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 June 30, 1996
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
incorporation or organization) identification no.)
2841 N. Nimitz Highway, Honolulu, HI 96819
(Address of principal executive office)
Registrant's telephone number, including area code (808)836-0515
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 August 10, 1996
- ---------------- -------------------------------------
Common Stock 13,234,599
Page 1 of 14
2
PACIFIC INTERNATIONAL SERVICES CORP.
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheet...................................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......................................12
Computation of Earnings Per Common Share..............................13
Signatures............................................................14
Page 2
3
PACIFIC INTERNATIONAL SERVICES CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 1996 December 31, 1995
----------------- -----------------
ASSETS
Cash $ 132,693 $ 521,932
Receivables, net 5,108,546 2,980,560
Inventory 6,933,853 9,011,840
Prepaid expenses and other 27,938 58,213
----------------- -----------------
Current assets 12,203,030 12,572,545
----------------- -----------------
Leasehold improvements, furniture and equipment
Leasehold Improvements 3,261,053 3,252,653
Furniture and equipment 1,557,730 1,272,676
Vehicles 346,378 394,744
----------------- -----------------
5,165,161 4,920,073
Accumulated depreciation and amortization (1,809,485) (1,629,863)
----------------- -----------------
3,355,676 3,290,210
----------------- -----------------
Other assets 948,447 885,330
----------------- -----------------
Total Assets $ 16,507,153 $ 16,748,085
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 3,203,268 $ 1,018,941
Accrued expenses 1,914,978 1,495,151
Vehicle flooring and current portion of long-term debt 7,679,901 9,585,696
----------------- -----------------
Current liabilities 12,798,147 12,099,788
----------------- -----------------
Long-term debt 1,789,985 1,788,389
Convertible subordinated debentures 271,000 271,000
----------------- -----------------
Total liabilities 14,859,132 14,159,177
----------------- -----------------
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 shares 1,323,460 1,323,460
Additional paid-in capital 8,689,797 8,689,797
Accumulated deficit (8,365,236) (7,424,349)
----------------- -----------------
Total shareholders' equity 1,648,021 2,588,908
----------------- -----------------
Total Liabilities and shareholders' equity $ 16,507,153 $ 16,748,085
================= =================
See accompanying note to consolidated financial statements
Page 3
4
PACIFIC INTERNATIONAL SERVICES CORP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended June 30
----------- ------------
1996 1995
Revenues ----------- ------------
Vehicle sales $ 11,601,830 $ 10,887,688
Parts and services 1,219,822 1,092,168
Financing and insurance income 215,801 101,813
----------- ------------
Total revenues 13,037,453 12,081,669
----------- ------------
Cost of sales
Vehicle sales 9,051,034 8,441,234
Parts and services 785,473 683,286
----------- ------------
Total cost of sales 9,836,507 9,124,520
----------- ------------
Gross profit on sales 3,200,946 2,957,149
Selling, general and administrative expenses 3,326,881 2,789,746
----------- ------------
Operating income (loss) (125,935) 167,403
Other income (expense)
Interest expense (234,018) (69,705)
Interest income 0 66
----------- ------------
Income (loss) before income taxes (359,953) 97,764
Provision for income taxes 0 0
----------- ------------
Income (loss) from continuing
operations before extraordinary
items and discontinued operations (359,953) 97,764
Discontinued operations:
Loss from discontinued
vehicle rental division (430,282) (1,697,238)
----------- ------------
Net income (loss) $ (790,235) $ (1,599,474)
----------- ------------
Earnings (loss) per common and common
equivalent share
Continuing operations $ (0.03) $ 0.01
Discontinued operations (0.03) (0.21)
----------- ------------
Net income (loss) $ (0.06) $ (0.20)
----------- ------------
Weighted average number of
common shares outstanding 13,234,599 8,079,800
----------- ------------
See accompanying note to consolidated financial statements
Page 4
5
PACIFIC INTERNATIONAL SERVICES CORP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended June 30
---------------------------------
1996 1995
----------- ------------
Revenues
Vehicle sales $ 22,545,310 $ 20,516,660
Parts and services 2,481,791 2,137,342
Financing and insurance income 460,020 305,456
----------- ------------
Total revenues 25,487,121 22,959,458
----------- ------------
Cost of sales
Vehicle sales 17,626,022 15,879,599
Parts and services 1,585,221 1,314,674
----------- ------------
Total cost of sales 19,211,243 17,194,273
----------- ------------
Gross profit on sales 6,275,878 5,765,185
Selling, general and administrative expenses 6,195,092 5,472,728
----------- ------------
Operating income (loss) 80,786 292,457
Other income (expense)
Interest expense (465,391) (140,570)
Interest income 0 66
----------- ------------
Income (loss) before income taxes (384,605) 151,953
Provision for income taxes 0 0
----------- ------------
Income (loss) from continuing
operations before extraordinary
items and discontinued operations (384,605) 151,953
Discontinued operations:
Loss from discontinued
vehicle rental division (556,282) (2,129,568)
----------- ------------
Net income (loss) $ (940,887) $ (1,977,615)
----------- ------------
Earnings (loss) per common and common
equivalent share
Continuting operations $ (0.03) $ 0.02
Discontinued operations (0.04) (0.26)
----------- ------------
Net income (loss) $ (0.07) $ (0.24)
----------- ------------
Weighted average number of
common shares outstanding 13,234,599 8,079,800
----------- ------------
See accompanying note to consolidated financial statements.
