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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 333-85041
PACER INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0935669
---------------------------------- ----------
(State or other jurisdiction (I.R.S. employer
of organization) identification no.)
1340 Treat Blvd., Suite 200
Walnut Creek, CA 94596
Telephone Number (800) 225-4222
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by checkmark 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. _____
As of March 15, 2001, none of the Registrant's Common Stock was held by non-
affiliates.
On March 15, 2001, the Registrant had 11,361,373 outstanding shares of Common
Stock, par value $.01 per share.
TABLE OF CONTENTS
Page
---------
Part I.
Items 1 and 2 Business and Properties....................................................... 3
Overview...................................................................... 3
Information Technology........................................................ 6
Significant Customers......................................................... 7
Sales and Marketing........................................................... 7
Development of Our Company.................................................... 8
Facilities/Equipment.......................................................... 9
Suppliers..................................................................... 10
Relationship with APL Limited................................................. 11
Business Cycle................................................................ 11
Competition................................................................... 12
Employees..................................................................... 12
Government Regulation......................................................... 12
Environmental................................................................. 13
Item 3. Legal Proceedings............................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders........................... 14
Part II.
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters........................................................... 15
Item 6. Selected Financial Data....................................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................... 16
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... 28
Item 8. Financial Statements and Supplementary Data................................... 29
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure........................................... 29
Part III.
Item 10. Directors and Executive Officers of the Registrant............................ 30
Item 11. Executive Compensation........................................................ 33
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................................... 37
Item 13. Certain Relationships and Related Transactions................................ 40
Part IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K...................................................................... 43
Index to Financial Statements and Financial Statement
Schedules..................................................................... F-1
2
Part I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Overview
We are a leading non-asset based North American third-party logistics
company. We offer a broad array of logistics and other services to facilitate
the movement of freight from origin to destination for our customers including
numerous Fortune 500 customers such as Ford, General Electric, and Walmart
Stores and large global customers such as Sony. Our package of value-added
logistics services assist us in the management and transportation of material,
inventory and finished goods throughout the supply chains of our customers and
include wholesale stacktrain services and retail trucking services, intermodal
marketing, freight consolidation and handling, international freight forwarding
and supply chain management services. Through these services, we optimize the
flow of freight using multiple types of transportation and meet our customers'
specific transportation and logistics needs. We combine these services with our
proprietary advanced information systems to provide integrated, customized
solutions which add value to our customers' operations by improving efficiency,
reliability and control throughout our customers' supply chains and reducing
their handling, delivery and inventory costs. We utilize a non-asset based
strategy in which we seek to limit our investment in equipment, facilities and
working capital through contracts and arrangements with various transportation
providers. This strategy allows us to control, without owning, our
transportation and related equipment, and maximize our return on invested
capital.
As a non-asset based third-party logistics provider, we have capitalized on
strong industry trends, including increasing outsourcing by businesses to
companies like us that can manage their multiple transportation requirements,
and experienced considerable growth in revenue, net income and EBITDA. We have
also achieved significant growth by acquiring and integrating businesses which
enhance our service portfolio and geographic presence. Since our
recapitalization and acquisition of Pacer Logistics in May 1999, we have
acquired four companies. These acquisitions have enhanced our truck brokerage
and freight handling services, added international freight forwarding to our
portfolio of services and expanded the geographic coverage of our intermodal
marketing services.
Our Service Offerings
Wholesale Services
- ------------------
Intermodal transportation is the movement of freight via trailer or
container using two or more modes of transportation which nearly always include
a rail and truck segment. We are the largest provider of intermodal rail
service in North America that is not affiliated with an individual railroad
company. We sell intermodal service primarily to intermodal marketing companies,
large automotive intermediaries, international ocean carriers as well as to our
own internal intermodal marketing company and compete primarily with rail
carriers offering intermodal service and indirectly with over-the-road full
truckload carriers. The size of our leased and owned equipment fleet, the
frequent departures available to us through our rail contracts and the scope of
our geographic coverage provide us with a significant advantage in attaining the
responsiveness and reliability required by our customers at a competitive price.
In addition, the geographic coverage provided by the 50,000 mile North American
rail network we have access to through our rail contracts, provides our
customers with single-company control over their rail transportation
requirements and thereby increases both cost effectiveness and reliability. Our
access to sophisticated information technology enables us to continuously track
cargo containers, chassis and railcars throughout our transportation network.
The rail network and terminal locations available to us serve most major
population and commercial centers in the United States, Canada and Mexico.
Given our significant intermodal rail market share, we have developed close
working relationships with the railroads. We have long-term contracts with the
rail carriers, including Union Pacific Railroad, CSX and Canadian
3
National Railroad, which provide, among other things, for favorable rates,
minimum service standards, capacity assurances and the utilization of terminal
facilities.
We maintain an extensive fleet of doublestack railcars, containers and
chassis, substantially all of which are leased. As of December 29, 2000, our
equipment consisted of 843 doublestack railcars, 23,511 containers and 28,969
chassis, which are steel frames with rubber tires used to transport containers
over the highway. We also have access to APL Limited's fleet of equipment,
which we use to support the eastbound domestic transport of international
freight for international shipping companies. In addition, we provide APL
Limited and other shipping companies with equipment repositioning services
through which we transport empty containers from destinations within North
America to their West Coast points of origin. To the extent we are able to fill
these empty containers with the westbound freight of other wholesale customers,
we receive compensation from the shipping companies for our repositioning
service and from the other customers for shipment of their freight. In 2000 and
1999 we filled 68,579 and 73,741 repositioned containers, respectively, with
freight for shipment via our rail network on behalf of our domestic customers.
Because of increased volumes in our retail business, we believe that we will be
able to increase the percentage of repositioned containers that are filled and
transported on behalf of our customers and thereby increase the profitability of
our repositioning business.
Our fleet of equipment, priority handling status with rail carriers and
range of transportation services has resulted in a track record of high service
quality, reliability and consistency. Through our equipment fleet and long-term
arrangements with rail carriers, we can control the transportation equipment
used in our wholesale operations and are able to employ full-time personnel on-
site at the terminals, which allow us to ensure close coordination of the
services provided at these facilities. We are therefore positioned to provide a
reliable, cost effective and highly competitive transportation alternative.
Retail Services
- ---------------
Trucking Services
-----------------
We offer a number of trucking services. We believe that our ability to
provide a range of trucking services provides a competitive advantage as
companies increasingly seek to outsource their transportation and logistics
needs to companies that can manage multiple transportation requirements.
We provide truck brokerage services throughout North America through our
customer service centers in Los Angeles and Walnut Creek (California), Dallas
(Texas), Chicago (Illinois), East Rutherford (New Jersey) and Columbus (Ohio).
Truck brokerage involves the procurement of trucking services of a licensed
independent carrier on behalf of a shipper. Goods shipped in this manner are
received by us at our customer service centers before the independent carriers
take charge of their delivery. We manage all aspects of these and related
services for our customers, including selecting qualified carriers, negotiating
rates, organizing or reconsolidating shipments into optimal truckloads, storing
goods at our customer service centers until pickup, tracking shipments,
resolving difficulties and billing. Our nationwide network of approved
independent carriers provides service to virtually any North American
destination.
We compete in both the truckload and less-than-truckload segments of the
trucking industry, although the majority of our trucking revenues are derived
from truckload operations. Our truckload operations consist of flatbed and
specialized heavy-haul trucking services, as well as full-load, regional and
local trucking services. Our less-than-truckload operation specializes in long-
haul transportation of freight through hubs operated by others throughout the
United States. Our less-than-truckload operations leverage the mix of traffic
we receive from customers by integrating shipments which have common
destinations in order to lower the linehaul, pick-up and delivery costs. Our
capital investment in both less-than-truckload and truckload operations is
limited. We utilize a fleet of 600 vehicles equipped with flatbed and
specialized trailers which are owned and operated by independent contractors.
4
We maintain local trucking operations in Los Angeles, Oakland and San Diego
(California), Houston and Dallas (Texas), Jacksonville (Florida), Chicago
(Illinois), Memphis (Tennessee), Kansas City (Kansas), Baltimore (Maryland),
Seattle (Washington) and Atlanta (Georgia). We contract with independent
contractors who control more than 700 trucks. We maintain interchange
agreements with all of the major steamship lines, railroads and stacktrain
operators. This network allows us to supply the local transportation
requirements of shippers, ocean carriers and freight forwarders across the
country.
Intermodal Marketing
--------------------
In our role as an intermodal marketing company, we arrange for the movement
of freight in containers and trailers throughout North America for global,
national and regional manufacturers and retailers. Typically, we arrange for a
full container or trailer load shipment to be picked up at origin by truck and
transported a distance of less than 100 miles to a site for loading onto a
train. The shipment is then transported via railroad several hundred miles to a
site for unloading from the train in the vicinity of the final destination.
After the shipment has been unloaded from the train and is available for pick-
up, we arrange for the shipment to be picked up and transported by truck to the
final destination. In addition, we provide customized electronic tracking and
analysis of charges, negotiate rail, truck and intermodal rates, determine the
optimal routes, track and monitor shipments in transit, consolidate billing,
handle claims of freight loss or damage on behalf of our customers and manage
the handling, consolidation and storage of freight throughout the process. We
provide the majority of these services through a network of agents and
independent contractors. Our intermodal marketing operations are based in Los
Angeles and Walnut Creek (California), East Rutherford (New Jersey), Memphis
(Tennessee), Chicago (Illinois) and Columbus (Ohio). Our experienced
transportation personnel are responsible for operations, customer service,
marketing, management information systems and our relationships with the rail
carriers.
Through our intermodal marketing operations we assist the railroads and our
wholesale operation in balancing freight originating in or destined to
particular service areas, resulting in improved asset utilization. In addition,
we serve our customers by passing on economies of scale that we achieve as a
volume buyer from railroads, stacktrain operators, trucking companies and other
third party transportation providers, providing access to large equipment pools
and streamlining the paperwork and logistics of an intermodal move. We believe
that the combination of our wholesale operations with our intermodal marketing
services will enable us to provide enhanced service to our customers and the
opportunity for increased profitability and growth.
Freight Consolidation and Handling
----------------------------------
We offer a variety of freight handling services, including
consolidation/deconsolidation and warehousing of our customers' shipped goods.
Because of the complexity of freight patterns and the need to use multiple types
of transportation, the handling and storage of freight on behalf of the shipper
is often required during the transportation process. Our retail operation
focuses on providing customers with specially designed transportation packages
which fit their specific shipment patterns and transportation and inventory
needs. Additionally, we have designed service packages intended to reduce our
customers' handling requirements and improve inventory efficiency. These
services are primarily offered on the West Coast.
International Freight Forwarding Services
-----------------------------------------
As an international freight forwarder, we typically provide freight
forwarding services which involve transportation of freight into or out of the
United States. As an indirect ocean carrier or non-vessel operating common
carrier and a customs broker, we manage international shipping for our customers
and provide or connect them with the range of services necessary to run a global
business. To a lesser extent we also provide air freight forwarding services as
an indirect air carrier. Our international product offerings serve more than
1,000 clients internationally through 17 offices and over 100 agents worldwide.
5
As an indirect ocean carrier or non-vessel operating common carrier, we
arrange for the transportation of our customers' freight by contracting with the
actual vessel operator to obtain transportation for a fixed number of containers
between various points during a specified time period at an agreed wholesale
discounted volume rate. We then are able to charge our customers rates lower
than the rates they could obtain from actual vessel operators for similar type
shipments. We consolidate the freight bound for a particular destination from a
common shipping point, prepare all required shipping documents, arrange for any
inland transportation, deliver the freight to the vessel operator and provide
shipment to the final destination. At the destination port, we or our agent
effect delivery of the freight to the receivers of the goods, which may include
custom clearance and inland freight transportation to the final destination.
As a customs broker, we are licensed by the U.S. Customs Service to act on
behalf of importers in handling custom formalities and other details critical to
exporting and importing of goods. We prepare and file formal documentation
required for clearance through customs agencies, obtain customs bonds,
facilitate the payment of import duties on behalf of the importer, arrange for
the payment of collect freight charges, assist with determining and obtaining
the best commodity classifications for shipments and assist with qualifying for
duty drawback refunds. We provide customs brokerage services in connection with
many of the shipments which we handle as an ocean freight forwarder or non-
vessel operating common carrier, as well as shipments arranged by other freight
forwarders, non-vessel operating common carriers or vessel operating common
carriers.
Supply Chain Management
------------------------
We leverage the information from our advanced information system to provide
consulting and supply chain management services to our customers. These
specialized services allow our customers to realize cost savings and concentrate
on their core competencies by outsourcing to us the management and
transportation of their raw materials and inventory throughout their supply
chains and the distribution of finished goods to the end user. We provide
infrastructure and equipment, integrated with our customers' existing systems,
to handle distribution planning, just-in-time delivery and automated ordering
throughout their operations, and additionally will provide and manage
warehouses, distribution centers and other facilities for them. We can manage
all aspects of the supply chain from inbound sourcing and delivery logistics
through outbound shipment, handling, consolidation, deconsolidation,
distribution, and just-in-time delivery of end products to our customers'
customers. We also consult on identifying bottlenecks and inefficiencies and
eliminating them by analyzing freight patterns and costs, optimizing
distribution and warehouse locations, and analyzing/developing internal policies
and procedures.
Information Technology
We believe that our high quality of service and reliability evidences the
sophistication and successful implementation of our proprietary advanced
information systems. Our technology, experience and operating procedures
significantly enhance the attractiveness of our logistics offering and deliver
service superior to that of our smaller competitors. Our systems' expandable
network architecture provides for the exchange of data electronically between us
and our customers and includes an internet-based platform that allows our
customers to easily customize the use and integration of our system to meet
their needs. This interconnection allows us to easily communicate with our
customers and transportation providers. Our systems monitor and track shipments
at every stage in the cycle and across varying transportation modes, providing
accurate, real-time visibility on shipment status, location and estimated
delivery times. Our exception notification system informs us of any potential
delays so we can proactively alert our customer and other supply chain
participants to minimize the impact of any problems. Our systems also
continually measure transit times, rates, availability and logistics activity of
our transportation providers to enable us to plan and execute transactions and
freight movements most reliably, efficiently and cost effectively. By monitoring
and tracking all containers, chassis and railcars throughout our network, we can
identify their location and availability and provide increased equipment
utilization and balanced freight flows.
6
Our systems also analyze each customer's usage patterns and needs to
resolve performance bottlenecks, determine optimal distribution locations and
identify areas for cost savings throughout their supply chain. We can also
prepare and distribute customized reports detailing shipping patterns, volumes,
reliability, timeliness and overall transportation costs, and can generate
management reports to meet federal highway authority requirements and perform
accounting and billing functions. Currently, our technological efforts are
primarily focused on reducing customer service response time, enhancing the
customer service profile database and expanding the number of customers and
service providers with which we share data using EDI applications.
We manage our wholesale services with highly sophisticated computer systems
that enable continuous tracking of cargo containers, chassis and railcars
throughout the intermodal system. These systems also provide us with
performance, utilization and profitability indicators in all aspects of the
wholesale business. These information systems create a competitive advantage for
us as they increase the efficiency of our intermodal operations and enable us to
provide shippers with the level of information which they increasingly demand as
part of their freight management operations.
