<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission file number 0-11404
PACIFIC INTERNATIONAL SERVICES CORP.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2877371
(State or other jurisdiction of (I.R.S. employer identification no.)
incorporation or organization)
2841 N. Nimitz Hwy, Honolulu, Hawaii 96819
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (808)836-0515
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock No par value
Debentures 10% Convertible Subordinated due 2007
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the Company's common stock, no par value, held by
non-affiliates of the registrant (based upon the closing price of the common
stock on NASDAQ) on March 19, 1996 was approximately $410,273.
As of March 29,1996 there were 13,234,599 shares of common stock, no par value,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
Pacific International Services Corp., a California corporation
(the "Company") was incorporated in Hawaii on April 8, 1974, as Olson Car
Rental Corp. and changed its name to Pacific International Services Corp. on
August 2, 1983. In November 1983, the Company changed its domicile and state
of incorporation to California. The Company's common stock subsequently was
sold to the public pursuant to the terms of a unit offering. On June 2, 1987
the Company's common stock began trading on the NASDAQ National Market under
the symbol "PISC."
The Company's executive office is located at 2841 N. Nimitz
Highway Honolulu, Hawaii 96819. Its telephone number is (808) 836-0515.
The Company currently operates a single line of business
consisting of two automobile dealerships (see Financial Statements and
accompanying notes). These operations are currently carried out through a
wholly-owned subsidiary, South Seas Motors, Inc. (formerly Cutter Jeep Renault,
Inc.), a Hawaii corporation incorporated in 1985 and acquired by the Company in
October 1987.
DISCONTINUED OPERATIONS
During 1995 and in previous years, the Company also did
business as Dollar Rent A Car under an exclusive license for the State of
Hawaii with Dollar Systems, Inc. ("Dollar"). On December 21, 1995, having
obtained the approval of shareholders on December 15, 1995, the Company sold
substantially all of the assets relating to or used in the operation of the
Company's vehicle rental and related operations to Dollar under the terms and
conditions of a settlement agreement dated as of July 18, 1995, as amended.
The purchase price for the assets of the Division consisted of (i) $2,489,500
in cash and (ii) the assumption by Dollar of certain liabilities relating to
the Division. The aggregate purchase consideration of cash and assumed
liabilities was approximately $19.2 million. Dollar also received 10% of the
Common Stock of the Company on a fully-diluted basis and a 10% promissory note
in the amount of $778,500 in connection with the transaction. All
representations and warranties made by the Company to Dollar in connection with
the transaction are secured by the stock of South Seas Motors, Inc. for one
year from the transaction date.
The net cash proceeds from the sale were used to retire
approximately $4,979,000 of the outstanding principal balance of the Company's
$5,250,000 10% Convertible Subordinated Debentures Due 2007 (the
"Debentures")(at a rate of $.50 per $1.00 in face amount of tendered
Debentures). In addition, the tendering Debenture holders received 0.769505
shares of Common Stock per $1.00 in face amount of Debentures tendered.
The Company issued approximately 3,831,337 shares (approximately 30%) of the
Common Stock of the Company on a fully-diluted basis pursuant to this exchange.
2
<PAGE> 3
AUTOMOBILE DEALERSHIPS
On October 30, 1987, the Company acquired Cutter Jeep Renault,
Inc., a Jeep Eagle dealership in Hawaii, whereupon the Company combined the
operations of South Seas Motors, a subsidiary of the Company formed in 1985,
and Cutter Jeep Renault into a full-service car and truck dealership subsidiary.
The subsidiary's name was subsequently changed from Cutter Jeep Renault, Inc. to
South Seas Motors, Inc. ("South Seas"). South Seas currently operates
dealerships in two locations on the island of Oahu, South Seas Jeep Eagle and
Oahu Chrysler Jeep.
The Company operates under Dealership Agreements with Chrysler
Corporation ("Chrysler") and Hyundai Motors of America ("Hyundai"). The Hyundai
Agreement extends for two years and expires in July 1996. The Company believes
that it will be able to renew this Agreement since it is currently ranked one of
the top ten dealerships within its geographic zone. The Chrysler Agreement has
no expiration date but may be terminated under certain conditions such as
failure to meet certain financial requirements and customer satisfaction
indexes. The Company believes that it is currently in good standing with
Chrysler. The Company believes that if one or both of these Agreements were
terminated, the net result would have a negative effect on the operation of the
Company.
South Seas Jeep Eagle is located at the corner of Nimitz
Highway and Lagoon Drive near Honolulu International Airport. This dealership
offers new Jeep, Eagle, and Hyundai vehicles. Oahu Chrysler Jeep began
business in 1992 in the Waipahu Industrial Park. This dealership sells new
Chrysler, Plymouth, Jeep and Eagle vehicles. Both locations sell used cars and
have full service facilities.
Through these two dealerships, South Seas maintains a diverse
inventory of new and used cars and trucks. During 1995, the combined
dealerships had retail sales of approximately 84 new vehicles and 159 used
vehicles per month, as compared to 1994 when an average of 81 new and 130 used
vehicles were sold per month.
South Seas formerly did business, beginning in September 1992,
in Kaneohe on the island of Oahu; South Seas closed these operations near the
end of 1993 when the Company was unable to acquire a new car franchise and
determined a used car dealership could not be operated profitably at this
location. As a result of the closure, the Company incurred an abandonment loss
of $137,000. The Company has subleased the sales facility at this location and
is attempting to sublease the service facility. As of December 31, 1995, the
Company had a reserve of $100,000 to cover estimated losses, if any, related to
the ultimate disposition of the lease at this location.
The City and County of Honolulu, Motor Vehicle Division,
reports that during 1995 and 1994 approximately 800,000 passenger motor
vehicles were registered in the State of Hawaii, of which approximately 55% were
registered on the island of Oahu. According to the Hawaii Automobile Dealers'
Association, new car and truck sales were 73,000, 83,000 and 79,000 for 1995,
1994, and 1993, respectively. 42,000, 43,000 and 46,000 new cars and trucks
were sold on the island of Oahu in 1995, 1994 and 1993, respectively.
3
<PAGE> 4
INSURANCE
The Company maintains insurance in amounts consistent with
industry standards.
COMPETITION
The Company's vehicle sales operations compete with other new
and used car dealerships on the island of Oahu. The Company competes with two
other Jeep Eagle dealerships, two other Chrysler Plymouth dealerships and many
other new car dealerships that sell vehicles manufactured by other domestic and
foreign manufacturers. Certain dealers have greater resources than the
Company, hold multiple dealerships and are, therefore, able to devote more
advertising dollars to their dealership operations.
EMPLOYEES
As of December 31, 1995, the Company had approximately 110
full and part time employees. The Company has no collective bargaining
obligations or agreements, and management considers relations to be good.
GOVERNMENT REGULATION
The vehicle sales industry in Hawaii is subject to government
regulations generally applicable to businesses and vehicle owners in the State,
including licensing, safety checking and disclosures, and environmental
regulations. The Company believes that it is in compliance with all such
applicable laws.
ITEM 2. PROPERTIES
The Company leases a 62,000 square foot property at the corner
of Nimitz Highway and Lagoon Drive near the Honolulu International Airport for
its South Seas Jeep Eagle automobile dealership. This lease expires in
December 2002. During 1993 the Company subleased an 8,400 square foot property
across the street from its dealership location in order to expand its service
facility for this dealership. The sublease also expires in December 2002. In
addition, the Company has leased a warehouse facility across the street from
the dealership for new car storage. The lease for this facility runs on a month
to month basis.
The Company leases approximately 55,000 square feet of
property in the Waipahu Industrial Park for its Oahu Chrysler Jeep dealership.
This lease expires in March 2021. During 1992, the Company remodeled the
building located at this site and moved its Waipahu operations to the remodeled
building. The Company also leases a facility (approximately 10,000 square
feet) in Waipahu that it utilizes for new car storage. The term of this lease
extends until 1999, and the Company has an option to renew the lease or buy the
property upon termination of the existing lease. The former storage facility
of the Company's Waipahu operations remains subject to a lease that extends
until 1997. The Company currently is subleasing this site to a third party.
4
<PAGE> 5
The Company leased approximately 28,300 and 8,500 square feet
of property in Kaneohe for the South Seas Kaneohe dealership operations that
closed in late 1993. The leases for these properties expire in October 2003
and August 1998, respectively. In February 1994 the Company sublet the sales
facility (28,300 square feet) at this location and is presently subleasing
3,000 square feet of the remaining property. The Company is actively seeking a
subtenant for the remaining 5,500 square feet. The Company has provided for
anticipated losses on this lease.
ITEM 3. LEGAL PROCEEDINGS
In 1994, a former employee of South Seas filed a claim against
the Company seeking damages allegedly sustained as a result of discrimination
based upon her age and gender. The case was tried and resulted in a jury
verdict in favor of the employee of approximately $1.8 million, which is
comprised of $150,000 in past wages, $800,000 in future lost income, $325,000 in
general damages and $500,000 in punitive damages.
The claim was insured through the Company's insurance policy
up to a limit of $500,000. The Company's insurance carrier hired counsel to
defend the Company in the initial trial and has authorized an appeal from
judgment and secured appellate counsel to assist in this regard. The Company's
insurance carrier has informed the Company that it intends to post a bond in
the amount determined by the court in order to appeal the verdict. Post-trial
motions are expected to be filed, including a motion for a new trial. In
addition, the insurance carrier is making an effort to settle the case. At
December 31, 1995, the Company recorded a receivable and corresponding
liability of $500,000 representing the policy limit.
Management is unable to make a meaningful estimate of the
amount of loss that could result from an unfavorable outcome of this case. It
is possible that the Company's results of operations and cash flows would be
materially affected by an ultimate unfavorable outcome. However, based on
discussions with legal counsel and the insurance carrier's representations,
management believes that the Company's exposure for damages in excess of the
policy limits are minimal. Accordingly, the Company has not provided a reserve
in excess of the $500,000 policy limit.
The Company is not a party to any other litigation that it
believes would have a material adverse impact on its operations.
ITEM 4. OTHER EVENTS
At a special meeting of shareholders held on December 15, 1995,
the shareholders of the Company approved the sale of substantially all of the
Company's assets and liabilities relating to its vehicle rental division. No
other business was conducted at the meeting. For a more comprehensive
discussion of the transaction that was approved by the share holders, see
Item 1 "Business -- Discontinued Operations," Item 7 "Significant Transactions"
and Note 2 to the Consolidated Financial Statements.
5
<PAGE> 6
PART II
ITEM 5. MARKET FOR THE COMPANY'S SECURITIES AND RELATED
SHAREHOLDER MATTERS
On October 5, 1995 the Company was notified by NASDAQ that it
was considering whether to continue to list the Company's stock on its National
Market exchange due to the Company's failure to satisfy minimum trading value
and certain capital requirements of NASDAQ. The Company was advised on October
12, 1995 that NASDAQ would grant an exception to these requirements subject to
certain conditions, including that the Company obtain the approval of its
shareholders for the sale of its rental vehicle operations by November 15,
1995. The Company was subsequently notified by NASDAQ on November 8, 1995 that
the deadline would be extended to November 30, 1995. The Company was notified
on December 8, 1995 that, due to failure to obtain shareholder approval prior
to the extended deadline, it would be delisted from NASDAQ effective as of that
date.
The following sets forth, for the fiscal quarter indicated,
the high and low closing sales prices per share of the Company's Common Stock.
The prices per share reflect the inter-dealer prices, without retail mark-up,
mark-down or commission and do not necessarily represent actual transactions:
<TABLE>
<CAPTION>
1995 High Low
---- ----
<S> <C> <C>
1st Quarter 7/8 13/32
2nd Quarter 9/16 5/16
3rd Quarter 7/16 1/8
4th Quarter 1/10 1/50
</TABLE>
<TABLE>
<CAPTION>
1994 High Low
---- ----
<S> <C> <C>
1st Quarter 13/16 7/16
2nd Quarter 15/16 1/2
3rd Quarter 3/4 7/16
4th Quarter 3/4 3/8
</TABLE>
As of March 19, 1996, the Company had approximately 1,159
holders of record of its Common Stock.
6
<PAGE> 7
DIVIDENDS
The Company has never declared or paid a cash dividend on its
Common Stock and is currently prohibited from paying any dividends by covenants
contained in certain loan agreements to which the Company is a party. The
Board of Directors does not anticipate paying any cash dividends in the
foreseeable future. Subject to restrictions under its credit arrangements, the
Company's future dividend policy will depend on a number of factors, including
future earnings, capital requirements, the financial condition, the prospects
of the Company and such other factors as the Board of Directors deems relevant.
7
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data relating to the Company for the periods
set forth below have been derived from the consolidated financial statements of
the Company. Such data for the years ended December 31, 1995, 1994 and 1993
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and notes thereto appearing elsewhere herein.
