Attached files
file | filename |
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EX-32.1 - EX-32.1 - VITRAN CORP INC | d399118dex321.htm |
EX-10.1 - EX-10.1 - VITRAN CORP INC | d399118dex101.htm |
EX-31.2 - EX-31.2 - VITRAN CORP INC | d399118dex312.htm |
EX-31.1 - EX-31.1 - VITRAN CORP INC | d399118dex311.htm |
EXCEL - IDEA: XBRL DOCUMENT - VITRAN CORP INC | Financial_Report.xls |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2012
or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-32449
VITRAN CORPORATION INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada | 98-0358363 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5
(Address of principal executive offices and zip code)
416-596-7664
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 16,399,241 common shares outstanding at October 24, 2012
Table of Contents
Item | Page | |||||
PART I | Financial Information | |||||
1. | Financial Statements | 3 | ||||
2. | Managements Discussion and Analysis | 12 | ||||
3. | Quantitative and Qualitative Disclosures About Market Risk | 19 | ||||
4. | Controls and Procedures | 19 | ||||
PART II | Other Information | |||||
1. | Legal Proceedings | 20 | ||||
1. A | Risk Factors | 20 | ||||
2. | Unregistered Sale of Equity and Use of Proceeds | 20 | ||||
3. | Defaults Upon Senior Securities | 20 | ||||
4. | Mine Safety Disclosures | 20 | ||||
5. | Other Information | 20 | ||||
6. | Exhibits and Reports on Form 8-K | 21 |
2
Table of Contents
VITRAN CORPORATION INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
(In thousands of United States dollars except for per share amounts)
Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
|||||||||||||
Revenue |
$ | 206,220 | $ | 206,159 | $ | 627,065 | $ | 600,428 | ||||||||
Operating expenses: |
||||||||||||||||
Salaries, wages and other employee benefits |
84,899 | 79,958 | 252,986 | 229,452 | ||||||||||||
Purchased transportation |
31,853 | 32,814 | 95,298 | 97,431 | ||||||||||||
Depreciation and amortization |
4,277 | 3,976 | 12,436 | 12,373 | ||||||||||||
Maintenance |
9,562 | 9,656 | 29,438 | 26,742 | ||||||||||||
Rents and leases |
12,165 | 10,469 | 35,183 | 27,725 | ||||||||||||
Purchased labor and owner operators |
19,872 | 19,579 | 56,528 | 58,163 | ||||||||||||
Fuel and fuel-related expenses |
33,474 | 34,509 | 106,441 | 100,713 | ||||||||||||
Other operating expenses |
18,211 | 15,933 | 53,250 | 47,403 | ||||||||||||
Other (income) loss |
(188 | ) | 4 | (238 | ) | (101 | ) | |||||||||
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Total operating expenses |
$ | 214,125 | 206,898 | $ | 641,322 | 599,901 | ||||||||||
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Income (loss) from operations before undernoted |
(7,905 | ) | (739 | ) | (14,257 | ) | 527 | |||||||||
Interest expense, net |
1,353 | 1,694 | 3,994 | 4,347 | ||||||||||||
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Loss from operations before income taxes |
(9,258 | ) | (2,433 | ) | (18,251 | ) | (3,820 | ) | ||||||||
Income tax expense |
842 | 987 | 1,828 | 2,121 | ||||||||||||
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Net loss |
$ | (10,100 | ) | $ | (3,420 | ) | $ | (20,079 | ) | $ | (5,941 | ) | ||||
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Loss per share: |
||||||||||||||||
Basic and Diluted |
$ | (0.62 | ) | $ | (0.21 | ) | $ | (1.23 | ) | $ | (0.36 | ) | ||||
Weighted average number of shares: |
||||||||||||||||
Basic |
16,399,241 | 16,330,171 | 16,388,569 | 16,325,250 | ||||||||||||
Diluted |
16,399,241 | 16,330,171 | 16,388,569 | 16,325,250 | ||||||||||||
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See accompanying notes to consolidated financial statements
3
Table of Contents
VITRAN CORPORATION INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands of United States dollars)
Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
|||||||||||||
Net loss |
$ | (10,100 | ) | $ | (3,420 | ) | $ | (20,079 | ) | $ | (5,941 | ) | ||||
Other comprehensive income (loss): |
||||||||||||||||
Change in foreign currency translation adjustment (net of income tax expense (recovery) of $1 and $(4) for the three and nine months ended September 30, 2012; 2011 $(95) and $158) |
133 | (2,555 | ) | 84 | (1,548 | ) | ||||||||||
Change in unrealized fair value of derivatives designated as cash flow hedges (net of income taxes of $35 and $129 for the three and nine months ended September 30, 2011) |
| 89 | | 330 | ||||||||||||
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Other comprehensive income (loss) |
$ | 133 | $ | (2,466 | ) | $ | 84 | $ | (1,218 | ) | ||||||
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Comprehensive loss |
$ | (9,967 | ) | $ | (5,886 | ) | $ | (19,995 | ) | $ | (7,159 | ) | ||||
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See accompanying notes to consolidated financial statements
4
Table of Contents
VITRAN CORPORATION INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of United States dollars)
Sept 30, 2012 (Unaudited) |
Dec 31,
2011 (Audited) |
|||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | | $ | 1,204 | ||||
Accounts receivable |
89,907 | 83,479 | ||||||
Inventory, deposits and prepaid expenses |
11,720 | 11,872 | ||||||
Deferred income taxes |
178 | 175 | ||||||
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Total current assets |
101,805 | 96,730 | ||||||
Property and equipment |
134,180 | 125,219 | ||||||
Intangible assets |
3,960 | 5,805 | ||||||
Goodwill |
14,526 | 14,314 | ||||||
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Total assets |
$ | 254,471 | $ | 242,068 | ||||
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Liabilities and Shareholders Equity |
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Current liabilities: |
||||||||
Bank overdraft |
$ | 521 | $ | | ||||
Accounts payable and accrued liabilities |
89,242 | 80,818 | ||||||
Income and other taxes payable |
766 | 1,266 | ||||||
Current liabilities of discontinued operations |
| 61 | ||||||
Current portion of long-term debt |
5,394 | 6,817 | ||||||
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Total current liabilities |
95,923 | 88,962 | ||||||
Long-term debt |
92,010 | 67,072 | ||||||
Deferred income taxes |
1,080 | 1,061 | ||||||
Shareholders equity: |
||||||||
Common shares, no par value, unlimited authorized, 16,399,241 and 16,331,241 issued and outstanding at September 30, 2012 and December 31, 2011, respectively |
99,954 | 99,746 | ||||||
Additional paid-in capital |
5,606 | 5,334 | ||||||
Accumulated deficit |
(44,993 | ) | (24,914 | ) | ||||
Accumulated other comprehensive income |
4,891 | 4,807 | ||||||
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Total shareholders equity |
65,458 | 84,973 | ||||||
Contingent liabilities (note 6) |
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Total liabilities and shareholders equity |
$ | 254,471 | $ | 242,068 | ||||
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See accompanying notes to consolidated financial statements
