<PAGE>
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, 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 August 9, 2000
-------------------------------------- -----------------
Common stock, $.01 par value per share 11,037,373 shares
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
FISCAL QUARTER ENDED JUNE 30, 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...................................... 11
Part 2. Other Information
Item 1. Legal Proceedings.............................................. 19
Item 6. Exhibits and Reports on Form 8-K .............................. 19
Signatures.............................................................. 20
Exhibit Index........................................................... 21
</TABLE>
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------- ---------------------
(In millions)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.............................................. $ - $ 12.2
Accounts receivable, net of allowances of $4.3 million and $3.0
million, respectively............................................ 141.6 114.7
Accounts receivable from APL........................................... 3.0 39.6
Prepaid expenses and other............................................. 4.3 2.9
Deferred income taxes.................................................. 4.4 4.4
----------------- ---------------------
Total current assets.................................................. 153.3 173.8
----------------- ---------------------
Property and equipment
Property and equipment at cost......................................... 64.2 61.8
Accumulated depreciation............................................... (14.6) (11.4)
----------------- ---------------------
Property and equipment, net........................................... 49.6 50.4
----------------- ---------------------
Other assets
Goodwill, net.......................................................... 173.3 143.1
Deferred income taxes.................................................. 73.0 75.7
Other assets........................................................... 10.5 12.0
----------------- ---------------------
Total other assets.................................................... 256.8 230.8
----------------- ---------------------
Total assets............................................................. $ 459.7 $ 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............................... 147.1 176.0
----------------- ---------------------
Total current liabilities............................................. 148.5 177.5
----------------- ---------------------
Long-term liabilities
Long-term debt and capital leases...................................... 299.3 282.9
Other.................................................................. 1.7 2.9
----------------- ---------------------
Total long-term liabilities........................................... 301.0 285.8
----------------- ---------------------
Total liabilities........................................................ 449.5 463.3
----------------- ---------------------
Minority interest - exchangeable preferred stock......................... 24.2 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, 11,037,373 and 10,440,000 issued and
outstanding at June 30, 2000 and December 31,
1999, respectively.................................................. 0.1 0.1
Additional paid-in-capital............................................. 110.7 104.3
Retained earnings (accumulated deficit)................................ (124.8) (136.1)
----------------- ---------------------
Total stockholders' equity (deficit) ................................. (14.0) (31.7)
----------------- ---------------------
Total liabilities and equity............................................. $ 459.7 $ 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 Six Months Ended
------------------------------ ------------------------------
June 30, 2000 June 25, 1999 June 30, 2000 June 25, 1999
------------- ------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C>
Gross revenues...................................... $294.9 $195.1 $599.1 $358.7
Cost of purchased transportation and services....... 233.7 156.7 476.8 286.5
------------- ------------- ------------- -------------
Net revenues ..................................... 61.2 38.4 122.3 72.2
------------- ------------- ------------- -------------
Operating expenses:
Direct operating expenses......................... 14.4 14.5 30.5 31.0
Selling, general and administrative expenses...... 24.1 11.0 48.7 18.9
Depreciation and amortization..................... 2.6 1.8 5.5 3.6
------------- ------------- ------------- -------------
Total operating expenses ......................... 41.1 27.3 84.7 53.5
------------- ------------- ------------- -------------
Income from operations.............................. 20.1 11.1 37.6 18.7
------------- ------------- ------------- -------------
Interest expense (income), net...................... 7.5 2.4 16.5 2.4
------------- ------------- ------------- -------------
Income before income taxes and minority interest.... 12.6 8.7 21.1 16.3
------------- ------------- ------------- -------------
Income taxes or charge in lieu of income taxes...... 5.3 3.3 8.9 6.1
Minority interest................................... 0.4 0.1 0.9 0.1
------------- ------------- ------------- -------------
Net income.......................................... $ 6.9 $ 5.3 $ 11.3 $ 10.1
============= ============= ============= =============
</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
Six Months Ended June 30, 2000
(Unaudited)
(in millions)
<TABLE>
<CAPTION>
Common Stock
---------------- Additional Retained 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 ............. 0.3 - 0.4 - 0.4
Net Income ........................... - - - 11.3 11.3
------ ------ ---------- ----------------- --------------
June 30, 2000......................... 11.0 $0.1 $110.7 $(124.8) $(14.0)
====== ====== ========== ================= ==============
</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>
Six Months Ended
-----------------------------------------
June 30, 2000 June 25, 1999