(In thousands except per share amounts, ratios and other data)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues
Vehicle sales $ 40,598 $ 34,575 $ 40,557 $ 28,414 $ 21,020
Parts and services 3,787 3,908 2,712 2,001 1,158
Finance and insurance income 609 1,215 719 1,105 994
--------- --------- --------- ---------- ----------
Total revenues 44,994 39,698 43,988 31,520 23,172
Cost of sales
Vehicle sales 31,980 27,363 31,135 22,793 16,816
Parts and services 2,694 2,382 1,569 1,138 648
--------- --------- --------- ---------- ----------
Total cost of sales 34,674 29,745 32,704 23,931 17,464
Gross profit on sales 10,320 9,953 11,284 7,589 5,708
Selling, general and administrative
expenses 11,165 9,886 10,814 7,067 6,372
--------- --------- --------- ---------- ----------
Operating income (loss) (845) 67 470 522 (664)
Other income (expense)
Interest expense (122) (74) (158) (37) (30)
Interest income 1 3 2 2
Other income (expense), net (100) (146) (109) (234)
--------- --------- --------- ---------- ----------
Income (loss) before income taxes (1,066) (4) 168 378 (928)
Provision for income taxes -- -- -- -- --
--------- --------- --------- ---------- ----------
Income (loss) from continuing operations
before extraordinary item and discontinued
operations (1,066) (4) 168 378 (928)
Discontinued operations
Loss from operations of discontinued
vehicle rental division (6,471) (1,423) (972) (2,483) (1,176)
Gain on disposal of vehicle rental
division 5,524 -- -- -- --
--------- --------- --------- ---------- ----------
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C> <C> <C> <C>
Loss before extraordinary item (2,013) (1,427) (804) (2,105) (2,104)
Gain on debenture exchange 2,408 -- -- -- 5,614
------- ------ ------- -------- --------
Net income (loss) $ 395 $(1,427) $ (804) $ (2,105) $ 3,510
======= ======= ======= ======== ========
Earnings (loss) per common and
common equivalent share
Continuing operations $ (0.13) $ -- $ 0.02 $ 0.04 $ (0.12)
Discontinued operations (0.11) (0.18) (0.11) (0.27) (0.16)
Extraordinary gain (1) 0.29 -- -- -- 0.74
------- ------- ------- -------- --------
Net income (loss) $ 0.05 $(0.18) $ (0.09) $ (0.23) $ 0.46
======= ======= ======= ======== ========
Weighted average number of
common shares outstanding 8,235 8,080 9,009 9,009 7,551
======= ======= ======= ======== ========
BALANCE SHEET DATA
Total assets $16,748 $69,272 $71,892 $110,802 $104,300
Notes payable and long-term debt 11,374 48,034 49,563 90,127 86,547
Convertible subordinated debentures 271 5,250 5,250 5,250 5,250
Shareholders' equity 2,589 2,091 3,518 4,323 6,427
OTHER DATA
Vehicles operated at period end (2) 5,228 6,623 7,002 7,165
Rental vehicles sold during period 4,493 5,275 7,529 6,648 6,116
</TABLE>
(1) Includes a gain of $4,221,000 or $0.56 per share, net of income taxes,
resulting from a debenture exchange and a credit of $1,393,000 or $0.18 per
share resulting from the utilization of net operating loss carryforwards
during 1991.
(2) Excluding vehicles held for sale by automobile dealerships.
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE YEARS ENDED DECEMBER 31, 1995
CONSOLIDATED RESULTS
The Company reported a consolidated net profit of $395,000 or
$.05 per share for the year ended December 31, 1995, as compared with a
consolidated net loss of $1,428,000 or $.18 per share in 1994 and a net loss of
$804,000 or $.09 per share in 1993. The 1995 results reflect a gain of
$5,524,000 on the sale of the rental car division and an extraordinary gain of
$2,408,000 upon the exchange of the Company's subordinated debentures. The net
losses in 1994 and 1993 are due primarily to the losses suffered by the
discontinued rental car division during those years.
During 1993 the Company absorbed a $574,000 loss from its
Kaneohe vehicle dealership. This loss included $137,000 which was incurred
upon closure of the dealership and is classified as a non-operating expense.
The Company closed this satellite dealership in December 1993 when it was
unable to acquire a new car franchise for that location and determined that
profitable operations solely as a used car dealership were not possible at this
location.
VEHICLE SALES OPERATING RESULTS
OPERATING INCOME/LOSS. The Company's vehicle sales division
reported an operating loss of $845,000 in 1995, as compared with operating
income of $67,000 in 1994 and $470,000 in 1993. The operating loss in 1995
reflects a write-down of approximately $124,000 on the Company's inventory of
1995 model year vehicles at year-end and certain accounting adjustments. These
accounting adjustments, which were recorded in the fourth quarter of 1995,
included (i) an increase in lease expense of $220,000 to recognize periodic
lease increases as per the lease agreement, and (ii) an increase of $250,000 in
the Company's reserve for early payoff adjustments on vehicle financing and
(iii) an increase of $107,000 related to an increase in bad debt reserves. The
reduction in operating income in 1994 versus 1993 is mainly due to a reduction
related to other income from documentation fees due to lower unit sales and an
increase in employee benefits.
NEW CAR UNIT SALES. New car unit sales in 1995 increased by
less than 1% over new car unit sales in 1994, and new car unit sales in 1994
decreased by 18% compared to new car unit sales in 1993. The decrease in new
car unit sales in 1994 by comparison to 1993 was attributable to an inventory
shortage of Chrysler/Jeep products in 1994.
10
<PAGE> 11
NEW CAR GROSS PROFIT. New car gross profit decreased by
$523,000 (approximately 14%) to $3,102,000 in 1995 from $3,625,000 during 1994.
This decrease was primarily due to a change in the mix of new vehicles sold in
the Company's dealership operations. New car gross profit in 1994 decreased by
$169,000 (approximately 4.5%) from $3,794,000 in 1993 due to limited
availability of inventory.
USED CAR UNIT SALES. Used car unit sales in 1995 increased by
approximately 22% over used car unit sales in 1994. This increase was
primarily due to the addition of a "sub prime" finance department that
specializes in used vehicles and a stronger used car market. Used car unit
sales in 1994 decreased by 19% as compared to used car unit sales in 1993 due
to the closure of the Kaneohe operation.
USED CAR GROSS PROFIT. Used car gross profit increased by
$742,000 (approximately 19%) to $3,913,000 in 1995 from $3,171,000 during 1994.
This increase was primarily due to the addition of a "sub prime" finance
department specializing in used vehicles and a stronger used car market.
Used car gross profit in 1994 decreased by $663,000 (approximately 17%) from
$3,834,000 in 1993. This decrease was primarily due to closure of the
Company's Kaneohe dealership operations in late 1993.
FIXED EXPENSES. Fixed expenses increased by approximately
$563,000 (approximately 5.6%) to $4,157,000 in 1995 from $3,594,000 in 1994.
This increase is attributable to increased lease rental expenses, increased bad
debt reserve and increased personnel costs. Fixed expenses decreased by
approximately $153,000 to $3,594,000 in 1994 from $3,749,000 in 1993. This
decrease is partially attributable to the discontinuation of operations at the
Kaneohe dealership in late 1993.
COMMISSION EXPENSES. Commission expenses were $1,643,000,
$1,766,000 and $2,254,000 for 1995, 1994, and 1993 respectively. Commission
expenses are based on gross profit on new and used cars and have no relationship
to revenue.
REVENUES. The Company reported an increase in revenues of
$5,295,000 (approximately 18.5%) to $44,994,000 during 1995 from $39,698,000
during 1994. Increased used car sales of $4,082,000 accounted for most of this
increase. Vehicle revenues decreased by $4,289,000 (approximately 9.8%) from
$43,988,000 in 1993. This decrease was primarily due to the closure of the
Company's Kaneohe operations at the end of 1993 and to an insufficient new car
inventory from Chrysler during 1994.
11
<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its new vehicles for its automobile
dealerships under an aggregate of $13,500,000 in lines of credit issued by the
Chrysler Corporation ("Chrysler"). These loans bear interest at a floating
rate equal to the prime rate plus 1%. Interest on these loans is payable
monthly, and the final maturity with respect to principal and interest of
loans pursuant to this facility occurs in August of the year following the
particular model year to which such loans apply. The Company had $9,373,199
and $4,402,000 outstanding as of December 31, 1995 and 1994, respectively,
under these lines of credit. Chrysler also currently furnishes the Company
with A $1,000,000 line of credit for its used car floor plan. This line of
credit will be reduced in June 1996 to $750,000. The Company believes that it
will be able to obtain financing from Chrysler sufficient to meet its future
liquidity and capital needs.
During 1993, the Company completed expansion of two service
facilitates at its dealerships located on Nimitz Highway and in the Waipahu
Industrial Park. The Company financed these projects solely through mortgage
debt and working capital generated by its vehicle sales operations. As of
December 31, 1995, the Company had $479,322 and $556,515 of outstanding
mortgage debt related to its Nimitz and Waipahu dealerships respectively.
The sale of the rental car division in December 1995, along
with the retirement of the majority of its convertible subordinated debt,
reduced the Company's debt service obligations by approximately $420,000
annually. Operating losses from the rental car division totaled $6,471,000,
$1,423,000 and $972,000 for 1995, 1994 and 1993 respectively.
The Company believes that the sale of the vehicle rental
division has improved the overall financial position of the Company. The
settlement agreement with Dollar and the sale of the vehicle rental division,
in management's opinion, was in the best interest of the Company in order to
preserve the assets of the two dealerships. The Company, prior to the sale of
the vehicle rental division had a significant negative net worth and had been
losing substantial amounts of money over the last several years. See Item 1
"Business -- Discontinued Operations," Item 7 "Management's Discussion of
Analysis -- Significant Transactions".
SIGNIFICANT TRANSACTIONS
SALE OF RENTAL CAR DIVISION
On December 21, 1995 the Company sold substantially all of its
assets relating to vehicle rental operations to Dollar. The purchase price of
the assets consisted of $2,489,500 in cash and the assumption by Dollar of the
majority of the liabilities of the division. In connection with this
transaction, Dollar also received 10% of the Common Stock of the Company on a
fully-diluted basis and a note in the amount of $778,500 bearing interest at
10% per annum which is due 2007. As part of the terms and conditions of the
sale of the rental car division to Dollar, representations and warranties made
by the Company to Dollar are secured by the stock of South Seas Motors, Inc.
for a period of one year from the transaction date.
12
<PAGE> 13
DEBENTURE EXCHANGE
The net cash proceeds from the sale were used to retire
$4,979,000 of the Company's outstanding Debentures at a rate of $.50 for each
$1.00 in face amount of tendered Debentures. In addition, 3,831,337 shares of
Common Stock were issued in the exchange. As a result of this
transaction, the Company was able to retire nearly 95% of the Company's
outstanding Debentures.
APPLICATION OF FINANCIAL ACCOUNTING STANDARDS NO. 109
The Company adopted Financial Accounting Standards 109 ("FAS
109") during 1993 and elected to reflect the effects of this accounting change
in 1993 without restating prior years' consolidated financial statements. The
effects of the adoption of FAS 109 did not result in an adjustment to the
consolidated financial statements for any cumulative effect of a change in
income taxes. Temporary differences resulting in deferred tax assets (which
fully offset the deferred tax liability) primarily resulted from net operating
loss carry forwards. A valuation allowance for the remaining deferred tax
asset was recorded by the Company.
INFLATION
The Company has experienced the impact of inflation primarily
in its occupancy costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of
Price Waterhouse LLP, dated March 27, 1996, are contained in Item 14 in this
Form 10-K Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Age Position
--- --------
<S> <C> <C>
Alan M. Robin 59 Chairman of the Board, President and
Chief Executive Officer
Paul Finazzo 66 Director
Richard E. Fahrenwald (1) 69 Director
William D. Seidle (1) 70 Director
James Freund (1) 75 Director
Lionel Freitas (1) 47 Director
Ron Adams (1) 51 Director
Stephen Robin (1) 35 Director, Vice President and General Manager
Richard Bauman 47 Vice President and Chief Financial Officer
</TABLE>
(1) Appointed to the Board of Directors during March 1996.
14
<PAGE> 15
Board of Director Changes
During March 1996, four board members, Scott Lang, George
Hetherington, Rodney Gardiner and Raymond Miyashiro, gave notice of
resignation. In explanation of their resignations, these members uniformly
stated that they had helped the Company through the sale of the rental car
division and that since they all had been on the board for at least five years,
they felt individuals with retail automotive and sales experience would be more
beneficial to the Company.
15
<PAGE> 16
ALAN M. ROBIN has been an officer, director and principal
shareholder of the Company since 1976. Mr. Robin served as Chairman of the
Board of the Company from 1980 through 1988 and has served in that capacity
since July 1992. He has served as President and Chief Executive Officer of the
Company since 1980. Mr. Robin was President and Chairman of the Board of Open
Road Industries, Inc., a manufacturer and retailer of recreational vehicles
from 1969 to 1976. Mr. Robin is also the Chairman of the Board, President and
Chief Executive Officer of South Seas Motors, Inc., a wholly-owned subsidiary
of the Company.
PAUL J. FINAZZO has been a director of the Company since 1987
and served as its Chairman of the Board from May 1991 to July 1992. He has
served as a consultant to the Company since 1989. On October 25, 1991, he was
appointed by the U. S. Bankruptcy Court as Trustee for the First Family of
Travel. On January 1, 1992, Mr. Finazzo was appointed Chairman of the Board of
Oahu Transit Services, Inc., the company that has been contracted by the City
and County of Honolulu to operate "The Bus". From July 1989 to September 1990,
Mr. Finazzo was President and Chief Executive Officer of Hawaii Pacific Sports,
Inc. and is currently a director of that company. He was the President and
Chief Executive Officer of Hawaiian Airlines, Inc. from April 1985 until April
1989 and its President and Chief Operating Officer from November 1982 until
April 1985. From 1967 to 1982, Mr. Finazzo was Chairman, President and Chief
Executive Officer of the Miami, Florida, based airline Airlift International,
Inc.
JAMES V. J. FREUND became a Director in March 1996. Mr.
Freund is currently retired. From 1975 to 1988, Mr. Freund was Vice President
and General Manager of Honolulu Chrysler-Plymouth Nissan. Prior to 1975, Mr.
