1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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Commission file number 0-11404
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PACIFIC INTERNATIONAL SERVICES CORP.
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(Exact name of registrant as specified in its charter)
California 95-2877371
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1600 Kapiolani Blvd., Suite 825, Honolulu, Hawaii
- - - - -------------------------------------------------
(Address of principal executive office)
Registrant's telephone number, including area code (808) 926-4242
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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
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Indicate the number of shares outstanding for each of the issuer's classes of
common stock, as of the latest practicable date.
Class Shares outstanding at May 11, 1995
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Common Stock 8,079,800
Page 1 of 13
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PACIFIC INTERNATIONAL SERVICES CORP.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . . 5
Note to Condensed Consolidated Financial Statements . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . 11
Computation of Earnings Per Common Share . . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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3
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 1995 December 31, 1994
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(Unaudited)
ASSETS
Cash and cash equivalents $ 1,528,126 $ 831,952
Receivables, net 13,104,880 10,023,512
Automobile dealership vehicle
inventories 9,630,189 4,961,600
Inventories and prepaid expenses 1,340,852 899,453
Rental vehicles, at cost, less
accumulated depreciation 20,823,226 42,367,410
Furniture, equipment and
leasehold improvements, net
of accumulated depreciation
and amortization 7,815,703 8,149,846
Other assets 2,083,857 2,038,462
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Total assets $56,326,833 $69,272,235
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 7,422,291 $ 5,744,507
Accrued expenses and other liabilities 7,863,095 8,152,270
Senior debt 34,078,593 48,034,463
Convertible subordinated debentures 5,250,000 5,250,000
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Total liabilities 54,613,979 67,181,240
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Preferred stock with 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 8,079,800 shares 807,980 807,980
Additional paid-in capital 9,102,181 9,102,181
Accumulated deficit (8,197,307) (7,819,166)
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Total shareholders' equity 1,712,854 2,090,995
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Total liabilities and shareholders'
equity $56,326,833 $69,272,235
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See accompanying Note to Condensed Consolidated Financial Statements. Page 3
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PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
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1995 1994
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Operating revenues:
Vehicle rental $12,614,472 $13,901,568
Vehicle sales 10,746,492 10,105,385
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Total operating revenues 23,360,964 24,006,953
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Operating costs and expenses:
Cost of vehicles sold 8,069,753 7,483,095
Depreciation of rental vehicles 1,814,556 1,090,231
Interest on fleet debt 901,018 624,953
Other direct fleet 2,821,558 3,832,733
Personnel 3,395,927 3,566,336
Occupancy 2,163,308 2,146,594
Other direct operating 2,602,772 2,876,513
Other selling, general and
administrative 1,782,008 1,665,683
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Total operating costs and expenses 23,550,900 23,286,138
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Income (loss) from operations (189,936) 720,815
Interest income 9,065 9,545
Other interest expense (197,270) (200,584)
Other, net - (18,157)
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Net income (loss) $ (378,141) $ 511,619
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Earnings (loss) per common share: $ (0.05) $ 0.06
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See accompanying Note to Condensed Consolidated Financial Statements Page 4
5
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
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1995 1994
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Cash flows from operating activities:
Net income (loss) $ (378,141) $ 511,619
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Gain on sale of rental vehicles (692,591) (16,548)
Depreciation of rental vehicles and
amortization of related costs 2,673,152 2,010,492
Depreciation and amortization, other 298,059 237,537
Provision for losses on rental vehicles 112,801 264,746
Provision for losses on receivables 299,105 88,130
Provision for self-insurance 319,876 415,582
Change in assets and liabilities:
Receivables (3,380,473) (1,097,460)
Automobile dealership vehicle inventories (4,668,589) 854,720
Inventories, prepaid expenses
and other assets (486,794) (194,001)
Accounts payable 1,677,784 402,451
Accrued expenses and other liabilities (609,051) 270,729
Notes payable for automobile
dealership vehicle inventories 9,086,823 3,530,381
