<PAGE>
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 22, 2000
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 333-85041
PACER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0935669
---------------------------- ----------
(State or other jurisdiction (I.R.S. employer
of organization) identification no.)
1340 Treat Blvd., Suite 200
Walnut Creek, CA 94596
Telephone Number (800) 225-4222
Indicate by checkmark 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding
Class at November 3, 2000
-------------------------------------- -----------------------
Common stock, $.01 par value per share 11,077,373 shares
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
FISCAL QUARTER ENDED SEPTEMBER 22, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Part 1. Financial Information
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets......................... 3
Condensed Consolidated Statements of Operations .............. 4
Condensed Consolidated Statements of Stockholders' Equity .... 5
Condensed Consolidated Statements of Cash Flows .............. 6
Notes to Condensed Consolidated Financial Statements ......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 13
Part 2. Other Information
Item 1. Legal Proceedings ............................................ 22
Item 6. Exhibits and Reports on Form 8-K ............................. 22
Signatures............................................................. 23
Exhibit Index.......................................................... 24
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 22, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
(In millions)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ - $ 12.2
Accounts receivable, net of allowances of $4.6 million and $3.0
million, respectively................................ 152.6 114.7
Accounts receivable from APL....................................... 2.3 39.6
Prepaid expenses and other......................................... 4.8 2.9
Deferred income taxes.............................................. 4.4 4.4
----------------- -----------------
Total current assets.......................................... 164.1 173.8
----------------- -----------------
Property and equipment
Property and equipment at cost.................................... 65.7 61.8
Accumulated depreciation.......................................... (16.2) (11.4)
----------------- -----------------
Property and equipment, net................................... 49.5 50.4
----------------- -----------------
Other assets
Goodwill,......................................................... 193.4 143.1
Deferred income taxes............................................. 67.8 75.7
Other assets...................................................... 10.1 12.0
----------------- -----------------
Total other assets............................................ 271.3 230.8
----------------- -----------------
Total assets......................................................... $ 484.9 $ 455.0
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt and capital leases........... $ 1.4 $ 1.5
Accounts payable and accrued liabilities.......................... 167.5 176.0
----------------- -----------------
Total current liabilities..................................... 168.9 177.5
----------------- -----------------
Long-term liabilities
Long-term debt and capital leases................................. 297.3 282.9
Other............................................................. 1.7 2.9
Total long-term liabilities................................... 299.0 285.8
----------------- -----------------
Total liabilities.................................................... 467.9 463.3
----------------- -----------------
Minority interest - exchangeable preferred stock..................... 24.6 23.4
----------------- -----------------
Commitments and contingencies (Note 6)...............................
Stockholders' equity
Preferred stock: $0.01 par value, 1,000,000 shares
authorized, none outstanding.................................. - -
Common stock: $0.01 par value, 20,000,000 shares
authorized, 11,077,373 and 10,440,000 issued and
outstanding at September 22, 2000 and December 31,
1999, respectively............................................ 0.1
Additional paid-in-capital........................................ 111.1 104.3
Retained earnings (accumulated deficit)........................... (118.8) (136.1)
----------------- -----------------
Total stockholders' equity (deficit).......................... (7.6) (31.7)
----------------- -----------------
Total liabilities and equity......................................... $ 484.9 $ 455.0
================= =================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
Sept. 22, 2000 Sept. 17, 1999 Sept. 22, 2000 Sept. 17, 1999
---------------- ---------------- ---------------- ----------------
(in millions)
<S> <C> <C> <C> <C>
Gross revenues................................... $ 308.2 $ 260.8 $ 916.5 $ 624.5
Cost of purchased transportation and
services....................................... 241.9 207.5 718.7 494.0
---------- ---------- ---------- ----------
Net revenues................................. 66.3 53.3 197.8 130.5
---------- ---------- ---------- ----------
Operating expenses:
Direct operating expenses...................... 20.4 17.5 60.1 53.6
Selling, general and administrative expenses... 24.4 18.5 73.1 37.1
Depreciation and amortization.................. 2.7 2.3 8.2 5.9
---------- ---------- ---------- ----------
Total operating expenses..................... 47.5 38.3 141.4 96.6
---------- ---------- ---------- ----------
Income from operations........................... 18.8 15.0 56.4 33.9
---------- ---------- ---------- ----------
Interest expense (income), net................... 7.8 7.2 24.3 9.6
---------- ---------- ---------- ----------
Income before income taxes and minority
interest....................................... 11.0 7.8 32.1 24.3
---------- ---------- ---------- ----------
Income taxes or charge in lieu of income taxes... 4.7 3.3 13.6 9.5
Minority interest................................ 0.3 0.4 1.2 0.6
---------- ---------- ---------- ----------
Net income....................................... $ 6.0 $ 4.1 $ 17.3 $ 14.2
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 22, 2000
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Common Stock Retained
--------------------- Additional Earnings Total
No. of Paid-in (Accumulated Stockholders'
Shares Amount Capital Deficit) Equity(Deficit)
-------- -------- --------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
December 31, 1999....................... 10.4 $ 0.1 $ 104.3 $ (136.1) $ (31.7)
Issuance of Common Stock for
Acquisitions....................... 0.3 - 6.0 - 6.0
Issuance of Common Stock for
Exercise of Options ............... 0.4 - 0.8 - 0.8
Net Income ............................. - - - 17.3 17.3
-------- -------- --------- -------------- ----------------
September 22, 2000...................... 11.1 $ 0.1 $ 111.1 $ (118.8) $ (7.6)
======== ======== ========= ============== ================
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------------
Sept. 22, 2000 Sept. 17, 1999
------------------ ------------------
(in millions)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income............................................................. $ 17.3 $ 14.2
----------------- ------------------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization....................................... 8.2 5.9
Deferred income taxes............................................... 7.9 1.7
Changes in current assets and liabilities:
Trade and other receivables....................................... (20.9) (30.1)
Prepaid expenses and other current assets......................... (1.7) (0.5)
Accounts payable and accrued liabilities.......................... (0.5) 26.0
Other............................................................. 2.1 0.4
----------------- ------------------
Net cash provided by operating
activities................................................. 12.4 17.6
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of business, net of cash acquired ............................ (41.7) (111.3)
Capital expenditures................................................... (3.4) (1.5)
Proceeds from sales of property and equipment ......................... 0.2 39.6
----------------- ------------------
Net cash used in investing
activities................................................. (44.9) (73.2)
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks drawn in excess of cash balances ............................... 10.7 (1.9)
Proceeds of long-term debt, net of costs............................... 25.0 277.5
Proceeds from issuance of common stock ................................ 0.8 104.4
Distribution to APL and recap costs.................................... - (310.2)
Redemption of preferred stock of subsidiary............................ - (2.0)
Debt, revolver and capital lease obligation repayment ................. (16.2) (2.1)
----------------- ------------------
Net cash provided by financing
activities................................................. 20.3 65.7
----------------- ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS................................ (12.2) 10.1
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD............................................................... 12.2 -
----------------- ------------------
CASH AND CASH EQUIVALENTS - END OF
PERIOD............................................................... $ - $ 10.1
================= ==================
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of Common Stock ........................................... $ 6.0 $ -
Issuance of 8.0% subordinated note .................................. $ 5.0 $ -
Issuance of Exchangeable Preferred Stock ............................ $ 24.3
Issuance of note payable to management .............................. $ 0.4
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
6
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim financial statements as of September 22, 2000
and for the three and nine months ended September 22, 2000 and September 17,
1999 are condensed and do not contain all information required by generally
accepted accounting principles to be included in a full set of financial
statements. In the opinion of management, all adjustments, consisting of only
normal recurring adjustments, that are necessary for fair presentation have been
included. The results of operations for any interim period are not necessarily
indicative of the results of operations to be expected for any full fiscal year.