------------- -------------
(in millions)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income ..................................................................... $ 11.3 $ 10.1
------------- -------------
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................................. 5.5 3.6
Deferred income taxes ..................................................... 2.7 0.4
Changes in current assets and liabilities:
Trade and other receivables ........................................... (17.4) (16.8)
Prepaid expenses and other current assets ............................. (1.3) (3.6)
Accounts payable and accrued liabilities .............................. (4.6) 9.8
Other.................................................................. 1.4 -
------------- -------------
Net cash provided by (used in) operating
activities ........................................................ (2.4) 3.5
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of business, net of cash acquired ..................................... (26.4) (111.3)
Capital expenditures ........................................................... (2.0) (0.1)
Proceeds from sales of property and equipment .................................. 0.1 39.6
------------- -------------
Net cash used in investing
activities ........................................................ (28.3) (71.8)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks drawn in excess of cash balances ........................................ 7.2 (2.0)
Proceeds of long-term debt, net of costs........................................ 15.0 277.5
Proceeds from issuance of common stock ......................................... 0.4 104.4
Distribution to APL and recap costs............................................. - (310.2)
Debt, revolver and capital lease obligation repayment .......................... (4.1) -
------------- -------------
Net cash provided by financing
activities ........................................................ 18.5 69.7
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS......................................... (12.2) 1.4
CASH AND CASH EQUIVALENTS - BEGINNING OF
PERIOD ................................................................ 12.2 -
------------- -------------
CASH AND CASH EQUIVALENTS - END OF
PERIOD ................................................................ $ - $ 1.4
============= =============
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 June 30, 2000 and for the
three and six months ended June 30, 2000 and June 25, 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 three and six month periods ended June 25, 1999
and amounts for the Statement of Cash Flows for the six month period ended June
25, 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 six months ended
June 30, 2000 include the accounts of the Company and its subsidiary, Pacer
Logistics, Inc., acquired May 28, 1999 and Conex assets (as defined below)
acquired January 13, 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 services (the "Stacktrain" segment) and providing logistic
services (the "Logistics" segment) in North America.
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. ACQUISITION OF CONEX ASSETS
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.
7
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Pro forma results of operations, giving effect to the Company's acquisition
of Conex assets (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>
Six Months Ended Six Months Ended
June 30, June 25,
2000 1999
---------------- ----------------
<S> <C> <C>
Gross revenues ...................................................... $599.1 $526.7
Income before extraordinary items ................................... $ 11.3 $ 8.5
Net income .......................................................... $ 11.3 $ 8.5
</TABLE>
NOTE 3. LONG-TERM DEBT
At June 30, 2000, the Company had $88.0 million available under the $100
million revolving credit facility expiring in 2004. At June 30, 2000, the
interest rate on the revolving credit facility was 8.9%.
The Company also made a scheduled term loan repayment of $0.3 million
during the second quarter of 2000.
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, 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.
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).
8
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
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 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. BMC has subsequently filed an
amended complaint and served discovery on the defendants. The Company and APL
Limited have not yet answered the amended complaint. The Company and APL Limited
are considering whether to file a further summary judgment motion based upon the
appellate court's ruling and expect to engage in further settlement discussions.
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., are 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 have entered into a Judge Pro Tempore Submission Agreement dated as
of October 9, 1998, pursuant to which the plaintiffs and defendants have 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 January
14, 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 Court found 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 tentatively ordered that restitution be paid for this omission, which in the
worst case is well below the agreed upon high of $1.75 million. Ultimately, an
appeal is likely to be filed by class counsel on the entire decision. On August
4, 2000 a hearing was re-convened before a three judge panel to determine how
much money, if any, is due to the driver class for restitution. A decision is
expected within two weeks. 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.
9
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 7. SEGMENT INFORMATION
The Company has two reportable segments, the Stacktrain segment and the
Logistics segment, which have separate management teams and offer different but
related products and services. 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 Logistics segment compliments the Stacktrain 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
Stacktrain segment.