Our acquisition of Rail Van in December 2000 and its advanced proprietary
information technology systems allows us to further upgrade our information
technology platform by integrating all of our retail operations onto the Rail
Van information technology platform over the next six months. We believe this
integration can be accomplished without any disruption to our retail operations
but will require approximately $1.5 million of capital expenditures to increase
the capacity of the Rail Van system. In addition, for an annual fee of $10.0
million, APL Limited, pursuant to a long-term information technology agreement,
provides us with the computers, software and other information technology
necessary for the operation of our wholesale business. We are in the process of
replacing the technology provided by APL Limited with information technology
systems currently available in the marketplace from unrelated third parties at a
one-time cost which we currently estimate to be approximately $10.0 million, and
thereafter at on-going annual costs which we believe would be significantly
below the $10.0 million annual fee currently paid to APL Limited.
Significant Customers
For the year ended December 29, 2000, we had one customer which contributed
more than 10% of our total gross revenues. Total gross revenues of $146.9
million were generated from Union Pacific (generated by both reporting
segments).
For the year ended December 31, 1999, we had two customers which contributed
more than 10% of our total gross revenues. Total gross revenues of $128.2
million were generated by the wholesale segment from Hub Group and total gross
revenues of $100.8 million were generated from Union Pacific (generated by both
reporting segments).
Sales and Marketing
As of December 29, 2000, our retail marketing operations included over 250
sales agents, over 150 of whom are independent sales agents, and approximately
100 of whom are salaried sales representatives. All of our sales people are
supported by regional sales offices in 17 cities, including Los Angeles and
Walnut Creek (California), Chicago (Illinois), Seattle (Washington), Memphis
(Tennessee), Rutherford (New Jersey) and Houston (Texas). Our salaried sales
representatives are deployed in major business centers throughout the country
and target mid-size and large customers. Our national network of commissioned
sales agents provides additional geographic coverage and contributes additional
business that enables us to achieve volume discounts and balance traffic flows.
Both our salaried and commissioned sales forces are compensated by overall net
revenue margin contribution to the company and therefore are strongly
incentivized to cross-sell additional services to their customers. With our
growing
7
portfolio of services, the capability for our nationwide salesforce to cross-
sell into other products provides a significant opportunity to expand our
business with current customers.
As of December 29, 2000, our wholesale services were marketed by over 40
sales and customer service representatives. These representatives operate
through seven regional and district sales offices and three regional service
centers which are situated in the major shipping locations for the wholesale
business in order to provide support for the customers of the wholesale
business. The sales representatives are directly responsible for managing and
liaising with existing customers and for soliciting new business. The customer
service representatives are responsible for supporting existing customers and
sales representatives by providing cargo tracking services, responding to
customer complaints and processing customer inquiries. In addition, intermodal
marketing companies are an important link between our wholesale operations and
shippers. Intermodal marketing companies, who sell intermodal service to
shippers while buying space on intermodal rail trains, enable us to market our
services through their sales networks and indirectly access shippers in more
than 100 major metropolitan areas.
In addition to our domestic sales force, we also have an international
network of over 180 sales and customer service representatives. These
representatives are located in 5 offices and 75 agencies in over 70 countries.
Development of Our Company
We have operated as an independent, stand-alone company only since our
recapitalization in May 1999. From 1984 until our recapitalization, our
wholesale business was conducted by various entities owned directly or
indirectly by APL Limited.
In May 1999, we were recapitalized through the purchase of shares of our
common stock by affiliates of Apollo Management, L.P. and two other investors
from APL Limited and our redemption of a portion of the shares of common stock
held by APL Limited. After the recapitalization, we formed a transitory
subsidiary that was merged with and into Pacer Logistics, making Pacer Logistics
our wholly-owned subsidiary. In connection with these transactions, our name
was changed from APL Land Transport Services to Pacer International, Inc.
Pacer Logistics, Inc. was formed on March 5, 1997 from its predecessor PMT
Holdings, Inc. Between the time of formation and the recapitalization, Pacer
Logistics had acquired the common stock and/or assets of six businesses.
Since May 1999, we have acquired four companies in the retail segment that
have complemented our core retail business operations and expanded our
geographic reach and service offerings for intermodal marketing, local trucking,
international freight forwarding and other logistics services. Our four most
recent acquisitions include the following:
. On January 13, 2000, we acquired substantially all of the assets of Conex
Global Logistics Services Inc. and its subsidiaries, MSL Transportation Group
Inc. and Jupiter Freight, Inc. (collectively, "Conex"). Conex provides
intermodal freight transportation, trucking, transloading and warehousing
services at three locations in California and one location in each of Atlanta
and Seattle. This acquisition expanded our presence in these services and
furthered our vertical integration.
. On August 31, 2000, we acquired all of the capital stock of GTS
Transportation Services, Inc. ("GTS"). GTS provides logistics and truck
brokerage services in North America. This acquisition expanded our service
offerings.
. On October 31, 2000, we acquired all of the capital stock of RFI Group, Inc.
("RFI"). RFI provides international freight forwarding, customs-brokerage and
ocean transportation services. This acquisition expanded our portfolio of
services to include international freight forwarding and related activities
and gave us a strong international presence.
8
. On December 22, 2000, we acquired all of the capital stock of Rail Van, Inc.
("Rail Van"). Rail Van provides rail and truck brokerage, intermodal
marketing and logistics services. This acquisition expanded our customer base
and product offerings as well as provided us with advanced information
systems, which we plan to transfer to and use in all of our retail segment
operations over the next six months as well as a highly focused sales force.
Facilities/Equipment
Our wholesale transportation network operates out of 58 railroad terminals
across North America. Our integrated rail network, combined with our leased
equipment fleet, enables us to provide our customers with single-company control
over rail transportation to locations throughout North America.
Substantially all of our terminals are owned and managed by rail or highway
carriers. However, we employ full-time personnel on-site at major locations to
ensure close coordination of the services provided at the facilities. In
addition to these terminals, other locations throughout the eastern United
States serve as stand-alone container depots, where empty containers can be
picked up or dropped off, or supply points, where empty containers can be picked
up only. In connection with our trucking services, agents provide marketing and
sales, terminal facilities and driver recruiting, while an operations center
provides, among other services, insurance, claims handling, safety compliance,
credit, billing and collection and operating advances and payments to drivers
and agents.
Our wholesale equipment fleet consists of a large number of double stack
railcars, containers and chassis which are owned or subject to short and long-
term leases. We lease almost all of our containers, approximately 80% of our
chassis and approximately 75% of our doublestack railcars. As of December 29,
2000 our wholesale equipment fleet consisted of the following:
Owned Leased Total
-------------------------------------------
Containers
48' Containers ............................. 144 13,991 14,135
53' Containers ............................. - 9,376 9,376
-------------------------------------------
Total ................................ 144 23,367 23,511
===========================================
Chassis
48' Chassis ................................ 5,813 8,015 13,828
53' Chassis ................................ 50 10,406 10,456
-------------------------------------------
Subtotal.............................. 5,863 18,421 24,284
20', 40' and 45' (1)........................ - 4,685 4,685
-------------------------------------------
Total................................. 5,863 23,106 28,969
===========================================
Doublestack Railcars ............................ 210 633 843
===========================================
_____
(1) Represents the current allocation of chassis sublet to us pursuant to our
agreement with APL Limited.
Supplementing the equipment listed above we have access to an extensive
inventory of 20-, 40- and 45-foot containers from APL Limited's international
network in addition to the empty containers which we reposition on behalf of APL
Limited.
9
We also own a limited amount of equipment to support our trucking
operations. The majority of our trucking operations are conducted through
contracts with independent contractors who own and operate their own equipment.
We lease two warehouses in Kansas City (Kansas) and five facilities in Los
Angeles (California) for dockspace, warehousing and parking for tractors and
trailers.
Our wholesale equipment operating lease expense and rental income for
containers, chassis and railcars is shown below ($ in millions):
Equipment Rental
2000 1999 1998
------------------------------------------------------
Operating Lease Expense .......... $59.9 $51.3 $45.5
======================================================
Rental Income Revenue ............ $30.1 $16.9 $13.4
======================================================
The large increase in rental income in 2000 compared to 1999 is due to the
additional railcars and containers acquired during 2000 coupled with increases
in business volume.
The following table shows our expense for on-going maintenance and repairs
for containers, chassis and railcars ($ in millions):
Maintenance Expenditures
2000 1999 1998
------------------------------------------------------
Containers .......................... $ 5.9 $ 4.1 $ 4.1
Chassis ............................. 17.1 13.9 12.4
Doublestack Railcars ................ 3.7 3.0 1.8
------------------------------------------------------
Total Expenditures ............. $26.7 $21.0 $18.3
======================================================
Suppliers
Railroads
We have long-term contracts with five railroads, including Union Pacific,
CSX, Canadian National Railroad and two railroads in Mexico regarding movement
of our stacktrains. These contracts generally provide for access to terminals
controlled by the railroads as well as support services related to our wholesale
operations. Through these contracts, our wholesale business has established a
North American transportation network. Our retail business also maintains
contracts with the railroads which govern the transportation services and
payment terms pursuant to which the railroads handle intermodal shipments.
These contracts are typically of short duration, usually twelve month terms, and
subject to renewal or extension. We maintain close working relationships with
all of the major railroads in the United States and view each relationship as a
partnership. We will continue to focus our efforts on strengthening these
relationships.
Through our contracts with these rail carriers, we have access to a 50,000
mile rail network throughout North America. Our rail contracts, which generally
provide that the rail carriers will perform linehaul and terminal services for
us, are typically long-term agreements, with major contracts providing for a
remaining term of 11 to 14 years. Pursuant to the service provisions, the rail
carriers provide transportation of our stacktrains across their rail networks
and
10
terminal services related to loading and unloading of containers, equipment
movement and general administration. Our rail contracts generally establish per
container rates for stacktrain shipments made on rail carriers' transportation
networks and typically provide that we are obligated to transport a specified
percentage of our total stacktrain shipments with each of the rail carriers. The
terms of our rail contracts, including rates, are generally subject to
adjustment or renegotiation throughout the term of the contract, based on
factors such as the continuing fairness of the contract terms, prevailing market
conditions and changes in the rail carriers' costs to provide rail service.
Generally, we benefit from advantageous rate provisions in our rail contracts.
Based upon these provisions, and the volume of freight which we ship with each
of the rail carriers, we believe that we enjoy favorable transportation rates
for our stacktrain shipments.
Agents and Independent Contractors
We rely on the services of agents and independent contractors in long haul
and local trucking services. Although we own a small number of tractors and
trailers, the majority of our truck equipment and drivers are provided by agents
and independent contractors. Our relationships with agents and independent
contractors allow us to provide customers with a broad range of trucking
services without the need to commit capital to acquire and maintain an asset
base. Although our agreements with agents and independent contractors are
typically long-term in practice, they are generally terminable by either party
on short notice.
Agents and Independent contractors are compensated on the basis of mileage
rates and a fixed percentage of the revenue generated from the shipments they
haul. Under the terms of our typical lease contracts, agents and independent
contractors must pay all the expenses of operating their equipment, including
driver wages and benefits, fuel, physical damage insurance, maintenance and debt
service.
Local Trucking Companies
We have established a good working relationship with a large network of
local truckers in many major urban centers throughout the United States. The
quality of these relationships helps ensure reliable pickups and deliveries,
which is a major differentiating factor among intermodal marketing companies.
Our strategy has been to concentrate business with a select group of local
truckers in a particular urban area, which increases our economic value to the
local truckers and in turn raises the quality of service that we receive.
Relationship with APL Limited
We have entered into a long-term agreement with APL Limited involving
domestic transportation of APL Limited's international freight. The majority of
APL Limited's imports to the United States are transported on stacktrains from
ports on the West Coast to population centers in the Midwest and Northeast
regions. However, domestic stacktrain freight which originates in the United
States moves predominantly westbound from eastern and midwestern production
centers to consumption centers on the West Coast. Because of our agreement with
APL Limited, we are able to achieve high utilization and steady revenue
production from our intermodal equipment due to our high volume of both
eastbound and westbound shipments. The APL Limited freight also significantly
increases the associated stacktrain volume, thereby improving our bargaining
position with the railroads regarding contract terms. In addition, we provide
APL Limited with equipment repositioning services through which we transport APL
Limited's empty containers from destinations within North America to their West
Coast points of origin. To the extent we are able to fill these empty
containers with the westbound freight of other wholesale customers, we receive
compensation from both APL Limited for our repositioning service and from the
other customers for shipment of their freight.
Business Cycle
The transportation industry has historically performed cyclically as a
result of economic recession, customers' business cycles, increases in prices
charged by third-party carriers,
11
interest rate fluctuations and other economic factors, many of which are beyond
our control. We believe we have generally been successful in passing on cost
increases to our wholesale customers without substantial decreases in shipping
volumes. Because we offer a variety of transportation modes, we generally retain
shipping volumes and benefit from increased use of our stacktrain services at
the expense of long-haul trucking competitors. Moreover, we believe our retail
business is positioned to perform well even in an economic recession or during a
downturn in its customers' business cycles. This is because at these times
customers focus on cost-reduction and as a result increase their outsourcing of
their supply-chain operations to us as well as their use of our other logistics
services. We also believe that difficult economic conditions magnify the
competitive advantage that large service providers like us enjoy over smaller
competitors and offer additional opportunities for us to make acquisitions on
favorable financial terms.
Competition
The transportation services industry is highly competitive. Our retail
business competes primarily against other domestic non-asset-based
transportation and logistics companies, asset-based transportation and logistics
companies, third-party freight brokers, private shipping departments and freight
forwarders. Competition is based primarily on freight rates, quality of service,
such as damage free shipments, on-time delivery and consistent transit times,
reliable pickup and delivery and scope of operations. We also compete with
transportation services companies for the services of independent commission
agents, and with trucklines for the services of independent contractors and
drivers. Our major competitors in the retail business include C.H. Robinson,
Exel, Hub Group, Alliance Shippers, Menlo Logistics, EGL Eagle Global Logistics,
Fritz Companies and Ryder System.
Our wholesale business competes primarily with over-the-road full truckload
carriers, conventional intermodal movement of trailers-on-flatcars, and
containerized intermodal rail services offered directly by railroads.
Competition between our wholesale business and truckload carriers is
particularly intense for shipments of freight over shorter distances. This is
primarily because intermodal transportation's competitive advantage of low
variable labor and fuel requirements per ton/mile is diminished for shorter
distance shipments. The major competitors of our wholesale business include
Burlington Northern Santa Fe, Union Pacific, CSX Intermodal and J.B. Hunt
Transport.
Employees
As of December 29, 2000, we had a total of 1,666 employees. None of our
employees are represented by unions and we generally consider our relationships
with our employees to be satisfactory.
Government Regulation
Regulation of Our Trucking and Wholesale Operations
----------------------------------------------------
The transportation industry has been subject to legislative and regulatory
changes that have affected the economics of the industry by requiring changes in
operating practices or influencing the demand for, and cost of, providing
transportation services. We cannot predict the effect, if any, that future
legislative and regulatory changes may have on our business or results of
operations.
