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 September 30, 1995
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Commission file number 0-11404
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PACIFIC INTERNATIONAL SERVICES CORP.
(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
--- ---
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 November 14, 1994
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Common Stock 8,079,800
Page 1 of 14
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PACIFIC INTERNATIONAL SERVICES CORP.
INDEX
PART I. FINANCIAL INFORMATION Page
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Item 1. Condensed Consolidated Balance Sheets.................. 3
Condensed Consolidated Statements of Operations........ 4
Condensed Consolidated Statements of Operations........ 5
Condensed Consolidated Statements of Cash Flows........ 6
Note to Condensed Consolidated Financial Statements.... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................... 13
Computation of Earnings Per Common Share............... 14
Signatures............................................. 15
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PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 1995 December 31, 1994
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(Unaudited)
ASSETS
Cash and cash equivalents $ 1,082,853 $ 831,952
Receivables, net 10,570,176 10,023,512
Automobile dealership vehicle
inventories 7,922,345 4,961,600
Inventories and prepaid expenses 1,216,688 899,453
Rental vehicles, at cost, less
accumulated depreciation 6,773,343 42,367,410
Furniture, equipment and
leasehold improvements, net
of accumulated depreciation
and amortization 7,530,374 8,149,846
Other assets 2,001,423 2,088,462
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Total assets $ 37,097,202 $69,272,235
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LIABILITIES AND SHAEHOLDERS' EQUITY
Accounts payable $ 8,761,148 $ 5,744,507
Accrued expenses and other liabilities 6,148,293 8,152,270
Senior debt 17,285,221 48,034,463
Convertible subordinated debentures 5,250,000 5,250,000
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Total liabilities 37,444,662 67,181,240
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Preferred stock with no par value,
authorized 15,000,000 shares; none is -- --
Common stock, stated value
$0.10 pe 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 (10,257,621) (7,819,166)
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Total shareholders' equity (347,460) 2,090,995
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Total liabilities and shareholders'
equity $ 37,097,202 $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 September 30,
--------------------------------
1995 1994
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Operating revenues:
Vehicle rental $13,316,356 $14,871,537
Vehicle sales 11,560,818 9,983,088
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Total operating revenues 24,877,174 24,854,625
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Operating costs and expenses:
Cost of vehicles sold 8,722,269 7,333,551
Depreciation of rental vehicles 1,547,141 1,907,942
Interest on fleet debt 330,459 665,125
Other direct fleet 4,222,125 2,545,219
Personnel 3,310,346 3,506,238
Occupancy 2,293,928 2,294,794
Other direct operating 2,810,230 3,879,971
Other selling, general and
administrative 1,867,433 1,901,147
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Total operating costs and expenses 25,103,931 24,033,987
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Income from operations (226,757) 820,638
Interest income 5,974 14,418
Other interest expense (240,057) (225,085)
Other, net - (29,853)
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Net income (460,840) 580,118
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Earnings per common share: $ (0.06) $ 0.07
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See accompany Note to Condensed Consolidated Financial Statement Page 4
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PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
September 30,
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1995 1994
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Operating revenues:
Vehicle rental $37,851,906 $42,056,236
Vehicle sales 34,258,179 30,917,012
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Total operating revenues 72,110,085 72,973,248
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Operating costs and expenses:
Cost of vehicles sold 25,916,541 23,180,748
Depreciation of rental vehicles 4,755,283 4,809,280
Interest on fleet debt 1,723,454 1,807,566
Other direct fleet 11,142,895 7,995,644
Personnel 10,046,428 10,822,994
Occupancy 6,605,209 6,597,923
Other direct operating 8,253,730 10,476,860
Other selling, general and
administrative 5,579,768 5,506,375
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Total operating costs and expenses 74,023,308 71,197,390
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Income from operations (1,913,223) 1,775,858
Interest income 26,042 39,685
Other interest expense (683,312) (655,576)
Other, net 132,040 (65,865)
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Net income $(2,438,453) $ 1,094,102
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Earnings per common share: $ (0.30) $ 0.13