Freund held various executive positions with the M. F. Salta Management Group
and Wane Management Group.
RICHARD E. FAHRENWALD became a Director in March 1996. Since
1980, Mr. Fahrenwald has owned his own real estate brokerage business
specializing in automotive properties and businesses. Mr. Fahrenwald owned a
number of automobile dealerships including Fahrenwald Buick, Chevrolet
Oldsmobile, Kyle Motors, Aloha Motors, Bay City Motors, and The University Auto
Group from 1953 through 1973. From 1974 through 1980 Mr. Fahrenwald was
involved in commercial real estate.
WILLIAM D. SEIDLE became a director in March 1996. Mr. Seidle
presently owns and operates Bill Seidle's Chevrolet/Oldsmobile, Bill Seidle's
Nissan, Bill Seidle's Suzuki, and Bill Seidle's Mitsubishi in the Miami,
Florida, area. Mr. Seidle also is a United States Federal Bankruptcy
Trustee, and has been recognized in the Congressional Record of the 99th
Congress, as a corporate rebuilder.
16
<PAGE> 17
LIONEL FREITAS became a director in March 1996. From 1988
until early 1996, Mr. Freitas was Vice President of Pacific Operations for ADT
Automotive Services, Inc., which operates automobile auctions and inspection
services throughout the mainland and Hawaii. Mr. Freitas presently is a
consultant in the automotive industry in Hawaii. Mr. Freitas also managed
fleet and operations for Dollar Rent-A-Car Hawaii for over 8 years.
STEPHEN ROBIN became a director in March 1996 and has served as
Vice President and General Manager of South Seas, a subsidiary of the Company,
since March 1992. He has been employed by South Seas since May 1986, serving
as sales manager from November 1987 through March 1991 and as General Sales
Manager from March 1991 through October 1995. Since October 1995, he has been
General Manager of the Company's Waipahu dealership. Stephen Robin is the
nephew of Alan M. Robin.
RICHARD BAUMAN joined the Company in May 1995 as Vice
President, Chief Financial Officer and Secretary. Prior to joining the
Company, Mr. Bauman spent 2 and 5 years, respectively, with Price Waterhouse
LLP and Arthur Andersen LLP as a Senior Manager in each company's specialty
services group. Prior to that, Mr. Bauman was Executive Vice President for a
$30 million specialty chemical company. Mr. Bauman also spent 7 years with
Alberto Culver Company and 9 years with Kraft General Foods in various
financial and operational positions.
SECTION 16 DISCLOSURE
Section 16 of the Securities Exchange Act of 1934, as amended,
requires that officers, directors, and holders of more than 10% of the common
stock of a company file reports of their trading in company equity securities
with the Securities and Exchange Commission. Based solely on the Company's
review of copies of reports made pursuant to Section 16 and written
representations from reporting persons that no other reports were required, the
Company believes that all Section 16 filing requirements applicable to the
Company's reporting persons were complied with during 1995.
17
<PAGE> 18
ITEM 11. EXECUTIVE COMPENSATION
The following table discloses compensation received by the
Company's Chief Executive Officer and the Company's four other most highly
compensated employees.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
Awards
------
Annual Compensation Restricted
Name and ------------------- Stock Options/ All Other
Principal Position Year Salary($)(1) Bonus($) Other(2)(3) Awards($) SAR(#) Compensation(s)
- ------------------ ---- ------------ -------- ----------- --------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Alan M. Robin 1995 $322,000 - 38,400 - - -
Chairman of the
Board, President 1994 301,200 100,000 38,400 - - -
and Chief
Executive Officer 1993 285,300 - 39,700 - - -
Calvin Cohen 1995 213,700 - - - - -
Finance Manager
South Seas Motors, Inc. (4) 1994 129,900 - - - - -
1993 195,000 - 5,000 - - -
Stephen Robin 1995 145,000 - 10,000 - - -
Vice President and
General Manager, 1994 151,200 - 5,000 - - -
South Seas Motors,
Inc. 1993 131,300 - 5,000 - - -
Ronald Jones 1995 119,000 - 5,000 - - -
Sales
Manager 1994 126,700 3,500 5,000 - - -
South Seas Motors,
Inc. (4) 1993 124,500 6,700 5,000 - - -
Richard Bauman 1995 84,400 - 18,900 - - -
Chief Financial
Officer (4) 1994 - - - - - -
1993 - - - - - -
</TABLE>
(1) Annual salary figures for Messrs. Cohen, S. Robin and Jones consist of
salary plus commissions based upon vehicles or financing sales. Mr.
Stephen Robin receives an annual salary of $120,000 and Messrs. Cohen
and Jones receive an annual salary of $12,000. Amounts in excess of
these numbers represent commissions.
(2) Includes personal use of a Company car at an estimated incremental
cost of $5,000 per year for each individual listed on the table. Mr.
Alan Robin and Stephen Robin each have an additional car at a cost
estimated at $5,000.
18
<PAGE> 19
(3) Includes housing assistance of $24,000 for each year paid on behalf of
Mr. Alan Robin and $2,000 per month for living and travel expenses for
Mr. Bauman.
(4) Mr. Bauman became an Executive Officer of the Company in May 1995.
Mr. Jones and Mr. Cohen are not Executive Officers of the Company or
South Seas but are considered key employees of the Company.
OPTION/SAR GRANTS
The Company did not grant any Stock Options or Stock
Appreciation Rights to the officers and employees named in the Summary
Compensation Table during fiscal 1995. None of the officers and employees
named in the Summary Compensation Table holds any option to purchase shares of
the Company's Common Stock.
OTHER PLANS
The Company has no pension plans or long-term incentive plans.
The Company does maintain a 401(k) plan pursuant to which the Company
contributed up to $300 per employee during 1995.
REPORT ON COMPENSATION
The Company's Compensation Committee during 1995 consisted of
Mr. Hetherington and Mr. Miyashiro. The Compensation Committee considered all
decisions relating to executive compensation during 1995. Mr. Hetherington and
Mr. Miyashiro resigned in March 1996.
COMPENSATION PRINCIPLES APPLICABLE TO EXECUTIVE OFFICERS
The Compensation Committee bases executive officer
compensation on the following guidelines:
1. Competitive pay and benefits that allow the company
to (a) attract and retain people with the skills
critical to the long-term success of the Company, and
(b) maintain compensation costs that are competitive.
2. Pay for performance to motivate and reward individual
and team performance in attaining business objectives
and maximizing shareholder value.
19
<PAGE> 20
EXECUTIVE OFFICER COMPENSATION PRACTICES
The Company's executive compensation program consists of three
main components: (1) base salary and commissions, (2) potential for an annual
bonus based upon individual performance and (3) potential for stock options.
The first element has, during the last several years, constituted the primary
means of compensating the Company's executive officers. The second and third
elements of the compensation program are designed to compensate the executive
for extraordinary services.
SALARIES AND COMMISSIONS
With the exception of the Chief Executive Officer and the Chief
Financial Officer of the Company, officers and key employees of the Company are
paid an annual salary plus commissions that are based on vehicle or financing
sales (whichever is applicable to such employee's position). Salary levels
remain fairly constant from year to year and generally comprise a relatively
small portion of the employee's total annual cash compensation.
The Compensation Committee ordinarily approves the base salary
levels for the Chief Executive Officer and the Chief Financial Officer. The
Committee makes determinations as to appropriate base salary levels based upon
a subjective evaluation of the executive's scope of responsibility, background
and job performance. Such base salary levels ordinarily are then fixed by
employment contracts applicable to such officers. During 1995, Mr. Alan Robin,
the Chief Executive Officer of the Company, made a recommendation to the
Compensation Committee as to the appropriate base salary to be paid to the
Chief Financial Officer. Upon due consideration, the Committee approved Mr.
Robin's recommendation.
INCENTIVE COMPENSATION
The Company does not pay incentive compensation pursuant to
any fixed formula, and there is no specific relationship between corporate
performance and incentive compensation. The Company from time to time pays
incentive bonuses to executive officers and key employees based on the
Compensation Committee's subjective evaluation that extraordinary services were
rendered that benefited the Company.
20
<PAGE> 21
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Decisions regarding compensation of the Company's Chief
Executive Officer are made in the same way, and according to the same factors,
as compensation decisions relating to all Executive Officers. The current
compensation package of the Chief Executive Officer is fixed by an employment
agreement.
SUBMITTED BY THE
BOARD OF DIRECTORS
Alan M. Robin
Paul J. Finazzo
James V.J. Freund
Richard E. Fahrenwald
William D. Seidle
Lionel Freitas
Ronald Adams
Stephen Robin
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following is a summary of certain business relationships
between the former members of the Compensation Committee and the Company:
Certain companies owned by Raymond I. Miyashiro, a former
member of the Company's Board of Directors and Compensation Committee, are
wholesale customers of the Company's vehicle rental operations. During 1995
these companies paid the Company $813,000 for vehicle rentals at prevailing
wholesale rates. In addition, the Company purchased $21,000 of airline tickets
at prevailing market rates from a travel agency owned by Mr. Miyashiro.
During 1995, the Company paid $264,000 for legal services to a
law firm of which J. George Hetherington, a former member of the Company's
Board of Directors and Compensation Committee, is a shareholder.
DIRECTORS COMPENSATION
Each Director who is not an officer or employee of the Company
received $2,500 during 1995 for his services as director.
EMPLOYMENT CONTRACTS
The Company has an employment agreement with Mr. Alan Robin
which expires in 2000. During 1995, South Seas agreed to guaranty the payment
of all compensation due Mr. Robin pursuant to this Agreement. The agreement
provides for a base salary of $322,000 beginning in 1995, subject to annual
increases based upon the consumer price index (CPI). In addition, the
agreement includes a housing allowance of $24,000 per year and the use of two
automobiles. Mr. Robin is also eligible to participate in all of the fringe
benefits that the Company customarily affords its executive officers and to
discretionary bonuses and such stock options as may be awarded by the Board of
Directors.
Mr. Robin's employment agreement was amended in November 1995 to
provide that, in the event of a change in control of the Company, Mr. Robin
will have a unilateral right to terminate the agreement if the change in
control results in a material adverse change in his employment. Upon any such
termination, Mr. Robin has a right to receive a lump sum payment equal to 200%
of his annual base salary, which payment is to be reduced by 3 1/2% for each
full month that has passed since the sale of the Company's vehicle rental
operations, but will not be less than 100% of this annual base salary. A
"change in control" is defined by the agreement to mean (i) a merger or
consolidation of the Company with an entity which is not an affiliate of the
Company, in which the Company is not the surviving corporation; (ii) a sale of
substantially all of the assets of the Company; or (iii) a change of majority
of the members of the Board of Directors, unless approved by the vote of a
majority of current directors.
21
<PAGE> 22
The Company entered into an employment agreement with Mr.
Richard Bauman in May 1995. The two year agreement provides for an annual base
salary of $120,000, the use of a corporate apartment valued at $1,200 per month
and $800 per month travel allowance.
During 1993, the Company's subsidiary, South Seas, entered into
an employment agreement with Stephen Robin which expired in 1995. This
agreement provided for a base salary of $120,000 and a commission equal to 10%
of South Seas' annual pretax income. Mr. Robin is also eligible to participate
in all of the fringe benefits which the Company customarily affords its
executive officers.
22
<PAGE> 23
PERFORMANCE TABLE
The table below compares the cumulative five-year total
stockholder return on the Company's common stock against the cumulative total
return of the NASDAQ market index. No other index is available for comparisons
to automobile dealerships. Note: The stock price performance shown on the
table below is historical and not necessarily indicative of future stock price
performance.
PISC
Performance Table
<TABLE>
<CAPTION>
Nasdaq Composite PISC
------------------------------------ ------------------------------------
Yr-To-Yr Price Yr-To-Yr Stock
Growth Index Balance Growth Price Balance
------ ------ ------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
12/31/90 n/a 373.84 $100.00 n/a $0.375 $100.00
12/31/91 56.842% 586.34 $156.84 -17.067% $0.311 $82.93
12/31/92 15.453% 676.95 $181.08 -39.550% $0.188 $50.13
12/31/93 14.753% 776.82 $207.79 199.468% $0.563 $150.12
12/31/94 -3.200% 751.96 $201.14 33.215% $0.750 $199.98
12/31/95 39.920% 1052.14 $281.43 -97.333% $0.020 $5.33
</TABLE>
Assumes $100 Invested On Jan. 1, 1991
Assumes Dividends Reinvested
23
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth, as of March 20, 1996, certain
information with respect to all shareholders known by the Company to be
beneficial owners of more than 5% of its outstanding Common Stock and with
respect to beneficial ownership by the Company's Chief Executive Officer and by
all of the Company's directors and executive officers as a group. Other than
Mr. Alan Robin, none of the Company's directors or employees named in the
Summary Compensation Table is a beneficial owner of any of the Company's Common
Stock.
<TABLE>
<CAPTION>
Shares of Percentage of
common stock outstanding
Name and address beneficially owned common stock
---------------- ------------------ -------------
<S> <C> <C>
Alan M. Robin 816,932 6.2%
Principal Mutual Life
Insurance Company 1,605,253(1) 12.1%
711 High Street
Des Moines, Iowa 50392-0001
Invista Capital Management, Inc. 1,805,371(1) 13.6%
699 Walnut, 1500 Hub Tower
Des Moines, Iowa 50309
Dollar System 1,323,462 10%
5330 East 31st Street
Tulsa, OK 74135
Classic Custom Vacations 1,153,846 8.7%
1 North First Street
San Jose, CA 95113
Cutter Management Company 950,000(2) 7.2%
2865 Pukoloa Street
Honolulu, HI 96819
All directors and executive officers
as a group (one (1) person) 816,932 6.2%
</TABLE>
- ----------
(1) Principal Mutual Life Insurance Company and Invista Capital
Management, Inc. claim shared voting power and shared dispositive
power with respect to these shares.