We are subject to licensing and regulation as a transportation provider
pursuant to our trucking operations. We are licensed by the Department of
Transportation as a national freight broker in arranging for the transportation
of general commodities by motor vehicle and operate pursuant to a 48-state,
irregular route common and contract carrier authority. The Department of
Transportation prescribes qualifications for acting in our capacity as a
national freight broker, including surety bonding requirements. We provide motor
carrier transportation services that require registration with the Department of
Transportation and compliance with economic
12
regulations administered by the Department of Transportation, including a
requirement to maintain insurance coverage in minimum prescribed amounts. Other
sourcing and distribution activities may be subject to various federal and state
food and drug statutes and regulations. Although Congress enacted legislation in
1994 that substantially preempts the authority of states to exercise economic
regulation of motor carriers and brokers of freight, we and several of our
subsidiaries continue to be subject to a variety of vehicle registration and
licensing requirements. We and the carriers that we rely on in arranging
transportation services for our customers are also subject to a variety of
federal and state safety and environmental regulations. Although compliance with
regulations governing licenses in these areas has not had a materially adverse
effect on our operations or financial condition in the past, there can be no
assurance that these regulations or changes in these regulations will not
adversely affect our operations in the future. Violations of these regulations
could also subject us to fines or, in the event of serious violations,
suspension or revocation of operating authority as well as increased claims
liability.
Intermodal operations, like ours, were exempted from virtually all active
regulatory supervision by the U.S. Interstate Commerce Commission, predecessor
to the regulatory responsibilities now held by the U.S. Surface Transportation
Board. Such exemption is revocable by the Surface Transportation Board, but the
standards for revocation of regulatory exemptions issued by the Interstate
Commerce Commission or Surface Transportation Board are high.
Regulation of Our International Freight Forwarding Operations
--------------------------------------------------------------
We maintain licenses issued by the U.S. Federal Maritime Commission as an
ocean transportation intermediary. Our licenses govern both our operations as
an ocean freight forwarder and as a non-vessel operating common carrier. The
Federal Maritime Commission has established qualifications for shipping agents,
including suety bond requirements. The Federal Maritime Commission also is
responsible for the regulation and oversight of non-vessel operating common
carriers that contract for space with vessel operating carriers and sell that
space to commercial shippers and other non-vessel operating common carriers for
freight originating and/or terminating in the United States. Non-vessel
operating common carriers are required to publish and maintain tariffs that
establish the rates to be charged for the movement of specified commodities into
and out of the United States. The Federal Maritime Commission has the power to
enforce these regulations by commencing enforcement proceedings seeking the
assessment of penalties for violation of these regulations. For ocean shipments
not originating or terminating in the United States, the applicable regulations
and licensing requirements typically are less stringent than in the United
States. We believe that we are in substantial compliance with all applicable
regulations and licensing requirements in all countries in which we transact
business.
We are also licensed as a customs broker by the Customs Service of the
Department of Treasury in each United States custom district in which we do
business. All United States customs brokers are required to maintain prescribed
records and are subject to periodic audits by the Customs Service. In other
jurisdictions in which we perform customs brokerage services, we are licensed,
where necessary, by the appropriate governmental authority. We believe we are
in substantial compliance with these requirements.
Environmental
Our facilities and operations are subject to federal, state and local
environmental, hazardous materials transportation and occupational health and
safety requirements, including those relating to the handling, labeling,
shipping and transportation of hazardous materials, discharges of substances to
the air, water and land, the handling, storage and disposal of wastes and the
cleanup of properties affected by pollutants. In particular, a number of our
facilities have underground and aboveground tanks for the storage of diesel fuel
and other petroleum products. These facilities are subject to requirements
regarding the storage of such products and the clean-up of any leaks or spills.
We could also have liability as a responsible party for costs to clean-up
contamination at off-site locations where we have sent, or arranged for the
transport of, wastes. We have not received any notices that we are potentially
responsible for material clean-up costs at any off-site waste disposal location.
We do not currently anticipate any material adverse effect
13
on our business or financial condition as a result of our efforts to comply with
environmental requirements nor do we believe that we have any material
environmental liabilities. We also do not expect to incur material capital
expenditures for environmental controls in this or the next fiscal year.
However, there is no guarantee that changes in environmental requirements or
liabilities from newly-discovered environmental conditions will not have a
material effect on our business.
ITEM 3. LEGAL PROCEEDINGS
Two subsidiaries of Pacer Logistics, Interstate Consolidation, Inc. and
Intermodal Container Service, Inc., were named defendants in a class action
filed in July 1997 in the State of California, Los Angeles Superior Court,
Central District, alleging, among other things, breach of fiduciary duty, unfair
business practices, conversion and money had and received in connection with
monies allegedly wrongfully deducted from truck drivers' earnings. The
defendants entered into a Judge Pro Tempore Submission Agreement dated as of
October 9, 1998, pursuant to which the plaintiffs and defendants have waived
their rights to a jury trial, stipulated to a certified class, and agreed to a
minimum judgement of $250,000 and a maximum judgement of $1.75 million. On
August 11, 2000, the Court issued its Statement of Decision, in which Interstate
Consolidation, Inc. and Intermodal Container Service, Inc. prevailed on all
issues except one. The only adverse ruling was a Court finding that Interstate
failed to issue certificates of insurance to the owner-operators and therefore
failed to disclose that in 1998, the Company's retention on its liability policy
was $250,000. The court has ordered that restitution of $488,978 be paid for
this omission. Plaintiff's counsel has indicated he intends to appeal the
entire ruling. Defendants will be appealing the restitution issue. Based upon
information presently available and in light of legal and other defenses and
insurance coverage, management does not expect these legal proceedings, claims
and assessments, individually or in the aggregate, to have a material adverse
impact on the Company's consolidated financial position or results of
operations.
We are currently not otherwise subject to any other pending or threatened
litigation other than routine litigation arising in the ordinary course of
business, none of which is expected to have a material adverse effect on our
business, financial condition or results of operations. Most of the lawsuits to
which we are a party are covered by insurance and are being defended by our
insurance carriers.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
There is no established public trading market for the Company's outstanding
equity securities.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents, as of the dates and for the periods
indicated, selected historical financial information for the Company.
The Predecessor The Company
-------------------------- ----------------------------------------------------------
For the For the For the For the
Fiscal Fiscal Fiscal Fiscal
Year For the For the Year Year Year
Ended Period Period Ended Ended Ended
------------- ----------- ----------- ------------ ---------- -----------
Dec. 28 Nov. 13
1996 to 1997 to
Dec. 27 Nov. 12 Dec. 26 Dec. 25 Dec. 31 Dec. 29
1996 1/ 1997 1/ 1997 1/ 1998 1/ 1999 2/ 2000 3/
------------- ----------- ----------- ------------ ----------- -----------
(in millions, except per share data)
Statement of Operations
Data:
Gross revenues......................... $ 552.8 $ 523.8 $ 60.7 $ 598.9 $ 927.7 $ 1,281.3
Cost of purchased
transportation and services........... 423.7 407.5 47.4 466.3 735.4 1,005.6
Net revenues........................... 129.1 116.3 13.3 132.6 192.3 275.7
Direct operating expenses.............. 38.1 53.1 7.4 64.5 76.8 90.4
Selling, general and
administrative expenses............... 25.4 21.4 3.2 28.3 58.9 102.6
Depreciation and
amortization.......................... 4.1 3.0 0.7 6.6 8.6 11.6
Merger, severance & other.............. - - - - - 7.7
Income from operations................. 61.5 38.8 2.0 33.2 48.0 63.4
Net income............................. 38.1 22.9 1.0 20.6 16.6 14.8
Earnings per share: 4/
Basic................................ 5/ 5/ 5/ 5/ $ 0.78 $ 1.35
Diluted.............................. 5/ 5/ 5/ 5/ $ 0.68 $ 1.19
Historical Balance Sheet
Data (at period end):
Total assets........................... $ 71.4 $ - $ 111.9 $ 156.1 $ 455.0 $ 658.4
Total debt including capital
leases................................ - - - - 284.4 405.4
Minority interest -
exchangeable preferred
stock of subsidiary................... - - - - 23.4 25.0
Historical Cash Flow Data:
Cash provided by operating
activities............................ $ 17.4 $ 18.2 $ 12.7 $ 31.8 $ 20.8 $ 1.2
Cash provided by (used in)
investing activities.................. 0.9 3.6 - (38.5) (74.0) (130.7)
Cash provided by (used in)
financing activities.................. (18.3) (21.8) (12.7) 6.7 65.4 117.3
15
1/ The historical financial statements subsequent to November 13, 1997 include
the push down effect of the purchase price allocation resulting from the
purchase of APL Limited by Neptune Orient Lines Limited. The results of
operations of the predecessor period are not comparable to the successor period
as a result of the acquisition of APL Limited by Neptune Orient Lines Limited.
Prior to November 1998, Pacer International operated as the Stacktrain Services
division of APL Land Transport Services, Inc., a wholly-owned subsidiary of APL
Limited. In November 1998, APL Land Transport Services, Inc. transferred all of
its non-stacktrain assets to its parent, APL Limited. In connection with our
recapitalization and acquisition of Pacer Logistics, Inc., APL Land Transport
Services, Inc. was renamed Pacer International (see Item 1).
2/ Includes the results of Pacer Logistics, Inc. since acquisition on May 28,
1999.
3/ Includes the results of Conex Global Logistics Services, Inc., GTS
Transportation Services, Inc., RFI Group, Inc. and Rail Van Inc. since their
dates of acquisition on January, 13, 2000, August 31, 2000, October 31, 2000 and
December 22, 2000, respectively.
4/ Net income of $8.5 million for the period from January 1, 1999 through May
28, 1999 has been excluded as prior to the recapitalization on May 28, 1999 the
Company was a division of APL Limited and did not have common stock.
5/ Earnings per share data is not applicable as prior to the recapitalization
the Company was a division of APL Limited and did not have common stock.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This annual report on Form 10-K contains forward looking statements that
reflect our current estimates, expectations and projections about our future
results, performance, prospects and opportunities. Forward-looking statements
include, among other things, the information concerning our possible future
results of operations, business and growth strategies, financing plans, our
competitive position and the effects of competition, the projected growth of the
industries in which we operate, and the benefits and synergies to be obtained
from our completed and any future acquisitions. Forward-looking statements
include all statements that are not historical facts and can be identified by
forward-looking words such as "anticipate", "believe", "could", "estimate",
"expect", "intend", "plan", "may", "should", "will", "would" and similar
expressions. These forward-looking statements are based on all information
currently available to us and subject to a number of risks, uncertainties and
other factors that could cause our actual results, performance, prospects or
opportunities to differ materially from those expressed in, or implied by, these
forward-looking statements. Important factors that could cause our actual
results to differ materially from the results referred to in the forward-looking
statements we make in this annual report include:
. General economic and business conditions;
. Industry trends;
. Increases in our leverage;
. Changes in our business strategy, development plans or cost savings plans;
. Our ability to integrate acquired businesses;
. The loss of one or more of our major customers;
. Competition;
. Availability of qualified personnel;
. Changes in, or the failure to comply with, government regulation; and
. The other risk factors detailed from time to time in the documents filed by
the Company with the Securities and Exchange Commission.
16
You should not place undue reliance on any forward-looking statements.
Except as otherwise required by federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason after the date of this annual report.
Overview
We are a leading non-asset based North America third-party logistics
provider offering a broad array of services to facilitate the movement of
freight from origin to destination. We operate in two segments, the wholesale
segment and the retail segment (see Note 9 to the Consolidated Financial
Statements for segment information). The wholesale segment provides intermodal
rail service in North America by selling intermodal service to shippers pursuant
to agreements with intermodal rail trains. The retail segment provides trucking
services, intermodal marketing, freight consolidation and handling,
international freight forwarding and supply chain management services.
Operating History
We have operated as an independent, stand-alone company only since our
recapitalization in May 1999. From 1984 until our recapitalization, our
wholesale business was conducted by various entities owned directly or
indirectly by APL Limited. While owned by APL Limited, our wholesale business
used some of the financial and administrative resources and infrastructure of
APL Limited in such areas as treasury, legal, information systems and benefits
administration. Since our recapitalization, we have provided the
infrastructure, resources and services necessary to operate our wholesale
business independently, although we still utilize computers, software and other
information technology which APL Limited provides to us under an agreement with
a remaining term of 19 years that is terminable by us upon 120 days' notice and
by APL Limited if we fail to make required payments or are acquired by a
competitor of APL Limited. In addition, our historical financial information
prior to our recapitalization may not necessarily reflect the results of
operations, financial condition and cash flows in the future or what our results
of operations, financial condition and cash flows would have been had we been a
separate, independent entity during the periods presented.
Gross Revenues
The wholesale segment's gross revenues are generated through fees charged
to customers for the transportation of freight. The growth of these revenues is
primarily driven by increases in volume of freight shipped, as overall rates
have historically remained relatively constant. The average rate is impacted by
product mix, rail routes utilized and market conditions. Also included in gross
revenues are railcar rental income and incentives paid by APL Limited and others
for the repositioning of empty containers with domestic westbound loads.
The retail segment's gross revenues are generated through fees charged for
a broad portfolio of freight transportation services, including trucking
services, intermodal marketing, freight consolidation and handling,
international freight forwarding and supply chain management services. Overall
gross revenues for the retail segment are driven by expanding our service
offering and marketing our broad array of transportation services to our
existing customer base and to new customers. Trucking services include truck
brokerage, flatbed and specialized heavy-haul operations, and local trucking
services. Gross revenues from truck brokerage are driven primarily through
increased volume and outsourcing by companies of their transportation and
logistics needs. Gross revenues from other trucking services, which primarily
support intermodal marketing and provide specialized and local transportation
services to customers through independent operators, are driven primarily by
increased volume as well as length of haul and the rate per mile charged to the
customer. Intermodal marketing involves arranging the movement of freight in
containers and trailers utilizing truck and rail transportation. Increases in
gross revenues from intermodal marketing are generated primarily from increased
volumes, as rates are dependent upon product mix and transportation lane, which
tend to remain relatively constant
17
as customers' shipments tend to remain in similar lanes. Gross revenues for
freight consolidation and handling, which includes the handling,
consolidation/deconsolidation and storage of freight on behalf of the shipper,
are driven by increased outsourcing and import volumes and by shipping lines on
the West Coast who are increasingly using third-party containers, rather than
their own, to move freight inland. Through our supply chain management services,
we manage all aspects of the supply chain from inbound sourcing and delivery
logistics through outbound shipment, handling, consolidation, deconsolidation,
distribution, and just-in-time delivery of end products to our customers'
customers. Revenues for supply chain management services are recognized on a net
basis and are driven by increased outsourcing. As a result of our recent
acquisitions of RFI and Rail Van, we also provide international freight
forwarding services, which involves arranging transportation and other services
necessary to move our customers' freight to and from a foreign country. Gross
revenues for international freight forwarding are driven by the globalization of
trade.
Cost of Purchased Transportation and Services/Net Revenues
The wholesale segment's net revenues are the gross revenues earned from
transportation rates charged to customers less the costs of purchased
transportation and services. The cost of purchased transportation and services
consists primarily of the amounts charged by railroads and local trucking
companies. In addition, terminal and cargo handling services represent the
variable expenses directly associated with handling freight at a terminal
location. The cost of these services is variable in nature and is based on the
volume of freight shipped.
The retail segment's net revenues consist of the gross revenues earned from
its third-party transportation services, less the cost of purchased
transportation and services. Net revenues are driven by the mix of services
provided with net revenues as a percentage of gross revenues varying
significantly based on this mix. Purchased transportation and services consists
of amounts paid to third parties to provide services, such as railroads,
independent contractor truck drivers, freight terminal operators and dock
workers. Third-party rail costs are charged through contracts with the
railroads and are dependent upon product mix and traffic lanes. Sub-contracted
or independent operators are paid on a percentage of revenues, mileage or a
fixed fee.
