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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended: September 30, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the Transition period from ________ to________
Commission file number 0-8864
PACER TECHNOLOGY
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(Exact name of small business issuer as specified in its charter)
CALIFORNIA 77-0080305
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) Number)
9420 Santa Anita Avenue, Rancho Cucamonga, California 91730-6117
(Address of principal executive offices) (Zip Code)
(909) 987-0550
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal
year, if changed, since last year)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
YES XX NO .
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
16,515,025 shares of Common Stock at September 30, 2000
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACER TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
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(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 632 $ 451
Trade receivables, less allowance for doubtful
accounts of $314 and $304, respectively 11,953 8,947
Other receivables 501 973
Notes receivable 51 116
Inventories 11,114 11,991
Prepaid expenses 410 451
Deferred income taxes 1,379 1,379
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Total Current Assets 26,040 24,308
Equipment and Leasehold Improvements:
Cost 7,232 7,178
Accumulated depreciation & amortization (5,584) (5,454)
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Total Equipment & Leasehold Improvements 1,648 1,724
Deferred income taxes 16 16
Cost in excess of net assets acquired, net 3,462 3,546
Other assets 24 24
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TOTAL ASSETS $ 31,190 $ 29,618
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving bank line of credit $ 10,424 $ 10,312
Accounts payable 3,990 3,276
Accrued payroll and related expenses 450 359
Other accrued expenses 1,224 1,032
Current installments of long-term debt 1,075 1,062
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Total Current Liabilities 17,163 16,041
Long-term debt, excluding current installments 624 878
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TOTAL LIABILITIES 17,787 16,919
STOCKHOLDERS' EQUITY:
Common stock, no par value; Authorized: 50,000,000 shares;
issued and outstanding: 16,515,025 shares at September 30, 2000
and 16,620,975 shares at June 30, 2000 8,476 8,576
Retained earnings 5,071 4,202
Accumulated other comprehensive loss (144) (79)
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Total stockholders' equity 13,403 12,699
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 31,190 $ 29,618
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PACER TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three-Months Ended
September 30,
-----------------------
2000 1999
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<S> <C> <C>
Net sales $ 14,548 $ 14,252
Cost of sales 9,520 9,170
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Gross profit 5,028 5,082
Selling, general and administrative expense 3,349 3,052
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Operating income 1,679 2,030
Other (income) expense:
Interest expense, net 249 233
Other, net (10) (19)
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239 214
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Income before income taxes 1,440 1,816
Income tax expense 571 772
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Net income $ 869 $ 1,044
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Basic Earnings Per Share $ 0.05 $ 0.06
======== ========
Weighted Average Shares - Basic 16,586 16,806
======== ========
Diluted Earnings Per Share $ 0.05 $ 0.06
======== ========
Weighted Average Shares - Diluted 16,644 16,935
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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PACER TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three-Months Ended
September 30,
---------------------
2000 1999
------- -------
<S> <C> <C>
Net Income $ 869 $ 1,044
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 130 145
Amortization of other assets 84 70
Increase (decrease) in allowance for doubtful accounts 10 (301)
Increase in trade accounts receivable (3,016) (3,834)
Decrease in other receivables 407 28
Decrease in notes receivables 65 73
Decease (increase) in inventories 877 (93)
Decrease (increase) in prepaid expenses and other assets 41 (104)
Increase in accounts payable 714 788
Increase in accrued payroll and related expenses 91 19
Increase in other accrued expenses 192 1,216
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Net Cash Provided By (Used In) Operating Activities 464 (949)
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Cash Flows From Investing Activities:
Capital expenditures (54) (77)
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Net Cash Used In Investing Activities (54) (77)
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Cash Flows From Financing Activities:
Payments on line of credit (3,794) (3,747)
Payments on long-term debt (241) (229)
Borrowings on line of credit 3,906 4,861
Issuance (repurchase) of common stock (100) 35
Repayment of notes receivables from directors -- 37
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Net Cash Provided By (Used In) Financing Activities (229) 957
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Net increase (decrease) in cash 181 (69)
Cash at beginning of period 451 534
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CASH AT END OF PERIOD $ 632 $ 465
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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PACER TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements for the three-month periods ended
September 30, 2000 and September 30, 1999, have been prepared by the Company
without audit. In the opinion of management, adjustments necessary to present
fairly the consolidated financial position at September 30, 2000 and the results
of operations for the period then ended have been made. All such adjustments are
of a normal recurring nature.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual Report
to shareholders. The results of operations for the periods ended September 30,
2000 and September 30, 1999 are not necessarily indicative of the operating
results for the full year.
2. NOTES RECEIVABLE:
Some customers have converted trade receivable balances to term notes.
The notes are payable in monthly installments of principal and interest at a
rate higher than the rate of interest charged to Pacer for its borrowing of
funds from its predominant bank.
