XNAS:VTNC Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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 June 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

(Registrant’s 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 issuer’s classes of common stock, as of the latest practicable date: 16,399,241 common shares outstanding at July 18, 2012

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Item        Page  

PART I

  Financial Information   

1.

  Financial Statements      3   

2.

  Management’s 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

Part I. Financial Information

Item 1: Financial Statements

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(In thousands of United States dollars except for per share amounts)

 

     Three months
Ended
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Revenue

   $ 213,097      $ 208,881      $ 420,845      $ 394,269   

Operating expenses:

        

Salaries, wages and other employee benefits

     84,872        79,877        168,087        149,494   

Purchased transportation

     31,968        34,625        63,445        64,617   

Depreciation and amortization

     4,084        4,040        8,159        8,397   

Maintenance

     10,205        8,994        19,876        17,086   

Rents and leases

     11,768        9,175        23,018        17,256   

Purchased labor and owner operators

     18,671        20,259        36,656        38,584   

Fuel and fuel-related expenses

     35,732        36,074        72,967        66,204   

Other operating expenses

     18,107        16,145        35,039        31,470   

Other income

     (126     (67     (50     (105
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   $ 215,281      $ 209,122      $ 427,197      $ 393,003   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations before undernoted

     (2,184     (241     (6,352     1,266   

Interest expense, net

     1,330        1,311        2,641        2,653   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations before income taxes

     (3,514     (1,552     (8,993     (1,387

Income tax expense

     649        745        986        1,134   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,163   $ (2,297   $ (9,979   $ (2,521
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share:

        

Basic and Diluted

   $ (0.25   $ (0.14   $ (0.61   $ (0.15

Weighted average number of shares:

        

Basic

     16,399,241        16,330,041        16,383,175        16,322,748   

Diluted

     16,399,241        16,330,041        16,383,175        16,322,748   

See accompanying notes to consolidated financial statements

 

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Table of Contents

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(In thousands of United States dollars)

 

     Three months
Ended
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Net loss

   $ (4,163   $ (2,297   $ (9,979   $ (2,521

Other comprehensive income (loss):

        

Change in foreign currency translation adjustment (net of income tax expense (recovery) of $1 and $(5) for the three and six months ended June 30, 2012; 2011 – $37 and $254)

     (112     119        (47     1,007   

Change in unrealized fair value derivatives designated as cash flow hedges (net of income taxes of $42 and $94 for the three and six months ended June 30, 2011)

     —          109        —          241   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

   $ (112   $ 228      $ (47   $ 1,248   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (4,275   $ (2,069   $ (10,026   $ (1,273
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

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Table of Contents

VITRAN CORPORATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars)

 

     June 30, 2012     Dec. 31, 2011  
     (Unaudited)     (Audited)  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 1,311      $ 1,204   

Accounts receivable

     90,709        83,479   

Inventory, deposits and prepaid expenses

     11,614        11,872   

Deferred income taxes

     172        175   
  

 

 

   

 

 

 

Total current assets

     103,806        96,730   

Property and equipment

     129,967        125,219   

Intangible assets

     4,575        5,805   

Goodwill

     14,307        14,314   
  

 

 

   

 

 

 

Total assets

   $ 252,655      $ 242,068   
  

 

 

   

 

 

 

Liabilities and Shareholders’ Equity

    

Current liabilities:

    

Accounts payable and accrued liabilities

   $ 87,597      $ 80,818   

Income and other taxes payable

     662        1,266   

Current liabilities of discontinued operations

     —          61   

Current portion of long-term debt

     6,225        6,817   
  

 

 

   

 

 

 

Total current liabilities

     94,484        88,962   

Long-term debt

     81,799        67,072   

Deferred income taxes

     1,047        1,061   

Shareholders’ equity:

    

Common shares, no par value, unlimited authorized, 16,399,241 and 16,331,241 issued and outstanding at June 30, 2012 and December 31, 2011, respectively

     99,954        99,746   

Additional paid-in capital

     5,504        5,334   

Accumulated deficit

     (34,893     (24,914

Accumulated other comprehensive income

     4,760        4,807   
  

 