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Net cash provided by
operating activities 4,251,961 7,278,378
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Cash flows from investing activities:
Proceeds from the sale of rental vehicles 7,336,554 2,222,106
Purchases of rental vehicles (166,373) (436,789)
Proceeds from the sale of furniture,
equipment and leasehold improvements 160,475 -
Additions to furniture, equipment and
leasehold improvements (124,391) (399,604)
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Net cash provided by
investing activities 7,206,265 1,385,713
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Cash flows from financing activities:
Principal payments of senior debt (10,762,052) (8,401,567)
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Net cash used in
financing activities (10,762,052) (8,401,567)
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Net increase (decrease) in cash 696,174 262,524
Cash and cash equivalents at beginning of period 831,952 1,719,123
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Cash and cash equivalents at end of period $ 1,528,126 $ 1,981,647
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See accompanying Note to Condensed Consolidated Financial Statements Page 5
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PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATMENTS OF CASH FLOWS, continued
Supplemental schedule of noncash investing and financing activities:
Three Months Ended March 31,
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1995 1994
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Senior debt incurred for additions
to rental vehicles $ 85,664 $ 6,292,162
Senior debt incurred from conversion of
lease obligations $ - $ 1,400,000
Rental vehicle purchases not
yet financed $ 7,974 $ 9,560
Reduction of senior debt resulting from
turnback of rental vehicles $(12,374,279) $(13,755,829)
Capital lease obligation incurred
from purchase of equipment $ - $ 22,923
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PACIFIC INTERNATIONAL SERVICES CORP.
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
In the opinion of management, the unaudited financial information
included in this report contains all adjustments, consisting of normal
recurring adjustments only, necessary for a fair presentation of the
results of operations for the interim periods covered and the financial
condition of the Company at the dates of the balance sheets. The
operating results for the interim periods are not necessarily indicative
of the results to be expected for the full fiscal year. The accounting
policies followed by the Company are set forth in Note 1 to the financial
statements included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1994.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Pacific International Services Corp. (the "Company") reported a consolidated
net loss of $378,000 or $.05 per share for the first quarter of 1995, compared
to net income of $512,000 or $.06 per share for the same quarter last year.
Operating revenues from the Company's vehicle rental division totaled
$12,614,000 for the three months ended March 31, 1995, compared with
$13,902,000 for the same period in 1994. The decrease in revenue for the
quarter was a direct result of lower vehicle rental day volume compared to the
same period in 1994. Contributing factors to the volume decrease in the first
quarter of 1995 versus 1994 were a decrease in the number of visitors from
California over the last 45 days of the quarter and a significant reduction in
Canadian visitors throughout the entire quarter, and the fact that Dollar
Systems was in the process of redeveloping its advertising and marketing
strategies.
Total direct fleet holding costs which include lease payments, depreciation,
interest, car sales and other fleet expenses (freight, dealer profit and
license) were comparable for the three months ended March 31, 1995 to the same
period in 1994. However, fleet holding costs incurred over the three month
period in 1995 were based on an average of 800 less vehicles per month in the
Company's available rental fleet compared to the first three months of 1994
reflecting the fact that holding costs on a per unit basis continue to increase
significantly.
The Company is attempting to reduce fleet holding costs by purchasing
economically priced Hyundai vehicles for its rental fleet. There were
approximately 900 Hyundai vehicles (approximately 17%) in the Company's rental
fleet as of March 31, 1995. The Company's competitors are also subject to
increased fleet costs which has caused an increase in vehicle rental rates in
Hawaii. Although the Company has been successful in increasing its average
daily rental yield and remains competitive, there is no assurance that the
Company will be successful in passing on its entire fleet cost increase to its
customers. An inability to recover all the increasing costs would have an
adverse effect on the Company's operations.
The Company's vehicle sales operations generated revenues of $10,746,000 for
the three months ended March 31, 1995, as compared with $10,105,000 for the
same period in 1994. Price increases on new vehicle sales accounted for most
of the increase in revenue, as unit sales of new cars and trucks remained flat.
Operating expenses related to the Company's vehicle sales operations increased
from prior year levels in proportion to the revenue increase.