The amounts for the Statement of Operations for the nine month period ended
September 17, 1999 and amounts for the Statement of Cash Flows for the nine
month period ended September 17, 1999 include amounts which were derived from
the unaudited financial statements of American President Lines Stacktrain
Services, a division of APL Land Transport Services, Inc., the predecessor
company. As of May 28, 1999 APL Land Transport Services, Inc. was recapitalized
and renamed Pacer International, Inc. (the "Company"). These unaudited interim
financial statements and footnotes should be read in conjunction with the
audited financial statements for the fiscal year ended December 31,1999 included
in the Company's Form 10-K as filed with the Securities and Exchange Commission.
Principles of Consolidation
The consolidated financial statements as of and for the nine months
ended September 22, 2000 include the accounts of the Company and its subsidiary,
Pacer Logistics, Inc., acquired May 28, 1999, Conex assets (as defined below)
acquired January 13, 2000 and GTS Transportation Services, Inc. acquired August
31, 2000. All significant intercompany transactions and balances have been
eliminated in consolidation.
Industry Segments
The Company operates in two reportable industry segments, providing
intermodal rail stacktrain services (the "Wholesale" segment) and providing
logistic services (the "Retail" segment) in North America. The Wholesale
segment was formerly known as the Stacktrain segment and the Retail segment was
formerly known as the Logistics segment.
Reclassification
Certain reclassifications have been made to the 1999 balances to
conform to the 2000 presentation. These reclassifications had no effect on the
Company's financial position or net income.
NOTE 2. ACQUISITIONS
On August 31, 2000, the Company acquired all of the stock of GTS
Transportation Services, Inc. ("GTS"), a provider of transportation services
including logistics and truck brokerage in the 48 contiguous states as well as
in Canada and Mexico. The purchase price was $17.8 million including acquisition
fees and expenses. The purchase price is subject to adjustment, if at all,
pursuant to an earn-out amount and a working capital adjustment. The Company
paid approximately $15.3 million in cash. The acquisition has been accounted
for as a purchase in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations". The aggregate purchase price has been allocated to the
underlying assets and liabilities based upon preliminary estimates of fair
values at the date of acquisition, which may be
7
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
updated based upon final appraisals, with the remainder allocated to goodwill to
be amortized over 40 years. The Company determined a 40-year amortization
period was appropriate after considering a number of factors: 1) there are no
legal, regulatory or contractual provisions associated with the acquisition that
may limit the useful life of the goodwill, 2) the service provided by the
acquired company (as part of the Company's Retail segment) is not subject to
obsolescence, and 3) the Company is not aware of any expected actions of
competitors and others that may restrict the Retail segment's ability to
successfully compete in the industry. Though the fair value estimates are
preliminary, management does not believe there will be a material change to
goodwill when these estimates are finalized. The results of operations for the
acquired company are included in the Company's consolidated financial statements
beginning September 1, 2000. The purchase price allocation, preliminary in
nature and subject to change, is as follows (in millions):
Accounts receivable, net................... $ 6.7
Property, equipment and other.............. 0.1
Goodwill................................... 21.2
Liabilities................................ (10.2)
------
Total purchase price.................... $ 17.8
======
On January 13, 2000 the Company acquired substantially all of the assets
and assumed certain liabilities of Conex Global Logistics Services, Inc., MSL
Transportation Group, Inc., and Jupiter Freight, Inc. (collectively "Conex"), a
multipurpose provider of transportation services including intermodal marketing,
local trucking and freight consolidation and handling. The purchase price was
$37.4 million. The Company paid approximately $26.4 million in cash, issued
Conex shareholders an 8.0% subordinated note in the aggregate principal amount
of $5.0 million and issued Conex shareholders 300,000 shares (valued in the
aggregate at $6.0 million) of common stock of Pacer International, Inc.
Pro forma results of operations, giving effect to the Company's acquisition
of Conex assets, GTS (and the Company's recapitalization and acquisition of
Pacer Logistics which occurred on May 28, 1999) at the beginning of each period
presented is as follows:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 22, September 17,
2000 1999
--------------------- ----------------------
<S> <C> <C>
Gross revenues....................................................... $ 981.4 $ 870.4
Income before extraordinary items.................................... $ 18.7 $ 16.3
Net income........................................................... $ 18.7 $ 16.3
</TABLE>
NOTE 3. LONG-TERM DEBT
At September 22, 2000, the Company had $85.8 million available under
the $100 million revolving credit facility expiring in 2004. At September 22,
2000, the interest rate on the revolving credit facility was 8.9%.
8
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 4. RELATED PARTY TRANSACTIONS
The Company has signed long-term agreements with APL Limited (the Company's
former parent) for the domestic transportation on the stacktrain network of APL
Limited's international freight for an annual management fee of $6.6 million and
for administrative services such as billing and accounts receivable and payable
processing on a per transaction basis. In addition, the information technology
services of APL Limited are currently being provided to the Company. The annual
fee for these services is $10 million.