 

   

 

 

 

Total shareholders’ equity

     75,325        84,973   

Contingent liabilities (note 6)

    
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 252,655      $ 242,068   
  

 

 

   

 

 

 

See accompanying notes to consolidated financial statements

 

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Table of Contents

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands of United States dollars, except share amounts)

 

                               Accumulated        
                   Additional           Other     Total  
     Common shares      Paid-in     Accumulated     Comprehensive     Shareholders’  
     Shares      Amount      Capital     Deficit     Income     Equity  

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

     —           —           —          (9,979     —          (9,979

Other comprehensive loss

     —           —           —          —          (47     (47

Share-based compensation

     —           —           227        —          —          227   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2012

     16,399,241       $ 99,954       $ 5,504      $ (34,893   $ 4,760      $ 75,325   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

                               Accumulated         
                   Additional           Other      Total  
     Common shares      Paid-in     Accumulated     Comprehensive      Shareholders’  
     Shares      Amount      Capital     Deficit     Income      Equity  

December 31, 2010

     16,300,041       $ 99,658       $ 4,838      $ (10,901   $ 5,252       $ 98,847   

Shares issued upon exercise of employee stock options

     30,000         85         (5     —          —           80   

Net loss

     —           —           —          (2,521     —           (2,521

Other comprehensive income

     —           —           —          —          1,248         1,248   

Share-based compensation

     —           —           261        —          —           261   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

June 30, 2011

     16,330,041       $ 99,743       $ 5,094      $ (13,422   $ 6,500       $ 97,915   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

See accompanying notes to consolidated financial statements

 

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Table of Contents

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of United States dollars)

 

     Three months
Ended
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Cash provided by (used in):

        

Operations:

        

Net loss

   $ (4,163   $ (2,297   $ (9,979   $ (2,521

Items not involving cash from operations:

        

Depreciation and amortization

     4,084        4,040        8,159        8,397   

Deferred income taxes

     17        64        (8     59   

Share-based compensation expense

     100        119        227        261   

Gain on sale of property and equipment

     (126     (67     (50     (105

Change in non-cash working capital components

     3,817        2,270        (797     (3,704
  

 

 

   

 

 

   

 

 

   

 

 

 

Continuing operations

     3,729        4,129        (2,448     2,387   

Discontinued operations

     (30     (1,342     (61     (526
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,699        2,787        (2,509     1,861   

Investments:

        

Purchases of property and equipment

     (5,761     (4,268     (7,543     (6,608

Proceeds on sale of property and equipment

     1,026        265        1,567        329   

Acquisition of business assets

     —          —          —          (1,737
  

 

 

   

 

 

   

 

 

   

 

 

 
     (4,735     (4,003     (5,976     (8,016

Financing:

        

Change in revolving credit facility and bank overdraft

     1,440        5,438        10,980        14,615   

Repayment of long-term debt

     (489     (3,000     (733     (6,000

Repayment of capital leases

     (846     (939     (1,787     (1,910

Issue of common shares upon exercise of employee stock options

     —          —          151        80   
  

 

 

   

 

 

   

 

 

   

 

 

 
     105        1,499        8,611        6,785   

Effect of foreign exchange translation on cash

     65        (283     (19     (630
  

 

 

   

 

 

   

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

     (866     —          107        —     

Cash and cash equivalents, beginning of period

     2,177        —          1,204        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 1,311      $ —        $ 1,311      $ —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Change in non-cash working capital components:

        

Accounts receivable

   $ 649      $ (5,057   $ (7,230   $ (21,872

Inventory, deposits and prepaid expenses

     1,706        1,791        258        (100

Income and other taxes payable

     493        659        (604     365   

Accounts payable and accrued liabilities

     969        4,877        6,779        17,903   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 3,817      $ 2,270      $ (797   $ (3,704
  

 

 

   

 

 

   

 

 

   

 

 

 

Supplemental disclosure of non-cash transactions:

        

Capital lease additions

     4,099        —          5,745        —     

See accompanying notes to consolidated financial statements

 

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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 Company’s 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 six months ended June 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.