5
Table of Contents
VITRAN CORPORATION INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Unaudited)
(In thousands of United States dollars, except share amounts)
Common shares | Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Shareholders Equity |
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Shares | Amount | |||||||||||||||||||||||
December 31, 2011 |
16,331,241 | $ | 99,746 | $ | 5,334 | $ | (24,914 | ) | $ | 4,807 | $ | 84,973 | ||||||||||||
Shares issued upon exercise of employee stock options |
68,000 | 208 | (57 | ) | | | 151 | |||||||||||||||||
Net loss |
| | | (20,079 | ) | | (20,079 | ) | ||||||||||||||||
Other comprehensive income |
| | | | 84 | 84 | ||||||||||||||||||
Share-based compensation |
| | 329 | | | 329 | ||||||||||||||||||
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September 30, 2012 |
16,399,241 | $ | 99,954 | $ | 5,606 | $ | (44,993 | ) | $ | 4,891 | $ | 65,458 | ||||||||||||
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Common shares |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income |
Total Shareholders Equity |
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Shares | Amount | |||||||||||||||||||||||
December 31, 2010 |
16,300,041 | $ | 99,658 | $ | 4,838 | $ | (10,901 | ) | $ | 5,252 | $ | 98,847 | ||||||||||||
Shares issued upon exercise of employee stock options |
31,200 | 88 | (5 | ) | | | 83 | |||||||||||||||||
Net loss |
| | | (5,941 | ) | | (5,941 | ) | ||||||||||||||||
Other comprehensive loss |
| | | | (1,218 | ) | (1,218 | ) | ||||||||||||||||
Share-based compensation |
| | 376 | | | 376 | ||||||||||||||||||
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September 30, 2011 |
16,331,241 | $ | 99,746 | $ | 5,209 | $ | (16,842 | ) | $ | 4,034 | $ | 92,147 | ||||||||||||
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See accompanying notes to consolidated financial statements
6
Table of Contents
VITRAN CORPORATION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of United States dollars)
Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
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Cash provided by (used in): |
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Operations: |
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Net loss |
$ | (10,100 | ) | $ | (3,420 | ) | $ | (20,079 | ) | $ | (5,941 | ) | ||||
Items not involving cash from operations: |
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Depreciation and amortization |
4,277 | 3,976 | 12,436 | 12,373 | ||||||||||||
Deferred income taxes |
24 | 168 | 16 | 227 | ||||||||||||
Share-based compensation expense |
102 | 115 | 329 | 376 | ||||||||||||
(Gain) loss on sale of property and equipment |
(188 | ) | 4 | (238 | ) | (101 | ) | |||||||||
Change in non-cash working capital components |
2,445 | (580 | ) | 1,648 | (4,284 | ) | ||||||||||
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Continuing operations |
(3,440 | ) | 263 | (5,888 | ) | 2,650 | ||||||||||
Discontinued operations |
| (64 | ) | (61 | ) | (590 | ) | |||||||||
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(3,440 | ) | 199 | (5,949 | ) | 2,060 | |||||||||||
Investments: |
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Purchases of property and equipment |
(6,249 | ) | (757 | ) | (13,792 | ) | (7,365 | ) | ||||||||
Proceeds on sale of property and equipment |
335 | 108 | 1,902 | 437 | ||||||||||||
Acquisition of business assets |
| | | (1,737 | ) | |||||||||||
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(5,914 | ) | (649 | ) | (11,890 | ) | (8,665 | ) | |||||||||
Financing: |
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Change in revolving credit facility and bank overdraft |
9,731 | 5,079 | 20,711 | 19,694 | ||||||||||||
Repayment of long-term debt |
(743 | ) | (5,000 | ) | (1,476 | ) | (11,000 | ) | ||||||||
Repayment of capital leases |
(744 | ) | (840 | ) | (2,531 | ) | (2,750 | ) | ||||||||
Issue of common shares upon exercise of employee stock options |
| 3 | 151 | 83 | ||||||||||||
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8,244 | (758 | ) | 16,855 | 6,027 | ||||||||||||
Effect of foreign exchange translation on cash |
(201 | ) | 1,208 | (220 | ) | 578 | ||||||||||
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Decrease in cash and cash equivalents |
(1,311 | ) | | (1,204 | ) | | ||||||||||
Cash and cash equivalents, beginning of period |
1,311 | | 1,204 | | ||||||||||||
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Cash and cash equivalents, end of period |
$ | | $ | | $ | | $ | | ||||||||
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Change in non-cash working capital components: |
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Accounts receivable |
$ | 802 | $ | 4,348 | $ | (6,428 | ) | $ | (17,524 | ) | ||||||
Inventory, deposits and prepaid expenses |
(106 | ) | (846 | ) | 152 | (946 | ) | |||||||||
Income and other taxes payable |
104 | 272 | (500 | ) | 637 | |||||||||||
Accounts payable and accrued liabilities |
1,645 | (4,354 | ) | 8,424 | 13,549 | |||||||||||
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$ | 2,445 | $ | (580 | ) | $ | 1,648 | $ | (4,284 | ) | |||||||
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Supplemental disclosure of non-cash transactions: |
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Capital lease additions |
| 262 | 5,745 | 262 |
See accompanying notes to consolidated financial statements
7
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of United States dollars except for per share amounts)
1. | Accounting Policies |
The interim consolidated financial statements have been prepared in accordance with the rules prescribed for filing interim financial statements and accordingly, do not contain all the disclosures that may be necessary for complete financial statements prepared in accordance with United States generally accepted accounting principles (GAAP). The interim consolidated financial statements have been prepared in accordance with instructions to Quarterly Report on Form 10-Q. The interim consolidated financial statements should be read in conjunction with the Companys 2011 Annual Report on Form 10-K. The interim consolidated financial statements follow the same accounting principles and methods of application as the most recent annual consolidated financial statements, except as noted in Note 2.
These interim unaudited consolidated financial statements reflect all adjustments which are, in the opinion of Management, necessary for a fair presentation of the results of the interim period presented. Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2012.
2. | New Accounting Pronouncements |
FASB Accounting Standard Update (ASU) No. 2011-08, Testing Goodwill for Impairment, permits entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. FASB ASU No. 2011-08 was adopted by the Company on January 1, 2012. As at September 30, 2012, the Company completed its annual goodwill impairment test and concluded that there was no impairment.