In April 2000, the Company transferred the processing of APL Limited's
international traffic receivables and payables to APL Limited, which had
previously been included in the Company's balance sheet, resulting in a decrease
in both accounts receivable and accounts payable of approximately $33.0 million.
The transfer to APL Limited was facilitated by changes in computer software
which were not previously available. The Company continues to handle APL
Limited's international traffic under contract for the annual management fee.
In April 2000, the Company repaid $371,891 in notes payable to certain
members of senior management including accrued interest. The notes were part of
the purchase price for Pacer Logistics acquired on May 28, 1999.
In August 2000, the Company paid a scheduled semi-annual interest payment
of $218,082 to certain members of senior management on the $5.0 million 8.0%
subordinated note issued in January 2000 as part of the purchase price for the
acquisition of Conex assets.
NOTE 5. PENSION PLANS AND STOCK OPTION PLANS
During the first quarter of 2000, certain members of senior management
exercised 287,373 options to purchase Pacer International, Inc. common stock at
an average purchase price of $1.22 per share, exercised 10,000 options at $10.00
per share and forfeited 90,000 options. The proceeds of these transactions were
used to repay the notes payable as discussed above in Note 4 and for general
corporate purposes. In addition, the Company granted an additional 36,500
options to management personnel to purchase Pacer International, Inc. common
stock at an exercise price of $20.00 per share.
During the second quarter of 2000, 181,004 options were forfeited due to
employee resignations and 167,000 options were granted to management personnel
to purchase Pacer International, Inc. common stock (45,000 shares at $20.00 per
share and 122,000 shares at $25.00 per share).
During the third quarter of 2000, certain members of senior management
exercised 40,000 options to purchase Pacer International, Inc. common stock at
an average purchase price of $10.00 per share. In addition, 15,000 options were
forfeited due to employee resignations and 132,000 options were granted to
management personnel to purchase Pacer International, Inc. common at $25.00 per
share.
NOTE 6. CONTINGENCIES
The Company is party to various legal proceedings, claims and assessments
arising in the normal course of its business activities.
In June 1995, APL Limited, the Company's former parent, sold the assets of
its trucking company, American President Trucking ("APT") to Burlington Motor
Carriers ("BMC"). The sale included the sublease of terminal real estate to BMC
and the sublease of tractor units to Stoops Freightliner, which in turn entered
into a use agreement with BMC. BMC and the Company
9
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
entered into a service agreement whereby the Company guaranteed certain levels
of traffic to BMC. Under new ownership from a 1995 bankruptcy proceeding, BMC
advised APL Limited and the Company that it believed the Company breached the
service agreement when APL Limited sold its Distribution Services unit, and
demanded $0.8 million in compensation. The Company disputed the claim. BMC and
Stoops Freightliner filed subsequent complaints in BMC bankruptcy proceedings
demanding unspecified damages. APL Limited and the Company filed motions to
dismiss both complaints, which were granted on November 13, 1998. Stoops did not
appeal; BMC did. The appellate court upheld part of the decision and reversed
part of the decision and encouraged the parties to engage in settlement
discussions. In early February 2000, APL Limited offered $200,000 in settlement
of all claims; BMC countered with a demand of $1.2 million. APL Limited rejected
that offer and reiterated its $200,000 offer in early April. Subsequently, all
the parties have entered into an agreement in principle which will settle all
claims among them. The settlement agreement, which should be executed by the end
of this year, will not result in any payment by the Company. Thus, the Company
does not believe that the ultimate outcome, if unfavorable, will have a material
adverse impact on the financial position or results of operations of the
Company, and has not reserved for this contingency.
Two subsidiaries of Pacer Logistics, Interstate Consolidation, Inc. and
Intermodal Container Service, Inc., were named defendants in a class action
filed in July 1997 in the State of California, Los Angeles Superior Court,
Central District, alleging, among other things, breach of fiduciary duty, unfair
business practices, conversion and money had and received in connection with
monies allegedly wrongfully deducted from truck drivers' earnings. The
defendants entered into a Judge Pro Tempore Submission Agreement dated as of
October 9, 1998, pursuant to which the plaintiffs and defendants waived their
rights to a jury trial, stipulated to a certified class, and agreed to a minimum
judgment of $250,000 and a maximum judgment of $1.75 million. On August 11,
2000, the Court issued its Statement of Decision, in which Interstate
Consolidation, Inc. and Intermodal Container Service, Inc. prevailed on all
issues except one. The only adverse ruling was a Court finding that Interstate
failed to issue certificates of insurance to the owner-operators and therefore
failed to disclose that in 1998, the Company's retention on its liability policy
was $250,000. The court has ordered that restitution of $488,978 be paid for
this omission. Plaintiff's counsel has indicated he intends to appeal the entire
ruling. Defendants will be appealing the restitution issue. Based upon
information presently available and in light of legal and other defenses and
insurance coverage, management does not expect these legal proceedings, claims
and assessments, individually or in the aggregate, to have a material adverse
impact on the Company's consolidated financial position or results of
operations.
NOTE 7. SEGMENT INFORMATION
The Company has two reportable segments, the Wholesale segment and the
Retail segment, which have separate management teams and offer different but
related products and services. The Wholesale segment, formerly known as the
Stacktrain segment, provides intermodal rail service in North America by selling
intermodal service to shippers while buying space on intermodal rail trains. The
large majority of business is conducted domestically, with services in Mexico
and Canada. Customers include intermodal marketers who serve customers in
various industries as well as the ocean carrier industry. The Retail segment,
formerly know as the Logistics segment, compliments the Wholesale segment by
offering marketing, freight handling, truck and local pickup and delivery
services. Prior to May 28, 1999, the Company had only one reportable segment,
the Wholesale segment.
10
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The following table presents reportable segment information for the three
and nine months ended September 22, 2000 and September 17, 1999 (in millions).
The nine month 1999 data for the Retail segment in the tables below contains
only four months of data since acquisition on May 28, 1999.
