 2013
, there was $
2.8 million
of unrecognized compensation costs related to stock options which are expected to be recognized over a weighted-average period of approximately
2.4 years
.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
Restricted Stock
The Company has issued time-based restricted stock to the non-management members of the Board of Directors and to certain key employees and officers. Restricted stock is subject to restrictions and cannot be sold, transferred or disposed of during the restriction period. The holders of restricted stock generally have the same rights as a stockholder of the Company with respect to such shares, including the right to vote and receive dividends with respect to the shares. Restricted stock is valued at the date of grant, based on the closing market price of the Company's common stock, and expensed using the straight-line method over the requisite service period. Restricted stock awarded in the period vests
one
year from the date of grant. A summary of restricted stock activity for the six month period ended
June 30, 2013
is presented below:
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average
Grant-Date
Fair Value
|
Nonvested at December 31, 2012
|
71,696
|
|
|
$
|
5.59
|
|
Granted
|
76,818
|
|
|
4.30
|
|
Vested
|
(58,446
|
)
|
|
5.42
|
|
Forfeited
|
—
|
|
|
—
|
|
Nonvested at June 30, 2013
|
90,068
|
|
|
$
|
4.60
|
|
As of
June 30, 2013
, there was
$0.2 million
of total unrecognized compensation cost related to restricted stock, which is expected to be recognized over a weighted-average period of approximately
0.7 years
.
Performance Stock Units and Restricted Stock Units
During the six month period ended
June 30, 2013
, the Company granted performance stock units ("PSUs") under the 2012 Plan that vest based on (i) the percentage of the Company's achievement of operating income and operating margin targets established by the Compensation Committee of the Board of Directors for the performance periods ending December 31, 2013, 2014 and 2015 and (ii) the continued employment of the grantee through March 5, 2016. The Company has outstanding Restricted Stock Units ("RSUs") granted in prior years. No RSUs were granted during the six month period ended
June 30, 2013
.
The PSUs and RSUs (collectively the "Units") may vest before the applicable vesting date if the grantee's employment is terminated by the Company without cause. Upon vesting, the Units result in the issuance of shares of Pacer common stock after required minimum tax withholdings. The holders of the Units do not have the rights of a shareholder and do not have voting rights but are entitled to receive dividend equivalents payable in the form of additional shares upon vesting of the Units.
The PSUs are valued at the date of grant, based on the closing market price of the Company's common stock, and expensed ratably over the vesting periods based on the actual and expected financial results of the individual performance periods. Vested Units in the table below include Units that vested under the terms of the applicable award agreement upon the grantee's resignation or voluntary termination. A summary of RSU and PSU award activity for the six month period ended
June 30, 2013
is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance
Stock
Units
|
|
Restricted
Stock
Units
|
|
Total
|
|
Weighted Average
Grant-Date
Fair Value
|
Balance at December 31, 2012
|
619,392
|
|
|
343,368
|
|
|
962,760
|
|
|
$
|
5.18
|
|
Granted
|
452,984
|
|
|
—
|
|
|
452,984
|
|
|
4.33
|
|
Vested
|
(168,819
|
)
|
|
(58,994
|
)
|
|
(227,813
|
)
|
|
6.59
|
|
Forfeited
|
(43,910
|
)
|
|
(3,103
|
)
|
|
(47,013
|
)
|
|
4.84
|
|
Balance at June 30, 2013
|
859,647
|
|
|
281,271
|
|
|
1,140,918
|
|
|
$
|
4.58
|
|
As of
June 30, 2013
, there was
$2.9 million
of total unrecognized compensation costs related to RSUs and PSUs, which are expected to be recognized over a weighted-average period of approximately
2.4
years.
The 2012 Plan will continue in effect until February 6, 2022, unless terminated earlier by the Board. As of
June 30, 2013
, there were
0.5 million
shares available for issuance under the 2012 Plan.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
NOTE 4. COMMITMENTS AND CONTINGENCIES
The Company is subject to routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the Company’s business, consolidated results of operations, financial condition or cash flows. Most of the lawsuits to which the Company is a party are covered by insurance and are being defended in cooperation with insurance carriers.
As of
May 6, 2013
, Pacer had received notices from the California Labor Commissioner, Division of Labor Standards Enforcement (the “DLSE”), that a total of
130
owner-operators had filed claims with the DLSE alleging that they should be classified as employees, as opposed to independent contractors, and seeking reimbursement for their business expenses, including fuel, tractor maintenance and tractor lease payments.
50
of these claims included complaints seeking a total of approximately
$8.0 million
from the Company's subsidiaries; the Company has not yet received any information regarding amounts claimed by the other
80
independent contractors. All of these claims are in preliminary stages, and
39
of them are currently set for hearing within the next three months. The information available to the Company at June 30, 2013, does not indicate that it is probable that a liability had been incurred, and the Company could not reasonably estimate the amount, or range of amounts, of any liability that would be incurred if these claims were resolved against it. Accordingly, the Company has not accrued any liability for these claims in its financial statements as of and for the period ended June 30, 2013. We believe that these claims are without merit, and we intend to vigorously defend against all of them.
NOTE 5. SEGMENT INFORMATION
The following table presents reportable segment information for the three and six month periods ended
June 30, 2013
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Revenues
|
|
|
|
|
|
|
|
Intermodal
|
$
|
184.3
|
|
|
$
|
306.8
|
|
|
$
|
364.7
|
|
|
$
|
591.7
|
|
Logistics
|
54.0
|
|
|
61.8
|
|
|
106.6
|
|
|
122.9
|
|
Inter-segment elimination
|
(0.3
|
)
|
|
(0.3
|
)
|
|
(0.6
|
)
|
|
(0.4
|
)
|
Total
|
238.0
|
|
|
368.3
|
|
|
470.7
|
|
|
714.2
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
Intermodal
|
1.4
|
|
|
1.3
|
|
|
2.9
|
|
|
2.5
|
|
Logistics
|
0.4
|
|
|
0.4
|
|
|
0.8
|
|
|
0.8
|
|
Corp/Other
|
0.3
|
|
|
0.2
|
|
|
0.5
|
|
|
0.4
|
|
Total
|
2.1
|
|
|
1.9
|
|
|
4.2
|
|
|
3.7
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
Intermodal
|
10.8
|
|
|
9.4
|
|
|
20.6
|
|
|
17.6
|
|
Logistics
|
(2.8
|
)
|
|
(2.5
|
)
|
|
(5.6
|
)
|
|
(5.7
|
)
|
Corp/Other
|
(5.0
|
)
|
|
(4.4
|
)
|
|
(9.6
|
)
|
|
(9.4
|
)
|
Total
|
3.0
|
|
|
2.5
|
|
|
5.4
|
|
|
2.5
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
Intermodal
|
1.1
|
|
|
2.4
|
|
|
3.1
|
|
|
4.8
|
|
Logistics
|
0.6
|
|
|
0.5
|
|
|
1.3
|
|
|
1.4
|
|
Corp/Other
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
Total
|
$
|
1.7
|
|
|
$
|
3.0
|
|
|
$
|
4.5
|
|
|
$
|
6.4
|
|
The "Corp/Other" rows includes corporate amounts (primarily compensation, tax and overhead costs unrelated to a specific segment). The Chief Operating Decision Maker does not review assets by segment for purposes of allocating resources and therefore assets by segment are not disclosed.