Direct Operating Expenses
Direct operating expenses are both fixed and variable expenses directly
relating to the wholesale operations and consist of equipment lease and
depreciation expense, equipment maintenance and repair, fixed terminal and cargo
handling expenses and other direct variable expenses. Our fleet of leased
equipment is maintained through a variety of short- and long-term leases, many
of which can be terminated without penalty on short notice. Increases to our
equipment fleet will primarily be through additional leases as the growth of our
business dictates. Equipment maintenance and repair consist of the costs related
to the upkeep of the equipment fleet, which can be considered semi-variable in
nature, as a certain amount relates to the annual preventative maintenance costs
in addition to amounts driven by fleet usage. Fixed terminal and cargo handling
costs primarily relate to the fixed rent and storage expense charged to us by
terminal operators and is expected to remain relatively fixed.
Selling, General and Administrative Expenses
The wholesale segment's selling, general and administrative expenses prior
to our 1999 recapitalization consisted of allocated APL Limited corporate and
information technology expenses and direct administrative expenses, which
primarily include payroll and fringe benefits and other overhead expenses. After
May 28, 1999, the corporate administrative services previously provided by APL
Limited are incurred directly by the wholesale segment.
The retail segment's selling, general and administrative expenses relate to
the costs of customer acquisition, billing, customer service and salaries and
related expenses of marketing,
18
as well as the executive and administrative staff's compensation, office
expenses and professional fees. The retail segment anticipates that it will
incur increased overall selling related costs as it grows its operations, but
that such costs will remain relatively consistent as a percentage of net
revenues. The costs related to the retail segment's corporate functions, such as
administration, finance, legal, human resources and facilities will likely
increase as the business grows, but will likely decrease as a percentage of net
revenues as the business grows.
Results of Operations
The following discussion and analysis of financial condition and results of
operations for the years ended December 29, 2000 and December 31, 1999 include
the results of operations after our recapitalization and the acquisition of
Pacer Logistics since their completion on May 28, 1999. All prior years results
discussed represent the results of our wholesale business only. The results of
operations and financial condition for the periods subsequent to the
recapitalization and acquisition of Pacer Logistics are not necessarily
comparable to prior periods.
Fiscal Year Ended December 29, 2000 Compared to Fiscal Year Ended December 31,
1999
Amounts for the retail segment for 2000 include the results of our
acquisitions of Conex assets, GTS, RFI and Rail Van (the "2000 acquisitions")
since each respective date of acquisition. See Note 3 to our Consolidated
Financial Statements.
Financial Data for 2000 Acquisitions
Fiscal Year ended December 29, 2000
(in millions)
Rail Van RFI GTS Conex Total
-------------- ------------- ------------ ------------- -------------
Date of acquisition 12/22/00 10/31/00 8/31/00 1/13/00
Gross revenues...................... $ 4.8 $ 18.0 $ 31.4 $ 47.6 $101.8
Cost of purchased transportation ... 4.2 15.2 28.1 33.4 80.9
-------------- ------------- ------------ ------------- -------------
Net revenues........................ 0.6 2.8 3.3 14.2 20.9
Selling, general & administrative... 0.6 2.3 1.9 7.9 12.7
Depreciation and amortization ...... 0.1 0.2 0.2 1.0 1.5
-------------- ------------- ------------ ------------- -------------
Income from operations ............ $ (0.1) $ 0.3 $ 1.2 $ 5.3 $ 6.7
============== ============= ============ ============= =============
19
The following table sets forth our historical financial data for the fiscal
years ended December 29, 2000 and December 31, 1999. An asterix indicates that
retail segment data is not comparable because the 1999 amounts include only
seven months of retail segment data (since acquisition on May 28, 1999) and do
not include Conex data acquired January 13, 2000, GTS data acquired August 31,
2000, RFI data acquired October 31, 2000 or Rail Van data acquired December 22,
2000.
Financial Data Comparison by Reportable Segment
Fiscal Years Ended December 29, 2000 and December 31, 1999
(in millions)
2000 1999 Change % Change
----------- --------- ----------- ----------
Gross revenues
Wholesale...................................... $ 814.7 $713.2 $101.5 14.2%
Retail......................................... 503.9 233.2 270.7 *
Inter-segment elimination ..................... (37.3) (18.7) (18.6) *
--------- ------- --------- ------------
Total....................................... 1,281.3 927.7 353.6 38.1
Cost of purchased transportation and services
Wholesale...................................... 631.5 559.1 72.4 12.9
Retail......................................... 411.4 195.0 216.4 *
Inter-segment elimination ..................... (37.3) (18.7) (18.6) *
--------- ------- --------- ------------
Total...................................... 1,005.6 735.4 270.2 36.7
Net revenues
Wholesale...................................... 183.2 154.1 29.1 18.9
Retail......................................... 92.5 38.2 54.3 *
--------- ------- --------- ------------
Total...................................... 275.7 192.3 83.4 43.4
Direct operating expenses
Wholesale...................................... 90.4 76.8 13.6 17.7
Retail......................................... - - - -
------- ------- --------- ------------
Total..................................... 90.4 76.8 13.6 17.7
Selling, general & administrative expenses
Wholesale...................................... 37.7 32.4 5.3 16.4
Retail......................................... 64.9 26.5 38.4 *
----------- ------- --------- ------------
Total..................................... 102.6 58.9 43.7 74.2
Depreciation and amortization
Wholesale...................................... 5.4 6.0 (0.6) (10.0)
Retail......................................... 6.2 2.6 3.6 *
----------- ------- --------- ------------
Total..................................... 11.6 8.6 3.0 34.9
Merger, severance and other
Wholesale...................................... - - - -
Retail......................................... 7.7 - 7.7 *
----------- ------- --------- ------------
Total 7.7 - 7.7 *
Income from operations
Wholesale...................................... 49.7 38.9 10.8 27.8
Retail......................................... 13.7 9.1 4.6 *
----------- ------- --------- ------------
Total..................................... 63.4 48.0 15.4 32.1
Interest expense, net............................... 34.1 18.6 15.5 *
Income tax expense ................................. 12.9 11.7 1.2 10.3
Minority interest expense........................... 1.6 1.1 0.5 *
----------- ------- --------- ------------
Net income.......................................... $ 14.8 $ 16.6 $ (1.8) (10.8)%
========== ======== ========== =============
__________________________
* Not comparable
20
Gross Revenues. Gross revenues increased $353.6 million, or 38.1%, for the
fiscal year ended December 29, 2000 compared to the fiscal year ended December
29, 1999. Approximately $168.9 million, or 47.8%, of the increase was due to
the acquisition of Pacer Logistics (excluding the 2000 acquisitions) and $101.8
million, or 28.8%, of the increase was due to the 2000 acquisitions. The
wholesale segment increase of $101.5 million was due primarily to an $87.1
million, or 13.0%, increase in freight revenues driven by an overall container
volume increase of 83,071 containers or 13.1%. The volume increase was due to
increased customer demand coupled with the addition of 1,500 53-foot containers
during the fourth quarter of 1999 and 3,125 containers during 2000. This volume
increase was partially offset by a 0.1% reduction in the average freight revenue
per container resulting primarily from mix changes. A 3% fuel surcharge
implemented on domestic traffic during the second quarter of 2000 to defray rail
fuel cost increases mitigated the revenue per container reduction. Automotive
and international volumes continued strong for 2000 exceeding 1999 by 40% and
28%, respectively. Other wholesale segment revenues increased approximately
$16.0 million due primarily to increased railcar rental income in 2000 resulting
from the registration and marking of our rail cars for participation in the
Association of American Railroad interchange rules and income collection
procedures which allowed us to collect rail car rental income without entering
into separate agreements with each user, increased container per diem revenue
generated by the additional containers received in the fourth quarter of 1999
and during 2000 coupled with higher traffic volumes, and the management fees
associated with the 1999 Stacktrain Services Agreement with APL Limited entered
into effective May 28, 1999. This increase was partially offset by a $1.6
million reduction in repositioning revenues due to shippers reloading containers
in the westbound direction rather than paying us to move empty containers
westbound.
The recent economic downturn during the first quarter of 2001 has had an
impact on our business. The automotive industry is served by both of our
operating segments and reduced auto production has resulted in reduced
automotive shipments during the first quarter of 2001. In addition, the
downturn has produced overcapacity in selected markets which increases
competitive pressures to reduce transportation rates.
Net Revenues. Net revenues increased $83.4 million, or 43.4%, for 2000
compared to 1999. The acquisition of Pacer Logistics (excluding the 2000
acquisitions) accounted for $33.4 million, or 40.0%, of the increase, the 2000
acquisitions accounted for $20.9 million, or 25.1%, of the increase and the
wholesale segment accounted for the remaining $29.1 million of the increase.
The wholesale segment's cost of purchased transportation increased $72.4
million, or 12.9%, on container volume increases of 13.1% discussed above. The
wholesale segment gross margin increased to 22.5% in 2000 from 21.6% in 1999 due
primarily to increased railcar rental income, increased rail volume incentives
and to improved train blocking and loading procedures implemented as a result of
the Intermodal Transportation Agreement with CSX Intermodal, Inc. entered into
effective January 1, 2000, which reduced costs. These gross margin improvements
were partially offset by the significant traffic increase in the lower yielding
international business line.
Direct Operating Expenses. Direct operating expenses, which are only incurred
by the wholesale segment, increased $13.6 million, or 17.7%, in 2000 compared to
1999. The increase was due to increased equipment lease and maintenance expenses
of approximately $14.3 million as a result of the expansion of the fleet of
containers and chassis including a fourth quarter charge of $4.4 million related
to a formerly outsourced equipment repair function that failed to perform and
has subsequently been brought in-house.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $43.7 million, or 74.2%, in 2000 compared to
1999. The retail segment (excluding the 2000 acquisitions) accounted for $25.7
million, or 58.8%, of the increase, the 2000 acquisitions accounted for an
additional $12.7 million, or 29.1%, of the increase and the wholesale segment
accounted for $5.3 million, or 12.1%, of the increase. The increase in
wholesale segment costs was due primarily to higher information technology costs
provided under contract with APL Limited as well as increased headcount since
1999 associated with completing the organizational changeover from APL Limited
to Pacer since May 1999.
21
Depreciation and amortization. Depreciation and amortization expenses
increased $3.0 million, or 34.9%, for 2000 compared to 1999. The retail
segment, including $1.5 million related to the 2000 acquisitions, accounted for
$3.6 million of the increase in this category. The wholesale segment decrease
of $0.6 million was due primarily to reduced depreciation expense associated
with the sale and leaseback of 199 railcars on May 28, 1999. Depreciation
expense was $6.9 million and $6.2 million and amortization expense was $4.7
million and $2.4 million for 2000 and 1999, respectively. The increase in
amortization was due to the amortization of goodwill associated with the
acquisition of Pacer Logistics on May 28, 1999 as well as the 2000 acquisitions.
Merger, Severance and Other. In December 2000, we recorded a pre-tax charge
of $7.7 million relating to the consolidation of retail segment operations
resulting from the December 22, 2000 acquisition of Rail Van. The charge
includes $5.0 million for the severance of 99 employees from the Chicago,
Memphis, Los Angeles and Walnut Creek offices and the termination of agency
agreements. An additional $2.0 million is included to cover lease costs through
lease termination in 2006 for facilities no longer required primarily in Walnut
Creek and Memphis. Employee terminations and agency closures will be phased-in
and completed during 2001 as operations are consolidated in Columbus, Ohio.
The remaining $0.7 million of this charge is for the write-off of computer
software under development as we will be utilizing Rail Van's systems. We
anticipate that the consolidation will save the Company an estimated $3.2
million in 2001 and an estimated $6.2 million annually thereafter. Payments for
this charge will be funded from cash from operations and, if necessary,
borrowings under our $100.0 million revolving credit facility.
Income From Operations. Income from operations increased $15.4 million, or
32.1%, from $48.0 million in 1999 to $63.4 million in 2000. The retail segment
(excluding the 2000 acquisitions and the merger, severance and other charge)
accounted for $5.6 million, or 36.4%, of the increase and the 2000 acquisitions
accounted for $6.7 million, or 43.5%, of the increase. The retail segment
merger, severance and other charge of $7.7 million partially offset the retail
segment increase over 1999. The wholesale segment accounted for $10.8 million,
or 70.1%, of the increase due primarily to the 13.1% increase in traffic volume
coupled with higher rail car rental income as discussed above.
Interest Expense, Net. Interest expense, net increased by $15.5 million from
$18.6 million in 1999 to $34.1 million in 2000. Interest expense, net in 1999
reflects only seven months of interest on our $150.0 million of senior
subordinated notes and borrowings of $135.0 million under the term loan portion
of the credit agreement on May 28, 1999 to fund our recapitalization and the
acquisition of Pacer Logistics. In addition, during 2000 we borrowed $83.2
million from the revolving credit facility to fund the acquisitions of Rail Van,
RFI, GTS and Conex. We also issued $40.0 million in new term loans to fund the
Rail Van acquisition and issued a $5.0 million 8% subordinated note to Conex
shareholders to fund the acquisition of Conex assets. Amounts for 1999 were
restated to reflect an adjustment to the inter-segment interest calculation
between the wholesale and retail segments which favorably impacted the wholesale
segment and adversely impacted the retail segment but had no impact on
consolidated results.
Income Tax Expense. Income tax expense increased by $1.2 million from $11.7
million in 1999 to $12.9 million in 2000. The effective tax rate for 2000 was
44.0% compared to 39.8% for 1999 due primarily to the non-deductibility for tax
purposes of goodwill amortization associated with the acquisitions of Pacer
Logistics on May 28, 1999, GTS on August 31, 2000 and RFI on October 31, 2000.
Net Income. Net income decreased $1.8 million, or 10.8%, from $16.6 million
in 1999 to $14.8 million in 2000. The merger, severance and other charge
accounted for an estimated $4.3 million of the after-tax decrease. The retail
segment, including the 2000 acquisitions but excluding the merger, severance and
other charge, accounted for a $5.1 million increase in net income while the
wholesale segment accounted for a decrease of $2.1 million and minority interest
costs (accrued paid-in-kind dividends on the exchangeable preferred stock of the
retail segment) accounted for the remaining $0.5 million decrease in net income.
The wholesale segment decrease was due primarily to increased interest expense
on the financing for the
22
recapitalization and acquisition of Pacer Logistics partially offset by improved
operating income for 2000 as a result of increased container volumes.
Fiscal Year Ended December 31, 1999 Compared to Fiscal Year Ended December 25,
1998
The following table sets forth historical financial data for the Company
comparing data for the year ended December 31, 1999 and December 25, 1998.