Page 8
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FINANCIAL CONDITION
In March 1995, the Company obtained a commitment, in principle, from Dollar
Systems for certain assistance related to the Company's vehicle rental
operations (the "1995 Assistance Commitment"). Pursuant to the terms of this
commitment: (i) Dollar Systems will reduce the fees payable under the License
for the period from January 1, 1995 to December 31, 1995; (ii) Dollar Systems
will provide certain credits related to return freight on 1994 and 1995 model
year vehicles; (iii) the Company's receivable from the sale of Asian rights
will be decreased; and (iv) Dollar Systems will accept a $3,000,000 convertible
note from the Company. The 1995 Assistance Commitment contemplates that in the
event of a default by the Company of its obligations to Dollar Systems, Dollar
Systems will have an option to convert the outstanding indebtedness due from
the Company to acquire up to 55% of the outstanding common stock of the
Company.
The note will be collateralized by mortgage liens on and security interests in
all of the Company's assets. The principal sum due under the note will
represent current balances due to Dollar Systems which include outstanding
fleet charges and franchise and miscellaneous system fees. Terms of the note
will include: (i) interest charged at 2% over prime, with interest only
payments due monthly for the first two years; (ii) monthly principal and
interest payments of $50,000 commencing May 1, 1997 for three years with the
balance of the note due April 1, 2000; and (iii) payments to Dollar Systems for
net increases, if any, in the Company's cash balances at December 31, 1995 and
1996 over December 31, 1994.
The Company has received and will receive substantial economic benefits under
certain assistance agreements and commitments from Dollar Systems which attempt
to (i) provide parity with other Dollar Systems' licensees located on the U.S.
mainland and (ii) make the Company competitive with the "corporate store"
rental companies doing business in Hawaii. Due to factors including but not
limited to the Company's geographic location and financial condition, there is
no assurance that such assistance will make the Company profitable or that the
Company will not need future financial assistance, notwithstanding management's
implementation of various cost-cutting programs and shifts in customer base and
mix. Although Dollar Systems has assisted the Company in addressing cash flow
implications of various licensor-licensee transactions during 1994 and in 1995,
there is no assurance of continuing support from Dollar Systems.
Management has taken action to reduce controllable costs including labor and
other operating expenses. In response to higher fleet costs, the Company has
increased its efforts to maintain higher fleet utilization, improve average
daily yield by raising rates and offering additional optional products at its
rental counters, reduce rental fleet holding costs by adding lower cost Hyundai
vehicles to its rental fleet, and improve the Company's cash flow by securing
additional financial assistance from Dollar Systems during 1995.
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During the quarter, the Company generated positive cash flow through profitable
sales of approximately 700 risk vehicles from its rental fleet realizing
profits of approximately $600,000. ("Risk vehicles" are vehicles purchased
outside of repurchase or guaranteed depreciation programs whereby the Company
is responsible for vehicle disposition.) The increase in the Company's
receivables is a direct result of these risk vehicle sales.
The Company's South Seas subsidiary continues to be profitable. Management
does not anticipate experiencing difficulties in obtaining Chrysler inventory
in 1995 and expects this subsidiary to operate on internally generated capital.
The Company's primary source of capital for financing its rental vehicle fleet
has traditionally been through borrowings from manufacturer financing
affiliates, banks and other lenders. The Company maintains credit lines with
General Motors Acceptance Corp. ($20,000,000), FINOVA Capital Corporation
($15,000,000), Ford Motor Credit Company ($7,500,000), and Bank of Hawaii
($3,645,000). The following amounts were outstanding under each respective
line of credit at March 31, 1995, $4,499,000, $12,158,000, $6,793,000, and
$1,758,000. The Company finances its automobile dealership vehicle inventories
through a $13,500,000 line of credit with Chrysler Credit Corporation, of which
$9,494,000 remains outstanding as of March 31, 1995.
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PART 11. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits noted herein as previously filed are
hereby incorporated as an exhibit to this document by
this reference as though set forth herein:
Exhibit 11 - Statement re: Computation of Earnings
Per Share
(b) None
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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 of the undersigned thereunto duly authorized.
PACIFIC INTERNATIONAL SERVICES CORP.
By /s/ Alan M. Robin
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Alan M. Robin
President and Chief Executive Officer
By /s/ Darrel Hoke
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Darrel Hoke Director of Finance
(Principal Financial Officer)
By /s/ Tyrus Kawashima
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Tyrus Kawashima
Controller and
Chief Accounting Officer
May 8, 1995
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