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(continued)
For the three month period ended
June 30, 2013
, the Company had
one
customer that contributed more than 10% of total consolidated revenues (contributed
11.9%
of total revenues). For the three month period ended
June 30, 2012
, the Company had
two
customers that contributed more than 10% of total consolidated revenues (one contributed
18.4%
, and the other
16.5%
of total revenues).
For the six month period ended
June 30, 2013
, the Company had
one
customer that contributed more than 10% of total consolidated revenues (contributed
12.2%
of total revenues). For the six month period ended
June 30, 2012
, the Company had
two
customers that contributed more than 10% of total consolidated revenues (one contributed
17.9%
, and the other
17.3%
of total revenues).
NOTE 6. LEASES
The Company leases double-stack railcars, containers, chassis, tractors, data processing equipment and real and other property. Minimal rental commitments under non-cancelable leases for the respective twelve month periods ended
June 30
are shown below (in millions):
|
|
|
|
|
|
Operating
Leases
|
2014
|
$
|
65.2
|
|
2015
|
44.1
|
|
2016
|
26.3
|
|
2017
|
10.9
|
|
2018
|
4.9
|
|
Thereafter
|
6.3
|
|
Total minimum payments
|
$
|
157.7
|
|
NOTE 7. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share-basic and diluted (in millions, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
June 30, 2013
|
|
June 30, 2012
|
|
June 30, 2013
|
|
June 30, 2012
|
Numerator:
|
|
|
|
|
|
|
|
Net income (basic and diluted)
|
$
|
1.9
|
|
|
$
|
1.3
|
|
|
$
|
3.2
|
|
|
$
|
1.0
|
|
Denominator:
|
|
|
|
|
|
|
|
Denominator for earnings per share-basic:
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
35,328,056
|
|
|
35,090,580
|
|
|
35,242,047
|
|
|
35,052,353
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Stock options, restricted stock units and performance stock units
|
239,044
|
|
|
263,813
|
|
|
283,915
|
|
|
261,884
|
|
Denominator for earnings per share-diluted
|
35,567,100
|
|
|
35,354,393
|
|
|
35,525,962
|
|
|
35,314,237
|
|
Earnings per share-basic
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
Earnings per share-diluted
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
$
|
0.09
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares (1)
|
1,457,913
|
|
|
824,593
|
|
|
1,873,307
|
|
|
824,593
|
|
(1) Reflects the weighted average common share equivalents attributable to outstanding stock options that were excluded from the computation of earnings per share because the impact would be anti-dilutive.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management's Discussion and Analysis ("MD&A") should be read in conjunction with the MD&A, including the discussion of our critical accounting policies, and the Consolidated Financial Statements included in the Company's 2012 Annual Report filed with the SEC on February 8, 2013.
Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities. Forward-looking statements include, among other things, the information concerning our possible future consolidated results of operations, cash flows, debt levels, business and growth strategies, financing plans, our competitive position and the effects of competition, the projected growth of the industries in which we operate, and the benefits to be obtained from our cost reduction initiatives. Forward-looking statements include all statements that are not historical facts and can be identified by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "plan," "may," "should," "will," "would," "project" and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance, prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements we make in this Quarterly Report on Form 10-Q and in our press releases and investor conference calls (including any forward looking statements regarding our projected revenues and/or earnings per share in 2013 or future periods) are discussed under "Item 1A. Risk Factors" and elsewhere in the 2012 Annual Report and include:
|
|
•
|
general economic and business conditions, including the current U.S. and global economic environment and the timing and strength of economic recovery in the U.S. and internationally;
|
|
|
•
|
the effect of uncertainty surrounding the current economic environment on the transportation needs of our customers;
|
|
|
•
|
industry trends, including changes in the costs of services from rail, ocean, motor and air transportation providers and equipment and capacity shortages or surpluses;
|
|
|
•
|
network changes, lane closures, carrier consolidations and other reductions or inefficiencies in, or termination of, rail services;
|
|
|
•
|
the termination, extension or replacement of contracts and rate agreements with our underlying rail carriers, changes in the terms of such contracts or rate agreements, the deterioration in our relationships with our rail carriers, or adverse changes to the railroads’ operating rules;
|
|
|
•
|
our reliance on Union Pacific to provide us with, and to service and maintain, a substantial portion of the chassis and containers used in our business;
|
|
|
•
|
our reliance on shipments and the significant percentage of our revenues and related operating profit from customers in or supplying the automotive industry and the effect that economic conditions can have on traffic from automotive industry customers;
|
|
|
•
|
our success at growing our US-Mexico or other business to offset declines in revenue and margins for equipment and services provided under our new Union Pacific cross-border agreement;
|
|
|
•
|
the impact of competitive pressures in the marketplace;
|
|
|
•
|
our success in passing through rate increases from rail and other transportation providers to our customers;
|
|
|
•
|
the frequency and severity of accidents, particularly involving our trucking operations;
|
|
|
•
|
our ability to attract and retain independent contractors and third party drayage capacity;
|
|
|
•
|
changes in our business strategy, development plans or cost savings plans, including those that may result from, or be necessitated by, changes in our business relationships with our underlying rail carriers as a consequence of new contracts or rate agreements entered into with these providers;
|
|
|
•
|
congestion, work stoppages, equipment and capacity shortages or surpluses, weather related issues and service disruptions affecting our rail, ocean, motor and air transportation providers;
|
|
|
•
|
the degree and timing of changes in fuel prices, including changes in the fuel costs and surcharges that we pay to our vendors and those that we are able to collect from our customers;
|
|
|
•
|
the loss of one or more of our major customers;
|
|
|
•
|
a determination that our independent contractors are our employees (see Note 4 of the notes to our unaudited condensed consolidated financial statements);
|
|
|
•
|
changes in, or the failure to comply with, government regulations;
|
|
|
•
|
changes in international and domestic shipping patterns;
|
|
|
•
|
foreign currency fluctuations and exchange controls and changes in international tariffs, trade restrictions, trade agreements and taxations;
|
|
|
•
|
difficulties in selecting, integrating, upgrading and replacing our information technology systems and protecting systems from disruptions and cyber-attacks;
|
|
|
•
|
our ability to borrow amounts under our credit agreement due to borrowing base limitations and/or to comply with the covenants in our credit agreement;
|
|
|
•
|
increases in our leverage;
|
|
|
•
|
increases in interest rates; and
|
|
|
•
|
terrorism and acts of war.