3. INVENTORIES:
Inventories consisted of the following at:
September 30, 2000 June 30, 2000
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(In thousands)
Raw materials $ 5,852 $ 6,620
Work-in-process 468 320
Finished goods 4,794 5,051
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Total inventories $11,114 $11,991
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4. LONG-TERM DEBT:
We have obtained a revolving bank line of credit that permits us to
borrow up to $18.0 million, primarily for working capital requirements.
Borrowings under this line of credit are secured by all of Pacer's assets and
bear interest at the bank's prime rate (9.5% at September 30, 2000) less 0.5%,
or at a LIBOR base rate, currently ranging from 6.75% to 6.875%, plus 1.625%,
per annum. At September 30, 2000, $10,424,000 of borrowings were outstanding and
$7,576,000 was available for additional borrowings under this line of credit.
The borrowings are payable in monthly interest only installments until the
maturity date of January 2, 2001.
We have obtained the following additional credit facilities from the
same bank:
(1) A Commercial Letter of Credit, Standby Letter of Credit, and
Banker's Acceptance sub-features, each not to exceed
$5,000,000. This credit facility expires on January 2, 2001.
As of September 30, 2000, outstanding letters of credit
obtained under this facility totaled $145,800.
(2) A $2.75 million term loan that bears interest at the bank's
prime rate (9.50% at September 30, 2000) less 0.5%, or at a
LIBOR base rate of 6.125% plus 1.625% per annum, is secured by
all of our assets and is payable in monthly installments of
principal, each in the amount of $76,000, plus interest and
which will mature on January 2, 2002. As of September 30,
2000, the outstanding principal balance of this term loan was
$1.3 million.
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(3) A term loan commitment of $750,000, which is available to fund
capital expenditures. Any borrowings that Pacer may make under
this commitment will bear interest at the bank's prime rate,
less 0.5%, per annum and will mature on January 2, 2001. At
September 30, 2000 there were no borrowings under this
commitment.
The agreements with the bank require Pacer to maintain certain
financial ratios and to comply with certain restrictive covenants. As of
September 30, 2000, Pacer was in compliance with all of these covenants with the
exception of an EBITDA covenant, which non-compliance was waived by the bank as
of September 30, 2000. Borrowings under these credit facilities are classified
as a current liability in Pacer's consolidated balance sheet because they mature
in less than one year. Pacer anticipates that it will be able to obtain a
renewal of these credit facilities or obtain replacement credit facilities by
their maturity date. However, the terms of those credit facilities may not be as
favorable to Pacer as the terms of the current credit facilities.
5. COMMITMENTS AND CONTINGENCIES:
We have entered into sales agreements with many of our customers that
contain pricing terms, including the amounts of promotional allowances and co-op
advertising, renewability clauses, and provisions that convey trademark rights.
Each of these agreements is unique and may include one or more of these features
as part of its terms.
6. COMPREHENSIVE INCOME:
On July 1, 1998, the Company adopted Financial Accounting Standard
Board's Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
"Reporting Comprehensive Income". SFAS No. 130 establishes standards for
reporting and presentation of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net income or loss
and foreign currency translation adjustments. The total comprehensive income for
the quarter ended September 30, 2000 was $804,000 compared to $1.1 million for
the same quarter in the prior fiscal year. The difference is the result of a
decrease in net income during the current year. The impact of changes in foreign
currency valuation was nominal and did not materially affect total comprehensive
income or loss.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The following table presents each of the line items from the Company's
statements of operations for the three-month periods ended September 30, 2000
and 1999 as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
---------------------
2000 1999
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<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 34.5% 35.7%
Selling, general and administrative expense 23.0% 21.5%
Operating income 11.5% 14.2%
Other expense, net 1.7% 1.5%
Income before income taxes 9.8% 12.7%
Net income 6.0% 7.3%
</TABLE>
Net sales. Net sales for the quarter ended September 30, 2000 increased
by 2.1% due to increased sales of the Company's Super Glue products primarily as
a result of the addition of new retail customers for those products.
Gross profit. Our gross margin was 34.5% in the quarter ended September
30, 2000, compared to 35.7% for the same period in the prior year. This decrease
was due primarily to a change in the mix of sales to a higher proportion of
retail sales, as compared to private label product sales on which we realize
somewhat higher margins. We believe that the change in the mix of sales
primarily reflects our success in obtaining new retail accounts for our
products, which largely offset the effects of the decrease in margins. It is our
objective to increase sales to a level that more than offsets the effect of such
a decrease on margins.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses for the quarter ended September 30, 2000 were
$3,300,000, or 23.0% of net sales, as compared to $3,100,000, or 21.5% of net
sales for the same quarter of the prior year. This increase was primarily due to
the cost of new marketing and promotional programs aimed at attracting new, and
increasing sales to existing, retail customers.
Operating income. Due to the decline in our gross profit margin and the
increase in SG&A expenses, operating income for the quarter ended September 30,
2000 was $1,700,000, or 11.5% of net sales, compared to $2,000,000, or 14.2% of
net sales, in the same quarter of the prior fiscal year.