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 Company’s 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 Company’s operations in the United States. The Canadian dollar is the functional currency of the Company’s 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 Company’s 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
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Numerator:

        

Net loss

   $ (4,163   $ (2,297   $ (9,979   $ (2,521
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Basic weighted-average shares outstanding

     16,399,241        16,330,441        16,383,175        16,322,748   

Dilutive weighted-average shares outstanding

     16,399,241        16,330,441        16,383,175        16,322,748   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic loss per share

   $ (0.25   $ (0.14   $ (0.61   $ (0.15

Diluted loss per share

   $ (0.25   $ (0.14   $ (0.61   $ (0.15
  

 

 

   

 

 

   

 

 

   

 

 

 

Due to the net loss for the three and six months ended June 30, 2012 and June 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 June 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 Company’s 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 six months ended June 30, 2012, the Company increased the valuation allowance by $4.0 million (2011—$2.4 million) to $52.4 million.

 

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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 June 30, 2012, there were no interest rate swaps outstanding.

Hedges of net investment in self-sustaining operations

United States dollar denominated debt of $0.6 million held by an entity with a Canadian dollar functional currency is designated as a hedge against the Company’s 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 June 30, 2012, the Company’s net investment in U.S. dollar denominated subsidiaries totalled $229.1 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 Company’s long-term debt, determined based on the future cash flows associated with each debt instrument discounted using an estimate of the Company’s current borrowing rate for similar debt instruments of comparable maturity, is approximately equal to their carrying value at June 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 Company’s cash and cash equivalents and long-term debt are classified as Level 1 and Level 2, respectively.

 

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Table of Contents

9. Segmented Information

The Company’s 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
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Revenue:

        

LTL

   $ 183,789      $ 178,362      $ 362,376      $ 337,351   

SCO

Corporate office and other

    

 

29,308

—  

  

  

   

 

30,519

—  

  

  

   

 

58,469

—  

  

  

   

 

56,918

—  

  

  

  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 213,097      $ 208,881      $ 420,845      $ 394,269   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three months
Ended
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Operating income (loss) from operations:

        

LTL

   $ (3,307   $ (1,182   $ (8,142   $ (256

SCO

     2,371        2,337        4,469        4,427   

Corporate office and other

     (1,248     (1,396     (2,679     (2,905
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ (2,184   $ (241   $ (6,352   $ 1,266   
  

 

 

   

 

 

   

 

 

   

 

 

 
     Three months
Ended
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Depreciation and amortization:

        

LTL

   $ 3,742      $ 3,630      $ 7,476      $ 7,579   

SCO

     318        368        634        734   

Corporate office and other

     24        42        49        84   
  

 

 

   

 

 

   

 

 

   

 

 

 
   $ 4,084      $ 4,040      $ 8,159      $ 8,397   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Item 2. Management’s 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 six months ended June 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 Vitran’s 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 Company’s expectation that efficiencies within the U.S. LTL business unit will reduce salaries, wages and employee benefits expense as a percentage of revenue;

 

   

the Company’s expectation that revenue per hundredweight and length of haul will increase in upcoming quarters as the freight environment improves and the LTL segment continues to cross-sell the newly acquired territory;

 

   

the Company’s expectation that it will be able to reduce maintenance expense in 2012;

 

   

the Company’s expectation that operating initiatives implemented will continue to improve productivity and service levels within the U.S. LTL business unit;

 

   

the Company’s expectation that fuel economy will continue to improve from the new tractors purchased and as a result fuel costs will decrease;

 

   

the Company’s expectation that operational improvements within the U.S. LTL business unit will have a positive impact on financial results in 2012;

 

   

the Company’s expectation that activity levels and pricing trends will improve year-over-year results;

 

   

the Company’s ability to maintain DSO below 40 days;

 

   

the Company’s intention to purchase a specified level of property and equipment and to finance such acquisitions with cash flow from operations and, if necessary, from the Company’s revolving credit facilities;