|
Our actual consolidated results of operations and the execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements contained in this Quarterly Report on Form 10-Q or in other forward-looking statements made by us. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate future results or future period trends. We can give no assurances that any of the events anticipated or implied by the forward-looking statements we make will occur or, if any of them do occur, what impact they will have on our consolidated results of operations, financial condition or cash flows. In evaluating our forward-looking statements, you should specifically consider the risks and uncertainties discussed under "Item 1A. Risk Factors" in the 2012 Annual Report. Except as otherwise required by federal securities laws, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Quarterly Report on Form 10-Q. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this Quarterly Report on Form 10-Q and our other filings with the SEC.
Executive Summary
Our intermodal operating results improved year over year as a result of several initiatives that we put in place in 2012 and continued during the first half of 2013. We took efforts to manage our mix of freight and we implemented new processes to more effectively manage empty truck miles, limit our equipment excess dwell time, and optimize our network shipment flows. In addition, our realignment of our intermodal operations has enhanced our customer service and streamlined our operations.
During the first half of 2013, we successfully operationalized our cross-border agreement with Union Pacific. As expected, our intermodal revenues and cost of purchased transportation declined significantly as we no longer collect and pass through rail transportation costs to automotive intermediaries servicing the US-Mexico business. Instead, we now receive a fee from Union Pacific for acting as their network manager for the US-Mexico business. Also as expected, our margin contribution in 2013 from this intermodal automotive business remained consistent with its historical contribution level. This expected margin contribution going forward is primarily dependent on (1) the volume of US-Mexico automotive parts shipments via the network that we manage under the new agreement; (2) the volume of Pacer equipment used via the network that we manage versus rail or other equipment; and (3) the amount of selling, general and administrative costs incurred to run this business. Over the remaining term of the agreement, our revenue and margin for the services and equipment provided under the agreement decline absent growth in our retail direct US-Mexico business and will also continue to be dependent on the previously mentioned factors.
Our logistics segment, which has not yet returned to profitability, should benefit from new agreements we entered into recently with CTS International Logistics Corporation, Ltd. and Menzell Frankfurt. These agreements will expand our networks in mainland China and Germany. We plan to continue to build the operational and sales leadership of the logistics segment businesses and to continue the implementation of our new operating systems to support the international freight forwarding business. We expect these investments in personnel and systems will allow the logistics segment to return to profitability within the next year and will build a stronger foundation for selling our integrated portfolio of services to customers.
We continue to prudently manage selling, general and administrative expenses which decreased
$2.1 million
in the first six months of 2013 compared to the 2012 period.
We were debt free at June 30, 2013, and ended the quarter with
$26.8 million
of cash and cash equivalents and
$65.0 million
of borrowing capacity. We believe that our cash, cash flow from operations and borrowings available under the 2010 Credit Agreement will be sufficient to meet our cash needs for at least the next twelve months.
Use of Non-GAAP Financial Measures
From time to time in press releases regarding quarterly earnings, presentations and other communications, we may provide financial information determined by methods other than in accordance with generally accepted accounting principles ("GAAP").
These measures include adjusted results for 2012 which exclude from revenues and costs of purchased transportation, the rail transportation costs in our wholesale intermodal auto business that we no longer collect and pass through to automotive intermediaries servicing the US-Mexico business.
Management uses these non-GAAP measures in its analysis of the Company’s performance and regularly reports such information to our Board of Directors. Management believes that presentations of financial measures excluding the impact of these items provides useful supplemental information that is essential to a proper understanding of the operating results of our core businesses and allows investors, management and our Board to more easily compare operating results from period to period. However, the use of any such non-GAAP financial information should not be considered in isolation or as a substitute for revenues, net income or loss, operating income or loss, cash flows from operations or other income or cash flow data prepared in accordance with GAAP or as a measure of our profitability or liquidity. These non-GAAP measures may not be comparable to those used by other companies.
Results of Operations
Three Months Ended
June 30, 2013
Compared to Three Months Ended
June 30, 2012
The following table sets forth our historical financial data by reportable segment for the three months ended
June 30, 2013
and
2012
(in millions). Certain reclassifications have been made to the 2012 quarterly operating expenses in order to conform to the 2013 presentation. The reclassifications had no impact on previously reported income. For a summary of the effects of the reclassifications, refer to the table at the end of this section.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Change
|
|
% Change
|
Revenues
|
|
|
|
|
|
|
|
Intermodal
|
$
|
184.3
|
|
|
$
|
306.8
|
|
|
$
|
(122.5
|
)
|
|
(39.9
|
)%
|
Logistics
|
54.0
|
|
|
61.8
|
|
|
(7.8
|
)
|
|
(12.6
|
)
|
Inter-segment elimination
|
(0.3
|
)
|
|
(0.3
|
)
|
|
—
|
|
|
N/M
|
|
Total
|
238.0
|
|
|
368.3
|
|
|
(130.3
|
)
|
|
(35.4
|
)
|
Cost of purchased transportation and services
|
|
|
|
|
|
|
|
Intermodal
|
134.2
|
|
|
256.5
|
|
|
(122.3
|
)
|
|
(47.7
|
)
|
Logistics
|
47.3
|
|
|
54.3
|
|
|
(7.0
|
)
|
|
(12.9
|
)
|
Inter-segment elimination
|
(0.3
|
)
|
|
(0.3
|
)
|
|
—
|
|
|
N/M
|
|
Total
|
181.2
|
|
|
310.5
|
|
|
(129.3
|
)
|
|
(41.6
|
)