FASB ASU No. 2011-05, Presentation of Comprehensive Income, requires entities to present net income and comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and comprehensive income. FASB has amended FASB ASU No. 2011-05 with FASB ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards No. 2011-05, which defers the effective date of certain requirements outlined in FASB ASU No. 2011-05 until further deliberated and reinstates the requirements for presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of FASB ASU No. 2011-05. FASB ASU No. 2011-05 was adopted by the Company on January 1, 2012.
FASB ASU No. 2011-04, Fair Value Measurement, provides guidance to improve the comparability of fair value measurements presented in financial statements prepared in accordance with GAAP and International Financial Reporting Standards. The new standard requires the Company to report the level in the fair value hierarchy of assets and liabilities not measured at fair value on the balance sheet, but for which the fair value is disclosed, and to expand existing disclosures. FASB ASU No. 2011-04 was adopted by the Company on January 1, 2012.
3. | Foreign Currency Translation |
A majority of the Companys shareholders, customers and industry analysts are located in the United States. Accordingly, the Company has adopted the United States dollar as its reporting currency.
The United States dollar is the functional currency of the Companys operations in the United States. The Canadian dollar is the functional currency of the Companys Canadian operations. Each operation translates foreign currency denominated transactions into its functional currency using the rate of exchange in effect at the date of the transaction. Monetary assets and liabilities denominated in foreign currency are translated into the functional currency of the operation using the period-end rate of exchange giving rise to a gain or loss that is recognized in income during the current period.
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Table of Contents
The revaluation of United States dollar denominated debt held by the parent entity with a Canadian functional currency, that hedges the net investment in the Companys United States dollar denominated self-sustaining subsidiaries, is recorded to other comprehensive income. In a hedge of a net investment in self-sustaining foreign subsidiaries, the portion of the gain or loss on the hedging item that is determined to be an effective hedge is recognized in other comprehensive income and the ineffective portion is recognized in earnings. For consolidation purposes, the United States operations are translated into Canadian dollars using the current period-end rate with the resulting translation adjustment recorded in other comprehensive income. For reporting purposes, the consolidated operations are translated into United States dollars using the current rate method. Under this method, all assets and liabilities are translated at the period-end rate of exchange and all revenue and expense items are translated at the average rate of exchange for the period. The resulting translation adjustment is recorded as a separate component of shareholders equity.
In respect of other transactions denominated in currencies other than the Canadian dollar, the monetary assets and liabilities of the Company are translated at the period-end rates. Revenue and expenses are translated at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions are recognized in income.
4. | Computation of Loss per Share |
Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
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Numerator: |
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Net loss |
$ | (10,100 | ) | $ | (3,420 | ) | $ | (20,079 | ) | $ | (5,941 | ) | ||||
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Denominator: |
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Basic weighted-average shares outstanding |
16,399,241 | 16,330,171 | 16,388,569 | 16,325,250 | ||||||||||||
Dilutive weighted-average shares outstanding |
16,399,241 | 16,330,171 | 16,388,569 | 16,325,250 | ||||||||||||
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Basic loss per share |
$ | (0.62 | ) | $ | (0.21 | ) | $ | (1.23 | ) | $ | (0.36 | ) | ||||
Diluted loss per share |
$ | (0.62 | ) | $ | (0.21 | ) | $ | (1.23 | ) | $ | (0.36 | ) | ||||
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Due to the net loss for the three and nine months ended September 30, 2012 and September 30, 2011, dilutive common share equivalents have no effect on the loss per share.
5. | Assets Held for Sale |
The Company has certain assets that are classified as assets held for sale. These assets are carried on the balance sheet at the lower of the carrying amount or estimated fair value, less cost to sell. Once an asset is classified held for sale, there is no further depreciation taken on the asset. At September 30, 2012, the net book value of assets held for sale was approximately $2.2 million (December 31, 2011 - $3.5 million). This amount is included in property and equipment on the balance sheet.
6. | Contingent Liabilities |
The Company is subject to legal proceedings that arise in the ordinary course of business. In the opinion of Management, the aggregate liability, if any, with respect to these actions, will not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows. Legal costs are expensed as incurred.
7. | Income Taxes |
The Company established a valuation allowance for all U.S. deferred tax assets as required by FASB ASC 740-10. During the nine months ended September 30, 2012, the Company increased the valuation allowance by $8.5 million (2011 - $5.0 million) to $56.9 million.
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Table of Contents
8. | Risk Management Activities and Fair Value Measurements |
The Company is exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for trading purposes.
Interest Rate Swaps
The Company is exposed to interest rate volatility with regard to existing variable rate debt. The Company had entered into variable-to-fixed interest rate swaps on variable rate term debt and revolving debt to limit its exposure to changing interest rates and future cash flows for interest. The interest rate swaps provided for the Company to pay an amount equal to a specified fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount. The swaps were accounted for as cash flow hedges. The effective portions of changes in fair value of the interest rate swaps were recorded in accumulated other comprehensive income and were recognized into income in the same year in which the hedged forecasted transaction affects income. Ineffective portions of changes in fair value are recognized into income as they occur. At September 30, 2012, there were no interest rate swaps outstanding.
Hedges of net investment in self-sustaining operations
United States dollar denominated debt of $0.1 million held by an entity with a Canadian dollar functional currency is designated as a hedge against the Companys exposure for a portion of its net investment in self-sustaining U.S. dollar denominated subsidiaries with a view to reducing the impact of foreign exchange fluctuations. The foreign exchange effect of both the U.S. dollar debt and the net investment in U.S. dollar denominated subsidiaries is reported in other comprehensive income. As at September 30, 2012, the Companys net investment in U.S. dollar denominated subsidiaries totalled $217.3 million. No ineffectiveness has been recorded in earnings as the notional amounts of the hedging item equals the portion of the net investment balance being hedged.
Financial Instruments
The fair values of cash and cash equivalents, accounts receivable and accounts payable and accrued liabilities approximate their carrying values because of the short-term nature of these financial instruments. The fair value of the Companys long-term debt, determined based on the future cash flows associated with each debt instrument discounted using an estimate of the Companys current borrowing rate for similar debt instruments of comparable maturity, is approximately equal to their carrying value at September 30, 2012 and December 31, 2011.
FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The fair value of the Companys cash and cash equivalents and long-term debt are classified as Level 1 and Level 2, respectively.
10
Table of Contents
9. | Segmented Information |
The Companys business operations are grouped into two operating segments: Less-than-truckload (LTL) and Supply Chain Operation (SCO), which provide transportation and supply chain services in Canada and the United States.
Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
|||||||||||||
Revenue: |
||||||||||||||||
LTL |
$ | 176,209 | $ | 176,407 | $ | 538,585 | $ | 513,758 | ||||||||
SCO |
30,011 | 29,752 | 88,480 | 86,670 | ||||||||||||
Corporate office and other |
| | | | ||||||||||||
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$ | 206,220 | $ | 206,159 | $ | 627,065 | $ | 600,428 | |||||||||
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Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
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Operating income (loss) from operations: |
||||||||||||||||
LTL |
$ | (9,178 | ) | $ | (2,878 | ) | $ | (17,320 | ) | $ | (3,135 | ) | ||||
SCO |
2,569 | 2,922 | 7,038 | 7,349 | ||||||||||||
Corporate office and other |
(1,296 | ) | (783 | ) | (3,975 | ) | (3,687 | ) | ||||||||
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$ | (7,905 | ) | $ | (739 | ) | $ | (14,257 | ) | $ | 527 | ||||||
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Three months Ended Sept 30, 2012 |
Three months Ended Sept 30, 2011 |
Nine months Ended Sept 30, 2012 |
Nine months Ended Sept 30, 2011 |
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Depreciation and amortization: |
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LTL |
$ | 3,925 | $ | 3,582 | $ | 11,401 | $ | 11,160 | ||||||||
SCO |
326 | 354 | 960 | 1,088 | ||||||||||||
Corporate office and other |
26 | 40 | 75 | 125 | ||||||||||||
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$ | 4,277 | $ | 3,976 | $ | 12,436 | $ | 12,373 | |||||||||
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11
Table of Contents
Item 2. Managements Discussion and Analysis of Results of Operation
The following discussion should be read in conjunction with our unaudited consolidated interim financial statements for the three and nine months ended September 30, 2012 and the notes thereto as included in Item 1 of this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws concerning Vitrans business, operations, and financial performance and condition.
Forward-looking statements may be generally identifiable by use of the words believe, anticipate, intend, estimate, expect, project, may, plans, continue, will, focus, should, endeavor or the negative of these words or other variation on these words or comparable terminology. These forward-looking statements are based on current expectations and are subject to uncertainty and changes in circumstances that may cause actual results to differ materially from those expressed or implied by such forward-looking statements.
This Quarterly Report on Form 10-Q contains forward-looking statements regarding, but not limited to, the following:
| the Companys expectation that efficiencies and optimization of technology within the U.S. LTL business unit will reduce salaries, wages and employee benefits expense as a percentage of revenue; |
| the Companys expectation that revenue per hundredweight will increase in upcoming quarters as the freight mix and internal leadership in the pricing department impacts the LTL segment; |
| the Companys expectation that it will be able to reduce maintenance expense in future periods; |
| the Companys expectation that operating initiatives implemented will continue to improve productivity and service levels within the U.S. LTL business unit; |
| the Companys expectation that fuel economy will continue to improve moderately and as a result fuel costs will decrease; |
| the Companys expectation that operational improvements within the U.S. LTL business unit will have a positive impact on future financial results; |
| the Companys expectation that activity levels will improve; |
| the Companys ability to maintain DSO below 40 days; |
| the Companys intention to purchase a specified level of property and equipment and to finance such acquisitions with cash flow from operations, capital and operating leases and, if necessary, from the Companys revolving credit facilities; |
| the Companys ability to generate future operating cash flows from profitability and managing working capital; |
| the Companys ability to grow the SCO segment at current margins; |
| the Companys expectation that the two new dedicated facilities within the SCO segment will positively impact earnings during the remainder of 2012; |
| the Companys operational plan will improve service and efficiencies in the U.S. LTL business unit; and |
| the Companys ability to benefit from an improvement in the economic and pricing environment. |
Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Vitrans actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to technological change, increase in fuel costs, regulatory change, changes in tax legislation, the general health of the economy, changes in labor relations, geographic expansion, capital requirements, availability of financing, foreign currency fluctuations, claims and insurance costs, environmental hazards, availability of qualified drivers and competitive factors. More detailed information about these and other factors is included in Item 1A Risk Factors in the Companys 2011 Annual Report on Form 10-K. Many of these factors are beyond the Companys control; therefore, future events may vary substantially from what the Company currently foresees. You should not place undue reliance on such forward-looking statements. Vitran Corporation Inc. does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.
Unless otherwise indicated all dollar references herein are in U.S. dollars. The Companys Annual Report on Form 10-K, as well as all the Companys other required filings, may be obtained from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov.
12
Table of Contents
CONSOLIDATED RESULTS
The following table summarizes the Consolidated Statements of Loss for the three and nine months ended September 30:
For the three months ended Sept 30, | For the nine months ended Sept 30, | |||||||||||||||||||||||
(in thousands) |
2012 | 2011 | 2012 vs 2011 | 2012 | 2011 | 2012 vs 2011 | ||||||||||||||||||
Revenue |
$ | 206,220 | $ | 206,159 | 0.0 | % | $ | 627,065 | $ | 600,428 | 4.4 | % | ||||||||||||
Salaries, wages and other employee benefits |
84,899 | 79,958 | 6.2 | % | 252,986 | 229,452 | 10.3 | % | ||||||||||||||||
Purchased transportation |
31,853 | 32,814 | (2.9 | %) | 95,298 | 97,431 | (2.2 | %) | ||||||||||||||||
Depreciation and amortization |
4,277 | 3,976 | 7.6 | % | 12,436 | 12,373 | 0.5 | % | ||||||||||||||||
Maintenance |
9,562 | 9,656 | (1.0 | %) | 29,438 | 26,742 | 10.1 | % | ||||||||||||||||
Rents and leases |
12,165 | 10,469 | 16.2 | % | 35,183 | 27,725 | 26.9 | % | ||||||||||||||||
Purchased labor and owner operators |
19,872 | 19,579 | 1.5 | % | 56,528 | 58,163 | (2.8 | %) | ||||||||||||||||
Fuel and fuel-related expenses |
33,474 | 34,509 | (3.0 | %) | 106,441 | 100,713 | 5.7 | % | ||||||||||||||||
Other operating expenses |
18,211 | 15,933 | 14.3 | % | 53,250 | 47,403 | 12.3 | % | ||||||||||||||||
Other (income) loss |
(188 | ) | 4 | (4,800.0 | %) | (238 | ) | (101 | ) | 135.6 | % | |||||||||||||
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Total Expenses |
$ | 214,125 | $ | 206,898 | 3.5 | % | $ | 641,322 | $ | 599,901 | 6.9 | % | ||||||||||||
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Income (loss) from operations |
(7,905 | ) | (739 | ) | 969.7 | % | (14,257 | ) | 527 | (2,805.3 | %) | |||||||||||||
Interest expense, net |
1,353 | 1,694 | (20.1 | %) | 3,994 | 4,347 | (8.1 | %) | ||||||||||||||||
Income tax expense |
842 | 987 | (14.7 | %) | 1,828 | 2,121 | (13.8 | %) | ||||||||||||||||
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Net loss |
$ | (10,100 | ) | $ | (3,420 | ) | 195.3 | % | $ | (20,079 | ) | $ | (5,941 | ) | 238.0 | % | ||||||||
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Loss per share: |
||||||||||||||||||||||||
Basic |
$ | (0.62 | ) | $ | (0.21 | ) | $ | (1.23 | ) | $ | (0.36 | ) | ||||||||||||
Diluted |
$ | (0.62 | ) | $ | (0.21 | ) | $ | (1.23 | ) | $ | (0.36 | ) | ||||||||||||
Operating Ratio (1) |
103.8 | % | 100.4 | % | 102.3 | % | 99.9 | % | ||||||||||||||||
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Revenue was flat at $206.2 million for the third quarter of 2012 compared to the third quarter of 2011. Revenue in the LTL segment was level in the current quarter with the third quarter of 2011, while revenue in the SCO segment increased 0.9% compared to the third quarter of 2011. Revenue for the third quarter of 2012 was negatively impacted by one less working day in the third quarter of 2012 compared to the third quarter of 2011. For the nine-months ended September 30, 2012, revenue increased 4.4% to $627.1 million compared to $600.4 million for the nine-month period ended September 30, 2011. Consolidated revenue for the comparable nine-month period was impacted by a weaker Canadian dollar and increase in fuel surcharge revenue accounting for $2.8 million of the total revenue increase. Detailed explanations for the fluctuations in revenue are discussed below in Segmented Results.