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See accompanying Note to Condensed Consolidated Financial Statements Page 5
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PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
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1995 1994
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Cash flows from operating activities:
Net income (loss) $(2,438,453) $ 1,094,102
Adjustments to reconcile net
income to net cash provided
by operating activities:
Loss on sale of rental vehicles 692,941 294,227
Depreciation of rental vehicles and
amortization of related costs 5,055,561 6,488,919
Depreciation and amortization, other 881,414 789,313
Provision for losses on rental vehicles 830,255 984,918
Provision for losses on receivables 453,821 218,039
Provision for self-insurance 103,994 1,676,067
Change in assets and liabilities:
Receivables (1,000,485) (1,556,161)
Automobile dealership vehicle
inventories (2,960,745) 1,117,755
Inventories, prepaid exp. and other
assets (280,196) (336,072)
Accounts payable 3,016,641 1,035,836
Accrued expenses and other liabilities (2,107,921) (2,881,208)
Notes payable for automobile
dealership vehicle inventories 16,246,957 11,215,588
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Net cash provided by
operating activities 18,493,784 20,141,323
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Cash flows from investing activities:
Proceeds from the sale of rental vehicles 11,955,943 8,954,302
Purchases of rental vehicles (536,879) (1,446,985)
Proceeds from the sale of furniture,
equipment, and leasehold improvement 160,476 --
Additions to furniture, equipment and
leasehold improvements (326,433) (1,277,623)
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Net cash used in
investing activities 11,253,107 6,229,694
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Cash flows from financing activities:
Principal payments of senior debt (29,495,990) (26,566,287)
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Net cash used in
financing activities (29,495,990) (26,566,287)
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Net increase (decrease) in cash 250,901 (195,270)
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 $ 1,082,853 $ 1,523,853
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See accompanying Note to Condensed Consolidated Financial Statements Page 6
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PACIFIC INTERNATIONAL SERVICES CORP.
Condensed Consolidated Statements of Cash Flows, continued
Supplemental schedule of noncash investing and financing activities:
Nine Months Ended September 30,
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1995 1994
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Senior debt incurred for additions
to rental vehicles $ 373,869 $ 27,456,175
Senior debt incurred from conversion of
lease obligations $ - $ 1,400,000
Rental vehicle purchases not
yet financed $ 58,592 $ -
Reduction of senior debt resulting from
turnback of rental vehicles $(18,026,070) $(24,801,476)
Capital lease obligation incurred
from purchase of equipment $ 93,400 $ 72,911
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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.
Certain prior year amounts have been reclassified to conform to 1995
presentation.
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Management's Discussion and Analysis of Financial Condition
and Results of Operations
Pacific International Services Corp., the ("Company"), reported a consolidated
net loss of $460,840 or $0.06 per share for the third quarter of 1995, compared
to net income of $580,118 or $0.07 per share for the same quarter last year.
For the nine months ended September 30, 1995, the Company reported a net loss
of $2,438,453 or $0.30 per share, compared to net income of $1,094,102 or $0.13
per share for the same period last year.
Operating revenues from the Company's vehicle rental division for the three
months ended September 30, 1995, totaled $13,316,356, a decrease of 10.46% from
revenues of $14,871,537 for the third quarter of 1994. The decrease in revenue
for the quarter resulted from lower rental day volume compared to the same
period in 1994, continuing a decline that also affected the first and second
quarter. Rental division operating revenues totaled $37,851,906 for the nine
month period ended September 30, 1995, versus $42,056,236 for the prior year
comparable period. Although the reduction in unit volume was in part a result
of reduced average fleet levels, which affected most of the Company's markets,
the sharpest declines were in the Company's business generated through
reservations from Dollar Systems, Inc. on the U.S. mainland, and from the local
impulse market. The Company continued to make progress in increasing its
average daily rental yield, however the increase of approximately 6.4% in third
quarter yield was not sufficent to offset lower unit volume.
Total direct fleet holding costs, which include lease payments, depreciation,
interest, car sales and other fleet expenses (freight, dealer profit and
license) increased by 8% for the third quarter of 1995 compared to the same
period in 1994, based on an average fleet size 18% lower than in 1994,
reflecting the continuing significant increase in holding costs on a per unit
basis. Total direct fleet holding costs were $18,179,491 and $16,559,857 for
the nine months ended September 30, 1995 and 1994, respectively.