<TABLE>
<CAPTION>
Wholesale Retail Other Consolidated
----------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
3 Months ended September 22, 2000
Gross revenues ........................... $ 193.7 $ 124.5 $ (10.0) $ 308.2
Net revenues.............................. 44.0 22.3 66.3
Income from operations ................... 13.0 5.8 18.8
Interest expense, net .................... 5.4 2.4 7.8
Tax expense............................... 3.3 1.4 4.7
Net income ............................... 4.3 2.0 (0.3) 6.0
Depreciation and amortization ............ 1.3 1.4 2.7
Capital expenditures ..................... 0.4 1.1 1.5
Total assets.............................. 364.3 198.7 (78.1) 484.9
3 Months ended September 17, 1999
Gross revenues ........................... $ 167.8 $ 99.8 $ (6.8) $ 260.8
Net revenues.............................. 37.1 16.2 - 53.3
Income from operations ................... 10.7 4.3 - 15.0
Interest expense, net .................... 5.2 2.0 - 7.2
Tax expense............................... 2.2 1.1 - 3.3
Net income ............................... 3.3 1.2 (0.4) 4.1
Depreciation and amortization ............ 1.3 1.0 - 2.3
Capital expenditures ..................... - 1.4 - 1.4
Total assets.............................. 388.0 133.4 (67.1) 454.3
9 Months ended September 22, 2000
Gross revenues ........................... $ 594.7 $ 348.4 $ (26.6) $ 916.5
Net revenues.............................. 132.3 65.5 197.8
Income from operations ................... 40.2 16.2 56.4
Interest expense, net .................... 17.9 6.4 24.3
Tax expense............................... 9.5 4.1 13.6
Net income ............................... 12.8 5.7 (1.2) 17.3
Depreciation and amortization ............ 4.0 4.2 8.2
Capital expenditures ..................... 0.7 2.7 3.4
Total assets.............................. 364.3 198.7 (78.1) 484.9
9 Months ended September 17, 1999
Gross revenues ........................... $ 499.7 $ 134.2 $ (9.4) $ 624.5
Net revenues.............................. 108.8 21.7 - 130.5
Income from operations ................... 28.1 5.8 - 33.9
Interest expense, net .................... 7.0 2.6 - 9.6
Tax expense............................... 7.9 1.6 - 9.5
Net income ............................... 13.2 1.6 (0.6) 14.2
Depreciation and amortization ............ 4.5 1.4 - 5.9
Capital expenditures ..................... - 1.5 - 1.5
Total assets.............................. 388.0 133.4 (67.1) 454.3
</TABLE>
Data in the "Other" column includes elimination of intercompany balances and
subsidiary investment. Amounts for 1999 interest expense, tax expense and net
income have been restated to reflect an adjustment to the inter-segment interest
calculation which favorably impacted the Wholesale segment and adversely
impacted the Retail segment but had no impact on consolidated results.
11
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
For the nine month period ended September 22, 2000, the Company had one
customer that contributed more than 10% of the Company's total gross revenues.
Total gross revenues of $114.4 million were generated by both reporting segments
from Union Pacific. For the 1999 period, two customers contributed more than 10%
of the Company's total gross revenues. Total gross revenues of $94 million were
generated by the Wholesale segment from Hub City and $69 million generated by
both reporting segments from Union Pacific.
NOTE 8. SUBSEQUENT EVENT
On October 31, 2000, pursuant to a stock purchase agreement, the Company
acquired all of the stock of RFI Group, Inc., a Delaware corporation providing
international freight forwarding and freight transportation services. The
purchase price was $18.0 million less certain indebtedness and is subject to
adjustment, if at all, pursuant to a working capital adjustment. The acquisition
was funded by borrowings under the Company's revolving credit facility.
Operating results of the acquisition will be included in the Company's Retail
segment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain Forward-Looking Statements
----------------------------------
This quarterly report on Form 10-Q contains certain forward looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995) that involve substantial risks and uncertainties relating to the
Company that are based on the beliefs of management. When used in this Form 10-
Q, the words "anticipate", "believe", "estimate", "expect", "intend", and
similar expressions, as they relate to the Company or the Company's management,
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to the risks and uncertainties regarding the
operations and the results of operations of the Company as well as its customers
and suppliers, including the availability of consumer credit, interest rates,
employment trends, changes in levels of consumer confidence, changes in consumer
preferences, pricing pressures, shifts in market demand, and general economic
conditions. In addition, the Company has acquired businesses in the past and may
consider acquiring businesses in the future that provide complementary services.
There can be no assurance that the businesses that the Company has acquired in
the past and may acquire in the future can be successfully integrated. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions or estimates prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated, expected or
intended.
12
<PAGE>
Results of Operations
---------------------
Amounts for the Retail segment for the 2000 periods include the results of
the Company's acquisition of Conex assets and GTS (the "2000 acquisitions")
since each respective acquisition unless specified otherwise as shown below. See
Note 2 to the Condensed Consolidated Financial Statements. In the discussion
below the Wholesale segment was formerly known as the Stacktrain segment and the
Retail segment was formerly known as the Logistics segment.
Financial Data for 2000 Acquisitions
(in millions)
<TABLE>
<CAPTION>
Three Months ended September 22, 2000 Nine Months ended September 22, 2000
---------------------------------------------------- -----------------------------------------------
Conex GTS Total Conex GTS Total
------------- ------------------ ----------------- ------------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross revenues ............. $ 11.8 $ 7.8 $ 19.6 $ 38.5 $ 7.8 $ 46.3
Purchased transp............ 8.9 7.0 15.9 27.1 7.0 34.1
-------- --------- --------- --------- -------- --------
Net revenues ............... 2.9 0.8 3.7 11.4 0.8 12.2
Selling, general &
administrative
expenses ................ 1.8 0.4 2.2 6.3 0.4 6.7
Depreciation and
amortization .............. 0.2 - 0.2 0.7 - 0.7
-------- --------- --------- --------- -------- --------
Income from
operations ................ $ 0.9 $ 0.4 $ 1.3 $ 4.4 $ 0.4 $ 4.8
======== ========= ========= ========= ======== ========
</TABLE>
13
<PAGE>
Three Months Ended September 22, 2000 Compared to Three Months Ended September
------------------------------------------------------------------------------
17, 1999
--------
The following table sets forth historical financial data for the Company
comparing data for the three months ended September 22, 2000 and September 17,
1999.