Salaries, wages and other employee benefits increased 6.2% for the third quarter of 2012 compared to the same period a year ago. For the nine-month period ended September 30, 2012, salaries, wages and other employee benefits increased 10.3% compared to the same nine-month period a year ago. This compares with a 5.3% increase in employee headcount compared to September 30, 2011. Headcount increased mid-way through the first quarter of 2011 resulting from the acquisition of the Milan Express Inc. (Milan) LTL assets on February 19, 2011. The full impact of the increase in headcount is included in the first nine-months of 2012 whereas it was only partially included in the first nine months a year ago. Furthermore, management returned to its U.S. LTL business unit employees the 2008 5% wage reduction at 1.25% per quarter by the end of 2011, therefore, the third quarter of 2012 includes the full 5% wage increase compared to a 3.75% wage increase in the third quarter of 2011. Salary, wages and other employee benefits expenses should outpace the prior year expenses, but as management improves efficiencies within the U.S. LTL business unit, it is expected to decline on a percentage of revenue basis.
Purchased transportation decreased 2.9% and 2.2% for the three-month and nine-month periods ended September 30, 2012 compared to the same periods in 2011, respectively. Purchased transportation decreased 16.2% in the U.S. LTL business unit in the third quarter of 2012 compared to the same quarter a year ago. The additional tractors in 2011 received by the U.S. LTL business unit along with a concerted effort to reduce purchased miles led to the decrease in purchased transportation. Offsetting the decrease is SCOs brokerage business unit as shipments increased 3.6% in the first nine-months of 2012 compared to the same period in 2011.
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Table of Contents
Depreciation and amortization expense increased 7.6% for the third quarter of 2012 compared to the same period in 2011, and is primarily attributable to the purchase of rolling stock and buildings in 2012. Depreciation and amortization expense increased 0.5% for the nine-month period ended September 30, 2012 compared to the same period in 2011, and is attributable to the sale of rolling stock and buildings throughout 2011.
Maintenance expense decreased 1.0% and increased 10.1% for the three-month and nine-month periods ended September 30, 2012 compared to the same periods in 2011, respectively. As a percentage of revenue, maintenance expense decreased compared to the second quarter of 2012 as management continues its focus on reducing this expense. The U.S. LTL business unit received 200 additional tractors in the first half of 2012 and it is managements expectation that the Company will continue to reduce its maintenance costs as a percentage of revenue.
Rents and leases expense increased 16.2% and 26.9% for the three-month and nine-month periods ended September 30, 2012 compared to the same periods in 2011. The increase is attributable to the 400 new tractors received in 2011, 200 new tractors received by the U.S LTL business unit in 2012 and approximately 950 new trailers received in 2012, a majority of which were all acquired by the U.S. LTL business unit.
Purchased labor and owner operator expenses, primarily driven by the Canadian LTL business unit and the SCO segment, increased in the comparable three-month periods ended September 30, 2012. The increase is due to the opening of two new dedicated facilities within the SCO segment in the second quarter and early third quarter of 2012. The decrease in the comparable nine-month period ended September 30, 2012 is attributable to a reduction in hours required offset by an increase in LTL shipments.
Fuel and fuel-related expenses decreased 3.0% for the three month period and increased 5.7% for the nine-month period ended September 30, 2012 compared to the same periods a year ago. Fuel consumption in the third quarter of 2012 decreased as shipments were down 1.4% during the quarter compared to the third quarter of 2011. The average price of diesel increased approximately 2.4% compared to the nine-month period ended September 30, 2011. Furthermore, the Companys fuel consumption increased in the nine-month period due to the increase in activity as indicated by the 4.3% increase in shipments within the LTL segment. The Company should continue to receive moderately improved fuel economy from improved operating practices.
The Company incurred interest expense of $1.4 million in the third quarter of 2012 compared to interest expense of $1.7 million for the same quarter a year ago. The Companys total balance sheet debt net of cash at September 30, 2012 is $18.5 million greater than September 30, 2011. However, the interest rate spread on the Companys asset-based revolving credit agreement was 150bps less that the third quarter of 2011.
In accordance with Financial Accounting Standard Board (FASB) Accounting Standard Codification (FASB ASC) 740-10, the Company recorded a valuation allowance for all U.S. deferred tax assets. As required by this standard, the Company increased the valuation allowance by $8.5 million, which would have been the tax recovery attributable to the Companys U.S. based companies for the nine-months ended September 30, 2012. Consequently, the Company recorded a consolidated tax expense of $1.8 million for the first nine-months of 2012 compared to a consolidated tax expense of $2.1 million for the first nine-months of 2011.
Net loss for the 2012 third quarter was $10.1 million compared to net loss of $3.4 million for the same quarter in 2011. This resulted in a loss per share of $0.62 for the third quarter of 2012 compared to a loss per share of $0.21 for the third quarter of 2011. The weighted average number of shares for the current quarter was 16.4 million basic and diluted compared to 16.3 million basic and diluted shares in the third quarter of 2011. For the nine months ended September 30, 2012, the Company posted a net loss of $20.1 million compared to a net loss of $5.9 million in the same nine-month period a year ago. This resulted in a loss of $1.23 per share compared to a loss of $0.36 per share for the 2011 nine-month period. The weighted average number of shares for the nine-month period of 2012 was 16.4 million basic and diluted compared to 16.3 million shares basic and diluted in the nine-month period of 2011.