 

   

the Company’s ability to generate future operating cash flows from profitability and managing working capital;

 

   

the Company’s ability to continue to improve results in the SCO segment if trends in current activity levels within the segment improve;

 

   

the Company’s expectation that the two new dedicated facilities within the SCO segment will positively impact earnings during the remainder of 2012;

 

   

the Company’s operational plan will improve service and efficiencies in the U.S. LTL business unit; and

 

   

the Company’s 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 Vitran’s 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 Company’s 2011 Annual Report on Form 10-K. Many of these factors are beyond the Company’s 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 Company’s Annual Report on Form 10-K, as well as all the Company’s other required filings, may be obtained from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov.

 

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CONSOLIDATED RESULTS

The following table summarizes the Consolidated Statements of Income (Loss) for the three and six months ended June 30:

 

     For the three months ended June 30,     For the six months ended June 30,  

(in thousands)

   2012     2011     2012 vs 2011     2012     2011     2012 vs 2011  

Revenue

   $ 213,097      $ 208,881        2.0   $ 420,845      $ 394,269        6.7

Salaries, wages and employee benefits

     84,872        79,877        6.3     168,087        149,494        12.4

Purchased transportation

     31,968        34,625        (7.7 %)      63,445        64,617        (1.8 %) 

Depreciation and amortization

     4,084        4,040        1.1     8,159        8,397        (2.8 %) 

Maintenance

     10,205        8,994        13.5     19,876        17,086        16.3

Rents and leases

     11,768        9,175        28.3     23,018        17,256        33.4

Purchased labor and owner operators

     18,671        20,259        (7.8 %)      36,656        38,584        (5.0 %) 

Fuel and fuel related expenses

     35,732        36,074        (0.9 %)      72,967        66,204        10.2

Other operating expenses

     18,107        16,145        12.2     35,039        31,470        11.3

Other income

     (126     (67     88.1     (50     (105     (52.4 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Expenses

   $ 215,281      $ 209,122        2.9   $ 427,197      $ 393,003        8.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (2,184     (241     806.2     (6,352     1,266        (601.7 %) 

Interest expense, net

     1,330        1,311        1.4     2,641        2,653        (0.5 %) 

Income tax expense

     649        745        (12.9 %)      986        1,134        (13.1 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (4,163   $ (2,297     81.2   $ (9,979   $ (2,521     295.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss per share:

            

Basic

   $ (0.25   $ (0.14     $ (0.61   $ (0.15  

Diluted

   $ (0.25   $ (0.14     $ (0.61   $ (0.15  

Operating Ratio (1)

     101.0     100.1       101.5     99.7  

Revenue increased 2.0% to $213.1 million for the second quarter of 2012 compared to $208.9 million in the second quarter of 2011. Revenue in the LTL segment increased 3.0% compared to the second quarter of 2011. Revenue in the SCO segment decreased 4.0% compared to the second quarter of 2011. Revenue for the second quarter of 2012 was negatively impacted by a weaker Canadian dollar and was partially offset by an increase in fuel surcharge revenue, resulting in a reduction of $2.2 million in consolidated revenue. Excluding the impact of fuel surcharge revenue and a weaker Canadian dollar, revenue for the comparative quarters improved 3.1%. For the six-months ended June 30, 2012, revenue increased 6.7% to $420.8 million compared to $394.3 million for the six-month period ended June 30, 2011. Consolidated revenue for the comparable six-month period was also 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 employee benefits increased 6.3% for the second quarter of 2012 compared to the same period a year ago. For the six-month period ended June 30, 2012, salaries, wages and employee benefits increased 12.4% compared to the same six-month period a year ago. This compares with a 9.9% increase in employee headcount compared to June 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 six-months of 2012 whereas it was only partially included in the first six 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 second quarter of 2012 includes the full 5% wage increase compared to a 2.5% wage increase in the second quarter of 2011. Salary, wages and employee benefit 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.