The following table presents reportable segment information for the three
and six months ended June 30, 2000 and June 25, 1999 (in millions). The 1999
data for the Logistics segment in the tables below contain only one month of
data since acquisition on May 28, 1999.
<TABLE>
<CAPTION>
Stacktrain Logistics Other Consolidated
------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C>
3 Months ended June 30, 2000
Gross revenues ...................... $188.7 $114.4 $ (8.2) $294.9
Net revenues......................... 38.8 22.4 - 61.2
Income from operations .............. 14.0 6.1 - 20.1
Interest expense, net................ 4.5 3.0 - 7.5
Tax expense.......................... 4.0 1.3 - 5.3
Net income........................... 5.5 1.8 (0.4) 6.9
Depreciation and amortization ....... 1.5 1.1 - 2.6
Capital expenditures ................ 0.2 1.2 - 1.4
Total assets......................... 372.2 164.9 (77.4) 459.7
3 Months ended June 25, 1999
Gross revenues ...................... $163.3 $ 34.4 $ (2.6) $195.1
Net revenues......................... 32.9 5.5 - 38.8
Income from operations .............. 9.6 1.5 - 11.1
Interest expense, net................ 1.8 0.6 - 2.4
Tax expense.......................... 3.0 0.3 - 3.3
Net income........................... 5.0 0.4 (0.1) 5.3
Depreciation and amortization ....... 1.5 0.3 - 1.8
Capital expenditures ................ - 0.1 - 0.1
Total assets......................... 370.1 125.5 (63.3) 432.3
</TABLE>
10
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Stacktrain Logistics Other Consolidated
----------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
6 Months ended June 30, 2000
Gross revenues ...................... $391.8 $223.9 $(16.6) $599.1
Net revenues......................... 79.1 43.2 - 122.3
Income from operations .............. 26.7 10.9 - 37.6
Interest expense, net................ 12.5 4.0 - 16.5
Tax expense.......................... 6.0 2.9 - 8.9
Net income........................... 8.2 4.0 (0.9) 11.3
Depreciation and amortization ....... 3.3 2.2 - 5.5
Capital expenditures ................ 0.4 1.6 - 2.0
Total assets......................... 372.2 164.9 (77.4) 459.7
6 Months ended June 25, 1999
Gross revenues ...................... $326.9 $ 34.4 $ (2.6) $358.7
Net revenues......................... 66.7 5.5 - 72.2
Income from operations .............. 17.2 1.5 - 18.7
Interest expense, net................ 1.8 0.6 - 2.4
Tax expense.......................... 5.8 0.3 - 6.1
Net income........................... 9.8 0.4 (0.1) 10.1
Depreciation and amortization ....... 3.3 0.3 - 3.6
Capital expenditures ................ - 0.1 - 0.1
Total assets......................... 370.1 125.5 (63.3) 432.3
</TABLE>
Data in the "Other" column includes elimination of intercompany balances and
subsidiary investment.
For the six month period ended June 30, 2000, the Company had one customer
that contributed more than 10% of the Company's total gross revenues. Total
gross revenues of $79.1 million were generated by both reporting segments from
Union Pacific.
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.
11
<PAGE>
Results of Operations
---------------------
Certain amounts in the "% Change" column in the tables below are not
comparable ("n/c") because the 1999 amounts include only one month of Logistics
segment data (since acquisition on May 28, 1999) and do not include Conex data
acquired January 13, 2000. Amounts for the Logistics segment for the 2000
periods include the results of the Conex assets unless specified otherwise. See
Note 2.
Three Months Ended June 30, 2000 Compared to Three Months Ended June 25, 1999
-----------------------------------------------------------------------------
The following table sets forth historical financial data for the Company
comparing data for the three months ended June 30, 2000 and June 25, 1999.