(2) Consists of 950,000 shares owned by Cutter Management Co., a company
of which Nick S. Cutter serves as President and director.
24
<PAGE> 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain companies owned by Raymond I. Miyashiro, a former
director of the Company, are wholesale customers of the Company's vehicle
rental operations. During 1995 these companies paid the Company $813,000 for
vehicle rentals at prevailing wholesale rates. In addition, the Company
purchased $21,000 of airline tickets at prevailing market rates from a travel
agency owned by Mr. Miyashiro.
During 1995 the Company paid for legal services in the amount
of $264,000 to a law firm of which J. George Hetherington, a former director
of the Company, is a shareholder.
25
<PAGE> 26
PART IV
ITEM 14. EXHIBITS FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
The following documents are filed as part of this report:
Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheets at December 31, 1995 and 1994
Consolidated Statements of Operations for each of the years in
the three-year period ended December 31, 1995
Consolidated Statements of Changes in Shareholders' Equity for
each of the years in the three-year period ended December
31, 1995
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended December 31, 1995
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the three
years ended December 31, 1995
26
<PAGE> 27
All other schedules are omitted because they are not applicable, or the
required information is shown in the consolidated financial statements or notes
thereto.
Exhibits:
The exhibits noted herein as previously filed are
hereby incorporated as an exhibit to this form by this reference as though set
forth herein:
<TABLE>
<S> <C> <C>
G 3.1 Articles of Incorporation of Registrant.
G 3.2 Bylaws of Registrant.
A 4.1 Specimen Certificate of Common Stock.
F 4.2 Form of Indenture.
F 4.3 Form of Certificate of Debenture.
A 10.1 State Lease DOT A-84-7, Lease Documents relating to
Rent A Car Concession at Lihue Airport, Island of Kauai,
State of Hawaii, dated April 9, 1984.
A 10.2 State Lease DOT A-84-24, Lease Documents relating to
Rent A Car Concession at Hawaii District Airports, Island
of Hawaii, State of Hawaii, dated April 12, 1984, as
amended January 9, 1987.
A 10.3 Agreement dated July 1, 1989 between Yasuo Kuwaye and
the Registrant.
A 10.4 State Lease DOT A-84-21, Lease documents relating to
Rent A Car Concession at Kahului Airport, Island of Maui,
State of Hawaii, dated April 9, 1984, as amended October
1, 1985.
A 10.5 Amendment to Agreement between Alexander & Baldwin,
Inc., and Registrant, dated June 30, 1983, as amended
February 20, 1986.
G 10.6 Lease dated May 31, 1987 between 300 Corporation, The
Gutman Realty Company and the Registrant, as amended on
June 3, 1992.
G 10.7 Lease dated October 23, 1989 between State Teachers'
Retirement System and the Registrant.
G 10.8 State Lease DOT A-87-19, Lease documents and
amendments relating to Rent A Care Concession at
Honolulu International Airport.
G 10.9 Loan Authorization and Agreement with U. S. Small
Business Administration dated November 19, 1992,
amended December 8, 1992.
G 10.10 Lease dated October 23, 1987 between Harry Weinberg and
the Registrant, as amended on November 5, 1992.
G 10.11 Lease dated February 3, 1993 between Ichizo Nighio and
the Registrant.
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
G 10.12 Sublease dated February 19, 1969 between Boulevard
Properties, Inc. and Hawaiian Restaurants, Ltd.,
Amendment to Sublease dated July 1, 1985 between Classic
Properties, Inc. and the Registrant and an Assignment of
Sublease and Consent dated July 9, 1985 between
Spencecliff Corporation and the Registrant.
G 10.13 Lease dated March 14, 1992 between Classic Properties,
Inc. and the Registrant.
G 10.14 Sublease dated July 23, 1992 by and between Windward
Motors, Ltd. and South Seas Motors, Inc.
E 10.15 Automobile Renting and Leasing Agreement dated April 3,
1974, as amended, between Registrant and Dollar Rent A
Car Systems, Inc.
B 10.16 Registrant's 1983 Incentive Stock Option Plan.
B 10.17 Registrant's 1984 Non-Statutory Stock Option Plan.
D 10.18 Credit Agreement dated June 5, 1988 with the Bank of
Hawaii, as amended, together with related Security
Agreement, Mortgage, Mortgage Note and Note
Modification Agreements.
E 10.19 Credit Agreement dated June 26, 1991 with Bank of
Hawaii.
D 10.20 Term Loan Agreement dated September 30, 1988 with First
Interstate Bank of Hawaii, as amended, together with
related Mortgage.
G 10.21 Agreement dated July 17, 1991 between South Seas
Motors, Inc. and Chrysler Credit Corp., as amended.
K 10.22 Lease dated June 1, 1994 between State Teachers'
Retirement System and the Registrant.
G 10.23 Plan Sheet dated March 16, 1993 from Ford Motor Credit
Company regarding terms of a $30,000 credit line.
C 10.24 Agreement dated July 13, 1983, between Pleasant Travel
Service and Registrant with amendment dated February 14,
1985 (confidential treatment received as to portions
thereof).
E 10.25 Employment Agreement dated October 24, 1991 between
the Registrant and Alan M. Robin.
E 10.26 Consulting Agreement dated January 1, 1992 between the
Registrant and Paul J. Finazzo.
G 10.27 Employment Agreement dated June 1, 1992 between the
Registrant and Lawrence Trachtenberg.
G 10.28 Employment Agreement dated June 1, 1992 between the
Registrant and Sirio Maggiacomo.
G 10.29 Employment Agreement dated October 1, 1989 between the
Registrant and Robert L. Solomon.
</TABLE>
28
<PAGE> 29
<TABLE>
<S> <C> <C>
G 10.30 Employment Agreement dated January 1, 1993 between
South Seas Motors, Inc. and Stephen Robin
K 10.31 Sublease dated October 1, 1994 between Yasuo Kuwaye
and the Registrant.
G 10.32 Agreement dated October 11, 1991 between Dollar Rent A
Car Hawaii and General Motors Corporation relating to the
purchase of 1992 model year vehicles.
E 10.33 Advertising Purchase Agreement between Dollar Rent A
Car and General Motors Corporation for the period from
September 1, 1991 to August 31, 1992.
G 10.34 Agreement dated November 19, 1992 between the
Registrant and General Motors Corporation relating to the
purchase of 1993 model year vehicles.
G 10.35 Agreement dated November 11, 1992 between the
Registrant and Ford Motor Company relating to the 1993
Joint Advertising Program.
K 10.36 Amendment to Lease dated November 12, 1993 between
Classic Properties, Inc. and the Registrant amending lease
dated March 14, 1992.
G 10.37 Development and Licensing Agreement dated October 27,
1992 by and between Alta Vista Systems, Inc. and the
Registrant relating to the development of custom computer
software.
G 10.38 First Amendment dated May 1, 1992 to Credit Agreement
dated June 26, 1991 between the Registrant and the Bank of
Hawaii.
G 10.39 Term Loan Agreement between South Seas Motors, Inc.
and the Bank of Hawaii relating to a loan of $800,000
principal amount.
G 10.40 Flooring and Security Agreement dated April 1, 1992
between the Registrant and the Bank of Hawaii together
with terms and conditions dated March 23, 1992.
G 10.41 Letter of Commitment dated March 17, 1993 between the
Registrant and the Bank of Hawaii relating to a
$20,000,000 flooring facility.
G 10.42 Term Sales and Service Agreement dated August 2, 1992
between South Seas Motors, Inc. and the Chrysler
Corporation.
G 10.43 Dealer Sales and Service Agreement dated January 18, 1993
between South Seas Motors, Inc. and Hyundai Motor
America.
H 10.44 Assignment of Sublease dated February 9, 1994 between
South Seas Motors, Inc. and Windward Auto Sales, Inc.
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C>
H 10.45 Credit and Security Agreement dated June 3, 1993 between
the Registrant and the Bank of Hawaii related to the
$18,100,000 flooring lines of credit.
H 10.46 Restated Credit and Security Agreement dated February 3,
1994, of the Credit and Security Agreement dated June 3,
1993, between the Registrant and the Bank of Hawaii
related to the $16,300,000 flooring lines of credit.
H 10.47 Master Lease Agreement dated November 19, 1992
between the Registrant and Dollar Systems, Inc. relating to
the purchase of 1994 model year vehicles.
H 10.48 Amendment of Lease between Ichizo Nishio and the
Registrant dated February 3, 1993, as amended August 25,
1993.
H 10.49 Lease dated November 25, 1992 between John T. King and
the Registrant.
H 10.50 Indenture of Sublease dated April 6, 1993 between
Industrial Investors, Inc. and South Seas Motors, Inc.
H 10.51 Plan Sheet dated March 10, 1994 from Ford Motor Credit
Company regarding terms of a $7,500,000 credit line.
H 10.52 Letter dated March 2, 1994 from General Motors
Acceptance Corp. amending the original loan agreement
dated January 9, 1990, as amended March 2, 1990 and
September 17, 1991.
H 10.53 Agreement dated May 25, 1993 between Dollar Rent A Car
Hawaii and General Motors Corporation relating to the
reclassification of 1992 model year vehicles.
H 10.54 Agreement dated November 23, 1993 between Dollar Rent
A Car Hawaii and General Motors Corporation relating to
the reclassification of 1993 model year vehicles.
H 10.55 Rent Determination Agreement; Amendment to Lease dated
April 21, 1993 between KJL Associates and Classic
Properties.
I 10.56 Assistance Agreement dated March 30, 1994 between the
Registrant and Dollar Systems, Inc. and Dollar Rent A Car
Systems, Inc.
K 10.57 Sublease dated June 29, 1994 between South Seas Motors,
Inc. and Gerald L. Leavy Jr. and Conchita P. Leavy.
K 10.58 Cancellation and Surrender of Lease dated November 30,
1994 between The Harry and Jeanette Weinberg
Foundation, Inc. and the Registrant.
K 10.59 Agreement dated June 15, 1994 between Hyundai Motor
America and the Registrant relating to the purchase of 1994
model year vehicles.
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C> <C>
K 10.60 Agreement dated October 17, 1994 between Hyundai
Motor America and the Registrant relating to the purchase
of 1995 model year vehicles.
K 10.61 Credit and Security Agreement dated June 14, 1994
between the Registrant and the Bank of Hawaii related to
the $3,645,000 flooring line of credit.
K 10.62 Loan and Security Agreement dated November 30, 1994
between the Registrant and Greyhound Financial
Corporation related to the $15,000,000 flooring line of
credit.
K 10.63 Employment Agreement dated January 1, 1995 between the
Registrant and Alan M. Robin.
K 10.64 Employment Agreement dated January 1, 1995 between the
Registrant and Sirio Maggiacomo.
K 10.65 Letter dated February 15, 1995 from General Motors
Acceptance Corp. amending the original loan agreement
dated January 9, 1990, as amended March 2, 1990 and
September 17, 1991.
K 10.66 Assistance Commitment dated March 21, 1995 between the
Registrant and Dollar Systems, Inc.
J 10.67 1994 Incentive Stock Option Plan and 1994 Non-Statutory
Stock Option Plan.
10.68 Assumption Agreement, dated July 1, 1995 between South
Seas Motors, Inc. and Alan Robin.
10.69 Amendment of Employment Agreement, dated November 1,
1995, between the Registrant and Alan Robin.
10.70 Employment Agreement, dated may 15, 1995, between the
Registrant and Richard Bauman.
10.71 Assumption Agreement, dated July 1, 1995 between South
Seas Motors, Inc. and Richard Bauman.
L 10.72 Settlement Agreement, dated July 18, 1995, between the
registrant and Dollar Systems, Inc.
M 10.73 Amended Agreed Practices (It is not clear from the copy I
have which franchise this applies to -- fill in appropriate
franchiser information).
M 10.74 Amended and Restated Stock Pledge Agreement, dated
October 27, 1995, between the Registrant and Dollar
Systems, In.
M 10.75 Notice of Modification of Existing Franchise from Dollar
Systems, Inc. to the Registrant, effective April 3, 1974.
M 10.76 First Amendment to Settlement Agreement Between the
Registrant and Dollar Systems, Inc., effective April 3, 1974.
N 10.77 Information Agent Agreement between the Registrant and
Georgeson & Company Inc. relating to solicitation of
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C> <C>
proxies for Special Meeting of shareholders on December
15, 1995
N 10.78 Depository Agent Agreement between the Registrant and
First Fidelity Bank, N. A.
11. Computation of Earnings per Share.
21. Subsidiaries of the Registrant.
A Previously filed as an exhibit to Registration Statement No. 2-93771.
B Previously filed as an exhibit to Registration Statement No. 2-86094(LA)
C Previously filed as an exhibit to 8-K dated May 28, 1987.
D Previously filed as an exhibit to an 8-K dated December 31, 1990.
E Previously filed as an exhibit to 10-K dated December 31, 1991.
F Previously filed as an exhibit to Registration Statement No. 33-16404.
G Previously filed as an exhibit to 10-K dated December 31, 1992.
H Previously filed as an exhibit to 10-K dated December 31, 1993.
I Previously filed as an exhibit to 8-K dated May 26, 1994.
J Previously filed as an exhibit to S-8 dated September 9, 1994.