14
Table of Contents
SEGMENTED RESULTS
Less-Than-Truckload (LTL)
The table below provides summary information for the LTL segment for the three and nine months ended September 30:
For the three months ended Sept 30, | For the nine months ended Sept 30, | |||||||||||||||||||||||
(in thousands) |
2012 | 2011 | 2012 vs 2011 | 2012 | 2011 | 2012 vs 2011 | ||||||||||||||||||
Revenue |
$ | 176,209 | $ | 176,407 | (0.1 | %) | $ | 538,585 | $ | 513,758 | 4.8 | % | ||||||||||||
Loss from operations |
(9,178 | ) | (2,878 | ) | 218.9 | % | (17,320 | ) | (3,135 | ) | 452.5 | % | ||||||||||||
Operating ratio |
105.2 | % | 101.6 | % | 103.2 | % | 100.6 | % | ||||||||||||||||
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|
For the three months ended Sept 30, | For the nine months ended Sept 30, | |||||||||||||||||||||||
(in thousands) |
2012 | 2011 | 2012 vs 2011 | 2012 | 2011 | 2012 vs 2011 | ||||||||||||||||||
Number of shipments (2) |
1,096,460 | 1,112,138 | (1.4 | %) | 3,378,087 | 3,238,922 | 4.3 | % | ||||||||||||||||
Weight (000s of lbs) (3) |
1,591,106 | 1,632,736 | (2.5 | %) | 4,951,164 | 4,843,656 | 2.2 | % | ||||||||||||||||
Revenue per shipment (4) |
$ | 160.71 | $ | 158.62 | 1.3 | % | $ | 159.43 | $ | 158.62 | 0.5 | % | ||||||||||||
Revenue per hundredweight (5) |
$ | 11.07 | $ | 10.80 | 2.5 | % | $ | 10.88 | $ | 10.61 | 2.5 | % | ||||||||||||
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Revenue in the LTL segment was flat at $176.2 million in the third quarter of 2012 compared to $176.4 million in the same period a year ago. Fuel surcharge had a minimal impact on revenue in the third quarter of 2012. Furthermore, shipments and tonnage decreased 1.4% and 2.5%, respectively, compared to the third quarter of 2011. Both metrics were impacted by one less working day in the third quarter of 2012 compared to the third quarter of 2011. On a per day basis, shipments increased 0.2% in the third quarter of 2012 compared to the same quarter in 2011.
Revenue in the LTL segment increased 4.8% to $538.6 million for the nine-month period ended September 30, 2012 compared to $513.8 million for the same nine-month period a year ago. Shipments and tonnage increased 4.3% and 2.2%, respectively, from the comparable nine-month period.
Shipments per day in the U.S. LTL business unit were flat for the third quarter of 2012 compared to the third quarter of 2011. This is attributable to a slight softness in the U.S. market and managements internal focus on improving its operations in the U.S. LTL business unit. On a year-over-year basis from the third quarter of 2012 compared to the third quarter of 2011, average length of haul stayed level and average revenue per hundredweight increased 2.8%. Management expects the revenue per hundredweight to increase in the upcoming quarters as the pricing environment continues to favor LTL carriers in the North American market place.
During the third quarter of 2012, the U.S. LTL business unit continued to add key personnel and in August 2012 added a number of experienced executives to its management team. The build-up of the leadership team at the business unit is now complete. A second initiative completed in the third quarter was the restructuring of the business units linehaul network. This initiative has positively resulted in reduced miles and the beginning signs of improved efficiencies in some key areas of operations while management continues to expect improvement in other areas in the near future.
Achievements have been made in improving the customer experience at U.S. LTL, including the introduction of tablet technology to the pick-up and delivery team and an improved dispatch interface. Additional technology was introduced to operations in the third quarter to continue to enhance customer service levels. Although labor costs were comparatively higher in the quarter, it is managements expectation that as the use of the new technology is optimized, the business unit gains traction from a new operations leadership group and the adoption of all the new systems and processes, the Company will reduce labor costs as a percentage of revenue. The new management teams focus continues to be on improving service, sales and operating efficiency and it is managements expectation these initiatives will have a positive impact on future financial results.
15
Table of Contents
The Canadian LTL business unit posted a solid 2012 third quarter benefiting from a steady Canadian economy and a stable operation compared to the U.S. LTL business unit.
Lastly, management believes that with additional density gains, continued momentum in the North American pricing environment, combined with a continued focus on operational improvements, the LTL segment is well positioned to improve income from operations over the long-term.
Supply Chain Operation (SCO)
The table below provides summary information for the Supply Chain Operation segment for the three and nine months ended September 30:
For the three months ended Sept 30, | For the nine months ended Sept 30, | |||||||||||||||||||||||
(in thousands) |
2012 | 2011 | 2012 vs 2011 | 2012 | 2011 | 2012 vs 2011 | ||||||||||||||||||
Revenue |
$ | 30,011 | $ | 29,752 | 0.9 | % | $ | 88,480 | $ | 86,670 | 2.1 | % | ||||||||||||
Income from operations |
2,569 | 2,922 | (12.1 | %) | 7,038 | 7,349 | (4.2 | %) | ||||||||||||||||
Operating ratio |
91.4 | % | 90.2 | % | 92.0 | % | 91.5 | % | ||||||||||||||||
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Revenue in the SCO segment increased 0.9% for the third quarter of 2012 compared to the third quarter of 2011. However, income from operations decreased 12.1% in the third quarter of 2012 compared to the same quarter in 2011, and the SCO segment posted an operating ratio of 91.4% in the third quarter of 2012 compared to 90.2% in the third quarter of 2011. On a sequential basis operating income improved 8.4% compared to the second quarter of 2012. The Company renewed a contract with a large customer and shifted the contract to a cost-plus arrangement. By shifting this customer to cost-plus, the SCO segment ensured long-term growth and stability with the customer balanced with a still solid but lower assured margin. Management opened a new dedicated facility in Tacoma, Washington during the second quarter of 2012 and opened a dedicated facility in Kansas City, Kansas in July 2012. Operating results in the upcoming quarters should see continued improvement due to the aforementioned two new facilities and as activity levels improve throughout the balance of the year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from continuing operations for the third quarter of 2012 consumed $3.4 million compared to generating $0.3 million in the 2011 third quarter. The Company generated a net loss from operations in the third quarter of 2012; however, this was offset by the improvement in non-cash working capital. Days sales outstanding (DSO) in the third quarter of 2012 were 39.1 days compared to DSO of 39.3 days for the third quarter of 2011.
The Companys future operating cash flows are largely dependent upon the Companys profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable, and wage and benefit accruals.
As at September 30, 2012, interest-bearing debt was $97.9 million consisting of $42.6 million drawn under the syndicated asset-based revolving credit facility, $45.8 million of real estate term debt, $2.8 million of term debt, and $6.7 million of capital leases. At December 31, 2011, interest-bearing debt was $73.9 million consisting of $21.9 million drawn under the syndicated asset-based revolving credit facility, $45.0 million of real estate term debt, $3.5 million of term debt, and $3.5 million of capital leases.