|
Direct operating expenses
|
|
|
|
|
|
|
|
Intermodal
|
24.1
|
|
|
25.4
|
|
|
(1.3
|
)
|
|
(5.1
|
)
|
Total
|
24.1
|
|
|
25.4
|
|
|
(1.3
|
)
|
|
(5.1
|
)
|
Gross margin
|
|
|
|
|
|
|
|
Intermodal
|
26.0
|
|
|
24.9
|
|
|
1.1
|
|
|
4.4
|
|
Logistics
|
6.7
|
|
|
7.5
|
|
|
(0.8
|
)
|
|
(10.7
|
)
|
Total
|
$
|
32.7
|
|
|
$
|
32.4
|
|
|
$
|
0.3
|
|
|
0.9
|
|
Gross margin percentage
|
|
|
|
|
|
|
|
Intermodal
|
14.1
|
%
|
|
8.1
|
%
|
|
6.0
|
%
|
|
|
Logistics
|
12.4
|
|
|
12.1
|
|
|
0.3
|
|
|
|
Total
|
13.7
|
%
|
|
8.8
|
%
|
|
4.9
|
%
|
|
|
Selling, general & administrative expenses
|
|
|
|
|
|
|
|
Intermodal
|
$
|
15.2
|
|
|
$
|
15.5
|
|
|
$
|
(0.3
|
)
|
|
(1.9
|
)
|
Logistics
|
9.7
|
|
|
10.0
|
|
|
(0.3
|
)
|
|
(3.0
|
)
|
Corporate
|
5.0
|
|
|
4.4
|
|
|
0.6
|
|
|
13.6
|
|
Total
|
29.9
|
|
|
29.9
|
|
|
—
|
|
|
N/M
|
|
Other income
|
|
|
|
|
|
|
|
Logistics
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
N/M
|
|
Total
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
N/M
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
Intermodal
|
10.8
|
|
|
9.4
|
|
|
1.4
|
|
|
14.9
|
|
Logistics
|
(2.8
|
)
|
|
(2.5
|
)
|
|
(0.3
|
)
|
|
(12.0
|
)
|
Corporate
|
(5.0
|
)
|
|
(4.4
|
)
|
|
(0.6
|
)
|
|
(13.6
|
)
|
Total
|
3.0
|
|
|
2.5
|
|
|
0.5
|
|
|
20.0
|
|
Interest expense
|
(0.2
|
)
|
|
(0.3
|
)
|
|
0.1
|
|
|
33.3
|
|
Income tax benefit (expense)
|
(0.9
|
)
|
|
(0.9
|
)
|
|
—
|
|
|
N/M
|
|
Net income
|
$
|
1.9
|
|
|
$
|
1.3
|
|
|
$
|
0.6
|
|
|
46.2
|
%
|
Revenues
. Revenues decreased by $
130.3 million
, or
35.4%
, for the three months ended
June 30, 2013
compared to the three months ended
June 30, 2012
.
Total intermodal revenues decreased $
122.5 million
, or
39.9%
in the
2013
period compared to the
2012
period. As expected, the majority of the decrease was due to the implementation of the new cross border agreement with Union Pacific where we no longer collect and pass through the rail transportation costs to automotive intermediaries servicing the US-Mexico business ("the pass-through rail transportation costs"). Excluding the pass-through rail transportation costs in 2012, intermodal revenues decreased
$24.7 million
or
11.8%
. This decline was primarily due to an
8.2%
reduction of total intermodal volumes in the
2013
period compared to the
2012
period. Domestic intermodal volumes decreased 3.2% mainly due to our efforts to pare low-margin freight volumes that we had won in the second quarter of 2012 but later became less profitable due to unexpected rail cost increases. International intermodal volumes decreased 20.2% due to a continued softness in ocean carrier trans-Pacific volumes and the impact of a wholesale drayage customer changing its port of service to a port with on-dock rail service during the second quarter of 2012 resulting in a reduction in drayage needs.
Revenues in our logistics segment decreased $
7.8 million
, or
12.6%
, in the
2013
period compared to the
2012
period. The decline is primarily due to a
22.3%
decrease in the volume of our ocean and air shipments attributed to competitive pricing pressures, customer attrition, and a continued softness in the global market.
Cost of Purchased Transportation and Services
. Cost of purchased transportation and services decreased $
129.3 million
, or
41.6%
, in the
2013
period compared to the
2012
period.
Total intermodal cost of purchased transportation and services decreased $
122.3 million
, or
47.7%
, in the
2013
period compared to the
2012
period. As expected, the majority of the decrease was due to the implementation of the new cross border agreement with Union Pacific. Excluding the pass-through rail transportation costs in 2012, intermodal cost of purchased transportation and services decreased
$24.5 million
or
15.4%
. This decrease was primarily driven by the
8.2%
decline in total intermodal volumes, an increased focus on reducing dwell time when utilizing rail-controlled equipment, and a
3.1%
decrease in other purchased transportation costs in the
2013
period compared to the
2012
period, reflecting our increased focus on reducing empty miles in drayage operations.
Cost of purchased transportation and services in our logistics segment decreased $
7.0 million
, or
12.9%
, in the
2013
period compared to the
2012
period. The decrease was primarily due to the
22.3%
decrease in volumes for the reasons mentioned above.
Direct Operating Expenses.
Direct operating expenses decreased
$1.3 million
, or
5.1%
, in the 2013 period compared to the
2012
period, reflecting a decrease in intermodal equipment costs of
10.0%
in the
2013
period compared to the
2012
period as a result of an increased focus on lowering equipment maintenance and repair costs and a reduction in equipment lease costs. This decrease was offset by a $0.8 million dispute settlement related to assessments of property taxes on our intermodal equipment.
Gross Margin.
Overall gross margin improved by
$0.3 million
or
0.9%
, and our gross margin percentage (revenues less the cost of purchased transportation and services and direct operating expenses divided by revenues) increased from
8.8%
in the
2012
period to
13.7%
in the
2013
period.
Intermodal segment gross margin increased by $
1.1 million
, or
4.4%
, and the gross margin percentage for our intermodal segment increased from
8.1%
in the
2012
period to
14.1%
in the
2013
period. Excluding the pass-through rail transportation costs from 2012 results, the gross margin percentage increased 220 basis points. The increase in intermodal gross margin and gross margin percentage was driven by our efforts to pare low margin freight volumes and the decreases in other purchased transportation costs and intermodal equipment costs mentioned above.
Logistics segment gross margin decreased $
0.8 million
, or
10.7%
, and the gross margin percentage for our logistics segment increased from
12.1%
in the
2012
period to
12.4%
in the
2013
period. The decrease in the gross margin was primarily due to the 22.3% decrease in the volume of ocean and air shipments driven by competitive pressures and the continued softness of the international shipping market, while the gross margin percentage increase was primarily due to a more favorable service mix in the
2013
period compared to the
2012
period.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses on a consolidated basis remained unchanged in the
2013
period compared to the
2012
period. Selling, general and administrative expenses decreased
$0.3 million
in both the intermodal and logistics segments. These decreases were offset by a
$0.6 million
increase in the corporate segment driven by a $1.1 million increase in incentive compensation, a non-cash charge.
Other Income.