Financial Data Comparison by Reportable Segment
Three Months Ended September 22, 2000 and September 17, 1999
(in millions)
<TABLE>
2000 1999 Change % Change
----------------- ----------------- --------------- ----------
<S> <C> <C> <C> <C>
Gross revenues
Wholesale............................................. $ 193.7 $ 167.8 $ 25.9 15.4%
Retail................................................ 124.5 99.8 24.7 24.7
Inter-segment elimination............................. (10.0) (6.8) (3.2) 47.1
----------- ----------- ---------- --------
Total............................................ 308.2 260.8 47.4 18.2
Cost of purchased transportation and services
Wholesale............................................. 149.7 130.7 19.0 14.5
Retail................................................ 102.2 83.6 18.6 22.2
Inter-segment elimination............................. (10.0) (6.8) (3.2) 47.1
----------- ----------- ---------- --------
Total............................................ 241.9 207.5 34.4 16.6
Net revenues
Wholesale............................................. 44.0 37.1 6.9 18.6
Retail................................................ 22.3 16.2 6.1 37.7
----------- ----------- ---------- --------
Total............................................ 66.3 53.3 13.0 24.4
Direct operating expenses
Wholesale............................................. 20.4 17.5 2.9 16.6
Retail................................................ - - -
----------- ----------- ---------- --------
Total............................................ 20.4 17.5 2.9 16.6
Selling, general & administrative expenses
Wholesale............................................. 9.3 7.6 1.7 22.4
Retail................................................ 15.1 10.9 4.2 38.5
----------- ----------- ---------- --------
Total............................................ 24.4 18.5 5.9 31.9
Depreciation and amortization
Wholesale............................................. 1.3 1.3 - -
Retail................................................ 1.4 1.0 0.4 40.0
----------- ----------- ---------- --------
Total............................................ 2.7 2.3 0.4 17.4
Income from operations
Wholesale............................................. 13.0 10.7 2.3 21.5
Retail................................................ 5.8 4.3 1.5 34.9
----------- ----------- ---------- --------
Total............................................ 18.8 15.0 3.8 25.3
Interest (income) expense, net........................... 7.8 7.2 0.6 8.3
Income tax expense ...................................... 4.7 3.3 1.4 42.4
Minority interest........................................ 0.3 0.4 (0.1) -25.0
Net income............................................... $ 6.0 $ 4.1 $ 1.9 46.3
</TABLE>
Gross Revenues. Gross revenues increased $47.4 million, or 18.2%, for the
three months ended September 22, 2000 compared to the three months ended
September 17, 1999. The Wholesale segment increase of $25.9 million (54.6% of
the total increase) was due primarily to a $21.4 million, or 13.6%, increase in
freight revenues driven by an overall container volume increase of 17,811
containers or 11.9%. The quarterly volume increases this year compared to last
year will continue to be less than the year-to-date comparisons because of the
addition of a large new customer in May 1999. Also contributing to the increase
was a 3% fuel surcharge implemented on domestic traffic during the second
quarter to defray rail fuel cost increases. The
14
<PAGE>
volume increases were due to increased customer demand coupled with the addition
of 1,500 53-foot containers during the fourth quarter of 1999 and 2,625
containers during the first nine months of 2000. Automotive shipments continued
to surpass last year's container volumes for the quarter even though seasonal
plant shutdowns and re-tooling occurred in July. Other Wholesale segment
revenues increased approximately $4.5 million due primarily to increased railcar
rental income in the 2000 period resulting from the Company's qualification for
participation in the Association of American Railroad interchange rules and
income collection procedures, and to increased container per diem revenue
generated by the additional containers received in the fourth quarter of 1999
and the first nine months of 2000 coupled with higher traffic volumes.
The 2000 acquisitions accounted for $19.6 million of the increase in the
Retail segment. The remaining $5.1 million of the increase in the Retail segment
increase was due to increased business in the trucking and intermodal marketing
operations partially offset by reduced warehousing activity. The Company is
currently in the process of increasing its warehousing and freight handling
capabilities in the Southern California market. The trucking and intermodal
marketing increases were due, in part, to a 3% to 5% fuel surcharge implemented
to defray fuel cost increases and to the Company's ability to attract and retain
a higher number of owner-operators in the 2000 period. In addition, inter-
segment activity increased by $3.2 million over the 1999 period.
Net Revenues. Net revenues increased $13.0 million, or 24.4%, for the 2000
period compared to the 1999 period. The Wholesale segment accounted for $6.9
million, or 53.1%, of the increase. The Wholesale segment's cost of purchased
transportation increased $19.0 million, or 14.5%, on container volume increases
of 11.9% and the fuel surcharge. The Wholesale segment gross margin increased to
22.7% in the 2000 period from 22.1% in the 1999 period due primarily to
increased in railcar rental income in the 2000 period combined with reduced
drayage costs associated with improved train blocking and loading procedures as
a result of the Intermodal Transportation Agreement with CSX Intermodal, Inc.
entered into effective January 1, 2000.
The 2000 acquisitions accounted for $3.7 million of the increase in the
Retail segment. The remaining $2.4 million of the increase in the Retail segment
was due to increased business in the trucking and intermodal marketing
operations. The Retail segment gross margin increased to 17.9% in the 2000
period from 16.3% in the 1999 period due to reduced costs associated with the
Intermodal Transportation Agreement with CSX Intermodal, Inc. entered into
effective January 1, 2000, and to changes in mix.
Direct Operating Expenses. Direct operating expenses, which are only
incurred by the Wholesale segment, increased $2.9 million, or 16.6%, in the 2000
period compared to the 1999 period due to increased equipment lease and
maintenance expenses of approximately $2.9 million as a result of the expansion
of the fleet of containers and chassis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $5.9 million, or 31.9%, in the 2000 period
compared to the 1999 period. The Wholesale segment accounted for $1.7 million,
or 28.8%, of the increase due primarily to higher information technology costs
now under contract with APL Limited as well as an increase in headcount since
the 1999 period associated with completing the organizational changeover from
APL Limited to Pacer since May 1999.
The 2000 acquisitions accounted for $2.2 million of the increase in the
Retail segment. The remaining $1.5 million of the increase in the Retail segment
(excluding corporate costs) was due primarily to increased costs associated with
developing a national sales organization and to costs associated with expanding
freight handling capabilities in Southern California. Corporate costs included
in the Retail segment accounted for $0.5 million of the increase and were due
primarily to increased professional fees and consulting.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.4 million, or 17.4%, for the 2000 period compared to the 1999
period. The 2000 acquisitions
15
<PAGE>
accounted for $0.2 million, or 50.0%, of the increase and the Retail segment
(excluding the 2000 acquisitions) accounted for the remaining $0.2 million of
the increase. Depreciation expense was $1.6 million and $1.5 million and
amortization expense was $1.1 million and $0.8 million for the 2000 period and
1999 period, respectively.
