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VTNC > SEC Filings for VTNC > Form 10-Q on 29-Apr-2013All Recent SEC Filings

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Form 10-Q for VITRAN CORP INC


29-Apr-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to help the reader understand the results of operations and financial condition of our Company. It is provided as a supplement to, and should be read in conjunction with our unaudited consolidated interim financial statements for the three months ended March 31, 2013 and the notes thereto as included in Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended December 31, 2012.

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, Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and applicable Canadian securities laws concerning Vitran's business, operations, and financial performance and condition.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. 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, increase in activity levels 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 Company's expectation that revenue per hundredweight will increase in upcoming quarters as the freight mix and internal leadership in the pricing department impacts the LTL business;

the Company's expectation that it will be able to reduce maintenance expense in future periods;

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 operational improvements within the U.S. LTL business unit will have a positive impact on future financial results;

the Company's expectation that activity levels will improve;

the Company's ability to maintain days sales outstanding ("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, capital and operating leases and, if necessary, from the Company's cash;

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

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 2012 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 months ended March 31:



                                                        For the three months ended March 31,
                                                                                         2013 vs
(in thousands)                                        2013               2012              2012
Revenue                                           $    161,109         $ 178,587              (9.8 %)
Salaries, wages and other employee benefits             73,122            76,371              (4.3 %)
Purchased transportation                                24,976            25,771              (3.1 %)
Depreciation and amortization                            3,901             3,759               3.8 %
Maintenance                                              7,479             8,583             (12.9 %)
Rents and leases                                         8,599             7,947               8.2 %
Owner operators                                         11,969            11,228               6.6 %
Fuel and fuel-related expenses                          31,575            36,024             (12.4 %)
Other operating expenses                                15,633            15,087               3.6 %
Other (income) loss                                       (290 )              82            (453.7 %)

Total Expenses                                         176,964           184,852              (4.3 %)

Loss from continuing operations                        (15,855 )          (6,265 )           153.1 %
Interest expense, net                                    1,920             1,310              46.6 %
Income tax recovery                                       (146 )            (388 )           (62.4 %)

Net loss from continuing operations                    (17,629 )          (7,187 )           145.3 %
Discontinued operations, net of income taxes            85,301             1,371           6,121.8 %
Net income (loss)                                 $     67,672         $  (5,816 )        (1,263.5 %)

Income (loss) per share:
Basic and diluted - continuing operations         $      (1.07 )       $   (0.44 )
Basic and diluted - net income (loss)             $       4.13         $   (0.36 )
Operating Ratio (1)                                      109.8 %           103.5 %

Financial Overview

Revenue decreased 9.8% to $161.1 million for the first quarter of 2013 compared to $178.6 million in the first quarter of 2012. Revenue for the first quarter of 2013 was negatively impacted by one and a half less working days in the first quarter of 2013 compared to the first quarter of 2012.

Salaries, wages and other employee benefits decreased 4.3% for the first quarter of 2013 compared to the same period a year ago. This is due to the reduction in activity levels and working days compared to the same period in 2012. As density improves in future quarters, the Company should realize increased productivity and labor efficiencies and although salaries, wages and other employee benefits expenses should outpace the prior year expenses, as management improves efficiencies within the U.S. LTL business unit, such costs are expected to decline on a percentage of revenue basis.

Purchased transportation decreased 3.1% for the three-month period ended March 31, 2013 compared to the same period in 2012. Purchased transportation decreased 7.3% in the U.S. LTL business unit in the first quarter of 2013 compared to the same quarter a year ago, attributable to the decrease in shipments in the first quarter of 2013 compared to the first quarter of 2012.

Depreciation and amortization expense increased 3.8% for the first quarter of 2013 compared to the same period in 2012, and is primarily attributable to the purchase of rolling stock, dock equipment and buildings throughout 2012.

Maintenance expense decreased 12.9% for the three-month period ended March 31, 2013 compared to the same period in 2012. As a percentage of revenue, maintenance expense decreased compared to the first quarter of 2012 as management continues its focus on reducing this expense. It is management's expectation that the Company will continue to reduce its maintenance costs as a percentage of revenue in future periods.


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Rents and leases expense increased 8.2% for the three-month period ended March 31, 2013 compared to the same period in 2012. The increase is attributable to the 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 acquired by the U.S. LTL business unit.