Page 5
6
PACIFIC INTERNATIONAL SERVICES CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30
----------------------------
1996 1995
------------ -----------
Cash flows from operating activities
Net loss (940,887) (1,977,615)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Gain on sale of rental vehicles 710,042
Depeciation of rental vehicles and amortization of
related costs 4,062,886
Depreciation and amortization, other 179,622 594,536
Provision for loss on rental vehicles 399,897
Provision for loss on receivables 369,237
Provision for self insurance 103,994
Changes in assets and liabilities
Receivables (2,127,986) (2,424,546)
Inventory 2,077,987 (4,276,575)
Prepaid expenses and other assets (32,842) (806,231)
Accounts payable 2,184,327 2,030,120
Accrued expenses and other liabilities 419,827 (1,130,575)
Notes payable for vehicle flooring (2,032,428) 13,609,831
------------ -----------
Net cash provided by (used in) operating activities (272,380) 11,265,001
------------ -----------
Cash flows from investing activities
Proceeds from the sale of rental vehicles - 10,977,352
Purchases of rental vehicles - (230,510)
Proceeds from the sale of leasehold improvements,
furniture and equipment - 160,476
Purchases of leasehold improvements, furniture (57,898) (274,864)
and equipment
------------ -----------
Net cash provided by (used in) investing activities (57,898) 10,632,454
------------ -----------
Cash flows from financing activities
Payments of notes payable and long-term debt (121,768) (22,301,485)
Proceeds from note payable 62,807 -
------------ -----------
Net cash provided by (used in) financing activities (58,961) (22,301,485)
------------ -----------
Net decrease in cash (389,239) (404,030)
Cash at beginning of period 521,932 831,952
------------ -----------
Cash at end of period 132,693 427,922
============ ===========
See accompanying note to consolidated financial statements
Page 6
7
PACIFIC INTERNATIONAL SERVICES CORP
Condensed Consolidated Statements of Cash Flows, continued
Supplemental schedule of noncash investing and financing activities:
Six Months Ended June 30,
-----------------------------
1996 1995
----------- -----------
Senior debt incurred for additions to rental vehicles $ - $ 827,660
Rental vehicle purchases not yet financed $ - $ 39,688
Reduction of senior debt resulting from turnback
rental vehicles - $(18,063,993)
Capital lease obligation incurred from purchase of $ 187,190 -
equipment
Page 7
8
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, 1995.
Page 8
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Pacific International Services Corp. ( the "Company") sold its vehicle rental
division during December 1995. The results of operations of the vehicle rental
division for the three months and six months ended June 30, 1996 and 1995, are
shown separately in the consolidated statements of operations as a loss from
discontinued operations. Losses from discontinued operations reported for the
first six months of 1996 include approximately $251,000 in administrative
expenses and $305,000 in legal and professional fees relating to the sale of
the vehicle rental division.
Continuing operations reflected a loss of $359,953 for the three months ended
June 30, 1996 and a profit of $97,764 for the three months ended June 30, 1995.
The decline in profit from continuing operations is attributed to increase in
selling, general and administrative expenses and an increase in interest
expense, as discussed below.