Financial Data Comparison by Reportable Segment
Three Months Ended June 30, 2000 and June 25, 1999
(in millions)
<TABLE>
<CAPTION>
2000 1999 Change % Change
------ ------ ------ --------
<S> <C> <C> <C> <C>
Gross revenues
Stacktrain........................................ $188.7 $163.3 $25.4 15.6%
Logistics......................................... 114.4 34.4 80.0 n/c
Inter-segment elimination......................... (8.2) (2.6) (5.6) n/c
------ ------ ------ --------
Total............................................. 294.9 195.1 99.8 51.2
Cost of purchased transportation and services
Stacktrain........................................ 149.9 130.4 19.5 15.0
Logistics......................................... 92.0 28.9 63.1 n/c
Inter-segment elimination......................... (8.2) (2.6) (5.6) n/c
------ ------ ------ --------
Total............................................. 233.7 156.7 77.0 49.1
Net revenues
Stacktrain........................................ 38.8 32.9 5.9 17.9
Logistics......................................... 22.4 5.5 16.9 n/c
------ ------ ------ --------
Total............................................. 61.2 38.4 22.8 59.4
Direct operating expenses
Stacktrain........................................ 14.4 14.5 (0.1) -0.7
Logistics......................................... - - - -
------ ------ ------ --------
Total............................................. 14.4 14.5 (0.1) -0.7
Selling, general & administrative expenses
Stacktrain........................................ 8.9 7.3 1.6 21.9
Logistics......................................... 15.2 3.7 11.5 n/c
------ ------ ------ --------
Total............................................. 24.1 11.0 13.1 119.1
Depreciation and amortization
Stacktrain........................................ 1.5 1.5 - -
Logistics......................................... 1.1 0.3 0.8 n/c
------ ------ ------ --------
Total............................................. 2.6 1.8 0.8 44.4
Income from operations
Stacktrain........................................ 14.0 9.6 4.4 45.8
Logistics......................................... 6.1 1.5 4.6 n/c
------ ------ ------ --------
Total............................................. 20.1 11.1 9.0 81.1
Interest (income) expense, net....................... 7.5 2.4 5.1 n/c
Income tax expense .................................. 5.3 3.3 2.0 60.6
Minority interest.................................... 0.4 0.1 0.3 n/c
Net income........................................... $ 6.9 $ 5.3 $ 1.6 30.2
</TABLE>
12
<PAGE>
Gross Revenues. Gross revenues increased $99.8 million, or 51.2%, for the
three months ended June 30, 2000 compared to the three months ended June 25,
1999. Approximately $66.3 million, or 66.4%, of the increase was due to the
acquisition of the Logistics segment (excluding Conex assets) on May 28, 1999
and $13.7 million, or 13.7%, of the increase was due to the acquisition of Conex
assets on January 13, 2000. The Stacktrain segment increase of $25.4 million
was due primarily to a $24.0 million, or 15.3%, increase in freight revenues
driven by an overall container volume increase of 23,173 containers or 15.8%.
This volume increase was partially offset by a 0.4% 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 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 1,025
containers during the first six months of 2000. In addition, international
business increased due to both growth among existing customers as well as the
addition of a large new customer in the second quarter of 1999. Automotive
shipments continued strong for the quarter with seasonal plant shutdowns and re-
tooling not beginning until early in the third quarter. Other Stacktrain segment
revenues increased approximately $1.4 million due primarily to increased
container per diem revenue generated by the additional containers received in
the fourth quarter of 1999 and the first half of 2000 coupled with higher
traffic volumes, and management fees associated with the 1999 Stacktrain
Services Agreement with APL Limited effective May 28, 1999.
Net Revenues. Net revenues increased $22.8 million, or 59.4%, for the 2000
period compared to the 1999 period. The acquisition of the Logistics segment
(excluding Conex assets) accounted for $12.4 million, or 54.4%, of the increase,
the acquisition of Conex assets accounted for $4.5 million, or 19.7%, of the
increase and the Stacktrain segment accounted for the remaining $5.9 million of
the increase. Stacktrain cost of purchased transportation increased $19.5
million, or 15.0%, on container volume increases of 15.8%. The Stacktrain
segment gross margin increased to 20.6% in the 2000 period from 20.1% in the
1999 period due primarily to 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.