Owner operator expense increased 6.6% for the first quarter of 2013 compared to the same period in 2012. The increase is due to increased activity levels in the Canadian LTL business unit in the current quarter compared to the first quarter in 2012.

Fuel and fuel-related expenses decreased 12.4% for the three month period ended March 31, 2013 compared to the same period a year ago. Fuel consumption in the first quarter of 2013 decreased as shipments declined 13.0% during the quarter compared to the first quarter of 2012. In addition, the average price of diesel increased approximately 3.3% compared to the three-month period ended March 31, 2012.

On February 12, 2013, Vitran signed an agreement to sell its Supply Chain Operation ("SCO") services business to Legacy SCO Inc. ("Legacy"), an affiliate of Legacy Supply Chain, for $97.0 million in cash, subject to working capital adjustments. On March 4, 2013 the Company completed the sale of SCO for $97.0 million in cash, and a portion of the proceeds was used to fully reduce Vitran's debt under its revolving credit facility. The Company expects to receive an additional $1.8 million in proceeds in the second quarter of 2013 upon final determination of the aforementioned working capital adjustments. The Company recorded a gain of $85.3 million on the sale of its SCO business. The operating results and divestiture of the SCO segment have been recorded as a discontinued operation.

The Company incurred interest expense of $1.9 million in the first quarter of 2013 compared to interest expense of $1.3 million for the same quarter a year ago. Included in interest expense is $0.4 million of deferred financing costs that were written-off in the current quarter due to the Company amending its revolving credit agreement. The amended credit agreement provides for $50.0 million of borrowing capacity compared to the previous borrowing capacity of $85.0 million. The Company's total balance sheet debt net of cash at March 31, 2013 is $31.1 million.

In accordance with Financial Accounting Standard Board ("FASB") Accounting Standard Codification ("FASB ASC") 740-10, the Company had recorded a valuation allowance for all U.S. deferred tax assets. The sale of SCO resulted in a taxable gain in the United States, which the Company was able to offset with the utilization of its available net operating loss carry forwards from previous years of $17.6 million. The Company recorded a consolidated tax recovery of $0.1 million for the first three months of 2013 compared to a consolidated tax recovery of $0.4 million for the first three months of 2012.

Net loss from continuing operations for the 2013 first quarter was $17.6 million compared to a net loss of $7.2 million for the same quarter in 2012. This resulted in a basic and diluted loss per share from continuing operations of $1.07 for the first quarter of 2013 compared to a basic and diluted loss per share from continuing operations of $0.44 for the first quarter of 2012. Income from discontinued operations, including the gain from the sale of the SCO segment, was $85.3 million in the 2013 first quarter compared to $1.4 million in the first quarter of 2012. As a result, the Company posted net income of $67.7 million or $4.13 basic and diluted income per share compared to a net loss of $5.8 million or $0.36 basic and diluted loss per share in the comparable first quarter. The weighted average number of shares for the current quarter was 16.4 million basic and diluted shares, consistent with the basic and diluted shares in the first quarter of 2012.


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Operations Overview



                                         For the three months ended March 31,
  (in thousands)                       2013                2012         2013 vs 2012
  Number of shipments (2)                979,903          1,126,151             (13.0 %)
  Weight (000s of lbs) (3)             1,436,813          1,652,691             (13.1 %)
  Revenue per shipment (4)        $       164.41       $     158.58               3.7 %
  Revenue per hundredweight (5)   $        11.21       $      10.81               3.7 %

Shipments and tonnage decreased 13.0% and 13.1%, respectively, compared to the first quarter of 2012. Both metrics were impacted by one and a half less working days in the first quarter of 2013 compared to the first quarter of 2012. Shipments per day decreased 10.9% in the first quarter of 2013 compared to the first quarter of 2012. The decrease in shipments year-over-year is attributable to the U.S. LTL business unit; however, shipments in the first quarter of 2013 improved sequentially throughout the quarter. Shipments per day in the U.S. LTL business unit improved 6.6% in March 2013 compared to December 2012 and management expects to continue to see improvement in shipment count in future periods. On a year-over-year basis, March 2013 compared to March 2012, average length of haul decreased 1.0% and revenue per hundredweight increased 5.7%. Management expects revenue per hundredweight to increase in upcoming quarters as the Company promotes its improved on-time service to existing and new customers.