Other income increased
$0.2 million
in the
2013
period compared to the
2012
period. The increase is due to sublease income from a warehouse facility in the Pacific Northwest which began in the third quarter of 2012.
Income (Loss) From Operations
. Income from operations increased $
0.5 million
, or
20.0%
, in the
2013
period compared to the
2012
period.
Intermodal segment income from operations increased $
1.4 million
, or
14.9%
, in the
2013
period compared to the
2012
period. The increase was due to the increase in the intermodal gross margin of
$1.1 million
driven by our efforts to pare low margin freight volumes and the decreases in other purchased transportation costs and intermodal equipment costs mentioned above, and a
$0.3 million
decrease in segment selling, general and administrative expenses.
The logistics segment incurred a loss from operations of $
2.8 million
in the
2013
period compared to a loss from operations of $
2.5 million
in the
2012
period. The increase in the loss was driven by the
$0.8 million
decrease in the logistics gross margin resulting from the decreased volumes mentioned above, partially offset by an increase in other income of
$0.2 million
due to new sublease income, and a decrease of
$0.3 million
in segment selling, general and administrative expenses.
Corporate loss from operations increased $
0.6 million
from $
4.4 million
in the
2012
period to $
5.0 million
in the
2013
period. The increase is driven by an increase in incentive compensation costs of $1.1 million in the
2013
period compared to the
2012
period, offset by decreases in various other expenses driven by initiatives to reduce corporate general administrative expenses in the
2013
period.
Interest Expense.
Interest expense decreased by $
0.1 million
in the
2013
period compared to the
2012
period primarily due to lower average borrowings in the 2013 period. Interest expense is composed of interest paid on our debt and the amortization of deferred financing costs. The decrease is due to the average outstanding debt balance decreasing from $1.3 million for the three months ended June 30, 2012 to less than $0.1 million for the three months ended June 30, 2013. The weighted average interest rate was approximately
4.0%
in both the 2013 and 2012 periods.
Income Tax Expense
. We recorded income tax expense of $
0.9 million
in the
2013
and
2012
periods. The effective tax rate was 32.1% in the
2013
period and 40.9% in the
2012
period. The change in the estimated annual effective tax rate is due to the change in the mix of income among the jurisdictions in which we do business and a favorable tax adjustment during the period related to one of our foreign subsidiaries. The Company expects its effective tax rate for the year ended 2013 to approximate 37%.
Net Income and Earnings Per Share
. As a result of the foregoing, net income increased $
0.6 million
from $
1.3 million
in the
2012
period to $
1.9 million
in the
2013
period. Earnings per share basic and diluted increased from
$0.04
per share in the
2012
period to
$0.05
per share in the
2013
period.
Reclassifications of 2012 Quarterly Results to Conform to 2013 Presentation
For the Three Months Ended June 30, 2012
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Three Months Ended June 30, 2012
|
|
Originally Reported
|
|
Reclassification Amount 1/
|
|
As Reclassified
|
Cost of purchased transportation and services
|
$
|
307.1
|
|
|
$
|
3.4
|
|
|
$
|
310.5
|
|
Direct operating expenses
|
22.6
|
|
|
2.8
|
|
|
25.4
|
|
Selling, general and administrative expenses
|
34.2
|
|
|
(4.3
|
)
|
|
29.9
|
|
Depreciation and amortization
|
$
|
1.9
|
|
|
$
|
(1.9
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2012
|
|
Originally Reported
|
|
Reclassification Amount 1/
|
|
As Reclassified
|
Gross margin
|
|
|
|
|
|
Intermodal
|
$
|
27.7
|
|
|
$
|
(2.8
|
)
|
|
$
|
24.9
|
|
Logistics
|
10.9
|
|
|
(3.4
|
)
|
|
7.5
|
|
Total
|
$
|
38.6
|
|
|
$
|
(6.2
|
)
|
|
$
|
32.4
|
|
Gross margin percentage
|
|
|
|
|
|
Intermodal
|
9.0
|
%
|
|
|
|
8.1
|
%
|
Logistics
|
17.6
|
|
|
|
|
12.1
|
|
Total
|
10.5
|
%
|
|
|
|
8.8
|
%
|
|
|
|
1/
|
Certain reclassifications have been made to the 2012 quarterly operating expenses in order to conform to the 2013 presentation. The reclassifications had no impact on previously reported income. Specifically, Pacer reclassified certain expenses from selling, general and administrative to costs of purchased transportation and services and direct operating expenses. Pacer also reclassified depreciation and amortization as direct operating expenses and selling, general and administrative expenses.
|
Reconciliation of GAAP Results to Adjusted Results
For the Three Months Ended June 30, 2013 and 2012
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013
|
|
Three Months Ended June 30, 2012
|
|
Adjusted
|
|
% Adjusted
|
|
GAAP
|
|
GAAP
|
|
|
|
|
|
Adjusted
|
|
Variance
|
|
Variance
|
|
Results
|
|
Results
|
|
Adjustments
|
|
|
|
Results
|
|
2013 vs 2012
|
|
2013 vs 2012
|
Total revenues
|
$
|
238.0
|
|
|
$
|
368.3
|
|
|
$
|
(97.8
|
)
|
|
2/
|
|
$
|
270.5
|
|
|
$
|
(32.5
|
)
|
|
(12.0
|
)%
|
Total cost of purchased transportation and services
|
181.2
|
|
|
310.5
|
|
1/
|
(97.8
|
)
|
|
2/
|
|
212.7
|
|
|
(31.5
|
)
|
|
(14.8
|
)
|
Total net revenue
|
$
|
56.8
|
|
|
$
|
57.8
|
|
|
—
|
|
|
|
|
$
|
57.8
|
|
|
$
|
(1.0
|
)
|
|
(1.7
|
)
|
Total gross margin percentage
|
13.7
|
%
|
|
8.8
|
%
|
1/
|
|
|
|
|
12.0
|
%
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal revenues
|
$
|
184.3
|
|
|
$
|
306.8
|
|
|
(97.8
|
)
|
|
2/
|
|
$
|
209.0
|
|
|
$
|
(24.7
|
)
|
|
(11.8
|
)
|
Intermodal cost of purchased transportation and services
|
134.2
|
|
|
256.5
|
|
1/
|
(97.8
|
)
|
|
2/
|
|
158.7
|
|
|
(24.5
|
)
|
|
(15.4
|
)
|
Intermodal net revenue
|
$
|
50.1
|
|
|
$
|
50.3
|
|
|
$
|
—
|
|
|
|
|
$
|
50.3
|
|
|
$
|
(0.2
|
)
|
|
(0.4
|
)%
|
Intermodal gross margin percentage
|
14.1
|
%
|
|
8.1
|
%
|
1/
|
|
|
|
|
11.9
|
%
|
|
2.2
|
%
|
|
|
|
|
|
1/
|
2012 GAAP results are after reclassification of certain selling, general and administrative expenses to cost of purchased transportation and direct operating expenses and depreciation and amortization as direct operating expenses and selling, general and administrative expenses.