Direct Operating Expenses. Direct operating expenses, which are only
incurred by the Stacktrain segment, decreased $0.1 million, or 0.7%, in the 2000
period compared to the 1999 period. The decrease was due to a $2.1 million
increase in 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. Offsetting the
rental income was increased equipment lease and maintenance expenses of
approximately $2.0 million as a result of the expansion of the fleet of
containers and chassis reduced by lower rates under the new Equipment Services
Agreement with Transamerica Leasing, Inc. entered into January 1, 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $13.1 million, or 119.1%, in the 2000 period
compared to the 1999 period. The acquisition of the Logistics segment
(excluding Conex assets) accounted for $9.2 million, or 70.2%, of the increase,
the acquisition of Conex assets accounted for an additional $2.3 million, or
17.6%, of the increase and the Stacktrain segment accounted for $1.6 million, or
12.2%, of the increase. The increase in stacktrain costs was 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.
Depreciation and amortization. Depreciation and amortization expenses
increased $0.8 million, or 44.4%, for the 2000 period compared to the 1999
period. The acquisition of the Logistics segment including $0.3 million related
to the acquisition of Conex assets accounted for all of the increase in this
category. Depreciation expense was $1.6 million and $1.4 million and
amortization expense was $1.0 million and $0.4 million for the 2000 period and
1999 period, respectively. The increase in amortization was due to the
amortization of goodwill associated
13
<PAGE>
with the acquisition of the Logistics segment on May 28, 1999 as well as the
acquisition of Conex assets on January 13, 2000.
Income From Operations. Income from operations increased $9.0 million, or
81.1%, from $11.1 million in the 1999 period to $20.1 million in the 2000
period. The acquisition of the Logistics segment (excluding Conex assets)
accounted for $2.5 million of the increase, the acquisition of Conex assets
accounted for $2.1 million of the increase and the Stacktrain segment accounted
for $4.4 million of the increase. The Stacktrain segment increase was due
primarily to the 15.8% increase in container volumes for the 2000 period coupled
with higher railcar rental income resulting from the Company's qualification for
participation in the Association of American Railroad interchange rules and
income collection procedures.
Interest Expense. Interest expense increased by $5.1 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 Logistics segment. In addition, $15 million was borrowed
from the Company's revolving credit facility and a $5 million 8% subordinated
note was issued to Conex shareholders to fund the acquisition of Conex assets on
January 13, 2000.
Income Tax Expense. Income tax expense increased by $2.0 million from $3.3
million in the 1999 period to $5.3 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 $1.6 million, or 30.2%, from $5.3 million
in the 1999 period to $6.9 million in the 2000 period. The Logistics segment
including Conex assets accounted for $1.4 million of the increase and the
Stacktrain segment accounted for $0.5 million of the increase. These increases
were due to increased income from operations partially offset by increased
interest and tax expense. Additionally, an increase in minority interest costs
(accrued paid-in-kind dividends on the exchangeable preferred stock of the
Logistics segment) of $0.3 million partially offset the net income increase.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 25, 1999
-------------------------------------------------------------------------
The following table sets forth historical financial data for the Company
comparing data for the six months ended June 30, 2000 and June 25, 1999.