During the first quarter of 2013, the U.S. LTL business unit endeavored to build on the foundation developed throughout 2012. The business unit continues to attempt to realize efficiencies and the improved customer service levels that began in the fourth quarter of 2012 have continued to improve in the first quarter of 2013. The management team's focus is to build on the commercial momentum created in the first quarter of 2013 and drive density and revenue into the U.S. LTL infrastructure.

The Canadian LTL business unit posted a solid 2013 first quarter benefiting from a renewed commercial effort in the Canadian market place.

Lastly, management believes that additional density gains, continued momentum in the North American pricing environment, combined with a continued focus on operational and customer service improvements, the LTL operation should be well positioned to improve income from operations over the long term.

Other

Mr. Rick Gaetz resigned as President and Chief Executive Officer of Vitran effective April 4, 2013. Mr. William Deluce was appointed Interim President and Chief Executive Officer effective the same day to replace Mr. Gaetz.

The Board of Directors is completing a full evaluation of Vitran's business and is reviewing all appropriate strategic options for the Company with a focus on enhancing shareholder value.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from continuing operations for the first quarter of 2013 consumed $21.2 million compared to consuming $9.6 million in the 2012 first quarter. The Company generated a higher net loss from operations in the first quarter of 2013 and had a slight deterioration in non-cash working capital. Days sales outstanding ("DSO") in the first quarter of 2013 were 39.3 days compared to DSO of 38.7 days for the first quarter of 2012.

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.

On March 4, 2013, the Company completed the sale of its SCO business to Legacy for $97.0 million in cash. The Company used a portion of the proceeds to fully reduce its outstanding debt under its senior revolving credit facility, and has $54.6 million of cash-on-hand at March 31, 2013. In conjunction with the completed sale of the SCO business, Vitran amended its senior revolving credit agreement to reduce the total available line from $85.0 million to $50.0 million. The Company wrote-off $0.4 million of previously capitalized financing fees, related to the revolving credit facility.

The Company may access the revolving credit facility for letters of credit, however, must achieve a required level of financial performance to be able to draw additional funds on the revolving credit facility and must initially use its cash on-hand to fund operations.


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In the fourth quarter of 2012, Vitran received a commitment for up to a $33.0 million U.S. real estate term facility secured by specific real estate in the United States subject to customary due diligence including environmental assessments. In the fourth quarter of 2012, Vitran entered into the first 15-year U.S. real estate term facility for $16.8 million, secured by 18 of the U.S transportation facilities. In the first quarter of 2013, Vitran entered into additional U.S. real estate term facilities under the aforementioned commitment for total proceeds of $14.1 million, secured by an additional 10 of the U.S. transportation facilities. The additional U.S. real estate term facilities have a 15-year term, at an average fixed interest rate of 4.875% adjusted every three to five years and a 15-year amortization period. At March 31, 2013, the Company had $30.7 million outstanding under its U.S. real estate term facilities.

As at March 31, 2013, interest-bearing debt was $85.7 million consisting of $79.8 million of real estate term debt and $5.9 million of capital leases. There were no amounts outstanding under the Company's senior revolving credit facility at March 31, 2013, except for outstanding letters of credit ("LOC"). At December 31, 2012, interest-bearing debt was $105.3 million consisting of $31.7 million drawn under the syndicated asset based revolving credit facility, $67.3 million of real estate term debt and $6.3 million of capital leases.

For the three months ended March 31, 2013, the Company repaid $0.4 million of real estate term debt, $0.4 million of capital leases and $31.8 million of its revolving credit facilities. At March 31, 2013, the Company had $54.6 million of available cash on its balance sheet. The Company was in compliance with all terms under its credit agreements at March 31, 2013.

The Company generated $0.3 million in proceeds on the divestiture of surplus equipment in the first three months of 2013. Capital expenditures amounted to $0.8 million for the first three months of 2013 and were funded out of the revolving credit facilities.

The table below sets forth the Company's capital expenditures for the three months ended March 31:

                                      For the three months ended March 31,
        (in thousands of dollars)       2013                     2012
        Real estate and buildings   $          77         $               680
        Tractors                               -                          135
        Trailing fleet                          7                       1,906
        Information technology                198                         112
        Leasehold improvements                167                          97
        Other equipment                       342                         299

        Total                       $         791         $             3,229

Management estimates that cash capital expenditures for the remainder of 2013 will be between $10.0 million and $15.0 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 on-hand and operating leases.

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.


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The following table summarizes our significant contractual obligations and commercial commitments as of March 31, 2013:

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