|
2/
|
Effective January 1, 2013, we now act as Union Pacific's network manager for US-Mexico cross-border shipments. We are compensated on a fee basis for such services and these fees are recorded as revenues in 2013. We no longer collect and pass through the rail transportation costs to automotive intermediaries servicing the US-Mexico business. Accordingly, adjustments were made to exclude these costs from revenues and cost of purchased transportation to present 2012 on a net basis.
|
Results of Operations
Six Months Ended
June 30, 2013
Compared to Six Months Ended
June 30, 2012
The following table sets forth our historical financial data by reportable segment for the six months ended
June 30, 2013
and
2012
(in millions). Certain reclassifications have been made to the 2012 operating expenses in order to conform to the 2013 presentation. The reclassifications had no impact on previously reported income. For a summary of the effects of the reclassifications, refer to the table at the end of this section.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Change
|
|
% Change
|
Revenues
|
|
|
|
|
|
|
|
Intermodal
|
$
|
364.7
|
|
|
$
|
591.7
|
|
|
$
|
(227.0
|
)
|
|
(38.4
|
)%
|
Logistics
|
106.6
|
|
|
122.9
|
|
|
(16.3
|
)
|
|
(13.3
|
)
|
Inter-segment elimination
|
(0.6
|
)
|
|
(0.4
|
)
|
|
(0.2
|
)
|
|
N/M
|
|
Total
|
470.7
|
|
|
714.2
|
|
|
(243.5
|
)
|
|
(34.1
|
)
|
Cost of purchased transportation and services
|
|
|
|
|
|
|
|
Intermodal
|
266.4
|
|
|
492.3
|
|
|
(225.9
|
)
|
|
(45.9
|
)
|
Logistics
|
93.3
|
|
|
107.6
|
|
|
(14.3
|
)
|
|
(13.3
|
)
|
Inter-segment elimination
|
(0.6
|
)
|
|
(0.4
|
)
|
|
(0.2
|
)
|
|
N/M
|
|
Total
|
359.1
|
|
|
599.5
|
|
|
(240.4
|
)
|
|
(40.1
|
)
|
Direct operating expenses
|
|
|
|
|
|
|
|
Intermodal
|
47.0
|
|
|
50.4
|
|
|
(3.4
|
)
|
|
(6.7
|
)
|
Total
|
47.0
|
|
|
50.4
|
|
|
(3.4
|
)
|
|
(6.7
|
)
|
Gross margin
|
|
|
|
|
|
|
|
Intermodal
|
51.3
|
|
|
49.0
|
|
|
2.3
|
|
|
4.7
|
|
Logistics
|
13.3
|
|
|
15.3
|
|
|
(2.0
|
)
|
|
(13.1
|
)
|
Total
|
$
|
64.6
|
|
|
$
|
64.3
|
|
|
$
|
0.3
|
|
|
0.5
|
|
Gross margin percentage
|
|
|
|
|
|
|
|
Intermodal
|
14.1
|
%
|
|
8.3
|
%
|
|
5.8
|
%
|
|
|
Logistics
|
12.5
|
|
|
12.4
|
|
|
0.1
|
|
|
|
Total
|
13.7
|
%
|
|
9.0
|
%
|
|
4.7
|
%
|
|
|
Selling, general & administrative expenses
|
|
|
|
|
|
|
|
Intermodal
|
$
|
30.7
|
|
|
$
|
31.4
|
|
|
$
|
(0.7
|
)
|
|
(2.2
|
)
|
Logistics
|
19.4
|
|
|
21.0
|
|
|
(1.6
|
)
|
|
(7.6
|
)
|
Corporate
|
9.6
|
|
|
9.4
|
|
|
0.2
|
|
|
2.1
|
|
Total
|
59.7
|
|
|
61.8
|
|
|
(2.1
|
)
|
|
(3.4
|
)
|
Other income
|
|
|
|
|
|
|
|
Logistics
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
|
N/M
|
|
Total
|
(0.5
|
)
|
|
—
|
|
|
(0.5
|
)
|
|
N/M
|
|
Income (loss) from operations
|
|
|
|
|
|
|
|
Intermodal
|
20.6
|
|
|
17.6
|
|
|
3.0
|
|
|
17.0
|
|
Logistics
|
(5.6
|
)
|
|
(5.7
|
)
|
|
0.1
|
|
|
1.8
|
|
Corporate
|
(9.6
|
)
|
|
(9.4
|
)
|
|
(0.2
|
)
|
|
(2.1
|
)
|
Total
|
5.4
|
|
|
2.5
|
|
|
2.9
|
|
|
N/M
|
|
Interest expense
|
(0.5
|
)
|
|
(0.8
|
)
|
|
0.3
|
|
|
37.5
|
%
|
Income tax benefit (expense)
|
(1.7
|
)
|
|
(0.7
|
)
|
|
(1.0
|
)
|
|
N/M
|
|
Net income
|
$
|
3.2
|
|
|
$
|
1.0
|
|
|
$
|
2.2
|
|
|
N/M
|
|
Revenues
. Revenues decreased by $
243.5 million
, or
34.1%
, for the six months ended
June 30, 2013
compared to the six months ended
June 30, 2012
.
Total intermodal revenues decreased
$227.0 million
, or
38.4%
, in the
2013
period compared to the
2012
period. As expected, the majority of the decrease was due to the implementation of the new cross border agreement with Union Pacific where we no longer collect and pass through the rail transportation costs to automotive intermediaries servicing the US-Mexico business ("the pass-through rail transportation costs"). Excluding the pass-through rail transportation costs in 2012, intermodal revenues decreased
$35.0 million
or
8.8%
. This decline was primarily due to a
9.6%
reduction of total intermodal volumes in the
2013
period compared to the
2012
period. Domestic intermodal volumes decreased 2.6% mainly due to our efforts to pare low-margin volumes that we had won in the second quarter of 2012 but later became less profitable due to unexpected rail cost increases. International intermodal volumes decreased 25.6% due to a continued softness in ocean carrier trans-Pacific volumes and the impact of a wholesale drayage customer changing its port of service to a port with on-dock rail service during the second quarter of 2012 resulting in a reduction in drayage needs.