Income From Operations. Income from operations increased $3.8 million, or
25.3%, from $15.0 million in the 1999 period to $18.8 million in the 2000
period. The Wholesale segment accounted for $2.3 million, or 60.5%, of the
increase due primarily to the 11.9% increase in container volumes for the 2000
period and the related higher railcar rental income and container per diem
income. The 2000 acquisitions accounted for $1.3 million, or 34.2%, of the
increase, the Retail segment (excluding the 2000 acquisitions and corporate
costs) accounted for $0.7 million, or 18.4%, of the increase and corporate costs
included in the Retail segment accounted for a decrease of $0.5 million.
Interest Expense. Interest expense increased by $0.6 million for the 2000
period compared to the 1999 period due to the higher level of outstanding debt
in the 2000 period. The Company borrowed $10.0 million from the revolving credit
facility to fund the acquisition of GTS on August 31, 2000 and borrowed $15.0
million from the revolving credit facility and issued a $5.0 million 8%
subordinated note to Conex shareholders to fund the acquisition of Conex assets
on January 13, 2000. Amounts for the 1999 period were restated to reflect an
adjustment to the inter-segment interest calculation between the Wholesale and
Retail segments which favorably impacted the Wholesale segment and adversely
impacted the Retail segment but had no impact on consolidated results.
Income Tax Expense. Income tax expense increased by $1.4 million from $3.3
million in the 1999 period to $4.7 million in the 2000 period due to higher pre-
tax income in the 2000 period.
Net Income. Net income increased $1.9 million, or 46.3%, from $4.1 million
in the 1999 period to $6.0 million in the 2000 period. The Wholesale segment
accounted for $1.0 million of the increase due primarily to increased income
from operations. The Retail segment including the 2000 acquisitions and
corporate costs accounted for $0.8 million of the increase. In addition,
minority interest costs (accrued paid-in-kind dividends on the exchangeable
preferred stock of the Retail segment) decreased $0.1 million due to the 1999
partial redemption.
16
<PAGE>
Nine Months Ended September 22, 2000 Compared to Nine Months Ended September 17,
--------------------------------------------------------------------------------
1999
----
Certain amounts in the "% Change" column in the table below are not
comparable ("n/c") because the nine month 1999 amounts include only four months
of Retail segment data (since acquisition on May 28, 1999) and do not include
Conex data acquired January 13, 2000 nor GTS data acquired August 31, 2000.
Amounts for the Retail segment for the 2000 periods include the results of the
Conex assets and GTS since acquisition unless specified otherwise. See Note 2
to the Condensed Consolidated Financial Statements.
The following table sets forth historical financial data for the Company
comparing data for the nine months ended September 22, 2000 and September 17,
1999.
Financial Data Comparison by Reportable Segment
Nine Months Ended September 22, 2000 and September 17, 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999 Change % Change
------ ------ ------- --------
<S> <C> <C> <C> <C>
Gross revenues
Wholesale.................................................. $594.7 $ 499.7 $ 95.0 19.0%
Retail.................................................... 348.4 134.2 214.2 n/c
Inter-segment elimination................................. (26.6) (9.4) (17.2) n/c
------ ------- ------ -----
Total.................................................. 916.5 624.5 292.0 46.8
Cost of purchased transportation and services
Wholesale.................................................. 462.4 390.9 71.5 18.3
Retail.................................................... 282.9 112.5 170.4 n/c
Inter-segment elimination................................. (26.6) (9.4) (17.2) n/c
------ ------- ------ -----
Total.................................................. 718.7 494.0 224.7 45.5
Net revenues
Wholesale.................................................. 132.3 108.8 23.5 21.6
Retail.................................................... 65.5 21.7 43.8 n/c
------ ------- ------ -----
Total.................................................. 197.8 130.5 67.3 51.6
Direct operating expenses
Wholesale.................................................. 60.1 53.6 6.5 12.1
Retail.................................................... - - - -
------ ------- ------ -----
Total.................................................. 60.1 53.6 6.5 12.1
Selling, general & administrative expenses
Wholesale.................................................. 28.0 22.6 5.4 23.9
Retail.................................................... 45.1 14.5 30.6 n/c
------ ------- ------ -----
Total.................................................. 73.1 37.1 36.0 97.0
Depreciation and amortization
Wholesale.................................................. 4.0 4.5 (0.5) -11.1
Retail.................................................... 4.2 1.4 2.8 n/c
------ ------- ------ -----
Total.................................................. 8.2 5.9 2.3 39.0
Income from operations
Wholesale.................................................. 40.2 28.1 12.1 43.1
Retail.................................................... 16.2 5.8 10.4 n/c
------ ------- ------ -----
Total.................................................. 56.4 33.9 22.5 66.4
Interest (income) expense, net................................ 24.3 9.6 14.7 153.1
Income tax expense ........................................... 13.6 9.5 4.1 43.2
Minority interest............................................. 1.2 0.6 0.6 100.0
Net income.................................................... $ 17.3 $ 14.2 $ 3.1 21.8
</TABLE>
17
<PAGE>
Gross Revenues. Gross revenues increased $292.0 million, or 46.8%, for the
nine month period ended September 22, 2000 compared to the nine month period
ended September 17, 1999. Approximately $167.9 million, or 57.5%, of the
increase was due to the acquisition of the Retail segment (excluding the 2000
acquisitions) and $46.3 million, or 15.9%, of the increase was due to the 2000
acquisitions. The Wholesale segment increase of $95.0 million was due primarily
to an $81.8 million, or 17.4%, increase in freight revenues driven by an overall
container volume increase of 80,494 containers or 18.2%. This volume increase
was partially offset by a 0.7% reduction in the average freight revenue per
container resulting primarily from mix changes. Mitigating the revenue per
container reduction was a 3% fuel surcharge implemented on domestic traffic
during the second quarter of 2000 to defray rail fuel cost increases. The volume
increases were due to increased customer demand coupled with the addition of
1,500 53-foot containers during the fourth quarter of 1999 and 2,625 containers
during the first nine months of 2000. Automotive and international volumes
continued strong for the 2000 period exceeding the 1999 period by 44% and 45%,
respectively. Other Wholesale segment revenues increased approximately $13.2
million due primarily to increased railcar rental income in the 2000 period
resulting from the Company's qualification for participation in the Association
of American Railroad interchange rules and income collection procedures,
increased container per diem revenue generated by the additional containers
received in the fourth quarter of 1999 and the first nine months of 2000 coupled
with higher traffic volumes, and the management fees associated with the 1999
Wholesale Services Agreement with APL Limited effective May 28, 1999.