K Previously filed as an exhibit to 10-K dated December 31, 1994.
L Previously filed as an exhibit to Proxy Statement filed December 7, 1995.
M Previously filed as an exhibit to Proxy Statement filed November 14, 1995.
N Previously filed as an exhibit to Schedule 13E, filed November 2, 1995.
(b) Reports on Form 8-K:
Form 8-K related to an Event of August 7, 1992, as amended, related
to Item 4.
</TABLE>
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PACIFIC INTERNATIONAL SERVICES CORP.
(Registrant)
By /s/ ALAN M. ROBIN
--------------------------------
Alan M. Robin
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)
March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Alan M. Robin Chairman of the Board, March 27, 1996
- ---------------------------------- President and Chief
Alan M. Robin Executive Officer
/s/ Paul J. Finazzo Director March 27, 1996
- ----------------------------------
Paul J. Finazzo
/s/ James V.J. Freund Director March 27, 1996
- ----------------------------------
James V.J. Freund
/s/ Richard E. Fahrenwald Director March 27, 1996
- ----------------------------------
Richard E. Fahrenwald
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
/s/ William D. Seidle Director March 27, 1996
- -------------------------------------
William D. Seidle
/s/ Lionel Freitas Director March 27, 1996
- ----------------------------------------
Lionel Freitas
/s/ Ronald Adams Director March 27, 1996
- ----------------------------------
Ronald Adams
/s/ Stephen Robin Director March 27, 1996
- ----------------------------------
Stephen Robin
/s/ Richard Bauman Chief Financial Officer March 27, 1996
- ---------------------------------- (Principal Financial Officer)
Richard Bauman (Principal Accounting Officer)
/s/ Dung Ngoc Le Jackie Business Manager March 27, 1996
- --------------------------
Dung Ngoc Le Jackie
</TABLE>
34
<PAGE> 35
Report of Independent Accountants
To the Board of Directors and Shareholders
of Pacific International Services Corp.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 on page 26 present fairly, in all material respects,
the financial position of Pacific International Services Corp. and its
subsidiaries (the Company) at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Honolulu, Hawaii
March 27, 1996
F-1
<PAGE> 36
Pacific International Services Corp.
Consolidated Balance Sheet
December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents $ 521,932 $ 831,952
Receivables, net 2,980,560 10,023,512
Automobile dealership vehicle inventories 9,011,840 4,961,600
Inventories and prepaid expenses 58,213 899,453
Rental vehicles
Cost 47,264,408
Accumulated depreciation and reserves (4,896,998)
------------ ------------
42,367,410
------------ ------------
Furniture, equipment and leasehold improvements
Furniture and equipment 1,272,676 5,125,758
Leasehold improvements 3,252,653 7,747,054
Vehicles 394,744 129,993
------------ ------------
4,920,073 13,002,805
Accumulated depreciation and amortization (1,629,863) (4,752,706)
------------ ------------
3,290,210 8,250,099
------------ ------------
Other assets 885,330 1,938,209
------------ ------------
Total assets $ 16,748,085 $ 69,272,235
============ ============
Liabilities and Shareholders' Equity
Accounts payable $ 1,018,941 $ 5,744,507
Accrued expenses and other liabilities 1,495,151 8,152,270
Notes payable and long-term debt 11,374,085 48,034,463
Convertible subordinated debentures 271,000 5,250,000
------------ ------------
Total liabilities 14,159,177 67,181,240
------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 37
Pacific International Services Corp.
Consolidated Balance Sheet
December 31, 1995 and 1994
<TABLE>
<S> <C> <C>
Shareholders' equity
Preferred stock, no par value, authorized
15,000,000 shares; none issued
Common stock, stated value $0.10 per share,
authorized 50,000,000 shares, issued and outstanding
13,234,599 and 8,079,800 shares, respectively 1,323,460 807,980
Additional paid-in capital 8,689,797 9,102,181
Accumulated deficit (7,424,349) (7,819,166)
------------ ------------
Total shareholders' equity 2,588,908 2,090,995
------------ ------------
Commitments and contingencies (Note 13) -- --
------------ ------------
Total liabilities and shareholders' equity $ 16,748,085 $ 69,272,235
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 38
Pacific International Services Corp.
Consolidated Statement of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues
Vehicle sales $ 40,597,974 $ 34,575,324 $ 40,556,478
Parts and services 3,787,045 3,907,941 2,711,969
Finance and insurance income 609,359 1,215,463 719,487
------------ ------------ ------------
Total revenues 44,994,378 39,698,728 43,987,934
------------ ------------ ------------
Cost of sales
Vehicle sales 31,979,914 27,363,151 31,135,105
Parts and services 2,694,194 2,381,789 1,569,099
------------ ------------ ------------
Total cost of sales 34,674,108 29,744,940 32,704,204
------------ ------------ ------------
Gross profit on sales 10,320,270 9,953,788 11,283,730
Selling, general and administrative expenses 11,165,023 9,886,683 10,814,138
------------ ------------ ------------
Operating income (loss) (884,753) 67,105 469,592
Other income (expense)
Interest expense (121,718) (74,050) (157,956)
Interest income 99 2,588 2,107
Other income (expense), net (100,000) -- (145,720)
------------ ------------ ------------
Income (loss) before income taxes (1,066,372) (4,357) 168,023
Provision for income taxes -- -- --
------------ ------------ ------------
Income (loss) from continuing operations before
extraordinary item and discontinued operations (1,066,372) (4,357) 168,023
Discontinued operations (Note 2)
Loss from operations of discontinued
vehicle rental division (6,470,654) (1,423,104) (972,085)
Gain on disposal of vehicle rental division 5,523,970 -- --
------------ ------------ ------------
Loss before extraordinary item (2,013,056) (1,427,461) (804,062)
Gain on debenture exchange 2,407,873 -- --
------------ ------------ ------------
Net income (loss) $ 394,817 $ (1,427,461) $ (804,062)
============ ============ ============
Earnings (loss) per common and
common equivalent share
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 39
Pacific International Services Corp.
Consolidated Statement of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<S> <C> <C> <C>
Continuing operations $ (0.13) $ -- $ 0.02
Discontinued operations (0.11) (0.18) (0.11)
Extraordinary gain 0.29 -- --
------------ ------------ ------------
Net income (loss) $ 0.05 $ (0.18) $ (0.09)
============ ============ ============
Weighted average number of
common shares outstanding 8,235,150 8,079,800 9,009,300
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 40
Pacific International Services Corp.
Consolidated Statement of Changes in Shareholders' Equity
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common Stock Additional
Paid-in Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992 9,009,300 $ 900,930 $ 10,147,994 $(5,587,643) $(1,138,763) $ 4,322,518
Net loss -- -- -- (804,062) -- (804,062)
---------- ---------- ------------ ----------- ----------- -----------
December 31, 1993 9,009,300 900,930 10,147,994 (6,391,705) (1,138,763) 3,518,456
Subscriptions
canceled (929,500) (92,950) (1,045,813) -- 1,138,763
Net loss -- -- -- (1,427,461) -- (1,427,461)
---------- ---------- ------------ ----------- ----------- -----------
December 31, 1994 8,079,800 807,980 9,102,181 (7,819,166) -- 2,090,995
Common stock issued 5,154,799 515,480 (412,384) -- 103,096
Net income -- -- -- 394,817 -- 394,817
---------- ---------- ------------ ----------- ----------- -----------
December 31, 1995 13,234,599 $1,323,460 $ 8,689,797 $(7,424,349) $ -- $ 2,588,908
========== ========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 41
Pacific International Services Corp.
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ 394,817 $(1,427,461) $ (804,062)
Adjustments to reconcile net loss to net cash
provided by operating activities
Gain on disposition of discontinued operations (5,523,970) -- --
Loss on closure of automobile dealership -- -- 136,720
Extraordinary gain (2,407,873) --
(Gain) loss on sale of rental vehicles (720,922) (265,179) 309,717
Loss on disposal of property and equipment 259,000 -- 62,298
Depreciation of rental vehicles and
amortization of related cost 4,540,278 8,053,482 16,506,025
Depreciation and amortization, other 288,445 1,101,418 799,198
Provision for losses on rental vehicles -- 1,137,913 234,365
Provision for losses on receivables -- 489,477 362,026
Provision for collision damage -- 314,548 377,217
Provision for equipment losses -- -- 200,000
Provision for self-insurance -- 2,267,465 3,158,685
Change in assets and liabilities net of the effects
from the sale of the discontinued operations
Receivables (329,190) (320,643) (3,053,249)
Automobile dealership vehicle inventories (4,253,547) 1,885,932 2,918,102
Prepaid and other current assets 206,700 440,966 --
Other long-term assets 313,358 -- --
Accounts payable 5,943,029 1,306,416 (411,317)
Accrued expenses and other liabilities (3,274,140) (1,838,436) (288,283)
Notes payable for automobile dealership
vehicle inventories 4,757,412 (3,046,520) (739,429)
----------- ----------- -----------
Net cash provided by operating activities 193,397 10,099,378 19,768,013
----------- ----------- -----------
Cash flows from investing activities
Proceeds from sale of discontinued operations,
net of discontinued operations cash 1,952,150 -- --
Purchases of rental vehicles -- (1,521,079) (2,781,561)
Write-offs of furniture, equipment and
leasehold improvements 725,551 -- --
Additions to furniture, equipment and
leasehold improvements (93,520) (1,648,865) (2,171,668)
Proceeds from the sale of rental vehicles -- 9,734,768 5,383,438
----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 42
Pacific International Services Corp.
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<S> <C> <C> <C>
Net cash provided by investing activities 2,584,181 6,564,824 430,209
----------- ------------ ------------
Cash flows from financing activities
Proceeds from borrowings -- -- 622,096
Principal payments of debentures (2,489,500) -- --
Principal payments of notes payable
and long-term debt (598,098) (17,551,373) (23,215,374)
----------- ------------ ------------
Net cash used in financing activities (3,087,598) (17,551,373) (22,593,278)
----------- ------------ ------------
Net decrease in cash and cash equivalents (310,020) (887,171) (2,395,056)
Cash and cash equivalents at beginning of year 831,952 1,719,123 4,114,179
----------- ------------ ------------
Cash and cash equivalents at end of year $ 521,932 $ 831,952 $ 1,719,123
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 43
Pacific International Services Corp.
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Supplemental schedule of noncash investing
and financing activities
Reduction of notes payable and long-term debt
resulting from turnback of rental vehicles $(33,372,118) $(26,080,268) $(81,456,558)
------------ ------------ ------------
Notes payable and long-term debt incurred for
additions to rental vehicles $ -- $ 42,781,629 $ 58,750,713
------------ ------------ ------------
Notes payable and long-term debt incurred
from conversion of lease obligations $ -- $ 1,400,000 $ --
------------ ------------ ------------
Issuance of common shares related to
debenture exchange and sale of vehicle
rental division $ 103,096 $ -- $ --
------------ ------------ ------------
Issuance of notes payable and long-term
debt in connection with the sale of the
vehicle rental division $ 851,000 $ -- $ --
------------ ------------ ------------
Capital lease obligation incurred for
purchase of equipment $ 240,000 $ 83,813 $ 536,981
------------ ------------ ------------
Cash paid for
Interest $ 445,296 $ 3,472,336 $ 6,209,934
------------ ------------ ------------
Income taxes $ -- $ -- $ 150,000
------------ ------------ ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 44
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
1. The Company and Its Accounting Policies
The Company
Pacific International Services Corp. (the Company) does business as
South Seas Motors, Inc. which operates two automobile dealerships on
Oahu, Hawaii under Dealership Agreements with Chrysler Corporation
(Chrysler) and Hyundai Motors of America (Hyundai), which sell
Chrysler, Jeep, Eagle and Hyundai vehicles. The Hyundai Agreement is
for two years and expires in July 1996. The Chrysler Agreement has no
expiration date, but can be terminated under certain conditions. The
Company believes that if one or both of these agreements should be
terminated, the net result would have a negative impact on the
operation of the Company. The Company generated consolidated earnings
of $395,000 in 1995 and incurred consolidated losses of $1,427,000 and
$804,000 in 1994 and 1993, respectively.
Operations and Liquidity
During 1995 and in previous years, the Company also did business as
Dollar Rent-A-Car, the exclusive licensee for the State of Hawaii with
Dollar Systems, Inc. The Company sold its vehicle rental operations
in late 1995 (see Note 2). For much of 1995, the Company's senior
management spent the majority of their time negotiating and finalizing
the sale of the vehicle rental operations. Combined with a sluggish
economy in Hawaii for the past few years, the Company's retail sales
division has suffered. Since the sale of the vehicle rental
operations in December 1995, senior management has focused its efforts
on developing operating plans for the retail sales division with the
objective of improving sales volume and gross margins, reducing
operating and overhead expenses, and improving cash flows.
Management believes that with focused efforts, inventory management
and improved cost controls, the Company will be able to significantly
improve operating results and liquidity.
Summary of Significant Accounting Policies
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its wholly-owned
subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation.
Recognition of revenues. Revenues from vehicle and parts sales and
from service operations are recognized at the time title passes or
service is completed and the vehicle is delivered to the customer.
Operating revenues include Hawaii general excise tax (GET) which
totaled $1,259,000, $1,275,000
F-10
<PAGE> 45
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
and $1,277,000 in 1995, 1994 and 1993, respectively. The amounts
remitted to the State of Hawaii are included in selling, general and
administrative expenses on the consolidated statement of operations.