 

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Purchased transportation decreased 7.7% and 1.8% for the three-month and six-month periods ended June 30, 2012 compared to the same periods in 2011, respectively. Purchased transportation decreased 21.8% in the U.S. LTL business unit in the second 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 SCO’s brokerage business unit as shipments increased 8.2% in the first six-months of 2012 compared to the same period in 2011.

Depreciation and amortization expense increased 1.1% for the second 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 decreased 2.8% for the six-month period ended June 30, 2012 compared to the same period in 2011, and is attributable to the sale of rolling stock and buildings throughout 2011.

Maintenance expense increased 13.5% and 16.3% for the three-month and six-month periods ended June 30, 2012 compared to the same periods in 2011, respectively. As a percentage of revenue, maintenance expense was consistent with the first quarter of 2012. The Company’s U.S. LTL business unit completed a review of its tractor fleet in the second quarter of 2012 that began in the first quarter and incurred additional repair costs. The U.S. LTL business unit received 200 additional tractors in the second quarter and it is management’s expectation that the Company will be able to reduce its maintenance costs as a percentage of revenue.

Rents and leases expense increased 28.3% and 33.4% for the three-month and six-month periods ended June 30, 2012 compared to the same periods in 2011. The increase is attributable to the 400 new tractors received in 2011, 150 new tractors received in 2012 and 700 new trailers received in 2012, which were all acquired by the U.S. LTL business unit. Rents and leases expense should continue to increase due to an additional 100 new trailers acquired by the U.S. LTL business unit to be delivered in the third quarter.

Purchased labor and owner operator expenses, primarily driven by the Canadian LTL business unit and the SCO segment, decreased in the comparable three-month and six-month periods ended June 30, 2012 due to a reduction in hours required and shifting some labor to full and part-time employees within the SCO segment.

Fuel and fuel-related expenses were flat for the three month period and increased 10.2% for the six-month period ended June 30, 2012 compared to the same period a year ago. The average price of diesel increased approximately 2.8% compared to the six-month period ended June 30, 2011. Furthermore, the Company’s fuel consumption increased due to the increase in activity as indicated by the 3.8% increase in shipments within the U.S. LTL business unit during the quarter. The Company should continue to receive improved fuel economy from the 600 new tractors acquired in 2011 and 2012.

The Company incurred interest expense of $1.3 million in the second quarter of 2012 compared to interest expense of $1.3 million for the same quarter a year ago. The Company’s total balance sheet debt net of cash at June 30, 2012 is $6.7 million greater than June 30, 2011. A majority of the increase relates to capital leases for rolling stock and equipment entered into near the end of the quarter. The average interest rate on the Company’s asset-based revolving credit agreement was slightly lower than the second 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 $4.0 million, which would have been the tax recovery attributable to the Company’s U.S. based companies for the six-months ended June 30, 2012. Consequently, the Company recorded a consolidated tax expense of $1.0 million for the first six-months of 2012 compared to a consolidated tax expense of $1.1 million for the first six-months of 2011.

Net loss for the 2012 second quarter was $4.2 million compared to net loss of $2.3 million for the same quarter in 2011. This resulted in a loss per share of $0.25 for the second quarter of 2012 compared to a loss per share of $0.14 for the second 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 second quarter of 2011. For the six months ended June 30, 2012, the Company posted a net loss of $10.0 million compared to a net loss of $2.5 million in the same six-month period a year ago. This resulted in a loss of $0.61 per share compared to a loss of $0.15 per share for the 2011 six-month period. The weighted average number of shares for the six-month period of 2012 was 16.4 million basic and diluted compared to 16.3 million shares basic and diluted in the six-month period of 2011.