Financial Data Comparison by Reportable Segment
Fiscal Years Ended December 31, 1999 and December 25, 1998
(in millions)
1999 1998 Change % Change
------------ ------------ ---------- -----------
Gross revenues
Wholesale........................................... $713.2 $598.9 $114.3 19.1%
Retail.............................................. 233.2 - 233.2 *
Inter-segment elimination .......................... (18.7) - (18.7) *
----------- ----------- -------- ---------
Total.......................................... 927.7 598.9 328.8 54.9
Cost of purchased transportation and services
Wholesale........................................... 559.1 466.3 92.8 19.9
Retail.............................................. 195.0 - 195.0 *
Inter-segment elimination .......................... (18.7) - (18.7) *
----------- ----------- -------- ---------
Total.......................................... 735.4 466.3 269.1 57.7
Net revenues
Wholesale........................................... 154.1 132.6 21.5 16.2
Retail.............................................. 38.2 - 38.2 *
----------- ----------- -------- ---------
Total.......................................... 192.3 132.6 59.7 45.0
Direct operating expenses
Wholesale........................................... 76.8 64.5 12.3 19.1
Retail.............................................. - - - *
----------- ----------- -------- ---------
Total.......................................... 76.8 64.5 12.3 19.1
Selling, general & administrative expenses
Wholesale........................................... 32.4 28.3 4.1 14.5
Retail.............................................. 26.5 - 26.5 *
----------- ----------- -------- ---------
Total.......................................... 58.9 28.3 30.6 108.1
Depreciation and amortization
Wholesale........................................... 6.0 6.6 (0.6) (9.1)
Retail.............................................. 2.6 - 2.6 *
----------- ----------- -------- ---------
Total.......................................... 8.6 6.6 2.0 30.3
Income from operations
Wholesale........................................... 38.9 33.2 5.7 17.2
Retail.............................................. 9.1 - 9.1 *
----------- ----------- -------- ---------
Total.......................................... 48.0 33.2 14.8 44.6
Interest expense, net.................................... 18.6 - 18.6 *
Income tax expense....................................... 11.7 12.6 (0.9) (7.1)
Minority interest expense................................ 1.1 - 1.1 *
----------- ----------- --------- ----------
Net income............................................... $ 16.6 $ 20.6 $ (4.0) (19.4)%
=========== =========== ========= ==========
___________________
* Not comparable
Gross Revenues. Gross revenues increased $328.8 million, or 54.9%, for the
year ended December 31, 1999 compared to the year ended December 25, 1998. The
acquisition of the retail segment accounted for $233.2 million, or 70.9%, of the
increase. The wholesale segment increase of $114.3 million was due primarily to
a $105.0 million, or 18.6%, increase in
23
freight revenues driven by an overall container volume increase of 109,304
containers or 20.9%. This increase was partially offset by a 1.9% reduction in
the average revenue per container resulting from mix changes. The increases were
due, in part, to correction of the rail service disruption problems experienced
during 1998 and to increased customer demand coupled with the addition of 2,000
53-foot containers during the second half of 1998. In addition, international
business increased due to both growth among existing customers as well as the
addition of a large new customer in the second quarter of 1999. Reposition
incentive revenues increased $1.4 million in the 1999 period as a result of
increased APL Limited shipping volume. Other Wholesale segment revenues
increased $7.9 million due primarily to the management fees associated with the
1999 Stacktrain Services Agreement with APL Limited and to a $2.2 million
increase in railcar rental income due to the increase in the railcar fleet in
mid-1998.
Net Revenues. Net revenues increased $59.7 million, or 45.0%, for the 1999
period compared to the 1998 period. The acquisition of the retail segment
accounted for $38.2 million, or 63.9%, of the increase and the wholesale segment
accounted for the remaining $21.5 million of the increase. The wholesale
segment cost of purchased transportation increased $92.8 million, or 19.9%, on
container volume increases of 20.9% discussed above. The wholesale segment gross
margin declined to 21.6% in 1999 from 22.1% in 1998 due primarily to increased
traffic in the lower rated international business line.
Direct Operating Expenses. Direct operating expenses, which are only incurred
by the wholesale segment, increased $12.3 million, or 19.1%, in 1999 compared to
1998. Expenses for 1998 were reduced by a $5.0 million credit from a third-party
transportation provider that was not received in 1999. In addition, equipment
lease and maintenance expenses increased by $7.7 million as a result of the
expansion of the fleet of containers and chassis discussed in gross revenues
above coupled with the sale and leaseback of 199 railcars in the second quarter
of 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $30.6 million, or 108.1%, in 1999 compared to
1998. The acquisition of the retail segment accounted for $26.5 million, or
86.6%, of the increase and the wholesale segment accounted for $4.1 million, or
13.4%, of the increase. The wholesale segment increase was due primarily to an
increase of $1.2 million for information technology costs provided under
contract with APL Limited and vacation accruals and other transition costs.
Wholesale segment costs decreased to 21.0% of net revenues in 1999 from 21.3% in
1998.
Depreciation and amortization. Depreciation and amortization expenses
increased $2.0 million, or 30.3%, for 1999 compared to 1998. The acquisition of
the retail segment accounted for $2.6 million of the increase while the
wholesale segment accounted for a decrease of $0.6 million. Depreciation expense
was $6.2 million and $6.0 million and amortization expense was $2.4 million and
$0.6 million for 1999 and 1998, respectively. The increase in amortization was
due to the amortization of goodwill associated with the acquisition of the
retail segment on May 28, 1999.
Income From Operations. Income from operations increased $14.8 million, or
44.6%, from $33.2 million in 1998 to $48.0 million in 1999. The acquisition of
the retail segment accounted for $9.1 million, or 61.5%, of the increase and the
wholesale segment accounted for $5.7 million, or 38.5%, of the increase. The
wholesale segment increase was due primarily to the 20.9% container volume
increase in 1999 partially offset by the $5.0 million credit to direct operating
expenses in 1998 discussed above.
Interest Expense, Net. Interest expense, net increased by $18.6 million for
1999 compared to 1998 due to the issuance of $150.0 million of senior
subordinated notes and borrowing $135.0 million under the term loan portion of
the credit agreement on May 28, 1999 to fund our recapitalization and the
acquisition of the retail segment.
24
Income Tax Expense. Income tax expense decreased by $0.9 million from $12.6
million in 1998 to $11.7 million in 1999. The effective tax rate for 1999 was
39.8% compared to 38.0% for 1998.
Net Income. Net income decreased $4.0 million, or 19.4%, from $20.6 million
in 1998 to $16.6 million in 1999. The acquisition of the retail segment
accounted for an increase of $3.7 million in net income offset by a $6.6 million
decrease for the wholesale segment and by minority interest costs (accrued paid-
in-kind dividends on the Pacer Logistics exchangeable preferred stock) of $1.1
million in 1999. The wholesale segment decrease was due primarily to increased
interest expense on the financing for the recapitalization and acquisition of
the retail segment discussed above partially offset by improved operating income
for 1999 as a result of increased container volumes.
Liquidity and Capital Resources
Cash generated by operating activities was $1.2 million, $20.8 million and
$31.8 million for the years ended December 29, 2000, December 31, 1999 and
December 25, 1998, respectively. The decrease in cash provided by operating
activities from 1998 to 2000 was due primarily to interest payments of $32.3
million, $15.4 million and $0 in 2000, 1999 and 1998, respectively. In April,
2000 we transferred the processing of APL Limited's international traffic
receivables and payables to APL Limited, which had previously been included in
our balance sheet, resulting in a decrease in both accounts receivable and
accounts payable of approximately $33.4 million. The transfer to APL Limited was
facilitated by changes in computer software which were not previously available.
We continue to handle APL Limited's international traffic under contract for a
management fee. We had working capital of $13.1 million at December 29, 2000
compared to a deficit of $3.7 million at December 31, 1999, due primarily to the
acquisitions of Conex assets, GTS, RFI and Rail Van during 2000 and to the
consolidation of the retail segment's accounting systems in early 2000 resulting
in improved payables processing.
Cash flows used in investing activities were $130.7 million, $74.0 million and
$38.5 million for 2000, 1999 and 1998, respectively. The increased use of cash
in 2000 was due primarily to cash and fees paid for acquiring Conex assets for
$26.1 million, GTS for $15.3 million, RFI for $16.8 million and Rail Van for
$67.4 million, partially offset by net proceeds of $0.4 million for the sale of
retired wholesale and retail segment property. The increased use of cash in
1999 was due to the acquisition of the retail segment for $112.0 million,
partially offset by the net proceeds of $39.6 million from the sale and
leaseback of 199 railcars originally purchased in 1998 and by the net proceeds
of $0.4 million from the sale of retail segment property. Capital expenditures
of $5.5 million in 2000 and $2.0 million in 1999 were primarily for computer
hardware and leasehold improvements to office space and warehouse facilities.
The use of cash in 1998 was primarily due to the purchase of 200 railcars for
$39.7 million.
Capital expenditures for 2001 are budgeted at $15.7 million primarily for
computer hardware and leasehold improvements to office space and warehouse
facilities. The total includes $6.2 million in 2001 of a total estimated $10.0
million to begin the conversion from APL Limited computer systems to a stand
alone in-house capability for our wholesale operations and $1.5 million to
expand the Rail Van computer system to handle our retail operations
requirements.
Cash flows provided by financing activities were $117.3 million, $65.4 million
and $6.7 million for 2000, 1999 and 1998, respectively. During 2000, we
borrowed $83.2 million from the revolving credit facility and issued $39.4
million in new term loans (net of $0.6 million in loan fees) to acquire Conex
assets, GTS, RFI and Rail Van. In connection with the January 13, 2000
acquisition of Conex assets, we also issued Conex shareholders an 8.0%
subordinated note in the aggregate principal amount of $5.0 million due January
13, 2003 and issued 300,000 shares (valued at $6.0 million) of our common stock.
In connection with the December 22, 2000 acquisition of Rail Van, we issued Rail
Van shareholders 280,000 shares (valued in the aggregate at $7.0 million) of our
common stock. Our management exercised options to purchase 341,373 shares of
common stock for total proceeds of $0.9 million during the 2000. The proceeds
were used to repay notes payable to management which were part of the purchase
25
price for the May 28, 1999 acquisition of Pacer Logistics and for general
corporate purposes. We repaid $8.9 million of Rail Van debt assumed at
acquisition, $6.4 million of the revolving credit facility, $1.3 million of our
$135.0 million term loan facility, $0.4 million of notes payable to management
and $0.1 million of capital lease obligations during 2000.
On May 28, 1999, in connection with our recapitalization and acquisition of
the retail segment, proceeds of $104.4 million were received from the issuance
of our common stock. We also borrowed $135.0 million under a term loan
facility, issued $150.0 million of senior subordinated notes, borrowed $2.0
million under the $100.0 million revolving credit facility expiring in 2004 and
issued $24.3 million of Pacer Logistics' exchangeable preferred stock. We paid
$9.5 million of financing costs associated with these borrowings which are
amortized over the life of the debt. The $2.0 million borrowed under the
revolving credit facility was repaid in July 1999. These borrowings were
partially offset by a distribution to APL Limited of $300.0 million and by fees
paid in connection with the recapitalization of $11.7 million. In addition, $0.7
million of the term loan was repaid and $0.1 million was paid on capital lease
obligations during 1999. In July 1999, we also redeemed $2.0 million of Pacer
Logistics' exchangeable preferred stock. Prior to our recapitalization on May
28, 1999, any excess cash generated from or used for operating or investing
activities was remitted to or received from APL Limited, the former parent,
through participation in the cash management plan. During 1998, a net
intercompany borrowing of $6.7 million from APL Limited was necessary to fund
the purchase of 200 railcars, 199 of which were subsequently the subject of the
sale and leaseback discussed above.
The $150.0 million of senior subordinated notes, due in 2007, bear interest
at 11.75% with interest due semi-annually at June 1 and December 1. The $135.0
million term loan due in 2006, and the $100.0 million revolving credit facility
expiring in 2004, each bear interest at a variable rate based on, at our option,
the Eurodollar rate or a base rate determined based on the federal funds rate,
prime rate or certificate of deposit rate, plus in either case a margin ranging
from 1.5% to 3% based on our leverage ratio. At December 29, 2000, the interest
rate on the revolving credit facility was 8.9% and the interest rate on the term
loans was 9.4%. Voluntary prepayments and commitment reductions will generally
be permitted without premium or penalty. The credit facilities are generally
guaranteed by all of our existing and future direct and indirect wholly-owned
subsidiaries and are collateralized by liens on our and our subsidiaries'
properties and assets. At December 29, 2000, we had $19.0 million available
under the revolving credit facility. The credit agreement contains restrictions
and financial covenants such as an adjusted total leverage ratio and a
consolidated interest coverage ratio. At December 29, 2000, we were in
compliance with these covenants. On August 9, 1999, we entered into a first
amendment to the credit agreement to increase the maximum amount that can be
drawn under the revolving credit facility on the day of notification of
borrowing to $10.0 million from $2.5 million. On January 7, 2000, we entered
into a second amendment to the credit agreement to modify the definition of
excess cash flow to allow for the acquisition of Conex assets as described
below. On December 22, 2000, we entered into a third amendment to the credit
agreement to provide for an additional term loan in the amount of $40.0 million
which was borrowed to finance the acquisition of Rail Van as described below.
The wholesale segment took delivery of 1,500 new 53-foot containers and
chassis financed through an operating lease in the fourth quarter of 1999.
During 2000, to help meet current and projected growth, we received 4,156 leased
containers and 3,425 leased chassis and returned 1,470 primarily 48-ft leased
containers and 506 leased chassis. In addition, we retired 593 owned 48-ft
containers. Effective September 1, 2000, we entered into an operating lease
agreement with GATX Third Aircraft Corporation to lease 200 new railcars that
were received in the fourth quarter of 2000. Additionally, we have taken
delivery of 85 new railcars of the 1,100 ordered under operating leases, with
the delivery of the remaining units expected by the end of the third quarter of
2001.
Based upon the current level of operations including the integration of the
Company's 2000 acquisitions and the anticipated future growth in both operating
segments, management believes that operating cash flow and availability under
the revolving credit facility will be adequate to meet
26
our working capital, capital expenditure and other cash needs for at least the
next two years, although no assurance can be given in this regard.
On December 22, 2000, pursuant to a stock purchase agreement, we acquired all
of the capital stock of Rail Van, Inc. Rail Van provides truck brokerage,
intermodal marketing and logistics services. The purchase price of $76.0
million included $4.0 million of acquisition costs, a cash payment to owners of
$67.0 million, the issuance to Rail Van stockholders of 280,000 shares of our
common stock (valued in the aggregate at $7.0 million) and an estimated post-
closing adjustment of an estimated $2.0 million to be refunded by the sellers to
the Company based on Rail Van's results for 2000 through December 22. The
acquisition was funded with a borrowing of $40.2 million under our revolving
credit facility, $40.0 million in new term loans and the issuance of our common
stock. Operating results of the acquisition are included in our retail segment
from the date of acquisition.
On October 31, 2000, pursuant to a stock purchase agreement, we acquired all
of the capital stock of RFI Group. Inc. RFI provides international freight
forwarding and freight transportation services. The purchase price was $18.5
million including acquisition fees of $0.5 million, a net cash payment to owners
of $16.4 million and an estimated working capital adjustment of $1.6 million. A
portion of the net cash payment was used to repay $5.2 million of indebtedness.
The acquisition was funded by borrowings under our revolving credit facility.
In connection with the acquisition, former owners of RFI that continued as
employees were granted 125,000 options (issued at fair value at the date of
agreement and at consummation) to purchase our common stock. Operating results
of the acquisition are included in our retail segment from the date of
acquisition.