Other expense, net. Other expense, which consists primarily of interest
expense, increased by approximately $25,000, due primarily to an increase in the
prime interest rate, which is a determinant of the interest we pay on our bank
borrowings.
LIQUIDITY AND CAPITAL RESOURCES:
Net cash generated by all activities during the first three-months of
fiscal year 2001 was $181,000, compared to cash used of $69,000 during the first
three-months of the prior year.
Cash provided by operations during the first quarter of fiscal year
2001 was $464,000, compared to cash used of $949,000 during the comparable
period in fiscal year 2000. Cash flow from operations improved during the
current year due to a decrease in inventories and other receivables, and due to
a smaller increase in trade accounts receivable compared to the prior year.
Cash used by investing activities during the first three-months of
fiscal year 2001 was $54,000 as compared to cash used of $77,000 during the
comparable period in fiscal year 2000. Cash flow from investing activities
improved during the current year due to lower capital expenditures in fiscal
2001 as compared to fiscal 2000.
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Cash used by our financing activities was $229,000 during the
first-three months of fiscal year 2001 as compared to cash provided of $957,000
during the same period in fiscal year 2000. The decrease in cash provided was
primarily due to reduced bank borrowings and repurchases of common shares by us.
Net borrowings on the revolving bank line of credit declined during the current
year as cash flow improved due to reductions in inventory levels and other
receivables as compared to the prior year.
We fund our working capital requirements primarily with a combination
of internally generated funds and borrowings under an $18 million revolving line
of credit from a bank. Borrowings under the credit line bear interest at the
bank's prime rate (9.5% at September 30, 2000), less 0.5%, or at the bank's
LIBOR base rate, plus 1.675%. We are required to make monthly interest-only
payments on the credit line until its maturity date of January 2, 2001.
Prepayments of the principal balance are permitted without penalty. Borrowings
under the credit line are secured by substantially all of our assets. At
September 30, 2000, outstanding borrowings under the revolving credit line
totaled $10,424,000 and were classified as current debt because of the January
2001 maturity date of this credit line.
In December 1999 the bank agreed to permit us to use a portion of the
borrowings under the credit line to repurchase shares of our common stock in the
open market in amounts not to exceed an aggregate of $100,000 per fiscal
quarter. During the quarter ended September 30, 2000, we used such borrowings to
fund a total of $100,000 of such stock repurchases.
We will be seeking a renewal of, or a new credit line to replace, our
existing line of credit, which will be maturing in January 2001. We believe that
we will be able to obtain such an extension or replacement credit line and that
available credit under the credit line, together with internally generated
funds, will be sufficient to enable us to meet our working capital and other
cash requirements over the next twelve months. However, the terms of that
extension or replacement credit line may be less favorable than the terms of our
existing credit line. We do not presently anticipate any material increases in
our cash requirements or material changes in our sources of funds in the
foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and hedging activities. SFAS
133, as amended by SFAS 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. Application of this accounting standard did
not have a material impact on our consolidated financial position, results of
operations or liquidity for the three months ended September 30, 2000.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION CONTAINED IN THIS
REPORT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information contained in this
Report include statements that are forward-looking, such as statements relating
to the Company's expectations regarding future financial condition and
performance and its future plans and activities. Such forward-looking
information involves important risks and uncertainties that could significantly
affect our financial condition or performance in the future and, accordingly,
our actual financial condition or performance may differ significantly from
those expressed in any forward-looking statements made in this Report. Those
risks and uncertainties are set forth in detail in Pacer's Annual Report on Form
10-K for its fiscal year ended June 30, 2000 filed with the Securities and
Exchange Commission on September 28, 2000 and include the following:
Dependence on Major Customers. Even though no single customer
represents more than 10% of our total sales volume, our customers include
several large national mass merchandisers and national and regional food and
drug store chains, the loss of business from one or more of which could result
in unexpected reductions in sales and earnings.
Uncertainties Relating to Restructuring Program and New
Marketing Initiatives. Although we believe that the restructuring and marketing
programs that we have recently implemented will result in improvements in our
operating results, there are a number of factors outside our control that could
prevent us from achieving improved results, including adverse changes in
prevailing economic conditions and increases in competition from other adhesive
and nail care product manufacturers and suppliers.
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Risks of Foreign Operations. Our operating results could
decline as a result of foreign currency fluctuations and changes in the value of
the U.S. Dollar in relation to foreign currencies in the countries in Europe,
Asia and Latin America where we sell our products and where we obtain some of
our raw materials.
Possible Delisting of our Shares from NASDAQ. Due to declines
in our stock price, our shares may be delisted from the NASDAQ Small Cap Market,
which could adversely affect the marketability and liquidity of our shares and
result in downward pressure on our share price.
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
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27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PACER TECHNOLOGY
Dated: November 13, 2000 By: /s/ TOM NIGHTINGALE III
-----------------------------------
Tom Nightingale III
President/Chief Executive Officer
Dated: November 13, 2000 By: /s/ LAURENCE HUFF
-----------------------------------
Laurence Huff
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Description
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27 Financial Data Schedule