Finance income. Finance income represents fees earned by the Company
for notes placed with financial institutions in connection with
customer vehicle financing. Finance income is recognized in income
upon acceptance of the credit by the financial institution.
Insurance income. Insurance income represents commissions earned on
warranty, property and casualty and credit life insurance sold in
connection with the vehicle sale.
Reserves are established based on the Company's historical experience
for prepayments or defaults on the note and insurance contracts
(chargebacks).
Advertising and promotional costs. Advertising and promotional costs
are expensed as incurred and are included in operating expenses.
Total advertising and promotional expenses amounted to $1,007,000,
$935,000 and $972,000 in 1995, 1994 and 1993, respectively.
Cash equivalents. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Cash equivalents at December 31, 1994 represent certificates of
deposit and money market accounts aggregating $150,000.
Inventories. Automobile dealership vehicle inventories are stated at
the lower of cost or market, cost being determined on the specific
identification basis. Parts and other inventories are stated at the
lower of cost or market, cost being determined on the first-in,
first-out basis.
Furniture, equipment and leasehold improvements. Furniture and
equipment are recorded at cost and depreciated on a straight-line
basis over their estimated useful lives of 5 to 7 years. Leasehold
improvements are recorded at cost and amortized on a straight-line
basis over the shorter of the estimated useful lives or lease terms.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 (FAS 121),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." FAS 121 requires that long-lived assets
and certain identifiable
F-11
<PAGE> 46
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is
recognized. Measurement of that loss would be based on the fair value
of the asset.
Generally, FAS 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
the carrying amount or fair value less cost to sell.
The Company intends to adopt FAS 121 by 1996, its required
implementation date. However, due to the complexities of the
calculations that will be required to implement the Statement, the
effect on the consolidated financial statements, if any, is not known
nor reasonably estimable at this time.
Intangible asset. Goodwill of $760,000, net of accumulated
amortization of $190,000 at December 31, 1995, is included in other
assets and amortized on a straight-line basis over 40 years.
Balance sheet classification. Consistent with industry practice and
the nature of its most significant assets and liabilities, the Company
does not classify its balance sheet into current and long-term
categories.
Management estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications. Certain reclassifications have been made to the
1994 and 1993 financial statements to conform to the 1995
presentation.
F-12
<PAGE> 47
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
2. Significant Transactions
Discontinued Operations
On December 21, 1995, the Company sold substantially all of its assets
relating to or used in the operation of the Company's vehicle rental
and related operations (the Division) pursuant to the terms and
conditions of a Settlement Agreement dated as of July 18, 1995, as
amended, between the Company and Dollar Systems Inc. (Dollar). The
purchase price for the assets of the Division included (i) $2,489,500
in cash and (ii) the assumption by Dollar of substantially all of the
liabilities relating to the Division.
Additionally, the Company issued Dollar 1,323,462 shares of its common
stock and a net worth note of $778,500. The Company recorded a
$5,524,000 gain on the sale of the Division, net of applicable income
taxes of $15,000. The results of operations of the vehicle rental
division are shown separately in the consolidated statement of
operations as loss from discontinued operations for each of the years
presented. The balance sheet at December 31, 1994 has not been
restated.
Amounts included in loss from operations of the discontinued vehicle
rental division for the years ended December 31, 1995, 1994 and 1993,
were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Revenues $47,734,973 $54,126,236 $54,163,237
Cost and expenses 54,205,627 55,549,340 54,923,879
----------- ----------- -----------
(6,470,654) (1,423,104) (760,642)
Provision for income taxes -- -- 211,443
----------- ----------- -----------
Net loss from discontinued operations $(6,470,654) $(1,423,104) $ (972,085)
=========== =========== ===========
</TABLE>
In connection with the sale of the vehicle rental division to Dollar,
Dollar assumed substantially all of the liabilities of the Division
including the Company's self-insurance reserve, litigation,
environmental matters, leases and taxes.
F-13
<PAGE> 48
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
Debenture Exchange
As part of the sale of the vehicle rental operations, the Company was
obligated to retire a portion of its outstanding convertible
debentures. The net cash proceeds received from the sale of the
vehicle rental division were applied to the payment of $0.50 for each
$1.00 in face amount of tendered securities along with the issuance of
3,831,337 shares of common stock of the Company. The tendered
securities consisted of $4,979,000 outstanding principal amount of 10%
convertible subordinated debentures due 2007. The transaction resulted
in an extraordinary gain of $2,408,000, net of income taxes of $5,000.
F-14
<PAGE> 49
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
3. Receivables
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Vehicle sales and leases $2,084,361 $ 2,543,776
Accrued insurance proceeds - Litigation 500,000
Trade 431,792 2,440,243
Receivable from manufacturers 276,262 1,877,232
Finance income receivable 168,553 182,805
Warranty 47,715 445,896
Subrogation -- 2,707,303
Unbilled rentals -- 635,584
Credit card and collections -- 188,219
Other 123,668 280,544
---------- -----------
3,632,351 11,301,602
Less allowance for doubtful accounts and chargebacks (651,791) (1,278,090)
---------- -----------
$2,980,560 $10,023,512
========== ===========
</TABLE>
F-15
<PAGE> 50
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
4. Automobile Dealership Vehicle Inventories
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
New cars $7,015,978 $2,890,821
Used cars 1,471,810 1,411,311
Parts and other 665,327 685,558
---------- ----------
9,153,115 4,987,690
Reserves (141,275) (26,090)
---------- ----------
$9,011,840 $4,961,600
========== ==========
</TABLE>
F-16
<PAGE> 51
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
5. Accrued Expenses and Other Liabilities
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Accrued litigation expense $ 500,000 $ --
Accrued rent 210,000 952,881
Accrued taxes other than income taxes 163,833 1,503,342
Accrued commissions 126,936 279,700
Accrued salaries and wages 95,525 244,522
Accrued interest 82,867 501,318
Licensing fees 75,752 78,426
Self-insurance reserve -- 3,011,200
Customer deposits and refunds -- 912,572
Accrued franchise fees -- 131,458
Deferred lease program credits -- 86,764
Other 240,238 450,087
---------- ----------
$1,495,151 $8,152,270
========== ==========
</TABLE>
F-17
<PAGE> 52
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
6. Notes Payable and Long-Term Debt
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Vehicle sales debt
Notes payable under $13,500,000 line of credit
with granting affiliate of major automobile
manufacturer, interest only payable monthly,
secured by automobile dealership vehicle
inventories $9,393,199 $ 4,402,326
---------- -----------
Total vehicle sales debt 9,393,199 4,402,326
---------- -----------
Rental fleet debt
Debt obligations secured by substantially all
of the Company's rental fleet
Notes payable to credit granting affiliates
of major automobile manufacturers,
principal and interest payable monthly 17,484,682
Notes payable under lines of credit,
principal and interest payable monthly -- 22,492,333
---------- -----------
Total rental fleet debt 39,977,015
Other debt
Mortgage loans at prime rate plus 1.5% to 1.75%
(10% to 10.25% at December 31, 1995),
principal and interest payable monthly, maturing
in February 1998 through November 1999,
secured by certain leasehold interests 1,035,837 1,844,061
Notes payable to the credit granting affiliate of a
major automobile manufacturer, interest from
8.69% to 9.19%, principal and interest payable
monthly -- 107,622
Note payable to Dollar, interest at 10%, payable
semi-annually, maturing in 2007 778,500 --
Other 166,549 1,703,439
---------- -----------
</TABLE>
F-18
<PAGE> 53
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
<TABLE>
<S> <C> <C>
Total other debt 1,980,886 3,655,122
----------- -----------
$11,374,085 $48,034,463
=========== ===========
</TABLE>
Vehicle Sales Debt
The Company has a $13,500,000 credit agreement with the credit
affiliate of a major automobile manufacturer to cover the financing of
new car and truck inventories. Interest only is payable at the credit
affiliate's prime lending rate plus 1% with final maturity with respect
to loans relating to vehicles of a particular model year occurring in
August of the following year. The interest rate in 1995 under this
agreement was 9.25%. Borrowings under this agreement totaled
$9,393,199 and $4,402,326 at December 31, 1995 and 1994, respectively.
Other Debt
The Company has outstanding $1,035,837 and $1,370,000 at December 31,
1995 and 1994, respectively, of mortgage bank debt related to its South
Seas Jeep Eagle dealership and its Oahu Chrysler Jeep facility.
Principal and interest payments of $23,000 are made monthly and the
mortgage debt matures from February 1998 through November 1999. In
addition, at December 31, 1994, the Company had outstanding $474,061 of
mortgage debt related to its baseyard facility on Kauai.
At December 31, 1995, the Company has outstanding $778,500 of unsecured
debt owed to Dollar related to the sale of the vehicle rental division
(see Note 2).
Convertible Subordinated Debentures
In October 1987, the Company sold $17,250,000 of 10% convertible
subordinated debentures (the Debentures). The Debentures were issued
under an Indenture dated as of September 1, 1987 (the Indenture)
between the Company and Trust Services of America, Inc. (Trust
Services) as Trustee. Chemical Trust Company currently serves as
Trustee under the Indenture.
In connection with the sale of the vehicle rental division in December
1995, the Company exchanged 3,831,337 shares of its common stock and
$2,489,500 for $4,979,000 principal amount of Debentures (the Exchange)
pursuant to
F-19
<PAGE> 54
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
the terms of an exchange offer (see Note 2). At December 31, 1995,
$271,000 of Debentures remain outstanding.
The Debentures represent unsecured general obligations of the Company.
The payment of principal and interest on the Debentures is subordinated
in right to the payment of all notes payable and long-term debt of the
Company.
Other Financing Information
Under the terms of various loan agreements, the Company is prohibited
from paying dividends to its shareholders.
The aggregate maturities of notes payable and long-term debt for each
of the five years subsequent to December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 9,585,696
1997 250,676
1998 527,126
1999 135,667
2000 96,420
Thereafter 778,500
-----------
$11,374,085
===========
</TABLE>
The scheduled maturities in 1996 include $9,393,199 of flooring debt
which is renewable annually.
7. Income Taxes
In January 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes." The
adoption of FAS 109 changes the Company's method of accounting for
income taxes from the deferred method (APB 11) to an asset and
liability approach. Previously, the Company deferred the past tax
effects of timing differences between financial reporting and taxable
income. The asset and liability approach requires the recognition of
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities.
F-20
<PAGE> 55
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
The adoption of FAS 109 did not result in an adjustment for the
cumulative effect of a change in income taxes.
No income taxes were provided during the years ended December 31, 1995,
1994 and 1993 based on losses sustained for financial reporting and
income tax purposes.
F-21
<PAGE> 56
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Furniture, equipment and leasehold improvements $ (42,000) $ --
Rental fleet -- (3,154,000)
Rental fleet incentives -- (723,000)
---------- -----------
Gross deferred tax liabilities (42,000) (3,877,000)
---------- -----------
Loss carryforwards 2,320,000 4,616,000
Inventory 233,000 124,000
Bad debt reserve 162,000 245,000
Dealer reserve 101,000 --
Accrued rent 78,000 --
Self-insurance reserve -- 1,217,000
Rental fleet reserves -- 170,000
---------- -----------
Gross deferred tax assets 2,894,000 6,372,000
---------- -----------
Net deferred tax assets 2,852,000 2,495,000
---------- -----------
Deferred tax assets valuation allowance (2,852,000) (2,495,000)
---------- -----------
$ -- $ --
========== ===========
</TABLE>
F-22
<PAGE> 57
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
The net increases of $357,000 and $1,259,000 in the valuation allowance
for deferred taxes in 1995 and 1994, respectively, relate primarily to
net operating losses. The principal component of the valuation
allowance relates to the uncertainty of realizing certain deferred tax
assets related to loss carryforwards.
The difference between the expected provision for income tax at the
federal statutory rate and income tax expense reported are summarized
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Expected tax provision (benefit)
at 34% $(362,566) $(1,481) $ 57,128
State taxes, net of federal income
tax benefit (42,654) (174) 6,725
Net operating loss for which no
benefit has been recognized 405,220 1,655 --
Other -- -- (63,853)
--------- ------- --------
$ $ $
========= ======= ========
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $5,700,000
and $4,600,000, respectively, which expire from 2005 through 2010.
The Tax Reform Act of 1986 imposes certain conditions and possible
limitations on the future availability of net operating loss
carryforwards, including annual limitations on the amount of the
carryforwards which could be utilized arising from substantial changes
in the Company's ownership.
8. Stock Option Plans
During 1994, the Company established a new incentive stock option plan
under which options to purchase up to 200,000 shares of common stock
may be granted. Under this plan, the option/exercise price is equal to
100% of the fair market value of the common stock on the date of grant.
No options remain outstanding under this plan as of December 31, 1995.
The Company's original incentive stock option plan expired on May 3,
1993. Options for 100,000 shares of common stock under this plan
expired in September 1995.
F-23
<PAGE> 58
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
During 1994, the Company also established a new non-statutory option
plan under which options to purchase up to 200,000 shares may be
granted. Under this plan, the exercise price of any option granted
shall not be less than the lesser of 85% of the fair market value of
the common stock on the date of grant or 85% of the fair market value
of the common stock on the date of exercise. The original
non-statutory stock option plan terminated on June 20, 1994. No
options are outstanding under either plan as of December 31, 1995.
Under its non-statutory plan, benefits relating to the excess of quoted
market value on the measurement date over the selling price are charged
to compensation expense and credited to additional paid-in capital.