For the nine months ended September 30, 2012, the Company repaid $0.7 million of real estate term debt, $0.8 million of term debt, $2.5 million of capital leases, and drew down $20.7 million under its revolving credit facilities. At September 30, 2012, the Company had $20.5 million of available credit facilities, net of outstanding letters of credit, to achieve its future operational and capital objectives. The Company was in compliance with all terms under its credit agreements at September 30, 2012.
The Company generated $1.9 million in proceeds on the divestiture of facilities in Springfield, MO, Louisville, KY, Toledo, OH and surplus equipment in the first nine months of 2012. Capital expenditures amounted to $19.5 million for the first nine months of 2012 and were funded out of the revolving credit facilities and capital leases. The majority of the capital expenditures were for a facility in Memphis, TN, construction of the Winnipeg, MB facility, rolling stock and dock equipment.
16
Table of Contents
The table below sets forth the Companys capital expenditures for the three and nine months ended September 30:
For the three months ended Sept 30, | For the nine months ended Sept 30, | |||||||||||||||
(in thousands of dollars) |
2012 | 2011 | 2012 | 2011 | ||||||||||||
Real estate and buildings |
$ | 2,296 | $ | | $ | 6,651 | $ | 4,620 | ||||||||
Tractors |
495 | 4 | 4,993 | 766 | ||||||||||||
Trailing fleet |
6 | 15 | 1,912 | 636 | ||||||||||||
Information technology |
161 | 452 | 818 | 774 | ||||||||||||
Leasehold improvements |
845 | 112 | 1,039 | 176 | ||||||||||||
Other equipment |
2,446 | 436 | 4,124 | 655 | ||||||||||||
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Total |
$ | 6,249 | $ | 1,019 | $ | 19,537 | $ | 7,627 | ||||||||
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Management estimates that cash capital expenditures for the remainder of 2012 will be between $2.0 million and $3.0 million. The Company may enter into operating leases to fund the acquisition of specific equipment should the business levels exceed the current equipment capacity of the Company. The Company expects to finance its capital requirements with cash flow from operations, operating leases, real estate term debt and, if required, its $20.5 million of unused credit facilities.
The Company has contractual obligations that include long-term debt consisting of term debt facilities, revolving credit facilities, capital leases for operating equipment and off-balance-sheet operating leases primarily consisting of tractor, trailing fleet and real estate leases. Operating leases form an integral part of the Companys financial structure and operating methodology as they provide an alternative cost-effective and flexible form of financing.
The following table summarizes our significant contractual obligations and commercial commitments as of September 30, 2012:
(in thousands of dollars) | Payments due by period | |||||||||||||||||||
Contractual Obligations |
Total | 2012 | 2013 & 2014 | 2015 & 2016 | Thereafter | |||||||||||||||
Term credit facilities |
$ | 2,750 | $ | 1,500 | $ | 1,250 | $ | Nil | $ | Nil | ||||||||||
Real estate facility |
45,768 | 256 | 2,148 | 2,353 | 41,011 | |||||||||||||||
Revolving credit facilities |
42,656 | Nil | 42,656 | Nil | Nil | |||||||||||||||
Capital lease obligations |
6,751 | 437 | 2,685 | 2,656 | 973 | |||||||||||||||
Estimated interest payments (1) |
16,097 | 956 | 7,052 | 4,286 | 3,803 | |||||||||||||||
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Sub-total |
114,022 | 3,149 | 55,791 | 9,295 | 45,787 | |||||||||||||||
Off-balance sheet commitments |
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Operating leases |
135,165 | 9,995 | 69,215 | 40,091 | 15,864 | |||||||||||||||
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Total Contractual Obligations |
$ | 249,187 | $ | 13,144 | $ | 125,006 | $ | 49,386 | $ | 61,651 | ||||||||||
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(1) | The Company has estimated its interest obligation on its fixed and variable rate obligations. For fixed rate debt, the fixed interest rate was used to determine the interest obligation. For variable rate debt, the variable interest rate in place at September 30, 2012 was used to determine the total interest obligation. |
In addition to the above-noted contractual obligations, as at September 30, 2012, the Company utilized the revolving credit facility for standby letters of credit of $21.6 million. The letters of credit are used as collateral for self-insured retention of insurance claims. Export Development Canada (EDC), a Crown corporation wholly owned by the government of Canada, provides guarantees up to $12.2 million on LOCs to the Companys syndicated lenders. In so doing, the Companys definition of available debt in the associated revolving credit agreement excludes LOCs guaranteed by the EDC.
A significant decrease in demand for our services could limit the Companys ability to generate cash flow and affect its profitability. The Companys asset-based revolving credit agreement is subject to financial maintenance tests that trigger when certain events occur that require the Company to achieve stated levels of financial performance, which, if not achieved, could cause an acceleration of the payment schedules. Should the current macro-economic environment further destabilize, and if triggered, the Company may fail to comply with the aforementioned debt covenants within the next twelve months. Assuming no significant decline in business levels or financial performance, management expects that existing working capital, together with available revolving credit facilities, will be sufficient to fund operating and capital requirements as well as service the contractual obligations.
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OUTLOOK
The SCO segment should continue to improve operating results through the balance of the year as the aforementioned two new dedicated facilities fully contribute to the balance of 2012. The most significant opportunity remains in the U.S. LTL business unit and managements continued focus is to improve the contribution to operating results of this business unit. The new management team has executed on many initiatives and continues to implement many more projects to improve service, productivity and efficiency of the operation. Executing on these plans will allow management to expand revenue through increased pricing and density.
Management is optimistic, should the U.S. LTL business unit successfully execute its operational plan, activity levels and pricing initiatives continue to improve, that the Company is positioned to improve operating results in the future.