 

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Table of Contents

SEGMENTED RESULTS

Less-Than-Truckload (LTL)

The table below provides summary information for the LTL segment for the three and six months ended June 30:

 

     For the three months ended June 30,     For the six months ended June 30,  

(in thousands)

   2012     2011     2012 vs 2011     2012     2011     2012 vs 2011  

Revenue

   $ 183,789      $ 178,362        3.0   $ 362,376      $ 337,351        7.4

Loss from operations

     (3,307     (1,182     179.8     (8,142     (256     3,080.5

Operating ratio

     101.8     100.7       102.2     100.1  
     For the three months ended June 30,     For the six months ended June 30,  

(in thousands)

   2012     2011     2012 vs 2011     2012     2011     2012 vs 2011  

Number of shipments (2)

     1,155,476        1,114,263        3.7     2,281,627        2,126,784        7.3

Weight (000s of lbs) (3)

     1,707,367        1,684,381        1.4     3,360,058        3,210,920        4.6

Revenue per shipment (4)

   $ 159.06      $ 160.07        (0.6 %)    $ 158.82      $ 158.62        0.1

Revenue per hundredweight (5)

   $ 10.76      $ 10.59        1.6   $ 10.78      $ 10.51        2.7

Revenue in the LTL segment increased 3.0% to $183.8 million in the second quarter of 2012 compared to $178.4 million in the same period a year ago. Fuel surcharge had a minimal impact on revenue in the second quarter of 2012. Revenue net of fuel surcharge for the second quarter of 2012 increased 3.3% compared to the second quarter of 2011. Furthermore, shipments and tonnage increased 3.7% and 1.4% respectively compared to the second quarter of 2011.

Revenue in the LTL segment increased 7.4% to $362.4 million for the six-month period ended June 30, 2012 compared to $337.4 million for the same six-month period a year ago. Revenue was impacted by the additional business from the Milan acquisition on February 19, 2011, which had a full impact in the first six-months of 2012 compared to only a partial impact in the first six-months of 2011. Shipments and tonnage increased 7.3% and 4.6%, respectively, in the comparable six-month period.

Shipments per day in the U.S. LTL business unit increased 3.8% for the second quarter of 2012 compared to the second quarter of 2011. This is attributable to density growth and the Company’s continued success in the 5 new states acquired as part of the Milan acquisition in February 2011. On a year-over-year basis from June 2012 compared to June 2011, length of haul increased 1.3% and revenue per hundredweight increased 4.2%. Management expects the revenue per hundredweight to increase in the upcoming quarters as the pricing environment continues to favor LTL carriers and the LTL segment continues to sell into the expanded territory.

The U.S. LTL business unit did not meet management’s expectation in the second quarter of 2012. During the first quarter the business unit added key personnel to important positions within the organization. It has taken some time for the new leadership to evaluate operations, evaluate personnel and begin to implement positive changes to all aspects of the business to improve operating results. Achievements have been made in improving the customer experience at the Company including the introduction of tablet technology to the pick-up and delivery team and an improved dispatch interface. Labor costs were comparatively higher in the quarter as additional costs for training were incurred during the implementation of the tablet technology. The new management team’s focus continues to be on improving service, sales and operating efficiency and it is management’s expectation these initiatives will have a positive impact on financial results during the remainder of 2012.

The Canadian LTL business unit posted a solid 2012 second quarter benefiting from a steady Canadian economy and a stable operation compared to the U.S. LTL business unit.

 

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Table of Contents

Lastly, management believes that with additional density gains, continued momentum in the North American pricing environment, combined with a continued focus on operational and personnel 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 six months ended June 30:

 

     For the three months ended June 30,     For the six months ended June 30,  

(in thousands)

   2012     2011     2012 vs 2011     2012     2011     2012 vs 2011  

Revenue

   $ 29,308      $ 30,519        (4.0 %)    $ 58,469      $ 56,918        2.7

Income from operations

     2,371        2,337        1.5     4,469        4,427        0.9

Operating ratio

     91.9     92.3       92.4     92.2  

Revenue in the SCO segment decreased 4.0% for the second quarter of 2012 compared to the second quarter 2011. Revenue for the second quarter was impacted by a weaker Canadian dollar and from long-term contract renewals. However, income from operations increased 1.5% in the second quarter of 2012 compared to the same quarter in 2011, and the SCO segment posted an operating ratio of 91.9 % in the second quarter of 2012 compared to 92.3% in the second quarter of 2011. 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. Both dedicated facilities are expected to begin fully contributing in the third quarter. Operating results in the upcoming quarters should see continued improvement, as the aforementioned two new facilities begin fully contributing in the third quarter and activity levels improve throughout the second half of the year.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from continuing operations for the second quarter of 2012 generated $3.7 million compared to $4.1 million in the 2011 second quarter. The Company generated a net loss from operations in the second quarter of 2012; however, this was offset by the improvement in non-cash working capital. Days sales outstanding (“DSO”) in the second quarter of 2012 were 38.2 days compared to DSO of 39.0 days for the second quarter of 2011.