Activity under both stock option plans is summarized as follows:
<TABLE>
<CAPTION>
Options Outstanding
Price Per
Shares Share Amount
<S> <C> <C> <C>
December 31, 1992 100,000 $0.56 $ 56,000
Granted 50,000 0.25 12,500
-------- ------------- --------
December 31, 1993 150,000 0.25 to 0.56 68,500
Expired (50,000) 0.25 (12,500)
Granted 50,000 0.43 21,500
-------- ------------- --------
December 31, 1994 150,000 0.43 to 0.56 77,500
Expired (150,000) 0.43 to 0.56 (77,500)
-------- ------------- --------
December 31, 1995 -- $ -- $ --
======== ============= ========
</TABLE>
As of December 31, 1995, options for 350,000 shares were available for
grant.
F-24
<PAGE> 59
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
9. Related Party Transactions
The Company had a consulting agreement with Paul J. Finazzo, a member
of the Company's Board of Directors and its former Chairman, which
expired on December 31, 1994 and provided for consulting fees of
$180,000 per year.
A company purchased in August 1992 by Stanley S. Heller, a former
member of the Company's Board of Directors and a former officer of the
Company, was a wholesale customer of the Company's vehicle rental
operations. This company paid the Company $548,000, $1,577,000 and
$2,504,000 in 1995, 1994 and 1993, respectively, for vehicle rentals at
prevailing wholesale rates.
The Company paid Mr. Heller consulting fees of $24,000 during each of
the years ended December 31, 1994 and 1993. Certain companies owned by
Raymond I. Miyashiro, a former member of the Company's Board of
Directors, were wholesale customers of the Company's vehicle rental
operations. These companies paid the Company $813,000, $1,239,000 and
$979,000 in 1995, 1994 and 1993, respectively, for vehicle rentals at
prevailing wholesale rates. During 1993, the Company also sold
transportation vehicles aggregating $343,000 to a transportation
company owned by Mr. Miyashiro.
During 1995, 1994 and 1993, the Company purchased $21,000, $15,000 and
$27,000, respectively, of airline tickets at prevailing market rates
from a travel agency owned by Mr. Miyashiro.
During 1995, 1994 and 1993, the Company paid $264,000, $123,000 and
$125,000, respectively, for legal services to a law firm of which J.
George Hetherington, a former member of the Company's Board of
Directors, is a shareholder.
At December 31, 1993, Alan M. Robin, Stanley S. Heller and Robert L.
Solomon owed the Company $212,000, $212,000 and $130,000, respectively,
pursuant to non-recourse promissory notes due in 1994 issued in
exchange for shares of common stock under the Company's 1983 incentive
stock option plan. These notes were allowed to lapse and, as a result,
the shares of common stock issued in relation to these notes were
canceled in 1994.
10. Savings and Retirement Plan
The Company has a defined contribution savings and retirement plan (the
Plan) available to substantially all employees with more than one year
of service. The Company contributes 10% of employee contributions with
a maximum of $300 per employee per year. During the years ended
F-25
<PAGE> 60
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
December 31, 1995, 1994 and 1993, the Company contributed $25,000,
$26,000 and $28,000, respectively, to the Plan.
11. Significant Concentration of Business
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents
and trade receivables.
The Company places its temporary cash investments with high credit
qualified financial institutions.
Substantially all of the Company's business activity is within the
State of Hawaii.
12. Disclosure About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value.
Cash and Short-term Investments
The carrying amount approximates fair value because of the short
maturity of those instruments.
Trade Receivables, Contracts in Transit and Trade Payables
The carrying amount approximates fair value.
Notes Payable and Long-Term Debt
The carrying amount of the Company's borrowings under notes payable and
its credit agreements approximate their fair value.
13. Commitments and Contingencies
Leases
The Company leases certain facilities, equipment and vehicles under
noncancelable operating leases and capital leases, expiring at various
dates through 2021.
F-26
<PAGE> 61
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
Assets recorded under capital leases included in furniture, equipment
and vehicles at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Computer equipment $ 192,951 $ 192,951
Vehicles 370,296 129,993
--------- ---------
563,247 322,944
Less accumulated depreciation (198,840) (135,593)
--------- ---------
$ 364,407 $ 187,351
========= =========
</TABLE>
Amortization expense related to assets recorded under capital leases
for the years ended December 31, 1995, 1994 and 1993 aggregated
$93,000, $73,000 and $313,000, respectively.
F-27
<PAGE> 62
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
Future minimum payments under noncancelable operating leases and
capital leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
<S> <C> <C>
1996 $ 924,000 $386,000
1997 961,000 30,000
1998 895,000 --
1999 889,000 --
2000 864,000 --
Thereafter 8,514,000 --
----------- --------
Total minimum rental payments $13,047,000 416,000
=========== --------
Less amount representing interest (9,900)
--------
Present value of future minimum rental payments
($378,000 represents current portion) $406,100
========
</TABLE>
The leases contain clauses which provide for future rental increases at
varying intervals based on Consumer Price Index increases. The table
above reflects future obligations based on current rent levels. In
addition to rent, the Company is obligated to pay Hawaii general excise
tax, property taxes, insurance and maintenance costs.
Total rent expense, including property taxes, aggregated $1,270,000,
$1,078,000 and $1,159,000 in 1995, 1994 and 1993, respectively.
Legal Matters
In 1994, a former employee of South Seas Motors, Inc. filed a claim
against the Company seeking damages allegedly sustained as a result of
discrimination based upon her age and gender. In early 1996, the case
was tried and resulted in a jury verdict of approximately $1.8 million,
comprised of $150,000 in past wages, $800,000 in future lost income,
$325,000 in general damages and $500,000 in punitive damages.
F-28
<PAGE> 63
Pacific International Services Corp.
Notes to Consolidated Financial Statements
December 31, 1995 and 1994
The claim was insured through the Company's insurance carrier with
policy limits of $500,000. The insurance carrier hired counsel to
defend the Company in the initial trial and has authorized an appeal
from judgment and has secured appellate counsel to assist in this
regard. The insurance carrier has informed the Company that it intends
to post a bond in the amount determined by the court in order to appeal
the verdict. Post-trial motions are expected to be filed, including a
motion for a new trial. In addition, the insurance carrier is making
an effort to settle the case currently. At December 31, 1995, the
Company has recorded a receivable and corresponding liability of
$500,000 representing the policy limit.
Management is unable to make a meaningful estimate of the amount or
range of loss that could result from an unfavorable outcome of this
case. It is possible that the Company's results of operations or cash
flows could be materially affected by an ultimate unfavorable outcome.
However, based on discussions with legal counsel and the insurance
carrier's representations, management believes that the Company's
exposure for damages in excess of the policy limits are minimal.
Accordingly, the Company has not provided a reserve in excess of the
$500,000 policy limit.
The Company is a party to various other claims and legal actions which
are incidental to the conduct of its business. In the opinion of
management, after consultation with legal counsel, the ultimate
disposition of these matters will not have a material adverse effect on
the Company's operations or financial condition.
Other
The Company from time to time enters into agreements pursuant to which
it remains contingently liable for loans made to certain retail
purchasers of vehicles. As of December 31, 1995, the balance of these
loans for which the Company and its subsidiaries are contingently
liable totaled $265,000. In general, the Company may not be called
upon to make a payment under these agreements unless it obtains
possession of the vehicle. The Company may then pursue its rights
against the retail customer, who is the primary obligor under each
vehicle loan.
In connection with the sale of the vehicle rental division to Dollar,
the Company pledged 100% of the stock of its subsidiary, South Seas
Motors, Inc., to secure the representations and warranties under the
Settlement Agreement for a period of one year from the closing date of
December 21, 1995.
F-29
<PAGE> 64
Pacific International Services Corp. Schedule II
Valuation and Qualifying Accounts
For the Three Years Ended December 31, 1995
<TABLE>
<CAPTION>
Balance at Charged Balance
Beginning to at End
of Year Expense Deductions of Year
<S> <C> <C> <C> <C>
1995
Allowance for doubtful accounts $1,278,000 $ 266,765 $1,228,598 $ 316,167
========== ========== ========== ==========
Allowance for finance reserve
chargeback $ -- $ 335,624 $ -- $ 335,624
========== ========== ========== ==========
Reserve for self-insurance $3,011,200 $ -- $3,011,200 $ --
========== ========== ========== ==========
Reserve for vehicle losses $ 978,300 $ -- $ 978,300 $ --
========== ========== ========== ==========
1994
Allowance for doubtful accounts $1,271,000 $ 489,000 $ 482,000 $1,278,000
========== ========== ========== ==========
Reserve for self-insurance $2,807,300 $2,267,465 $2,063,565 $3,011,200
========== ========== ========== ==========
Reserve for vehicle losses $ 318,700 $1,137,900 $ 478,300 $ 978,300
========== ========== ========== ==========
1993
Allowance for doubtful accounts $1,496,000 $ 362,000 $ 587,000 $1,271,000
========== ========== ========== ==========
Reserve for self-insurance $2,849,200 $3,158,685 $3,200,585 $2,807,300
========== ========== ========== ==========
Reserve for vehicle losses $ 605,900 $ 234,400 $ 521,600 $ 318,700
========== ========== ========== ==========
</TABLE>
F-30
<PAGE> 1
EXHIBIT 10.68
ASSUMPTION AGREEMENT
THIS AGREEMENT is made this 1st day of July, 1995, by and
between SOUTH SEAS MOTORS, INC., a Hawaii corporation (the "Company") and ALAN
ROBIN (the "Employee).
RECITALS:
A. Employee is the President and Chief Executive Officer
of the Company.
B. Employee is the President and Chief Executive Officer
of Pacific International Services Corp., a California corporation ("PISC") .
C. The Company is a wholly-owned subsidiary of PISC.
D. Employee and PISC have entered into that certain
Amended Employment Agreement dated effective January 1, 1995 (the "Employment
Agreement").
E. In his capacity as President and Chief Executive
Officer of the Company, Employee performs substantial services to and for
benefit of the Company.
F. The Company will derive a substantial benefit from
the Employment Agreement and is willing to assume the obligations of PISC
thereunder, jointly and severally with PISC.
NOW, THEREFORE, in consideration of the services performed by
Employee to and for the benefit of the Company, the Company hereby assumes and
agrees to observe and perform (jointly and severally with PISC) each and every
duty, agreement and obligation on the part of PISC to be observed or performed
under the Employment Agreement, including but not limited to the payment of any
amounts due and payable thereunder. Notwithstanding the foregoing, the
Company's assumption hereunder shall be limited to the assumption of the
obligations of PISC, under the Employment Agreement for a period of three (3)
years, commencing on July 1, 1995 and ending on June 30, 1998. Nothing herein
shall affect the employment relationship between PISC and Employee, and such
dual employment shall not result in any increase in Employee's compensation or
benefits under the Employment Agreement. Unless otherwise determined by the
Company, Employee shall continue to receive all of his compensation and
benefits under the Employment Agreement from PISC.
Employee hereby consents to the assumption of the Employment
Agreement by the Company, provided that such consent shall not be construed as
a waiver of any term, covenant or condition contained in the Employment
Agreement.
-1-
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this instrument
as of the date first above written.
SOUTH SEAS MOTORS, INC.
By /s/ RICHARD BAUMAN
------------------------------------
Its VICE PRESIDENT CFO
THE "Company"
/s/ ALAN ROBIN
--------------------------------------
ALAN ROBIN
"Employee"
-2-
<PAGE> 1
EXHIBIT 10.69
FIRST AMENDMENT TO AMENDED EMPLOYMENT AGREEMENT
IS AGREEMENT is entered into as of the 1st day of November, 1995, by
and between PACIFIC INTERNATIONAL SERVICES CORP. ("PISC"), a California
corporation, and ALAN M. ROBIN ("Employee").
RECITALS:
A. PISC and Employee have entered into that certain Amended
Employment Agreement dated effective January 1, 1995 (the "Employment
Agreement").
B. PISC and Dollar Systems, Inc. ("Dollar") have entered into
that certain Settlement Agreement dated July 18, 1995, as amended (the
"Settlement Agreement"), pursuant to which PISC will sell and Dollar will
purchase substantially all of the assets and liabilities of its rental car
division (the "Division").
C. Section 3(b) of the Settlement Agreement requires Employee to
execute a Noncompetition Agreement, pursuant to which Employee shall obligate
himself not to compete with or solicit against Dollar for a period of thirty
(30) months from the closing of the transfer of the Division to Dollar (the
"Closing Date").
D. In order to induce Employee to execute the Noncompetition
Agreement and in consideration therefor, PISC and Employee desire to amend the
Employment Agreement as set forth herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. A new Section 15 shall be added to the Employment Agreement
as follows:
Change in Control Termination Right. During the period
commencing on the date immediately following the Closing Date and
terminating on the last day of the thirtieth (30th) calendar month
following the month in which the Closing Date occurs, Employee shall
be entitled to terminate this Agreement voluntarily in the event of a
Material Adverse Change (as hereinafter defined) occurring after a
Change of Control of PISC (as hereinafter defined). For purposes of
this Agreement, a Material Adverse Change shall mean a material change
in Employee's title, responsibility, authority, fringe benefits or
geographic work station or a failure of PISC to obtain a satisfactory
agreement from any successor to assume and agree to perform the
Employment Agreement. For purposes of this Agreement, a Change of
Control shall be deemed to occur on (a) the
-1-
<PAGE> 2
date the shareholders of PISC approve the merger or consolidation of
PISC with a corporation which is not an affiliate (as defined in
Regulation S-X promulgated under the Securities Act of 1933, as
amended) of PISC, in which PISC is not the surviving corporation or
pursuant to which shares of PISC stock would be converted into cash,
securities or other property of another corporation, or the sale or
other disposition of substantially all the assets of PISC; or (b) the
date on which there is a change in a majority of the Board of
Directors of PISC, unless the nomination for election of each new
director comprising a majority was approved by the vote of a majority
of the directors then still in office who were in office as of the
Closing Date.