Net Revenues. Net revenues increased $67.3 million, or 51.6%, for the 2000
period compared to the 1999 period. The acquisition of the Retail segment
(excluding the 2000 acquisitions) accounted for $31.6 million, or 47.0%, of the
increase, the 2000 acquisitions accounted for $12.2 million, or 18.1%, of the
increase and the Wholesale segment accounted for the remaining $23.5 million of
the increase. Wholesale segment's cost of purchased transportation increased
$71.5 million, or 18.3%, on container volume increases of 18.2%. The Wholesale
segment gross margin increased to 22.2% in the 2000 period from 21.8% in the
1999 period due primarily to increased railcar rental income combined with
reduced drayage costs associated with improved train blocking and loading
procedures as a result of the Intermodal Transportation Agreement with CSX
Intermodal, Inc. entered into effective January 1, 2000. These gross margin
improvements were partially offset by the significant traffic increase in the
lower rated international business line.
Direct Operating Expenses. Direct operating expenses, which are only
incurred by the Wholesale segment, increased $6.5 million, or 12.1%, in the 2000
period compared to the 1999 period. The increase was due to increased equipment
lease and maintenance expenses of approximately $6.5 million as a result of the
expansion of the fleet of containers and chassis.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $36.0 million, or 97.0%, in the 2000 period
compared to the 1999 period. The Retail segment (excluding the 2000
acquisitions) accounted for $23.9 million, or 66.4%, of the increase, the 2000
acquisitions accounted for an additional $6.7 million, or 18.6%, of the increase
and the Wholesale segment accounted for $5.4 million, or 15.0%, of the increase.
The increase in Wholesale costs was due primarily to higher information
technology costs now under contract with APL Limited as well as increased
headcount since the 1999 period associated with completing the organizational
changeover from APL Limited to Pacer since May 1999.
Depreciation and amortization. Depreciation and amortization expenses
increased $2.3 million, or 39.0%, for the 2000 period compared to the 1999
period. The Retail segment including $0.7 million related to the 2000
acquisitions accounted for $2.8 million of the increase in this category. The
Wholesale segment decrease of $0.5 million was due primarily to reduced
depreciation expense associated with the sale and leaseback of 199 railcars on
May 28, 1999. Depreciation expense was $4.8 million and $4.5 million and
amortization expense was $3.4 million and $1.3 million for the 2000 period and
1999 period, respectively. The increase in amortization was due to the
amortization of goodwill associated with the acquisition of the Retail segment
on May 28, 1999 as well as the 2000 acquisitions.
18
<PAGE>
Income From Operations. Income from operations increased $22.5 million, or
66.4%, from $33.9 million in the 1999 period to $56.4 million in the 2000
period. The acquisition of the Retail segment (excluding the 2000 acquisitions)
accounted for $5.6 million of the increase, the 2000 acquisitions accounted for
$4.8 million of the increase and the Wholesale segment accounted for $12.1
million of the increase. The Wholesale segment increase was due primarily to the
18.2% increase in container volumes for the 2000 period and related higher
railcar rental income and container per diem income.
Interest Expense. Interest expense increased by $14.7 million for the 2000
period compared to the 1999 period due to the issuance of $150 million of senior
subordinated notes and borrowing $135 million under the term loan portion of the
credit facility on May 28, 1999 to fund the recapitalization of the Company and
the acquisition of the Retail segment. In addition, the Company borrowed $10.0
million from the revolving credit facility to fund the acquisition of GTS on
August 31, 2000 and borrowed $15.0 million from the revolving credit facility
and issued a $5.0 million 8% subordinated note to Conex shareholders to fund the
acquisition of Conex assets on January 13, 2000. Amounts for the 1999 period
were restated to reflect an adjustment to the inter-segment interest calculation
between the Wholesale and Retail segments which favorably impacted the Wholesale
segment and adversely impacted the Retail segment but had no impact on
consolidated results.
Income Tax Expense. Income tax expense increased by $4.1 million from $9.5
million in the 1999 period to $13.6 million in the 2000 period due to higher
pre-tax income in the 2000 period and higher applicable tax rates.
Net Income. Net income increased $3.1 million, or 21.8%, from $14.2 million
in the 1999 period to $17.3 million in the 2000 period. The Retail segment
including 2000 acquisitions accounted for $4.1 million of the increase and the
Wholesale segment accounted for a $0.4 million decrease in net income. The
Wholesale segment decrease was due primarily to increased interest expense
substantially offset by increased income from operations. Additionally, an
increase in minority interest costs (accrued paid-in-kind dividends on the
exchangeable preferred stock of the Retail segment) of $0.6 million partially
offset the net income increase.
Liquidity and Capital Resources
-------------------------------
Cash provided by operating activities for the nine months ended September
22, 2000 was $12.4 million compared to $17.6 million for the nine months ended
September 17, 1999. The decreased source of cash for the 2000 period was due
primarily to interest payments of $19.4 million during the first nine months of
2000 compared to $15.4 million for the same period in 1999 and increases in
shipper volume incentive payments associated with the increase in traffic volume
and revenue. Partially offsetting the decreased source of cash was the increased
income from operations from the Wholesale segment as well as from the
acquisition of the Retail segment and the 2000 acquisitions. In April, the
Company transferred the processing of APL Limited's international traffic
receivables and payables to APL Limited, which had previously been included in
the Company's balance sheet, resulting in a decrease in both accounts receivable
and accounts payable of approximately $33.0 million. The transfer to APL Limited
was facilitated by changes in computer software which were not previously
available. The Company continues to handle APL Limited's international traffic
under contract for a management fee. Cash generated from operating activities is
typically used for seasonal working capital purposes, to fund capital
expenditures and for acquisitions. The Company had a working capital deficit of
$4.8 million at September 22, 2000 compared to a deficit of $14.3 million at
September 17, 1999.