QUARTERLY RESULTS (unaudited)
(thousands of dollars except per share amounts) |
2012 Q3 |
2012 Q2 |
2012 Q1 |
2011 Q4 |
2011 Q3 |
2011 Q2 |
2011 Q1 |
2010 Q4 * |
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Revenue |
$ | 206,220 | $ | 213,097 | $ | 207,748 | $ | 205,170 | $ | 206,159 | $ | 208,881 | $ | 185,388 | $ | 171,576 | ||||||||||||||||
Income (loss) from continuing operations |
(7,905 | ) | (2,184 | ) | (4,168 | ) | (4,848 | ) | (739 | ) | (241 | ) | 1,507 | (2,735 | ) | |||||||||||||||||
Net loss from continuing operations |
(10,100 | ) | (4,163 | ) | (5,816 | ) | (8,072 | ) | (3,420 | ) | (2,297 | ) | (224 | ) | (40,208 | ) | ||||||||||||||||
Loss from continuing operations per share: |
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Basic |
$ | (0.62 | ) | $ | (0.25 | ) | $ | (0.36 | ) | $ | (0.49 | ) | $ | (0.21 | ) | $ | (0.14 | ) | $ | (0.01 | ) | $ | (2.47 | ) | ||||||||
Diluted |
(0.62 | ) | (0.25 | ) | (0.36 | ) | (0.49 | ) | (0.21 | ) | (0.14 | ) | (0.01 | ) | (2.47 | ) | ||||||||||||||||
Weighted average number of shares: |
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Basic |
16,399,241 | 16,399,241 | 16,367,109 | 16,331,241 | 16,330,171 | 16,330,041 | 16,315,374 | 16,299,643 | ||||||||||||||||||||||||
Diluted |
16,399,241 | 16,399,241 | 16,367,109 | 16,331,241 | 16,330,171 | 16,330,041 | 16,315,374 | 16,299,643 | ||||||||||||||||||||||||
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* | In the fourth quarter of 2010, Vitran recorded a non-cash tax valuation allowance of $38.9 million negatively impacting net loss from continuing operations. |
Definitions of non-GAAP measures:
(1) | Operating ratio (OR) is a non-GAAP financial measure which does not have any standardized meaning prescribed by GAAP. OR is the sum of total operating expenses, divided by revenue. OR allows management to measure the Company and its various segments operating efficiency. OR is a widely recognized measure in the transportation industry which provides a comparable benchmark for evaluating the Companys performance compared to its competitors. Investors should also note that the Companys presentation of OR may not be comparable to similarly titled measures by other companies. OR is calculated as follows: |
Three
months Ended Sept 30, 2012 |
Three
months Ended Sept 30, 2011 |
Nine
months Ended Sept 30, 2012 |
Nine
months Ended Sept 30, 2011 |
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Total operating expenses |
$ | 214,125 | $ | 206,898 | $ | 641,322 | $ | 599,901 | ||||||||
Revenue |
206,220 | 206,159 | 627,065 | 600,428 | ||||||||||||
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Operating ratio (OR) |
103.8 | % | 100.4 | % | 102.3 | % | 99.9 | % | ||||||||
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(2) | A shipment is a single movement of goods from a point of origin to its final destination as described on a bill of lading document. |
(3) | Weight represents the total pounds shipped. |
(4) | Revenue per shipment represents revenue divided by the number of shipments. |
(5) | Revenue per hundredweight is the price obtained for transporting 100 pounds of LTL freight from point to point, calculated by dividing the revenue for an LTL shipment by the hundredweight (weight in pounds divided by 100) for a shipment. |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to the impact of interest rate changes. The Companys exposure to changes in interest rates is limited to borrowings under the term bank facilities and revolving credit facilities that have variable interest rates tied to the LIBOR rate. We estimate that the fair value of the long-term debt approximates the carrying value.
(in thousands of dollars) Long-Term Debt |
Payments due by period | |||||||||||||||||||
Total | 2012 | 2013 & 2014 | 2015 & 2016 | Thereafter | ||||||||||||||||
Variable Rate |
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Term bank facility |
$ | 2,750 | $ | 1,500 | $ | 1,250 | $ | Nil | $ | Nil | ||||||||||
Average interest rate (LIBOR) |
3.97 | % | 3.97 | % | 3.97 | % | ||||||||||||||
Revolving bank facility |
42,656 | Nil | 42,656 | Nil | Nil | |||||||||||||||
Average interest rate (LIBOR) |
2.72 | % | 2.72 | % | ||||||||||||||||
Fixed Rate |
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Real Estate facility |
45,768 | 256 | 2,148 | 2,353 | 41,011 | |||||||||||||||
Interest Rate |
4.75 | % | 4.75 | % | 4.75 | % | 4.75 | % | 4.75 | % | ||||||||||
Capital lease obligations |
6,751 | 437 | 2,685 | 2,656 | 973 | |||||||||||||||
Average interest rate |
6.15 | % | 6.15 | % | 6.15 | % | 6.15 | % | 6.15 | % | ||||||||||
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Total |
$ | 97,925 | $ | 2,193 | $ | 48,739 | $ | 5,009 | $ | 41,984 | ||||||||||
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The Company is exposed to foreign currency risk as fluctuations in the United States dollar against the Canadian dollar can impact the financial results of the Company. The Companys Canadian operations realize foreign currency exchange gains and losses on the United States dollar denominated revenue generated against Canadian dollar denominated expenses. Furthermore, the Company reports its results in United States dollars thereby exposing the results of the Companys Canadian operations to foreign currency fluctuations. In addition, the Companys United States dollar debt of $0.1 million is designated as a hedge of the investment in self-sustaining foreign operations in the United States.
Item 4. Controls and Procedures
Disclosure controls and procedures, as such term is defined in Rule 13a-15(e) of the Exchange Act, are controls and other procedures that are designed to ensure that information required to be disclosed by our Company is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our Companys management, including our Chief Executive Officer (CEO) and our Chief Financial Officer (CFO), as appropriate to allow timely decisions regarding required disclosure. Our CEO and CFO are responsible for establishing and maintaining disclosure controls and procedures for our Company.
As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of Company management, including our CEO and CFO, of the effectiveness of the design, implementation and operation of its disclosure controls and procedures. Based on this evaluation, the Companys CEO and CFO have concluded that the Companys disclosure controls and procedures are effective as of September 30, 2012.
There have been no significant changes in our internal control over financial reporting, which we define in accordance with Exchange Act Rule 13a-15(f) to include our control environment, control procedures, and accounting systems, or any other factors that could materially affect or are reasonably likely to materially affect our internal control over financial reporting during the third quarter of 2012.
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The Company is subject to various legal proceedings and claims that have arisen in the ordinary course of its business that have not been fully adjudicated. Many of these are covered in whole or in part by insurance. The Management of Vitran does not believe that these actions, when finally concluded and determined, will have a significant adverse effect upon Vitrans financial condition, results of operations or cash flows.
See Part 1A of the Companys 2011 Annual Report on Form 10-K.
Item 2. Unregistered Sale of Equity and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
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Item 6. Exhibits and Reports on Form 8-K
Exhibits
Exhibit Number |
Description of Exhibit | |
10.1 | Amendment No.2 to Credit Agreement between JPMorgan Chase Bank N.A. and those banks whose names appear on the signature pages hereto and Vitran Corporation Inc., Vitran Express Canada Inc. and Vitran Corporation (1) | |
31.1 |
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 5, 2012 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated November 5, 2012 | |
32.1 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated November 5, 2012 |
Notes:
(1) | Filed as an exhibit to this Quarterly Report on Form 10-Q. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
VITRAN CORPORATION INC. | ||||||
/s/ FAYAZ D. SULEMAN | ||||||
Fayaz D. Suleman | ||||||
Date: November 5, 2012 | Vice President of Finance and | |||||
Chief Financial Officer | ||||||
(Principle Financial Officer) |
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