14
<PAGE>
Financial Data Comparison by Reportable Segment
Six Months Ended June 30, 2000 and June 25, 1999
(in millions)
<TABLE>
2000 1999 Change % Change
------ ------ ------ --------
<S> <C> <C> <C> <C>
Gross revenues
Stacktrain............................................ $391.8 $326.9 $ 64.9 19.9%
Logistics............................................. 223.9 34.4 189.5 n/c
Inter-segment elimination............................. (16.6) (2.6) (14.0) n/c
------ ------ ------ --------
Total................................................. 599.1 358.7 240.4 67.0
Cost of purchased transportation and services
Stacktrain............................................ 312.7 260.2 52.5 20.2
Logistics............................................. 180.7 28.9 151.8 n/c
Inter-segment elimination............................. (16.6) (2.6) (14.0) n/c
------ ------ ------ --------
Total................................................. 476.8 286.5 190.3 66.4
Net revenues
Stacktrain............................................ 79.1 66.7 12.4 18.6
Logistics............................................. 43.2 5.5 37.7 n/c
------ ------ ------ --------
Total................................................. 122.3 72.2 50.1 69.4
Direct operating expenses
Stacktrain............................................ 30.5 31.0 (0.5) -1.6
Logistics............................................. - - - -
------ ------ ------ --------
Total................................................. 30.5 31.0 (0.5) -1.6
Selling, general & administrative expenses
Stacktrain............................................ 18.6 15.2 3.4 22.4
Logistics............................................. 30.1 3.7 26.4 n/c
------ ------ ------ --------
Total................................................. 48.7 18.9 29.8 157.7
Depreciation and amortization
Stacktrain............................................ 3.3 3.3 - -
Logistics............................................. 2.2 0.3 1.9 n/c
------ ------ ------ --------
Total................................................. 5.5 3.6 1.9 52.8
Income from operations
Stacktrain............................................ 26.7 17.2 9.5 55.2
Logistics............................................. 10.9 1.5 9.4 n/c
------ ------ ------ --------
Total................................................. 37.6 18.7 18.9 101.1
Interest (income) expense, net........................... 16.5 2.4 14.1 n/c
Income tax expense ...................................... 8.9 6.1 2.8 45.9
Minority interest........................................ 0.9 0.1 0.8 n/c
Net income............................................... $ 11.3 $ 10.1 $ 1.2 11.9
</TABLE>
Gross Revenues. Gross revenues increased $240.4 million, or 67.0%, for the
six month period ended June 30, 2000 compared to the six month period ended June
25, 1999. Approximately $162.8 million, or 67.7%, of the increase was due to
the acquisition of the Logistics segment (excluding Conex assets) on May 28,
1999 and $26.7 million, or 11.1%, of the increase was due to the acquisition of
Conex assets on January 13, 2000. The Stacktrain segment increase of $64.9
million was due primarily to a $60.4 million, or 19.3%, increase in freight
revenues driven by an overall container volume increase of 62,683 containers or
21.4%. This volume increase was partially offset by a 1.1% 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 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 1,025 containers during
15
<PAGE>
the first six months of 2000. In addition, international business increased due
to both growth among existing customers as well as the addition of a large new
customer in the second quarter of 1999. Automotive shipments continued strong
for the 2000 period with seasonal plant shutdowns and re-tooling not beginning
until early in the third quarter. Other Stacktrain segment revenues increased
approximately $4.5 million due primarily to increased container per diem revenue
generated by the additional containers received in the fourth quarter of 1999
and the first half of 2000 coupled with higher traffic volumes, and the
management fees associated with the 1999 Stacktrain Services Agreement with APL
Limited effective May 28, 1999.
Net Revenues. Net revenues increased $50.1 million, or 69.4%, for the 2000
period compared to the 1999 period. The acquisition of the Logistics segment
(excluding Conex assets) accounted for $29.2 million, or 58.3%, of the increase,
the acquisition of Conex assets accounted for $8.5 million, or 17.0%, of the
increase and the Stacktrain segment accounted for the remaining $12.4 million of
the increase. Stacktrain cost of purchased transportation increased $52.5
million, or 20.2%, on container volume increases of 21.4%. The stacktrain
segment gross margin declined to 20.2% in the 2000 period from 20.4% in the 1999
period due primarily to the significant traffic increase in the lower rated
international business line partially offset by 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.
Direct Operating Expenses. Direct operating expenses, which are only
incurred by the Stacktrain segment, decreased $0.5 million, or 1.6%, in the 2000
period compared to the 1999 period. The decrease was due to a $4.0 million
increase in 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. Partially
offsetting the rental income were increased equipment lease and maintenance
expenses of approximately $3.5 million as a result of the expansion of the fleet
of containers and chassis reduced by lower rates under the new Equipment
Services Agreement with Transamerica Leasing, Inc. entered into January 1, 2000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $29.8 million, or 157.7%, in the 2000 period
compared to the 1999 period. The acquisition of the Logistics segment
(excluding Conex assets) accounted for $21.9 million, or 73.5%, of the increase,
the acquisition of Conex assets accounted for an additional $4.5 million, or
15.1%, of the increase and the Stacktrain segment accounted for $3.4 million, or
11.4%, of the increase. The increase in stacktrain 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 $1.9 million, or 52.8%, for the 2000 period compared to the 1999
period. The acquisition of the Logistics segment including $0.5 million related
to the acquisition of Conex assets accounted for all of the increase in this
category. Depreciation expense was $3.3 million and $3.1 million and
amortization expense was $2.2 million and $0.5 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 Logistics
segment on May 28, 1999 as well as the acquisition of Conex assets on January
13, 2000.