Revenues in our logistics segment decreased $
16.3 million
, or
13.3%
, in the
2013
period compared to the
2012
period. The decline is primarily due to a
23.9%
decrease in the volume of our ocean and air shipments attributed to competitive pricing pressures, customer attrition, and a continued softness in the global market.
Cost of Purchased Transportation and Services
. Cost of purchased transportation and services decreased $
240.4 million
, or
40.1%
, in the
2013
period compared to the
2012
period.
Total intermodal cost of purchased transportation and services decreased $
225.9 million
, or
45.9%
, in the
2013
period compared to the
2012
period. As expected, the majority of the decrease was due to the implementation of the new cross border agreement with Union Pacific. Excluding the pass-through rail transportation costs in 2012, intermodal cost of purchased transportation and services decreased
$33.9 million
or
11.3%
. This decrease was primarily driven by the
9.6%
decline in total intermodal volumes, an increased focus on reducing dwell time when utilizing rail-controlled equipment, and a
5.8%
decrease in other purchased transportation costs, reflecting our increased focus on reducing empty miles in drayage operations.
Cost of purchased transportation and services in our logistics segment decreased $
14.3 million
, or
13.3%
, in the
2013
period compared to the
2012
period. The decrease was due primarily to the
23.9%
decrease in volumes for the reasons mentioned above.
Direct Operating Expenses.
Direct operating expenses decreased
$3.4 million
, or
6.7%
, in the
2013
period compared to the
2012
period, reflecting a decrease in intermodal equipment costs of
9.8%
as a result of an increased focus on lowering equipment maintenance and repair costs and a reduction in equipment lease costs. This decrease was offset by a $0.8 million dispute settlement related to assessments of property taxes on our intermodal equipment.
Gross Margin.
Overall gross margin improved by
$0.3 million
, or
0.5%
, and our gross margin percentage (revenues less the cost of purchased transportation and services and direct operating expense divided by revenues) increased from
9.0%
in the
2012
period to
13.7%
in the
2013
period.
Intermodal segment gross margin increased by $
2.3 million
, or
4.7%
, and the gross margin percentage for our intermodal segment increased from
8.3%
in the
2012
period to
14.1%
in the
2013
period. Excluding the pass-through rail transportation costs from 2012 operating results, the gross margin percentage increased 180 basis points. The increase in intermodal gross margin and gross margin percentage was driven by our efforts to pare low margin freight volumes and the decreases in other purchased transportation costs and intermodal equipment costs mentioned above.
Logistics segment gross margin decreased $
2.0 million
, or
13.1%
, and the gross margin percentage for our logistics segment increased from
12.4%
in the
2012
period to
12.5%
in the
2013
period. The decrease in the gross margin was primarily due to the 23.9% decrease in the volume of ocean and air shipments driven by competitive pressures and the continued softness of the international shipping market, while the gross margin percentage increase was primarily due to a more favorable service mix.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased $
2.1 million
, or
3.4%
, in the
2013
period compared to the
2012
period. The decrease was driven by a decrease in labor expenses of $2.4 million due to a reduction in Company headcount of approximately 6%, a decrease in bad debt expense of $0.3 million, and decreases in various other expenses totaling $0.6 million driven by initiatives to reduce general and administrative expenses. These decreases were partially offset by an increase in incentive compensation expense of $1.3 million.
Other Income.
Other income increased
$0.5 million
in the
2013
period compared to the
2012
period. The increase is due to sublease income from a warehouse facility in the Pacific Northwest which began in the third quarter of 2012.
Income (Loss) From Operations
. Income from operations increased $
2.9 million
from
$2.5 million
in the
2012
period to
$5.4 million
in the
2013
period.
Intermodal segment income from operations increased $
3.0 million
, or
17.0%
, in the
2013
period compared to the
2012
period. The increase was primarily driven by the increase in the intermodal gross margin of
$2.3 million
driven by our efforts to pare low margin freight volumes and the decreases in other purchased transportation costs and intermodal equipment costs mentioned above, as well as a decrease of
$0.7 million
in segment selling, general and administrative costs.
The logistics segment incurred a loss from operations of $
5.6 million
in the
2013
period compared to a loss from operations of $
5.7 million
in the
2012
period. The decrease in the loss was due to the
$0.5 million
increase in other income from the new sublease and a
$1.6 million
decrease in segment selling, general and administrative expenses, offset by the
$2.0 million
decrease in logistics gross margin resulting from the decreased volumes mentioned above.
Corporate loss from operations increased $
0.2 million
, from $
9.4 million
in the
2012
period to $
9.6 million
in the
2013
period. The increase in the loss is primarily due to the $1.3 million increase in incentive compensation offset by decreases in various other expenses driven by initiatives to reduce corporate general administrative expenses.
Interest Expense.
Interest expense decreased by $
0.3 million
in the
2013
period compared to the
2012
period primarily due to lower average borrowings in the 2013 period. Interest expense is composed of interest paid on our debt and the amortization of deferred financing costs. The decrease is due to the average outstanding debt balance decreasing from $5.4 million for the six months ended June 30, 2012 to less than $0.1 million for the six months ended June 30, 2013. The weighted average interest rate was approximately
4.0%
in both the 2013 and 2012 periods.
Income Tax Expense
. We recorded income tax expense of $
1.7 million
in the
2013
period compared to $
0.7 million
in the
2012
period. The effective tax rate was 34.7% in the
2013
period and 41.2% in the
2012
period. The change in the estimated annual effective tax rate is primarily due to the change in the mix of income among the jurisdictions in which we do business and a favorable tax adjustment during the period related to one of our foreign subsidiaries. The Company expects its effective tax rate for the year ended 2013 to approximate 37%.
Net Income and Earnings Per Share
. As a result of the foregoing, net income increased $
2.2 million
from $
1.0 million
in the
2012
period to $
3.2 million
in the
2013
period. Earnings per share basic and diluted increased from
$0.03
per share in the
2012
period to
$0.09
per share in the
2013
period.