Upon such voluntary termination by Employee, Employee shall be paid a
lump sum amount equal to two hundred percent of Employee's base annual
salary in effect at the time of the voluntary termination, reduced by
three and one-third percent (3-1/3%) of such base annual salary for
each full month which has passed since the Closing Date (the
"Termination Payment"); provided, however, that the Termination
Payment shall in no event be less than one hundred percent (100%) of
Employee's base annual salary in effect at the time of the voluntary
termination by Employee hereunder. Notwithstanding anything to the
contrary contained in this Agreement, upon such voluntary termination
by Employee, Employee shall be entitled receive the Termination
Payment and any accrued but unpaid salary and benefits as of date of
termination, but nothing more under this Agreement or under the
Employment Agreement.
2. Except as expressly set forth herein, the Employment Agreement
shall remain unchanged and shall continue in full force and effect.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first above written.
PACIFIC INTERNATIONAL SERVICES CORP.
By /s/ RAY MIYASHIRO
-------------------------------------
Member of the Compensation Committee
of the Board of Directors
By /s/ GEORGE HETHERINGTON
-------------------------------------
Member of the Compensation Committee
of the Board of Directors
"PISC"
/s/ ALAN ROBIN
---------------------------------------
ALAN M. ROBIN
"Employee"
-3-
<PAGE> 1
EXHIBIT 10.70
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the 15th day of May, 1995 (the
"Effective Date"), between PACIFIC INTERNATIONAL SERVICES CORP. ("PISC"), a
California corporation, and RICHARD BAUMAN ("Employee").
The parties hereby agree as follows:
1. Employment.
(a) PISC hereby employs Employee in the capacity of Vice
President, Secretary and Chief Financial Officer for a term of two (2) years,
commencing on the Effective Date hereof and terminating on May 14, 1997,
subject to earlier termination as hereinafter provided.
(b) During the entire term of this Agreement, Employee
shall devote such time, energies, and skills to the management of PISC's
business as may be reasonably necessary to carry out his duties hereunder.
(c) In the course of Employee's employment, it is
anticipated that Employee may, from time to time, be allowed access to
confidential records owned by PISC and used in the course of this business.
During Employee's employment by PISC and thereafter, Employee shall not
directly or indirectly disclose or use any such information, except as required
in the course of such employment. All records, files, documents, and the like,
relating to PISC's business, which Employee shall prepare or use, or come into
contact with, shall be and remain PISC's sole property.
2. Salary.
During the term of this Agreement, PISC shall pay to Employee a
monthly salary of Ten Thousand Dollars ($10,000), payable in bi-weekly or in
such other installments on the payroll dates established for PISC's senior
level employees, all payments being subject to the deduction of such payroll
taxes and similar assessments as required by law.
3. Bonus and Stock Option.
(a) In addition to the salary provided in Paragraph 2
hereof, Employee shall be eligible for any discretionary bonuses awarded by the
Board of Directors of PISC.
(b) PISC shall reimburse Employee from time to time for
all reasonable travel and entertainment expenses incurred in connection with
the performance of Employee's duties under this Agreement upon submission to
PISC of reasonably sufficient supporting vouchers.
<PAGE> 2
4. Benefits.
PISC will provide Employee with the following benefits and
perquisites:
(a) The use of one PISC owned vehicle;
(b) The use of an apartment in Honolulu, Hawaii;
(c) An allowance of $800.00 per month to be used for
travel to Employee's home in Illinois.
5. Vacations.
Employee shall be entitled to paid vacation of four (4) weeks
annually, which may be taken at such times during the year which are mutually
satisfactory to the President of PISC and to Employee.
6. Termination.
This Agreement shall terminate upon the occurrence of any of the
following:
(a) The expiration of the term provided for in Paragraph
1;
(b) The death of Employee;
(c) The permanent disability of Employee, as defined in
Paragraph 8; or
(d) For cause, at the option of PISC, as provided for in
Paragraph 7.
However, nothing contained in this paragraph shall be construed to
abrogate the payment by PISC to Employee or Employee's personal representative,
or Employee's heirs, as the case may be, of any benefit which accrued prior to
termination.
7. Termination for Cause.
PISC may terminate this Agreement at any time:
(a) in the event that Employee is charged by any federal,
state or local authority with:
(i) Any act constituting a felony involving moral turpitude;
(ii) Narcotics addiction;
-2-
<PAGE> 3
(iii) Habitual intemperance; or
(iv) Any act of dishonesty against PISC
and Employee is either convicted or pleads guilty or nolo contendere to such
charge or,
(b) In the event the Employee has committed an act of
willful misconduct which has a material adverse effect on the operations,
profits or business of PISC.
(c) Such election under subparagraph (a) or (b) above
shall be made by giving Employee written notice to that effect by certified or
registered mail at Employee's last known address, or by delivering such notice
to Employee in person.
(d) The waiver by PISC of any such acts of Employee
referred to in subparagraph (a) or (b) above shall not be construed as a waiver
of any subsequent, similar or dissimilar breach by Employee.
8. Permanent Disability.
The term "permanent disability" as used in this Agreement shall mean
six (6) months of substantially continuous disability. Disability shall be
deemed "substantially continuous" if, as a practical matter, Employee, by
reason of mental or physical health, is unable to sustain reasonably long
periods of substantial performance of his duties. Frequent long illnesses,
though different from the preceding illness and though separated by relatively
short periods of performance shall be deemed to be "substantially continuous."
In the event of any dispute concerning the "permanent disability" of Employee,
then PISC and Employee shall each select a doctor authorized to practice
medicine in the State of Hawaii, the two doctors so selected shall select a
third doctor and the three doctors shall examine Employee. The determination
of a majority of the three doctors concerning whether or not Employee is
"permanently disabled" as provided in this paragraph shall be conclusive and
binding upon the parties. The aforesaid selection shall be made within thirty
(30) days after notice to PISC by Employee that he disputes PISC's
determination that he is permanently disabled and the physical examinations and
determinations of the doctors shall be rendered within sixty (60) days
thereafter. In the event that either PISC or Employee fails to select a doctor
within the prescribed period, then they shall be deemed to have waived such
right and the determination hereunder regarding disability shall be made by the
sole doctor selected. During any period of disability, Employee's base salary
shall be reduced by any payments Employee received under his disability
insurance policy.
-3-
<PAGE> 4
9. Termination Without Cause.
In the event Employee's employment with the Company is terminated
without cause, Employee shall be entitled to recover, as his sole remedy for
any breach of this Agreement or for any other claim relating thereto as
liquidated damages, the salary he would have been entitled to receive during
the remaining term of this Agreement as set forth in Section 2 hereof had this
Agreement continued until its expiration date, in the installments and at the
times provided in Section 2 hereof, and nothing else.
10. Noncompete.
During the term of this Agreement, Employee shall not, without the
prior written consent of PISC, directly or indirectly own, manage, operate,
control, be employed by, or agree to become employed by, or connected in any
manner with the ownership, management, operation or control of, any person,
firm, corporation or other entity in the vehicle rental business in the State
of Hawaii.
11. Notices.
All notice necessary or appropriate under this Agreement shall be
effective when personally delivered or when deposited in the United States mail
postage prepaid, certified or registered, return receipt requested, and
addressed to the last known address of the party to whom such notice is given.
12. Law.
This Agreement is subject to and shall be governed solely by the laws
of the State of Hawaii.
13. Severability.
The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all aspects as if such invalid or unenforceable provision
were omitted.
14. Arbitration.
If any claim, dispute or controversy should arise between PISC and
Employee with respect to their obligations under, any alleged breach of, or the
interpretation of, this Agreement, either PISC or Employee may demand that the
dispute be settled by arbitration before a single arbitrator in Honolulu,
Hawaii, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association or its successor. The award of the arbitrator shall be
final and binding and judgment upon
-4-
<PAGE> 5
the award may be entered in accordance with Hawaii Revised Statutes Chapter
658, as amended, in any court having jurisdiction thereof. This procedure
shall be the exclusive means of settling any disputes that may arise under this
Agreement. The costs of arbitration shall be shared equally between the
parties, with each party being responsible for its/his attorneys' fees and
witness expenses.
Executed at Honolulu, Hawaii, as of the date first above written.
PACIFIC INTERNATIONAL SERVICES
CORP.
By /s/ ALAN ROBIN
____________________________________
Its President
"PISC"
/s/ RICHARD BAUMAN
---------------------------------------
RICHARD BAUMAN
"Employee"
-5-
<PAGE> 1
Exhibit 10.71
ASSUMPTION AGREEMENT
THIS AGREEMENT is made this 1st day of July, 1995, by and between SOUTH
SEAS MOTORS, INC., a Hawaii corporation (the "Company") and RICHARD BAUMAN (the
"Employee").
RECITALS:
A. Employee is the Vice President, Secretary and Chief Financial
officer of the Company.
B. Employee is the Vice President, Secretary and Chief Financial
Officer of Pacific International Services Corp., a California corporation
("PISC").
C. The Company is a wholly-owned subsidiary of PISC.
D. Employee and PISC have entered into that certain Employment
Agreement dated effective May 15 1995 (the "Employment Agreement").
E. In his capacity as Vice President, Secretary and Chief
Financial officer of the Company, Employee performs substantial services to and
for benefit of the Company.
F. The Company will derive a substantial benefit from the
Employment Agreement and is willing to assume the obligations of PISC
thereunder, jointly and severally with PISC.
NOW, THEREFORE, in consideration of the services performed by Employee
to and for the benefit of the Company, the Company hereby assumes and agrees to
observe and perform (jointly and severally with PISC) each and every duty,
agreement and obligation on the part of PISC to be observed or performed under
the Employment Agreement, including but not limited to the payment of any
amounts due and payable thereunder. Notwithstanding the foregoing, the
Company's assumption hereunder shall be limited to the assumption of the
obligations of PISC under the Employment Agreement during the period commencing
on July 1, 1995 and ending on the expiration of the initial term of the
Employment Agreement. Nothing herein shall affect the employment relationship
between PISC and Employee, and such dual employment shall not result in any
increase in Employee's compensation or benefits under the Employment Agreement.
Unless otherwise determined by the Company, Employee shall continue to receive
all of his compensation and benefits under the Employment Agreement from PISC.
Employee hereby consents to the assumption of the Employment Agreement
by the Company, provided that such consent shall not be construed as a waiver
of any term, covenant or condition contained in the Employment Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this instrument as of
the date first above written.
SOUTH SEAS MOTORS, INC.
By /s/ ALAN ROBIN
------------------------------------
Its President
the "Company"
/s/ RICHARD BAUMAN
--------------------------------------
RICHARD BAUMAN
-2-
<PAGE> 1
EXHIBIT 11
Pacific International Services Corp
Computation of Earnings (Loss) Per Common Share
And Common Share Equivalents
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C>
Continuing operations $(1,066,372) $ (4,357) $ 168,023
Discontinued operations (946,684) (1,423,104) (972,085)
Extraordinary items 2,407,873 -- --
----------- ----------- ---------
Net income (loss) $ 394,817 $(1,427,461) $(804,062)
=========== =========== =========
Primary and fully diluted earnings per share
Weighted average common shares outstanding 8,235,150 8,079,800 9,009,300
Weighted average common share equivalents
outstanding -- -- --
----------- ----------- ---------
8,235,150 8,079,800 9,009,300
=========== =========== =========
Income (loss) per common and common
equivalent share
Continuing operations $ (0.13) $ -- $ 0.02
Discontinued operations (0.11) (0. 18) (0.11)
Extraordinary items 0.29 -- --
----------- ----------- ---------
Net income (loss) $ 0.05 $ (0.18) $ (0.09)
=========== =========== =========
</TABLE>
<PAGE> 1
Pacific International Services Corp. Exhibit 21
Subsidiaries as of December 31, 1995
<TABLE>
<S> <C> <C>
Name: South Seas Motors, Inc.
State of incorporation: Hawaii
Name(s) under which subsidiary does business: South Seas Jeep Eagle
Oahu Chrysler Jeep
Name: Inactive: Compact Rent A Car, Inc.
State of incorporation: Hawaii
Name(s) under which subsidiary does business: Compact Rent A Car, Inc.
Name: Inactive: Hawaii Truck Rental & Leasing, Inc.
State of incorporation: Hawaii
Name(s) under which subsidiary does business: Hawaii Truck Rental & Leasing, Inc.
Name: Inactive: South Seas, Inc.
State of incorporation: Hawaii
Name(s) under which subsidiary does business: South Seas Mitsubishi
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 522
<SECURITIES> 0
<RECEIVABLES> 2,981
<ALLOWANCES> 0
<INVENTORY> 9,070
<CURRENT-ASSETS> 0
<PP&E> 4,920
<DEPRECIATION> (1,630)
<TOTAL-ASSETS> 16,748
<CURRENT-LIABILITIES> 14,159
<BONDS> 0
0
0
<COMMON> 1,323
<OTHER-SE> 1,266
<TOTAL-LIABILITY-AND-EQUITY> 16,748
<SALES> 44,994
<TOTAL-REVENUES> 44,994
<CGS> 34,674
<TOTAL-COSTS> 45,839
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 122,000
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,066)
<DISCONTINUED> (947)
<EXTRAORDINARY> 2,408
<CHANGES> 0
<NET-INCOME> 395
<EPS-PRIMARY> 0
<EPS-DILUTED> .05
</TABLE>