Income From Operations. Income from operations increased $18.9 million, or
101.1%, from $18.7 million in the 1999 period to $37.6 million in the 2000
period. The acquisition of the Logistics segment (excluding Conex assets)
accounted for $5.5 million of the increase, the acquisition of Conex assets
accounted for $3.9 million of the increase and the Stacktrain segment accounted
for $9.5 million of the increase. The Stacktrain segment increase was due
primarily to the 21.4% increase in container volumes for the 2000 period coupled
with higher railcar rental income resulting from the Company's qualification for
participation in the Association of American Railroad interchange rules and
income collection procedures.
16
<PAGE>
Interest Expense. Interest expense increased by $14.1 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 Logistics segment. In addition, $15 million was borrowed
from the Company's revolving credit facility and a $5 million 8% subordinated
note was issued to Conex shareholders to fund the acquisition of Conex assets on
January 13, 2000.
Income Tax Expense. Income tax expense increased by $2.8 million from $6.1
million in the 1999 period to $8.9 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 $1.2 million, or 11.9%, from $10.1
million in the 1999 period to $11.3 million in the 2000 period. The Logistics
segment including Conex assets accounted for a $3.6 million increase and the
Stacktrain segment accounted for a $1.6 million decrease due primarily to
increased interest expense compared to 1999. Additionally, an increase in
minority interest costs (accrued paid-in-kind dividends on the exchangeable
preferred stock of the Logistics segment) of $0.8 million partially offset the
net income increase.
Liquidity and Capital Resources
-------------------------------
Cash (used in) provided by operating activities for the six months ended
June 30, 2000 was $(2.4) million compared to $3.5 million for the six months
ended June 25, 1999. The increased use of cash for the 2000 period was due
primarily to interest payments of $15.9 million during the first half of 2000
and increases in accounts receivable and shipper volume incentive payments
associated with the increase in traffic volume and revenue. Partially offsetting
the increased use of cash was the increased income from operations from the
Stacktrain segment as well as from the acquisition of the Logistics segment and
Conex assets. 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 working capital of $4.8 million at June 30, 2000 compared to a
deficit of $17.6 million at June 25, 1999. The increase is due primarily to
higher accounts receivable associated with the increase in traffic volume and
revenue and the acquisition of Conex assets on January 13, 2000.
Cash flows used in investing activities were $28.3 million and $71.8
million for the 2000 period and 1999 period, respectively. 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 $2.0 million during the 2000 period primarily for computer and
related equipment, office remodeling and expansion and leasehold improvements.
The use of cash in the 1999 period was due to the acquisition of the Logistics
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.
Cash flows provided by financing activities were $18.5 million and $69.7
million for the 2000 period and 1999 period, respectively. 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 297,373 shares of
Pacer International, Inc. common stock for total proceeds of $0.4 million during
the period. The
17
<PAGE>
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.
On May 28, 1999, in connection with the recapitalization of the Company and
acquisition of the Logistics 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 Logistics segment. The Company paid $9.5 million of financing
costs associated with these borrowings which will be amortized over the life of
the debt. 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.
The Company repaid $3.0 million of the revolving credit facility, $0.6
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 six months of 2000. On June 30, 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.
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
June 30, 2000, the Company had $88.0 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 June 30, 2000, the Company was in compliance with
these covenants.
The Company has received 1,025 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, the
Company is in negotiations to lease 500 new railcars with 80 railcars
anticipated for delivery this year and the remainder in 2001.
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.
18
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 6 to the Notes to Condensed Consolidated Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
27 Financial Data Schedule
(b) During the three months ended June 30, 2000, no reports on Form 8-K
were filed by the Company.
19
<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: August 9, 2000 By: /s/ L.C. Yarberry
--------------- -------------------
Vice President - Finance
(Principal Financial Officer)
20
<PAGE>
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No. Description
----------- ------------------------------------
27 Financial Data Schedule
21