The Company’s future operating cash flows are largely dependent upon the Company’s profitability and its ability to manage its working capital requirements, primarily accounts receivable, accounts payable, and wage and benefit accruals.

As at June 30, 2012, interest-bearing debt was $88.0 million consisting of $32.9 million drawn under the syndicated asset-based revolving credit facility, $44.4 million of real estate term debt, $3.3 million of term debt, and $7.4 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 six months ended June 30, 2012, the Company repaid $0.4 million of real estate term debt, $0.3 million of term debt, $1.8 million of capital leases, and drew down $11.0 million under its revolving credit facilities. At June 30, 2012, the Company had $30.6 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 June 30, 2012.

The Company generated $1.6 million in proceeds on the divestiture of facilities in Springfield, MO, Louisville, KY, Toledo, OH and surplus equipment in the first six months of 2012. Capital expenditures amounted to $13.3 million for the first six 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.

 

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The table below sets forth the Company’s capital expenditures for the three and six months ended June 30:

 

     For the three months ended June 30,      For the six months ended June 30,  

(in thousands of dollars)

   2012      2011      2012      2011  

Real estate and buildings

   $ 3,675       $ 3,217       $ 4,355       $ 4,620   

Tractors

     4,363         331         4,498         763   

Trailing fleet

     —           494         1,906         621   

Information technology

     541         158         657         321   

Leasehold improvements

     70         6         194         64   

Other equipment

     1,211         62         1,678         219   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 9,860       $ 4,268       $ 13,288       $ 6,608   
  

 

 

    

 

 

    

 

 

    

 

 

 

Management estimates that cash capital expenditures for the remainder of 2012 will be between $5.0 million and $10.0 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 and, if required, its $30.6 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 Company’s 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 June 30, 2012:

 

(in thousands of dollars)           Payments due by period  

Contractual Obligations

   Total      2012      2013 & 2014      2015 & 2016      Thereafter  

Term credit facilities

   $ 3,250       $ 2,000       $ 1,250       $ Nil       $ Nil   

Real estate facility

     44,437         486         2,074         2,272         39,605   

Revolving credit facilities

     32,890         Nil         32,890         Nil         Nil   

Capital lease obligations

     7,448         1,180         2,672         2,642         954   

Estimated interest payments (1)

     16,000         1,769         6,415         4,145         3,671   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Sub-total

     104,025         5,435         45,301         9,059         44,230   

Off-balance sheet commitments

              

Operating leases

     124,845         20,001         62,481         33,012         9,351   

Purchase obligations (2)

     2,417         2,417         Nil         Nil         Nil   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Contractual Obligations

   $ 231,287       $ 27,853       $ 107,782       $ 42,071       $ 53,581   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 June 30, 2012 was used to determine the total interest obligation.

(2) 

The Company has a contractual obligation for approximately $2.4 million for the purchase of trailers in 2012. The Company has commitments to finance the purchase with an operating lease.

In addition to the above-noted contractual obligations, as at June 30, 2012, the Company utilized the revolving credit facility for standby letters of credit of $20.5 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 LOC’s to the Company’s syndicated lenders. In so doing, the Company’s definition of available debt in the associated revolving credit agreement excludes LOC’s guaranteed by the EDC.

A significant decrease in demand for our services could limit the Company’s ability to generate cash flow and affect its profitability. The Company’s asset-based revolving credit agreement is subject to financial maintenance tests that trigger when certain events occur, that will 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 in the second half of 2012. The most significant opportunity remains in the U.S. LTL business unit and management’s continued focus is to improve the contribution to operating results of this business unit. The new management team has a plan in place to improve service, productivity and efficiency of the operation. Executing on this plan 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 during the remainder of 2012.