On August 31, 2000, we acquired all of the capital stock of GTS Transportation
Services, Inc. for $17.8 million including acquisition fees and expenses and a
maximum earn-out amount of $2.2 million. The acquisition was funded by
borrowings under our revolving credit facility. GTS is a provider of
transportation services, including logistics and truck brokerage in North
America. In connection with the acquisition, former owners of GTS that
continued as employees were granted 30,000 options (issued at fair value at the
date of agreement and at consummation) to purchase our common stock. Operating
results of the acquisition are included in our retail segment from the date of
acquisition.
On January 13, 2000, pursuant to the terms of an asset purchase agreement, we
acquired substantially all of the assets and assumed specified liabilities of
Conex Global Logistics Services, Inc., MSL Transportation Group, Inc., and
Jupiter Freight, Inc. (collectively "Conex"), a multipurpose provider of
transportation services including intermodal marketing, local trucking and
freight consolidation and handling. The purchase price of $37.4 million
included acquisition fees of approximately $1.3 million, a cash payment to
owners of $25.1 million, the issuance to Conex shareholders an 8.0% subordinated
note in the aggregate principal amount of $5.0 million and the issuance to Conex
shareholders of 300,000 shares (valued in the aggregate at $6.0 million) of
common stock of Pacer International, Inc. We borrowed $15.0 million under the
revolving credit facility to fund the acquisition. Operating results of the
acquisition were included in our retail segment beginning January 1, 2000.
On May 28, 1999, the Company acquired the common stock of Pacer Logistics,
Inc., a privately-held third party logistics provider. The Company paid $137.5
million for the acquisition which included acquisition fees of $2.9 million and
assumed indebtedness of $62.6 million. The Company financed the acquisition
with a portion of the proceeds from the senior subordinated notes and with funds
under the credit facility. The acquisition resulted in goodwill of $123.1
million.
The realization of the deferred tax asset amounting to $68.7 million is
dependent upon generating sufficient taxable income to utilize the asset. The
minimum amount of taxable income required to realize this asset is $156.1
million. We believe that based on available evidence, both positive and
negative, it is more likely than not that currently recorded deferred tax assets
will be fully realized based on analysis of historical results, projections of
future operating results,
27
including the future benefits of the current year merger, severance and other
charge and an assessment of the market conditions that have and are expected to
affect us in the future.
In December 2000, we filed a registration statement with the SEC with respect
to an initial public offering of our common stock. Proceeds from the IPO are
expected to be used for repaying indebtedness under our credit facility. We
expect that our IPO will be completed in the third or fourth quarter of 2001,
subject to market conditions.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS No. 133 requires that all derivative instruments be recognized at fair
value in the statement of financial position, and that the corresponding gains
and losses be reported either in the statement of operations or as a component
of comprehensive income, depending on the type of relationship that exists. In
July 1999, the Financial Accounting Standards Board issued SFAS No. 138,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." SFAS No. 137 deferred the effective
date of SFAS No. 133 until fiscal years beginning after June 15, 2000. The
Company has not historically engaged in significant hedging activities or
invested in derivative instruments. This standard, as amended, did not have a
material impact on the Company's financial statements upon adoption on December
30, 2000.
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements" as amended by Staff
Accounting Bulletins No. 101A and 101B. These bulletins summarize certain of
the staff's views about applying generally accepted accounting principles to
revenue recognition in financial statements. The SEC has recently issued
further guidance with respect to adoption of specific issues addressed by SAB
101. The adoption of SAB 101 during the fourth quarter of 2000 did not have a
material impact on our financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an Interpretation of APB 25." This
interpretation clarifies (1) the definition of employee for purposes of applying
Opinion 25, (2) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (3) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (4) the accounting
for an exchange of stock compensation awards in a business combination. This
interpretation is effective July 1, 2000, but certain conclusions in this
interpretation cover specific events that occur after either December 15, 1998
or January 12, 2000. To the extent that this interpretation covers events
occurring during the period after December 15, 1998 or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
interpretation are recognized on a prospective basis from July 1, 2000. The
adoption of FIN 44 did not have a material impact on the Company's financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk is affected primarily by changes in interest rates. Under our
policies, we may use natural hedging techniques and derivative financial
instruments to reduce the impact of adverse changes in market prices, however,
we currently do not have any derivative financial instruments.
We have market risk in interest rate exposure, primarily in the United
States. We manage interest exposure through our mix of fixed and floating rate
debt. Interest rate swaps may be used to adjust interest rate exposure when
appropriate based on market conditions. For qualifying hedges, the interest
differential of swaps is included in interest expense. Based upon
28
the average variable interest rate debt outstanding during 2000, a 1% change in
our variable interest rates would affect our 2000 pre-tax earnings by
approximately $1.9 million.
As our foreign business expands, we will be subjected to greater foreign
currency risk.
Inflation
---------
The Company contracts with railroads and independent truck operators for our
transportation requirements. These third parties are responsible for providing
their own diesel fuel. To the extent that increased fuel prices are passed
along to us, we have historically passed these increases along to our customers.
However, there is no guarantee that this will be possible in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, including supplementary data and
accompanying reports of independent accountants are listed in the Index to
Consolidated Financial Statements and Consolidated Financial Statement Schedules
on page 50 filed as part of this annual report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
29
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the directors and executive
officers of our Company.
Name Age Position with Pacer International
- ---- --- ---------------------------------
Donald C. Orris 59 Chairman, President and Chief Executive Officer
Gerry Angeli 54 Executive Vice President
Robert L. Cross 53 Executive Vice President
Lawrence C. Yarberry 58 Executive Vice President, Chief Financial Officer
Joseph P. Atturio 43 Vice President, Controller and Secretary
Joseph B. Doherty 41 Treasurer
Eugene Pentimonti 58 President, Wholesale Operations
Michael W. Keller 50 President, Warehousing and Freight Consolidation
Mitchel Robbins 44 President, International Freight Forwarding
Alan Baer 45 Vice President
Denis M. Bruncak 46 Chief Executive Officer, Logistics Division - Retail Segment
Jeffrey R. Brashares 48 President, Logistics Division - Retail Segment
Joshua J. Harris 35 Director
Thomas L. Finkbiner 47 Director
Michael S. Gross 39 Director
Bruce H. Spector 58 Director
Marc E. Becker 28 Director
Timothy J. Rhein 59 Director
Donald C. Orris has served as Chairman, President and Chief Executive
Officer of our Company since May 1999. Mr. Orris serves as Chief Executive
Officer pursuant to the terms of the Management Shareholder Agreement. From
Pacer Logistics' inception in March 1997 until May 1999, Mr. Orris served as
Chairman, President and Chief Executive Officer of Pacer Logistics. From March
1997 until May 1998, Mr. Orris served as President and Chief Executive Officer
of an affiliate of Pacer Logistics. He also has served as Chairman of Pacer
Logistics' other subsidiaries since their formation or acquisition by Pacer
Logistics. Mr. Orris has been the President of Pacer International Consulting
LLC (f/k/a Logistics International LLC), a wholly owned subsidiary of Pacer
Logistics, since September 1996. From January 1995 to September 1996, Mr. Orris
served as President and Chief Operating Officer, and from 1990 until January
1995, he served as an Executive Vice President, of Southern Pacific
Transportation Company. Mr. Orris was the President and Chief Operating Officer
of American President Domestic Company and American President Intermodal Company
from 1982 until 1990. Mr. Orris is also a director of Quality Distribution,
Inc.
Gerry Angeli has served as an Executive Vice President of our Company since
May 1999. From Pacer Logistics' inception in March 1997 until May 1999, Mr.
Angeli served as an Executive Vice President and Assistant Secretary of Pacer
Logistics and as a Director of Pacer Logistics from April 1998 until May 1999.
He also served as a Director of each of Pacer Logistics' subsidiaries. Since May
1998, Mr. Angeli has served as President and Chief Executive Officer and Vice
President of subsidiaries of Pacer Logistics. Mr. Angeli also served as a Vice
President and Assistant Secretary of Pacific Motor Transport Company ("PMTC")
from March 1997 until May 1998. Since 1982, Mr. Angeli has served as President
and Chief Executive Officer of the Pacer division of PMTC and, concurrent
therewith, from 1987 until December 1993, Mr. Angeli served as President and
Chief Executive Officer of Southern Pacific Motor Trucking, a wholly owned
subsidiary of the Southern Pacific Railroad.
Robert L. Cross has served as an Executive Vice President of our Company
since May 1999. Mr. Cross served as an Executive Vice President and Assistant
Secretary of Pacer
30
Logistics and as an officer of subsidiaries of Pacer Logistics from Pacer
Logistics' inception in March 1997 until May 1999. From 1991 until March 1997,
Mr. Cross served as President of ABL-TRANS.
Lawrence C. Yarberry has served as an Executive Vice President, Chief
Financial Officer of our Company since May 1999. Mr. Yarberry served as an
Executive Vice President, Chief Financial Officer and Treasurer of Pacer
Logistics from May 1998 until May 1999. Mr. Yarberry served as a consultant to
Pacer Logistics from February 1998 until April 1998. From April 1990 until
December 1997, Mr. Yarberry served as a Vice President of Finance of Southern
Pacific Transportation Company and was Vice President of Finance and Chief
Financial Officer of Southern Pacific Rail Corporation.
Joseph P. Atturio has served as a Vice President, Controller and Secretary
of our Company since May 1999. Mr. Atturio served as Vice President and
Secretary of Pacer Logistics since its inception in March 1997 until May 1999.
Prior to joining Pacer Logistics, Mr. Atturio served as Comptroller of SPMT from
August 1988 until December 1993 and as a Vice President of SPMT from July 1992
until December 1993. From January 1994 until March 1997, he served as Vice
President and Comptroller of PMTC and served as a Regional Director of PMT Auto
Transport, a division of PMTC, from January 1986 until 1988.
Joseph B. Doherty has served as Treasurer of our Company since July 2000.
Prior to joining our Company, Mr. Doherty served as Vice President and Treasurer
for Rail America, Inc. from August 1998 to July 2000. From 1981 to 1998, Mr.
Doherty held various positions at Southern Pacific Transportation Company,
including Assistant Vice President - Finance and Assistant Treasurer.
Eugene Pentimonti has served as President of Wholesale Services of our
Company since April 2000. Prior to joining Pacer Stacktrain, Mr. Pentimonti
served as Senior Vice President for the American Trucking Association from
February 1996 to 2000. Mr. Pentimonti also served as a Vice President for
American President Lines from 1979 to 1996.
Michael W. Keller has served as President of Warehousing and Freight
Consolidation of our Company since January 2000. Prior to joining our Company,
Mr. Keller was President of Conex Global Logistics Services, Inc. since 1977.
From 1975 to 1977, Mr. Keller was the General Sales manager for the Western
Region with Japan Lines. From 1970 to 1975, Mr. Keller served at Matson, where
his last capacity was Assistant Vice President of Operations.
Mitchel Robbins has served as President of International Freight Forwarding
of our Company since October 2000. Mr. Robbins served as Chief Executive
Officer of RFI Group, Inc. from January 1993 to October 2000. Mr. Robbins
served as Vice President of RFI Group, Inc. from 1984 to 1993 and as a Manager
from 1977 to 1984.
Alan Baer has served as a Vice President of our Company since October 31,
2000 and as Chief Operating Officer of RFI Group, Inc. since January 1, 1998.
Mr. Baer served as President of Ocean World Lines from 1989 to 1998. Prior to
joining Ocean World Lines, Mr. Baer served as Line Manager for United States
Navigation since 1982.
Denis M. Bruncak has served as Chief Executive Officer of the Logistics
division of the Retail Segment of our Company since December 2000. Prior to
joining our company, Mr. Bruncak was an owner and served as Chief Executive
Officer of Rail Van Global Logistics since 1984. Mr. Bruncak joined Rail Van
Global Logistics as General Manager in 1979.
Jeffrey R. Brashares has served as President of the Logistics division of
the Retail Segment of our Company since December 2000. Prior to joining our
company, Mr. Brashares was an owner and served as President of Rail Van Global
Logistics since 1984. Mr. Brashares joined Rail Van Global Logistics as
Regional Sales Manager in 1976.
31
Joshua J. Harris has served as a Director of our Company since May 1999.
Mr. Harris is a partner in Apollo Management and has served as an officer of
certain affiliates of Apollo Management since 1990. Prior to that time, Mr.
Harris was a member of the Mergers and Acquisitions Department of Drexel Burnham
Lambert Incorporated. Mr. Harris is also a director of Florsheim Group Inc.,
NRT, Incorporated, Clark Retail Enterprises, Inc., Breuners Home Furnishings
Corporation, Quality Distribution, Inc., Converse Inc. and Resolution
Performance Products Inc.
Thomas L. Finkbiner was elected to serve as a Director of our Company
effective April 1, 2000. Mr. Finkbiner is currently a Director and Chief
Executive Officer of Quality Distribution, Inc. Prior to joining Quality
Distribution, Mr. Finkbiner served as Vice President of Intermodal for Norfolk
Southern Corporation since 1987. From 1981 to 1987, he was Vice President of
Marketing & Administration for North American Van Lines.
Michael S. Gross was elected to serve as a Director of our Company
effective April 1, 2000. Mr. Gross is a founding partner of Apollo Management.
Prior to that time, Mr. Gross was a member of the Mergers and Acquisitions
Department of Drexel Burnham Lambert Incorporated. Mr. Gross is also a Director
of Allied Waste Industries, Inc., Breuners Home Furnishings Corporation, Clark
Enterprises, Inc., Converse, Inc., Encompass Services Corporation, Florsheim
Group, Inc., Rare Medium, Inc., Saks, Inc. and United Rentals.
Bruce H. Spector has served as a Director of our Company since May 1999.
Mr. Spector has been a consultant to Apollo Advisors since 1992 and has been a
principal in Apollo Advisors since 1995. Prior to October 1992, Mr. Spector, a
reorganization attorney, was a member of the Los Angeles law firm of Stutman
Triester and Glatt. Mr. Spector is also a Director of Nexthealth, Inc., Vail
Resorts, Inc. and Metropolis Realty Trust, Inc.
Marc E. Becker has served as a Director of our Company since May 1999. Mr.
Becker has been associated with Apollo Management since 1996. Prior to that
time, Mr. Becker was employed by Smith Barney Inc. in the Financial
Entrepreneurs group within its Investment Banking division. Mr. Becker also
serves as a Director of National Financial Partners Corporation and Quality
Distribution, Inc.
Timothy J. Rhein has served as a Director of our Company since May 1999.
Mr. Rhein has been Chairman of APL Limited since October 1995. Mr. Rhein served
as APL Limited's President and Chief Executive Officer from October 1995 to
October 1999, President and Chief Operating Officer from July 1995 to October
1999. Prior to that, Mr. Rhein served as President and Chief Executive Officer
of APL Land Transport Services, Inc. from May 1990 to October 1995 and President
and Chief Operating Officer of American President Lines, Ltd. from January 1987
to May 1990. Mr. Rhein has served as a Director of APL Limited since July 1990.
32
ITEM 11. EXECUTIVE COMPENSATION
The Summary Compensation Table for the five most highly paid executives
of the Company is set forth below.