Reclassifications of 2012 Quarterly Results to Conform to 2013 Presentation
For the Six Months Ended June 30, 2012
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Six Months Ended June 30, 2012
|
|
Originally Reported
|
|
Reclassification Amount 1/
|
|
As Reclassified
|
Cost of purchased transportation and services
|
$
|
592.9
|
|
|
$
|
6.6
|
|
|
$
|
599.5
|
|
Direct operating expenses
|
44.9
|
|
|
5.5
|
|
|
50.4
|
|
Selling, general and administrative expenses
|
70.2
|
|
|
(8.4
|
)
|
|
61.8
|
|
Depreciation and amortization
|
$
|
3.7
|
|
|
$
|
(3.7
|
)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2012
|
|
Originally Reported
|
|
Reclassification Amount 1/
|
|
As Reclassified
|
Gross margin
|
|
|
|
|
|
Intermodal
|
$
|
54.5
|
|
|
$
|
(5.5
|
)
|
|
$
|
49.0
|
|
Logistics
|
21.9
|
|
|
(6.6
|
)
|
|
15.3
|
|
Total
|
$
|
76.4
|
|
|
$
|
(12.1
|
)
|
|
$
|
64.3
|
|
Gross margin percentage
|
|
|
|
|
|
Intermodal
|
9.2
|
%
|
|
|
|
8.3
|
%
|
Logistics
|
17.8
|
|
|
|
|
12.4
|
|
Total
|
10.7
|
%
|
|
|
|
9.0
|
%
|
|
|
|
1/
|
Certain reclassifications have been made to the 2012 quarterly operating expenses in order to conform to the 2013 presentation. The reclassifications had no impact on previously reported income. Specifically, Pacer reclassified certain expenses from selling, general and administrative to costs of purchased transportation and services and direct operating expenses. Pacer also reclassified depreciation and amortization as direct operating expenses and selling, general and administrative expenses.
|
Reconciliation of GAAP Results to Adjusted Results
For the Six Months Ended June 30, 2013 and 2012
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013
|
|
Six Months Ended June 30, 2012
|
|
Adjusted
|
|
% Adjusted
|
|
GAAP
|
|
GAAP
|
|
|
|
|
|
Adjusted
|
|
Variance
|
|
Variance
|
|
Results
|
|
Results
|
|
Adjustments
|
|
|
|
Results
|
|
2013 vs 2012
|
|
2013 vs 2012
|
Total revenues
|
$
|
470.7
|
|
|
$
|
714.2
|
|
|
$
|
(192.0
|
)
|
|
2/
|
|
$
|
522.2
|
|
|
$
|
(51.5
|
)
|
|
(9.9
|
)%
|
Total cost of purchased transportation and services
|
359.1
|
|
|
599.5
|
|
1/
|
(192.0
|
)
|
|
2/
|
|
407.5
|
|
|
(48.4
|
)
|
|
(11.9
|
)
|
Total net revenue
|
$
|
111.6
|
|
|
$
|
114.7
|
|
|
$
|
—
|
|
|
|
|
$
|
114.7
|
|
|
$
|
(3.1
|
)
|
|
(2.7
|
)
|
Total gross margin percentage
|
13.7
|
%
|
|
9.0
|
%
|
1/
|
|
|
|
|
12.3
|
%
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intermodal revenues
|
$
|
364.7
|
|
|
$
|
591.7
|
|
|
$
|
(192.0
|
)
|
|
2/
|
|
$
|
399.7
|
|
|
$
|
(35.0
|
)
|
|
(8.8
|
)
|
Intermodal cost of purchased transportation and services
|
266.4
|
|
|
492.3
|
|
1/
|
(192.0
|
)
|
|
2/
|
|
300.3
|
|
|
(33.9
|
)
|
|
(11.3
|
)
|
Intermodal net revenue
|
$
|
98.3
|
|
|
$
|
99.4
|
|
|
$
|
—
|
|
|
|
|
$
|
99.4
|
|
|
$
|
(1.1
|
)
|
|
(1.1
|
)%
|
Intermodal gross margin percentage
|
14.1
|
%
|
|
8.3
|
%
|
1/
|
|
|
|
|
12.3
|
%
|
|
1.8
|
%
|
|
|
|
|
|
1/
|
2012 GAAP results are after reclassification of certain selling, general and administrative expenses to cost of purchased transportation and direct operating expenses and depreciation and amortization as direct operating expenses and selling, general and administrative expenses.
|
2/
|
Effective January 1, 2013, we now act as Union Pacific's network manager for US-Mexico cross-border shipments. We are compensated on a fee basis for such services and these fees are recorded as revenues in 2013. We no longer collect and pass through the rail transportation costs to automotive intermediaries servicing the US-Mexico business. Accordingly, adjustments were made to exclude these costs from revenues and cost of purchased transportation to present 2012 on a net basis.
|
Liquidity and Capital Resources
Cash provided by operating activities was $
11.4 million
for the six month period ended
June 30, 2013
, and cash used in operating activities was
$10.3 million
for the six month period ended
June 30, 2012
. The increase in cash provided by operating activities in the 2013 period compared to the 2012 period was due primarily to the increase in net income in the 2013 period and the implementation of the new cross border agreement with Union Pacific which provided us with more favorable collection terms than we had under our previous wholesale automotive arrangements. The implementation of this agreement also reduced our outstanding payables because we no longer collect and pass through the rail transportation costs to automotive intermediaries servicing the US-Mexico business.
Cash generated from operating activities is principally used for working capital purposes, to fund capital expenditures, to repay debt under our revolving credit facility, and, in the future, would be available to fund any acquisitions we decide to make, repurchase common stock or fund any dividends that we may declare. We had working capital of $57.6 million at
June 30, 2013
and $52.2 million at December 31, 2012. The increase is due primarily to the cash generated from operations for the reasons mentioned above, offset by capital expenditures during the six months ended
June 30, 2013
.
Cash flows used in investing activities were
$4.5 million
for each of the six month periods ended
June 30, 2013
and 2012. The 2013 period cash capital expenditures included $3.8 million for information technology systems, $0.4 million for normal computer replacement and $0.3 million of leasehold improvements and other assets. During the 2012 period, we used
$28.4 million
to acquire 262 railcars which were sold during the period for
$30.2 million
in sale-leaseback transactions. The 2012 period cash capital expenditures included $5.3 million for information technology systems, $0.6 million for normal computer replacement items and $0.5 million of leasehold improvements and other assets.
Cash flows used in financing activities were
$0.3 million
and
$0.2 million
for the three month periods ended
June 30, 2013
and 2012, respectively, with the increase due to the minimum withholding tax paid on the vesting of performance and restricted stock units due to more units vesting in the 2013 period compared to the 2012 period.
As of
June 30, 2013
,
$65.0 million
was available under the 2010 Credit Agreement pursuant to the borrowing base formula set forth in the 2010 Credit Agreement, net of
$11.5 million
of outstanding letters of credit. There was no debt outstanding at
June 30, 2013
.
We believe that our cash, cash flow from operations and borrowings available under the 2010 Credit Agreement will remain sufficient to meet our cash needs for at least the next twelve months.
Critical Accounting Policies
Critical accounting policies are summarized in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2012 Form 10-K. Except as set forth in "Note 1 - Revenue Recognition" of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, there have been no material changes from the previously described critical accounting policies.