QUARTERLY RESULTS (unaudited)

 

(thousands of dollars

except per share amounts)

   2012
Q2
    2012
Q1
    2011
Q4
    2011
Q3
    2011
Q2
    2011
Q1
    2010
Q4 *
    2010
Q3
 

Revenue

   $ 213,097      $ 207,748      $ 205,170      $ 206,159      $ 208,881      $ 185,388      $ 171,576      $ 174,124   

Income (loss) from continuing operations

     (2,184     (4,168     (4,848     (739     (241     1,507        (2,735     4,069   

Net Income (loss) from continuing operations

     (4,163     (5,816     (8,072     (3,420     (2,297     (224     (40,208     1,868   

Income (loss) from continuing operations per share:

                

Basic

   $ (0.25   $ (0.36   $ (0.49   $ (0.21   $ (0.14   $ (0.01   $ (2.47   $ 0.11   

Diluted

     (0.25     (0.36     (0.49     (0.21     (0.14     (0.01     (2.47     0.11   

Weighted average number of shares:

                

Basic

     16,399,241        16,367,109        16,331,241        16,330,171        16,330,041        16,315,374        16,299,643        16,277,202   

Diluted

     16,399,241        16,367,109        16,331,241        16,330,171        16,330,041        16,315,374        16,299,643        16,359,468   

 

* In the fourth quarter of 2010, Vitran recorded a non-cash tax valuation allowance of $38.9 million negatively impacting net income (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 Company’s performance compared to its competitors. Investors should also note that the Company’s presentation of OR may not be comparable to similarly titled measures by other companies. OR is calculated as follows:

 

     Three months
Ended
June 30, 2012
    Three months
Ended
June 30, 2011
    Six months
Ended
June 30, 2012
    Six months
Ended
June 30, 2011
 

Total operating expenses

   $ 215,281      $ 209,122      $ 427,197      $ 393,003   

Revenue

     213,097        208,881        420,845        394,269   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating ratio (“OR”)

     101.0     100.1     101.5     99.7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

18


Table of Contents

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of interest rate changes. The Company’s 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)          Payments due by period  

Long-Term Debt

   Total     2012     2013 & 2014     2015 & 2016     Thereafter  

Variable Rate

          

Term bank facility

   $ 3,250      $ 2,000      $ 1,250      $ Nil      $ Nil   

Average interest rate (LIBOR)

     3.97     3.97     3.97    

Revolving bank facility

     32,890        Nil        32,890        Nil        Nil   

Average interest rate (LIBOR)

     2.75       2.75    

Fixed Rate

          

Real Estate facility

     44,437        486        2,074        2,272        39,605   

Interest Rate

     4.75     4.75     4.75     4.75     4.75

Capital lease obligations

     7,448        1,180        2,672        2,642        954   

Average interest rate

     6.15     6.15     6.15     6.15     6.15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 88,025      $ 3,666      $ 38,886      $ 4,914      $ 40,559   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 Company’s 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 Company’s Canadian operations to foreign currency fluctuations. In addition, the Company’s United States dollar debt of $0.6 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 Company’s 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 Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective as of June 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 second quarter of 2012.

 

19


Table of Contents

Part II. Other Information

Item 1. Legal Proceedings

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 Vitran’s financial condition, results of operations or cash flows.

Item 1A. Risk Factors

See Part 1A of the Company’s 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.

Item 5. Other Information

None.

 

20


Table of Contents

Item 6. Exhibits and Reports on Form 8-K

Exhibits

 

Exhibit

Number

  

Description of Exhibit

31.1    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated July 25, 2012
31.2    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated July 25, 2012
32.1    Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated July 25, 2012

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            
Date: July 25, 2012     Fayaz D. Suleman
   

Vice President of Finance and

Chief Financial Officer

(Principle Financial Officer)

 

21

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