Summary Compensation Table
Annual Compensation Long-Term Compensation
- ---------------------------------------------------------------------- ---------------------------------------------------
Awards Payout
------------ --------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Name and Other Annual Restricted Securities All
Principal Comp- Stock Underlying LTIP Other
Position Year Salary Bonus ensation 1/ Award(s) 2/ Options Payout Comp. 3/
- ------------------ ------ ---------- ---------- -------------- ------------ ------------ -------- ----------
Donald C. Orris 2000 $300,000 $161,880 - - - - $5,250
(CEO) 1999 $300,000 $161,880 - - 100,000 - $5,688
1998 $250,000 $ 90,000 - - - - $6,250
Gerry Angeli 2000 $270,000 $121,410 - - - - $5,250
1999 $270,000 $121,410 - - 100,000 - $3,025
1998 $250,000 $ 90,000 - - - - $7,500
Robert L. Cross 2000 $235,000 $121,410 - - - - $4,038
1999 $235,000 $121,410 - - 100,000 - $5,604
1998 $220,000 $ 90,000 - - - - $6,558
Lawrence C. 2000 $220,000 $ 76,983 - - 10,000 - $5,032
Yarberry 1999 $189,721 $ 95,000 - - 33,000 - $4,562
1998 $133,017 $ - - - - - $3,990
Eugene 2000 $180,770 $ - $155,518 - 45,000 - $ -
Pentimonti 4/ 1999 $ - $ - - - - - $ -
1998 $ - $ - - - - - $ -
_________
(1) The value of perquisites and other personal benefits is not included
in the amounts disclosed because it did not exceed for any officer in
the table above the lesser of either $50,000, or 10% of the total
annual salary and bonus reported for the officer.
(2) In connection with the recapitalization, Messrs. Orris, Angeli and
Cross received 2,329, 2,264 and 2,264 shares of Pacer Logistics 7.5%
Exchangeable Preferred Stock, respectively, with a fiscal year end
2000 fair market value of $6.9 million (based on a fiscal year end
2000 fair market value of $1,000 per share of such preferred stock,
plus accrued dividends).
(3) Consists of company matching contributions to 401(k) plan.
(4) Includes compensation to Mr. Pentimonti from April 12, 2000, the date
on which he became one of our executive officers. Other annual
compensation includes moving expenses.
33
Option Grants in Last Fiscal Year
The following table lists the stock options granted to the named
executive officers during the fiscal year 2000.
Individual Grants
- -----------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Potential Realizable Value at
Name and Securities Options Exercise Assumed Annual Rates of Stock
Principal Underlying Granted Price Expiration Price Appreciation for Option Term
-----------------------------------
Position Options Granted In Year ($/Sh) Date 5% ($) 10% ($)
- ------------------- ----------------- ---------- ----------- ---------------- ---------------- ---------------
Donald C. Orris - - - - - -
(CEO)
Gerry Angeli - - - - - -
Robert L. Cross - - - - - -
Lawrence C.
Yarberry 10,000 3.4% $25.00 August 10, 2010 $157,200 $ 398,400
Eugene
Pentimonti 45,000 15.2% $20.00 April 12, 2010 $566,100 $1,434,150
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
(a) (b) (c ) (d)(1) (e)
Number of Securities
Underlying Value of Unexercised In-the-
Shares Unexercised Options at Money Options at
Acquired Fiscal year end Fiscal year end (2)
----------------------------- --------------------------------
On Value
Exercis-
Name Exercise Realized (3) able Unexercisable Exercisable Unexercisable
- ------------------- ------------ -------------- ---------- ---------------- ------------- ---------------
Donald C. Orris
Common 95,791 $ 1,799,303 20,000 140,958 $ 300,000 $ 2,710,533
Preferred 5,833 - 3,333 5,833 - -
Gerry Angeli
Common 95,791 $ 1,799,303 20,000 140,958 $ 300,000 $ 2,710,533
Preferred 5,833 - 3,333 5,833 - -
Robert L. Cross
Common 95,791 $ 1,799,303 20,000 140,958 $ 300,000 $ 2,710,533
Preferred 5,833 - 3,333 5,833 - -
Lawrence C.
Yarberry
Common - - 22,000 21,000 $ 330,000 $ 165,000
Eugene
Pentimonti
Common - 45,000 $ - $ 225,000
- --------------
(1) In connection with the acquisition of Pacer Logistics, certain of the
options relating to Pacer Logistics preferred stock converted to
options to purchase our Series A preferred stock.
(2) Based upon end of year fair market value of $25.00 per share of Pacer
International common stock and $9.00 per share of Pacer International
preferred stock.
(3) Subsequent to the exercise of preferred stock options, the shares were
repurchased by the Company at the option exercise price.
34
Stock Option Plan
Our Board of Directors adopted the Pacer International, Inc. 1999 Stock
Option Plan in May 1999. The purpose of this plan is to further our growth and
success by permitting our employees, as well as employees of Pacer Logistics, to
acquire shares of our common stock and the preferred stock of Pacer Logistics,
in the case of employees of Pacer Logistics, thereby increasing their personal
interest in our growth and success and to provide a means of rewarding
outstanding contribution by these employees. All of the Company's employees and
non-employee directors are eligible for option grants under this plan. This plan
is administered by a committee of our Board of Directors and, except with
respect to initial grants described below, such committee has the power and
authority to approve the persons to whom options are granted, the time or times
at which options are granted, the number of shares subject to each option, the
exercise price of each option and the vesting and exercisability provisions of
each option and has all powers with respect to the administration and
interpretation of this plan. In the event of specified corporate
reorganizations, recapitalizations, or other specified corporate transactions
affecting our stock, this plan permits proportionate adjustments to the number
and kinds of shares subject to options and/or the exercise price of those
shares. This plan has a term of ten years, subject to earlier termination by our
Board of Directors, who may modify or amend this plan in any respect, provided
that no amendment or modification affects an option already granted without the
consent of the option holder. With the exception of the 562,861 incentive stock
options which were rolled into this plan from the 1997 and 1998 Pacer Logistics
stock option plans, options subject to this plan do not qualify as incentive
stock options under the provisions of section 422 of the Internal Revenue Code.
No more than 1,793,747 shares have been authorized to be issued pursuant to
all option grants under this plan. Forfeitures under the plan are available for
future grants.
Under the plan, in connection with the recapitalization, an initial grant
of 985,500 options was made with an exercise price of $10.00 per share, to
specified employees. The options under this initial grant are divided into three
tranches, Tranche A, Tranche B and Tranche C. Tranche A options vest in five
equal installments on the date of the grant's first five anniversary dates,
provided the employee is employed by the Company on each anniversary date.
Tranche B options generally vest on the date of grant's seventh anniversary date
if the employee is employed by the Company on that date. However, if on any of
the grant's first five anniversary dates specified per share target values are
attained and the employee is employed by the Company on that date, then 20% of
the Tranche B options will vest. Accelerated vesting of the Tranche B options is
possible if a sale of the company occurs prior to the date of grant's fifth
anniversary and the fair market value of the per share consideration to be
received by the shareholder equals or exceeds an amount calculated in accordance
with this plan. Tranche C options vest in substantially the same manner as
Tranche B options, including acceleration upon a sale of the Company, except
that the per share target values as of a given anniversary date are increased.
Options granted to non-employee directors vest in four equal installments on the
date of grant's first four anniversary dates. A vested option that has not yet
been exercised will automatically terminate on the first to occur of the grant's
tenth anniversary, ninety days following the employee's termination of
employment for any reason other than death or disability, twelve months
following the employee's termination of employment due to death or disability,
or as otherwise determined by the committee.
Additionally, 470,247 and 92,614 options which were part of the 1997 and
1998 Pacer Logistics, Inc. Stock Option Plan, respectively, were rolled over as
part of the acquisition of Pacer Logistics. In addition, under the 1999 Stock
Option Plan, options to purchase 44,997 shares of preferred stock were granted
which were rolled over from the 1997 Pacer Logistics Stock Option Plan.
During 1999, subsequent to the initial grant discussed above, the Company
granted an additional 80,000 options and 24,000 were forfeited. During 2000, the
Company granted an additional 296,500 options and 316,000 options were
forfeited, leaving 208,886 options available, as of December 29, 2000 for future
grants. In addition, certain members of management
35
exercised 17,499 Pacer International, Inc. preferred stock options with an
exercise price of $9.00 per share. The Company elected, at its discretion, to
repurchase the preferred stock that arose from the exercise of the options.
Each option that is vested as of the date of the sale of our company
remains exercisable until the sale's closing, after which time such option is
unenforceable. Non-vested Tranche A, Tranche B and Tranche C options will vest
in accordance with the vesting schedules described above, however, an option
that vests after our company is sold will remain exercisable for 10 days before
such portion of the option terminates and is of no further force or effect. All
options granted under this plan are nontransferable except upon death, by such
employee's will or the laws of descent and distribution, or transfers to family
members of the employee that are approved by the committee.
Employment and Related Agreements
We have entered into employment agreements dated as of March 31, 1997, and
amended as of April 7, 2000, with each of Donald C. Orris, Gerry Angeli and
Robert L. Cross, an employment agreement dated as of December 1, 1998 with
Lawrence C. Yarberry and an employment agreement dated as of April 12, 2000 with
Eugene K. Pentimonti. Each of these employment agreements, as amended, has a
term of two years commencing May 28, 1999, with automatic one year renewals on
each anniversary of their commencement date. The minimum base salary under these
employment agreements is $225,000, $225,000, $200,000, $175,000, and $250,000
per year for Messrs. Orris, Angeli, Cross, Yarberry and Pentimonti,
respectively, subject to increase by our board of directors, except in the case
of Mr. Orris, in which case the base salary is subject to increase as agreed to
by Mr. Orris and our Board of Directors.
Under the employment agreement of Messrs. Orris, Angeli, Cross, Yarberry
and Pentimonti may receive annual bonuses of up to $180,000, $135,000, $135,000,
$85,500 and $170,000, respectively, based on the attainment of operating income
targets. Further, an additional bonus of up to 25% of the annual bonus may be
awarded to each of Messrs. Orris, Angeli and Cross based upon acquisitions made
during the year. The bonus amounts may be changed from time to time by the Board
of Directors.
All of the employment agreements provide that if the employment of these
employees is terminated for any reason, they would be entitled to receive any
unpaid portion of their base salary, reimbursement for any expenses incurred
prior to the date of termination and any unpaid amounts earned prior to the
effective date of termination pursuant to the terms of any bonus or benefit
program in which they participated at the time of termination. In addition, the
employment agreements provide that if the employment of these employees is
terminated without "cause", as defined in the employment agreements, they would
be entitled to receive 100% of their base salary for a period equal to the
greater of the number of months remaining in the employment term or one year, in
the case of Messrs. Orris, Angeli, Cross and Yarberry, and for a period of two
years following termination, in the case of Mr. Pentimonti, with such amount to
be reduced by 50% of any salary earned during this severance period from other
sources.
All of the employment agreements include restrictive covenants for our
benefit relating to the non-disclosure by these employees of our confidential
business information and trade secrets, the disclosure grant and assignment of
inventions and non-competition with regards to any business in competition with
us.
36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of the common stock as of December 29, 2000, for:
. Each person or entity known by us to beneficially own more that 5% of
the common stock;
. Each executive officer named in the summary compensation table;
. Each of our directors; and
. All executive officers and directors as a group.
The amounts and percentage of common stock beneficially owned are reported on
the basis of regulations of the SEC governing the determination of beneficial
ownership of securities. Under the rules of the SEC, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or to direct the voting of such security, or
"investment power," which includes the power to dispose of or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any securities of which that person has a right to acquire beneficial
ownership within 60 days. Under these rules, more than one person may be deemed
a beneficial owner of the same securities and a person may be deemed a
beneficial owner of securities as to which he has no economic interest. The
number of shares of common stock outstanding used in calculating the percentage
for each listed person includes the shares of common stock underlying options
held by such person that are exercisable within 60 days of December 29, 2000,
but excludes shares of common stock underlying options held by any other person.
Except in cases where community property laws apply or as indicated by
footnote, the persons named in the table below have sole voting and investment
power with respect to all shares of common stock shown as beneficially owned by
them.
Percentage of beneficial ownership is based on 11,361,373 shares of common
stock outstanding as of December 29, 2000 and 22,348.44 shares of Pacer
Logistics exchangeable preferred stock outstanding as of December 29, 2000. The
Pacer Logistics exchangeable preferred stock is exchangeable for shares of our
common stock on the basis of 100 shares of common stock for each share of
preferred stock.
37
Common Stock
Underlying Options
and Exchangeable
Securities
Exercisable/
Common Stock Exchangeable Within
Outstanding 60 Days Total Percent
-------------------- ----------------------- -------------- -------
Apollo Management IV, L.P. (1) .............. 9,390,000 - 9,390,000 82.6%
c/o Apollo Management, L.P.
1301 Avenue of the Americas
New York, NY 10019
APL Limited ................................. 750,000 - 750,000 6.6
1111 Broadway
Oakland, CA 94607
Donald C. Orris (2) ......................... 95,791 252,925 (3) 348,716 3.0
Gerry Angeli (2) ............................ 95,791 246,416 (4) 342,207 2.9
Robert L. Cross (2) ......................... 95,791 246,416 (4) 342,207 2.9
Lawrence C. Yarberry (2) .................... - 22,000 (5) 22,000 0.2
Eugene Pentimonti (2) ....................... - - - -
Joshua J. Harris (6) ........................ 9,690,000 (7) 1,500 (8) 9,691,500 85.3
Thomas L. Finkbiner (9) ..................... - - - -
Michael S. Gross (6) ........................ 9,390,000 (7) - 9,390,000 82.6
Bruce M. Spector (6) ........................ 9,390,000 (7) 1,500 (8) 9,391,500 82.7
Marc E. Becker (6) .......................... 9,390,000 (7) 1,500 (8) 9,391,500 82.7
Timothy J. Rhein (10) ....................... 750,000 1,500 (8) 751,500 6.6
All directors and executive officers as a
group (18 persons) (11) .................... 11,187,373 863,121 (12) 12,050,494 98.6%
_______
(1) Beneficial ownership of common stock includes 8,912,000 shares, or
78.4%, owned by Coyote Acquisition LLC ("Coyote I") and 478,000
shares, or 4.2%, owned by Coyote Acquisition II LLC ("Coyote II").
Coyote I is a Delaware limited liability company, the sole member of
which is Apollo Investment Fund IV, L.P. ("AIF") and Coyote II is a
Delaware limited liability company, the sole member of which is Apollo
Overseas Partners IV, L.P. ("AOP"). Each of AIF and AOP is a private
investment fund, the general partner of which is Apollo Advisors IV,
L.P. ("Advisors") which is an affiliate of Apollo Management IV, L.P.
("Management"), the manager of AIF and AOP. Each of Advisors and
Management may be deemed the beneficial owner of the shares owned by
Coyote I and Coyote II.
(2) The business address for Messrs. Orris, Angeli, Cross, Yarberry and
Pentimonti is c/o Pacer International, Inc., 1340 Treat Boulevard,
Suite 200, Walnut Creek, CA 94596.
(3) Represents 20,000 shares of common stock underlying options
exercisable within 60 days and 232,925 shares of common stock issuable
upon exchange of the Pacer Logistics 7.5% Exchangeable Preferred
Stock. Does not include an additional 140,958 options which vest in
the future.
(4) Represents 20,000 shares of common stock underlying options
exercisable within 60 days and 226,416 shares of common stock issuable
upon exchange of the Pacer Logistics 7.5%
38
Exchangeable Preferred Stock. Does not include an additional 140,958
options which vest in the future.