The Company reported a consolidated net loss of $790,235 ($.06 per share) for
the second quarter of 1996, as compared to a net loss of $1,599,474 ($ .20 per
share) for the same quarter during 1995. The Company's consolidated revenues
increased by $955,784 ( or 7.9%) for the second quarter of 1996 to $13,037,453
as compared to $12,081,669 for the same quarter in 1995. This increase was
primarily due to the sale of higher priced vehicles in 1996, as the number of
new vehicle units dropped from 281 in the second quarter of 1995 to 273 in the
second quarter of 1996. Unit sales of used vehicles remained constant for both
the second quarter of 1996 and 1995.
Gross profit from continuing operations increased by $243,797 or (or 8.2%) from
$2,957,149 in the second quarter of 1995 to $3,200,946 during the second
quarter of 1996, due primarily to a shift in the Company's focus from the
quantity of units sold to the profit per unit sold. The Company was also
successful in increasing sales of extended warranty plans during 1996.
Selling, general and administrative expenses increased by $537,135 from
$2,789,746 for the second quarter of 1995 to $3,326,881 for the second quarter
of 1996. The increase was primarily due to increases in sales commissions and
revision of reserve estimates for the settlement of claims relating to prior
periods.
Interest expense increased by $164,313 to $234,108 during the second quarter of
1996 from $69,705 during the same quarter in 1995. This increase was primarily
due to interest on notes from the sale of the vehicle rental division, interest
on additional used car flooring debt and interest from the Company's inability
to pay down new car flooring debt promptly.
Page 9
10
LIQUIDITY AND FINANCIAL CONDITION
The Company finances its new vehicles pursuant to lines of credit issued by the
Chrysler Corporation having a principal amount of up to $13.5 million. These
loans bear interest at a floating rate equal to the prime rate plus 1%.
Interest on loans pursuant to these lines of credit is payable monthly, and
final maturity of such loans occurs upon sales of the related vehicles but no
later than August of the year following the model year to which such loans
apply. The Company had approximately $6,484,416 and $7,951,749 outstanding
under these lines of credit at June 30, 1996 and 1995 respectively. Inventory
levels and flooring debt at June 30, 1996 were significantly lower than at
December 31, 1995 due to the seasonal decline in the availability of new
vehicles.
In April 1996, Chrysler Financial Corporation extended an additional line of
credit to the Company, secured by the Company's used car inventory. This line
of credit permits borrowing up to the lesser of $1,000,000 or sixty-five
percent (65%) of the Company's used car inventory. As of August 9, 1996,
approximately $876,000 was outstanding under this line of credit. The credit
agreement provided that the line of credit will be reduced to $750,000 in
September 1996.
The significant increase in accounts receivable at June 30, 1996 as compared to
December 31, 1995 was primarily due to an unusual buildup of contracts in
transit. This buildup in turn triggered an increase in accounts payable.
As a result of the reduction in available cash and changes in Chrysler
Financial Corporation's operating procedures in Hawaii, the Company has not
been able to make required payments to Chrysler Financial Corporation on a
timely basis. The Company is discussing a loan with Chrysler Corporation in
order to cover the Company's cash needs. There is no assurance that Chrysler
Financial Corporation will make such a loan and it may take action against the
Company with respect to the line of credit, which could include termination of
the line of credit and litigation. Such actions would have a material adverse
effect on the Company's financial condition, and could jeopardize continued
operations unless additional funds can be obtained from other sources.
Management is actively pursuing additional funding from a bank, from new
investors and is also negotiating the sale of some of the assets of one of its
dealerships. Although Management believes its efforts will be successful,
there is no assurance that the Company will be given the time by Chrysler
Financial Corporation to obtain the necessary funding to forestall action by
Chrysler Financial Corporation.
Page 10
11
Part II.
Item 1. 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. (This litigation was described in detail in the Company's
annual report on Form 10-K for the fiscal year ended December 31, 1995). On
May 7, 1996, the Company's insurance carrier settled this litigation pursuant
to the terms of a confidential settlement agreement. The Company's insurer
assumed all costs of the defense and settlement of this case.
Page 11
12
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 reference as though set though set
forth herein:
Exhibit 11 - Statement re: Computation of Earnings
Per Share
(b) None
Page 12
13
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
-------------------------------------------
Alan M. Robin
President and Chief Executive Officer
By /s/ Stephen Robin
-------------------------------------------
Stephen Robin
Vice President
By /s/ Dung Ngoc Le
-------------------------------------------
Dung Ngoc Le
Acting Chief Financial Officer
August 10, 1996