Other operating costs and expenses, including personnel, occupancy and other
direct operating costs decreased by almost $930,000 for the three months ended
September 30, 1995 compared to the same period in 1994. Legal & accounting
expense for the three months ended September 30, 1995 were $554,208 as compared
to $188,846 in the same period of last year, primarily due to expenses incurred
for the proposed sale of the Company's vehicle rental division to Dollar
Systems, Inc.
The Company's vehicle sales operations generated revenues of $34,258,179 and
$11,560,818 for the nine months and three months ended September 30, 1995, as
compared with $30,917,012 and $9,983,088 for the same respective periods in
1994. The increase in revenues from vehicle sales reflects price increases on
new vehicle sales and higher sales of used vehicles. Operating expenses
related to the Company's vehicle sales division increased from prior year
levels in proportion to the revenue increases.
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Financial Condition
Due to the Company's continuing financial difficulties, in March of 1995 after
lengthy negotiations, the Company obtained a commitment in principle from
Dollar for certain assistance for 1995 (the "1995 Assistance Commitment").
Under this commitment, the Company would have received substantial economic
benefits and certain disputes between the Company and Dollar would have been
resolved. However, the parties were unable to agree upon the final
documentation with respect to the 1995 Assistance Commitment.
Pending further negoitations, the Company withheld certain payments asserted by
Dollar to be owing to Dollar under the License Agreement (the "License
Agreement"). Dollar filed a legal action in U.S. District Court to compel the
Company to execute the documentation proposed by Dollar to embody its
understanding of the 1995 Assistance Commitment. Shortly thereafter, Dollar
sent the Company notices purporting to terminate the License Agreement and the
Master Lease Agreement dated October 22, 1993 between Dollar and the Company.
The Company subsequently commenced its own legal action against Dollar for
damages and injunctive relief based on violations of the License Agreement and
Hawaii law which had been the subject of extensive discussions between the
Company and Dollar. Subsequent discussions led to execution of a standstill
agreement, later amended and extended, and, finally to negotiation of the
Settlement Agreement (the "Settlement Agreement"). The parties have agreed to
suspend all litigation without prejudice but may choose to recommence
proceedings should the Transactions (the "Transactions") fail to close.
Under the terms of the Settlement Agreement, dated July 17, 1995 and as amended
by the Sixth Amendment to Settlement Agreement dated October 27, 1995, the
parties agreed to stay the litigation and signed documents under which Dollar
Systems, Inc. will acquire substantially all of the assets and certain
liabilities of the Company's vehicle rental division. This transaction is
subject to due diligence review and other conditions and to consents and
approvals of certain persons, including the Company's shareholders and/or
bondholders. In addition, Dollar Systems, Inc. has the unqualified right not
to close the transaction at any time prior to the actual closing. The assets
and liabilities of the Company's vehicle sales division, as well as certain
other liabilities and obligations, will remain with the Company. The parties
will also release various claims against each other. The transaction is
scheduled to close by November 30, 1995. In the meantime, the Company
continues to operate the vehicle rental division, including efforts to increase
revenue, utilization and yield per rental day, and to control its operating
costs.
While the transaction is pending, the Company is incurring and will continue to
incur substantial transaction costs including legal and accounting and other
professional fees. Although Dollar Systems, Inc. has agreed to certain interim
financial assistance, there is no assurance of continuing support from Dollar
Systems, Inc. if the transaction dos not close as planned. If the transaction
does not close, and further assistance from Dollar Systems, Inc. is not made
available, it is doubtful that the vehicle rental operations and PISC could
continue as going concerns, although the Company's vehicle sales subsidiary
should continue to be viable.
In connection with the Sale, the Company announced that is has commenced an
Exchange Offer (the "Exchange Offer") for $5,250,000 in principal amount of the
Company's 10% Convertible Subordinated Debentures due September 1, 2007 (the
"Old Debentures").
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Under the Exchange Offer, the Company will invite the holders of its Old
Debentures to tender $1.00 in face amount of Old Debentures for (i) $0.50 in
cash (the "Cash Payment"), (ii) 0.769505 shares of the Company's common stock;
and (iii) a pro rata share of new debentures (the "New Debentures") of the
Company in an aggregate principal amount equal to $1,050,000 less the face
amount of any Old Debentures not tendered and less the original principal
amount, if any, of a new promissory note which may be issued to Dollar as part
of the Sale (the "Dollar Note"), upon and subject to the terms and conditions
set forth in the Exchange Offer and in the related Letter of Transmittal.