Cash flows used in investing activities were $44.9 million and $73.2
million for the 2000 period and 1999 period, respectively. On August 31, 2000,
the Company acquired the stock of GTS for $15.3 million in cash and on January
13, 2000, the Company acquired Conex assets for $26.4 million in cash and issued
common stock and a subordinated note as described below. The Company had capital
expenditures of $3.4 million during the 2000 period primarily for computer and
related equipment, office remodeling and expansion and leasehold improvements.
19
<PAGE>
The use of cash in the 1999 period was due to the acquisition of the Retail
segment on May 28, 1999 for $111.3 million partially offset by the net proceeds
of $39.6 million from the sale and leaseback of 199 railcars originally
purchased in 1998. The Company had capital expenditures of $1.5 million during
the 1999 period primarily for computer and related equipment and leasehold
improvements to office space and warehouse facilities.
On October 31, 2000, pursuant to a stock purchase agreement, the Company
acquired all of the stock of RFI Group, Inc., a Delaware corporation providing
international freight forwarding and freight transportation services. The
purchase price was $18.0 million less certain assumed indebtedness and is
subject to adjustment, if at all, pursuant to a working capital adjustment. The
acquisition was funded by borrowings under the Company's revolving credit
facility. Operating results of the acquisition will be included in the Company's
Retail segment.
Cash flows provided by financing activities were $20.3 million and $65.7
million for the 2000 period and 1999 period, respectively. The Company borrowed
$10.0 million from the revolving credit facility to purchase the stock of GTS.
In connection with the acquisition of Conex assets, the Company borrowed $15.0
million from the revolving credit facility, issued Conex shareholders an 8.0%
subordinated note in the aggregate principal amount of $5.0 million due 2003 and
issued Conex shareholders 300,000 shares or $6.0 million of Pacer International,
Inc. common stock. Management of the Company exercised options to purchase
337,373 shares of Pacer International, Inc. common stock for total proceeds of
$0.8 million during the period. The proceeds were used to repay notes payable to
management which were part of the purchase price for Pacer Logistics acquired on
May 28, 1999 and for general corporate purposes.
The Company repaid $15.0 million of the revolving credit facility, $0.7
million of the Company's $135 million term loan facility, $0.4 million of notes
payable to management and $0.1 million of capital lease obligations during the
first nine months of 2000. On September 22, 2000, the interest rates on the
revolving credit facility and term loan facility were 8.9% and 9.4%,
respectively. Interest on the 8.0% $5.0 million subordinated note is payable
semi-annually on each January 31 and July 31 beginning July 31, 2000.
On May 28, 1999, in connection with the recapitalization of the Company and
acquisition of the Retail segment, proceeds of $104.4 million were received from
the issuance of the Company's common stock. The Company also borrowed $135
million under a term loan facility and issued $150 million of senior
subordinated notes, borrowed $2 million under the $100 million revolving credit
facility expiring in 2004 and issued $24.3 million of exchangeable preferred
stock of the Retail segment. The Company paid $9.5 million of financing costs
associated with these borrowings which will be amortized over the life of the
debt. The $2 million borrowed under the revolving credit facility was repaid in
July 1999. These borrowings were partially offset by a distribution to APL
Limited of $300 million and to fees paid in connection with the recapitalization
of $10.2 million. In July 1999, the Company also redeemed $2 million of the
exchangeable preferred stock of its subsidiary, Pacer Logistics, Inc.
The revolving and term loan credit facilities are generally guaranteed by
all of the Company's existing and future direct and indirect wholly-owned
subsidiaries and are collateralized by liens on its properties and assets. At
September 22, 2000, the Company had $85.8 million available under the revolving
credit facility. These credit agreements contain certain restrictions and
financial covenants such as an adjusted total leverage ratio and a consolidated
interest coverage ratio. At September 22, 2000, the Company was in compliance
with these covenants.
The Company has received 2,625 of the 3,125 chassis and containers ordered
under operating leases during 1999. The remainder of the chassis and containers
are expected to be delivered prior to the end of the year. In addition,
effective September 1, 2000, the Company entered into an operating lease
agreement with GATX Third Aircraft Corporation to lease 200 new railcars that
are all anticipated for delivery in the fourth quarter of 2000. Additionally,
the Company has ordered 500 new railcars under an operating lease that is
currently being finalized, with delivery anticipated during the fourth quarter
2000 through the second quarter 2001.
20
<PAGE>
Based upon the current level of operations and anticipated growth in both
operating segments, management believes that operating cash flow and
availability under the revolving credit facility will be adequate to meet the
Company's liquidity needs for the next five years, although no assurance can be
given in this regard.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 to the Notes to Condensed Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the Company's first fiscal quarter, certain members of the Company's
senior management exercised options to purchase (i) an aggregate of 287,373
shares of the Company's common stock at an average purchase price of $1.22 per
share (ii) and 10,000 shares of the Company's common stock at a purchase price
of $10.00 per share. During the Company's third fiscal quarter, certain members
of the Company's senior management exercised options to purchase 40,000 shares
of the Company's common stock at a purchase price of $10.00 per share. These
shares of common stock were issued in reliance upon the exemption from
registration under Section 4(2) of the Securities Act of 1933 as transactions by
an issuer not involving any public offering. The purchasers represented their
intentions to acquire the shares for investment only and not with a view to
resale or distribution, and appropriate legends were affixed to the share of
certificates issued.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
10 Rail Car Lease Agreement dated as of September 1,
2000 by and between GATX Third Aircraft Corporation
and Pacer International, Inc.
27 Financial Data Schedule
(b) During the three months ended September 22, 2000, one report on Form
8-K was filed by the Company:
1. Current Report on Form 8-K filed September 14, 2000 reporting the
August 31, 2000 acquisition of GTS Transportation Services, Inc.
22
<PAGE>
SIGNATURE
---------
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.
PACER INTERNATIONAL, INC.
Date: November 3, 2000 By: /s/ L.C. Yarberry
---------------- -------------------
Vice President - Finance
(Principal Financial Officer)
23
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
----------- -----------------------------------------------------------
10 Rail Car Lease Agreement dated as of September 1, 2000 by
and between GATX Third Aircraft Corporation and Pacer
International, Inc.
27 Financial Data Schedule
24