Accrued interest will not be paid on the Old Debentures tendered and accepted
for exchange. The Company will not accept for exchange less than $4,988,000 in
face amount of outstanding Old Debentures and will accept up to 100% of the
outstanding Old Debentures. The Exchange Offer prorations period and
withdrawal rights will expire at midnight New York City time on November 29,
1995, unless the Exchange Offer is extended by the Company.
The Company has been advised that Scott H. Lang is the only director of the
Company that owns any Old Debentures. Mr. Lang owns $73,000 in principal
amount of Old Debentures and has indicated to the Company that he will tender
the full amount of such Old Debentures.
Goergeson & Company Inc. will serve as Information Agent for the Exchange
Offer, and First Fidelity Bank, N.A. will serve as Depository.
In order to expedite closing of the proposed Sale and Exchange Offer in the
event that the minimum lender of at least 95% of the face amount of Old
Debentures is not received, the Company is also soliciting (the "Solicitation")
from the holders of its Old Debentures, as of the close of business on October
27, 1995, acceptances (the "Plan Acceptances") of a prepackaged plan of
reorganization (the "Plan") of the Company pursuant to which the Old Debentures
would be exchanged for consideration described below. Such Solicitation of
acceptances for the Plan is being made, and may only be made, pursuant to the
Solicitation and Disclosure Statement For Prepackaged Plan of Reorganization
issued by the Company dated October 31, 1995.
If the Exchange Offer is not consummated but the requisite Plan Acceptances are
obtained, the Company currently intends to commence promptly a case under
Chapter 11 of title 11 of the United States Code and rules and regulations
promulgated thereunder and to use such Plan Acceptances to obtain timely
confirmation of the Plan by a United States Bankruptcy Court of competent
jurisdiction (the "Bankruptcy Court").
Under the prepackaged plan of reorganization, the Company would, with the
court's approval, maintain its ordinary course of business, including normal
payment of its trade creditors. If the Plan is confirmed by the Bankruptcy
Court, each holder of the Old Debentures (whether or not such holder voted to
accept the Plan) will receive for each $1.00 of face amount of Old Debentures
(i) its pro rata portion of the cash proceeds from the proposed Sale minus
certain allowed priority and all allowed claims, (ii) 769505 shares of the
Company's common stock and (iii) its pro rata portion of the New Debentures
less the original principal amount of the Dollar Note. The Company anticipates
that the consideration received by a holder of an Old Debenture through the
Plan would be less than the consideration received by a holder of an Old
Debenture under the Exchange Offer.
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The Company is currently in negotiation with the Department of Transportation
(DOT) to settle certain asserted but unbilled claims for past rents and
proposed rent redeterminations. The Company has disputed the DOT's claim
which, in aggregate, could be as much as $920,000. Although management
anticipates a timely and favorable outcome, if not resolved these claims could
have an adverse impact on the closing of the proposed Sale and/or on the
consummation of the Prepackaged Plan.
On September 14, 1995, the Company was notified by the NASDAQ Stock Market,
Inc. that the Company was in non-compliance with its capital / surplus and bid
price requirements. Failure to comply results in a delisting from the NASDAQ
Small Cap Market. On October 5, 1995, the Company participated in a telephonic
conference requesting an exception to the above mentioned requirements.
Subsequent to that conference, the Company was granted an exception to October
15, 1995. Most recently, the Company has been granted an extension until
November 30, 1995.
The Company is currently under excise tax and various other tax audits for the
fiscal years 1986 to 1994. General excise taxes for the fiscal years ending
1990 and 1991 are excluded. A condition prior to closing is that the Company
has satisfied all its requirements for the above mentioned years and that a tax
clearance be issued by the State of Hawaii. The Company has been working with
the State auditors and anticipates clearance prior to closing.
The Company has also obtained a verbal indication from FINOVA Capital
Corporation of its willingness to wave one principal payment in the amount of
approximately $225,000 in order for the Company to meet certain condition to
close.
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PART II. 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 repot 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 Execuive Officer
By: /s/ Richard Bauman
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Richard Bauman
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Tyrus Kawashima
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Tyrus Kawashima
Controller and
Chief Accounting Officer
November 14, 1995
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