(5) Represents 22,000 shares of common stock underlying options
exercisable within 60 days. Does not include an additional 21,000
options which vest in the future.
(6) The business address for Messrs. Harris, Gross and Becker is c/o
Apollo Management L.P., 1301 Avenue of the Americas, New York, NY
10019. The business address for Mr. Spector is c/o Apollo Management
L.P., 1999 Avenue of the Stars, Suite 1900, Los Angeles, CA 90067.
(7) Messrs. Harris, Gross, Spector and Becker are each principals and/or
employees of certain affiliates of Apollo Management IV, L.P.
Accordingly, each such person may be deemed to beneficially own shares
of common stock held by Apollo Management IV, L.P. Each such person
disclaims beneficial ownership of any such shares in which he does not
have a pecuniary interest. With respect to Mr. Harris, also includes
200,000 shares owned by BT Capital Investors L.P., an affiliate of
Deutsche Bank Securities Inc., one of the representatives of the
underwriters, and 100,000 shares owned by Pacer International Equity
Investors, LLC, an affiliate of Credit Suisse First Boston
Corporation, one of the representatives of the underwriters, with
respect to which Mr. Harris has been granted a voting proxy.
(8) Represents shares underlying options exercisable within 60 days. Does
not include 4,500, 6,000, 4,500, 4,500 and 4,500 options which vest in
the future granted to each of Messrs. Harris, Gross, Spector, Becker
and Rhein, respectively.
(9) The business address for Mr. Finkbiner is 3802 Corporex Park Drive,
Tampa, Florida 33619. Does not include 6,000 options which vest in the
future.
(10) The business address for Mr. Rhein is c/o APL Limited, 1111 Broadway,
Oakland, CA 94607. Mr. Rhein is President, Chief Executive Officer and
a director of APL Limited. Accordingly, he may be deemed to
beneficially own shares of common stock held by APL Limited. Mr. Rhein
disclaims beneficial ownership of any such shares in which he does not
have a pecuniary interest.
(11) Includes all shares held by entities affiliated with specific
directors as described in notes (7) and (10) above.
(12) Represents 177,364 shares underlying options exercisable within 60
days and 685,757 shares of common stock issuable upon exercise of the
Pacer Logistics 7.5% exchangeable preferred stock.
39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following table summarizes related party transactions recorded in the
Statement of Operations.
Fiscal Year Ended
-------------------------------------------------
December 29, December 31, December 25,
Related Party Type 2000 1999 1998
- ---------------------------------- ------------------------- --------------- -------------- -------------
Gross Revenues:
APL Limited Freight transportation $ 90.6 $ 49.1 $ 38.7
APL Limited Avoided repositioning
International freight 16.2 21.0 20.0
APL Limited Management fee 6.6 3.9 -
-------------- ------------- ------------
Total related party revenues $ 113.4 $ 74.0 $ 58.7
============== ============= ============
Operating Expenses:
Direct operating expenses:
APL Limited Lease, maintenance and
repair expense $ - $ 7.0 $ 19.5
-------------- ------------- ------------
Selling, general and
administrative expenses:
APL Limited Corporate overhead $ - $ 5.6 $ 14.4
APL Limited Administrative services 0.6 1.1 -
APL Limited Information technology
services 10.0 5.8 -
APL de Mexico, S.A. de C.V. Agency services 2.7 1.8 0.5
Apollo Management Management fee 0.5 0.3 -
A&G Investments Facility lease 0.5 0.3 -
KU Realty, Inc. Facility lease 1.8 - -
Rich Hyland Facility lease - 0.1 -
-------------- ------------- ------------
Total related party SG&A expenses $ 16.1 $ 15.0 $ 14.9
============== ============= ============
Interest Expense:
Mike Keller $5.0 Million Sub Note $ 0.2 $ - $ -
-------------- ------------- ------------
Total related party expenses $ 16.3 $ 22.0 $ 34.4
============== ============= ============
Management believes that the terms of the related party transactions listed
above were at fair market rates.
The Company provided intermodal services to APL Limited. These services
include moving containers from ports to inland points, moving containers from
inland points to ports, and repositioning empty containers. These transactions
were performed on a cost reimbursement basis. Thus, no revenues or expenses were
recognized for financial reporting purposes. Reimbursements amounted to $79.2
million, $273.6 million and $276.7 million for the fiscal years ended December
29, 2000, December 31, 1999 and December 25, 1998, respectively. In April 2000,
the Company transferred the processing of APL Limited's international traffic
receivables and payables to APL Limited, which had previously been included in
the Company's balance sheet, resulting in a decrease in both accounts receivable
and accounts payable of approximately $33.0 million. The transfer to APL Limited
was facilitated by changes in computer software which were not previously
available. At December 29, 2000 and December 31, 1999 the Company had a
receivable from APL Limited for these transactions of $0 and $31.3 million,
respectively. The Company continues to handle APL Limited's international
traffic under contract for an annual management fee of $6.6 million in 2000 and
$3.9 million in 1999.
Prior to the recapitalization, APLLTS shared in expenses of the former
parent for services including systems support, office space and other corporate
services. These expenses were $5.6
40
million and $14.4 million for the period ended May 28, 1999 and the fiscal year
ended December 25, 1998, respectively. Pursuant to the recapitalization, the
Company has signed long-term agreements with APL Limited for administrative
services such as billing and accounts receivable and payable processing on a per
transaction basis. For 2000 and the seven months ended December 31, 1999, $0.6
million and $1.1 million was paid for these services, respectively. In addition,
the information technology services of APL Limited are currently being provided
to the Company. For the fiscal years ended December 29, 2000 and December 31,
1999, $10.0 million and $5.8 million was paid for these services, respectively.
In addition, the Company receives a credit from APL Limited for the
repositioning expense that APL Limited has avoided due to the Company using APL
Limited's containers in surplus locations. The total amount of revenue
recognized for these services was $16.2 million, $21.0 million and $20.0 million
for the fiscal years ended December 29, 2000, December 31, 1999 and December 25,
1998, respectively. At December 29, 2000 and December 31, 1999, $1.6 million and
$3.7 million was receivable from APL Limited, respectively.
The Company also provides services to the Automotive Division of APL
Limited. These services include moving containers primarily in the U.S.--Mexico
trade. Total amount of revenue recognized for these services was $90.6 million,
$49.1 million and $38.7 million for the fiscal years ended December 29, 2000,
December 31, 1999 and December 25, 1998, respectively. At December 29, 2000 and
December 31, 1999 $4.4 million and $4.6 million was receivable from APL Limited
including related drayage and miscellaneous charges, respectively.
Prior to the recapitalization, APLLTS received an allocation for lease and
maintenance and repair expenses from APL Limited. These expenses were $7.0
million and $19.5 million for the fiscal years ended December 31, 1999 and
December 25, 1998, respectively.
APL de Mexico, S.A. de C.V. (APL Mexico), a wholly owned Mexican subsidiary
of the APL Limited, provides various agency services to the Company with respect
to its bills of lading in Mexico. Expenses recorded by the Company from APL
Mexico were $2.7 million, $1.8 million and $0.5 million for the fiscal years
ended December 29, 2000, December 31, 1999 and December 25, 1998, respectively.
At December 29, 2000 and December 31, 1999 $0.5 million and $1.2 million was
payable to APL Mexico, respectively.
The Company has entered into a management agreement with Apollo Management
("Apollo") for financial and strategic services as the Board of Directors may
reasonably request. The annual fee which has been paid for these services for
the year ended December 29, 2000 was $0.5 million, and for the partial year
ended December 31, 1999 was $0.3 million.
The Company leases a facility consisting of office, warehousing and
trucking space from A&G Investments, a California general partnership of which
Messrs. Goldfein and Steiner are the only partners. Mr. Goldfein is a
stockholder and a former Director and Executive Vice President of the Company.
Mr. Steiner is a stockholder and a former Executive Vice President of the
Company. Lease payments were $0.5 million and $0.3 million for the years ended
December 29, 2000 and December 31, 1999, respectively.
The Company leases warehouse and dock facilities in Southern California
from KU Realty, Inc. which is owned by Messrs. Keller and Uchida. Mr. Keller is
a stockholder and President of the Freight Consolidation and Handling Division
of the Company. Lease payments were $1.8 million for the year ended December
29, 2000.
In April 2000, the Company repaid $0.4 million in notes payable to certain
members of senior management including accrued interest. The notes were part of
the purchase price for Pacer Logistics acquired on May 28, 1999.
In August 2000, the Company paid a scheduled semi-annual interest payment of
$0.2 million to certain members of senior management on the $5.0 million 8.0%
subordinated note issued in January 2000 as part of the purchase price for the
acquisition of Conex assets.
41
The Company leased a facility consisting of office space from Richard P.
Hyland, a stockholder and a former Executive Vice President of the Company.
Such lease was pursuant to an oral agreement and was on a month-to-month basis.
The lease terminated on December 31, 1999.
42
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. Documents filed as part of this report.
1. The financial statements, financial statement schedule and accompanying
reports of independent accountants are listed in the Index to Financial
Statements and Financial Statement Schedules filed as part of this
Annual Report.
2. Exhibits
Exhibit
Number Exhibit Description
- ------- ----------------------------------------------------------------------------------------------
3.1 Amended and Restated Charter of Pacer International, Inc. (Incorporated by reference
to Exhibit 3.1 to the Company's Registration Statement on Form S-4 (Reg. No.
333-85041) filed with the Securities and Exchange Commission (the "Commission") on
November 5, 1999).
3.2 Amended and Restated Bylaws of Pacer International, Inc. (Incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-4 dated November 5,
1999).
4.1 Indenture, dated as of May 28, 1999, among Pacer International, Inc. the Guarantors
and Wilmington Trust Company, as Trustee (including form of 11 3/4% Senior
Subordinated Notes due 2007) (Incorporated by reference to Exhibit No. 4.2 to the
Company's Registration Statement on Form S-4 dated August 12, 1999).
4.2 Form of 11 3/4% Senior Subordinated Notes due 2007 (filed as part of Exhibit 4.1).
(Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on
Form S-4 dated August 12, 1999).
4.3 First Supplemental Indenture dated as of January 13, 2000, among Pacer International,
Inc., Conex Acquisition Corporation and Wilmington Trust Company. (Incorporated by
reference to Exhibit No. 10.25 to the Annual Report on Form 10-K dated March 30, 2000)
4.4 Second Supplemental Indenture dated as of August 31, 2000, among Pacer International,
Inc., GTS Transportation and Wilmington Trust Company. (Incorporated by reference to
Exhibit No. 4.4 to the Company's Registration Statement on Form S-1 (Reg. No.
333-53700) dated January 12, 2001).
4.5 Third Supplemental Indenture dated as of October 31, 2000, among Pacer International,
Inc., RFI Group, RFI International Ltd., Ocean World Lines, International Logistics
Management, Inc. and Wilmington Trust Company. ( Incorporated by reference to Exhibit
No. 4.5 to the Company's Registration Statement on Form S-1 dated January 12, 2001).
4.6 Fourth Supplemental Indenture dated as of December 22, 2000, among Pacer
International, Inc., Rail Van, Inc., Rail Van LLC and Wilmington Trust Company.
(Incorporated by reference to Exhibit No. 4.1 to the Company's Current Report on Form
8-K dated January 8, 2001).
43
Exhibit
Number Exhibit Description
- ------------- -----------------------------------------------------------------------------------------
4.7 Shareholders' Agreement, dated as of May 28, 1999, among APL Limited, Pacer
International, Inc., Coyote Acquisition LLC and Coyote Acquisition II LLC.
(Incorporated by reference to Exhibit No. 4.12 to the Company's Registration Statement
on Form S-4 dated August 12, 1999).
4.8 Shareholders' Agreement, dated as of May 28, 1999, by and among Pacer International,
Inc., Coyote Acquisition LLC and Coyote Acquisition II LLC and The Management
Stockholders. (Incorporated by reference to Exhibit No. 4.13 to the Company's
Registration Statement on Form S-4 dated August 12, 1999).
4.9 Shareholders' Agreement, dated as of May 28, 1999, by and among Pacer International,
Inc., Coyote Acquisition LLC and Coyote Acquisition II LLC, BT Capital Investors, L.P.
and Pacer International Equity Investors, LLC. (Incorporated by reference to Exhibit
No. 4.14 to the Company's Registration Statement on Form S-4 dated August 12, 1999).
4.10 Registration Rights Agreement, dated as of May 28, 1999, between Pacer International,
Inc. and the Purchasers named therein. (Incorporated by reference to Exhibit No. 4.18
to the Company's Registration Statement on Form S-4 dated August 12, 1999).
4.11 Registration Rights Agreement, dated as of May 28, 1999 between Pacer International,
Inc., Coyote Acquisition LLC and Coyote Acquisition II LLC. (Incorporated by
reference to Exhibit 4.11 to the Company's Registration Statement on Form S-1 dated
January 12, 2001).
10.1 Employment Agreement for Donald C. Orris. (Incorporated by reference to Exhibit No.
10.1 to the Company's Registration Statement on Form S-4 dated November 5, 1999).
10.2 Employment Agreement for Gerry Angeli. (Incorporated by reference to Exhibit No. 10.2
to the Company's Registration Statement on Form S-4 dated November 5, 1999).
10.3 Employment Agreement for Robert L. Cross. (Incorporated by reference to Exhibit No.
10.4 to the Company's Registration Statement on Form S-4 dated November 5, 1999).
10.4 Credit Agreement, dated as of May 28, 1999, among Pacer International, Inc., the
lenders party thereto from time to time, Morgan Stanley Senior Funding, Inc., as
Syndication Agent, Credit Suisse First Boston Corporation, as Documentation Agent and
Bankers Trust Company, as Administrative Agent. (Incorporated by reference to Exhibit
No. 4.1 to the Company's Registration Statement on Form S-4 dated August 12, 1999).
10.5 First Amendment dated August 9, 1999, among Pacer International, Inc., the lending
institutions party to the Pacer International, Inc. Credit Agreement dated May 28,
1999, Credit Suisse First Boston, Morgan Stanley Senior Funding, Inc., and Bankers
Trust Company. (Incorporated by reference to Exhibit No. 10.26 to the Company's
Annual Report on Form 10-K dated March 30, 2000).
44
Exhibit
Number Exhibit Description
- ------------- -----------------------------------------------------------------------------------------
10.6 Second Amendment dated January 7, 2000, among Pacer International, Inc., the lending
institutions party to the Pacer International, Inc. Credit Agreement dated May 28,
1999, Credit Suisse First Boston, Morgan Stanley Senior Funding, Inc., and Bankers
Trust Company. (Incorporated by reference to Exhibit No. 10.27 to the Company's
Annual Report on Form 10-K dated March 30, 2000).
10.7 Third Amendment dated December 22, 2000 among Pacer International, Inc., the lending
institutions party to the Pacer International, Inc. Credit Agreement dated May 28,
1999, Credit Suisse First Boston, Morgan Stanley Senior Funding, Inc., and Bankers
Trust Company. (Incorporated by reference to Exhibit No. 10.1 to the Company's
Current Report on Form 8-K dated January 8, 2001).
10.8 Stock Purchase Agreement, dated as of March 15, 1999, between APL Limited and Coyote
Acquisition LLC. (Incorporated by reference to Exhibit No. 4.4 to the Company's
Registration Statement on form S-4 dated August 12, 1999).
10.9 Non-Competition Agreement, dated as of May 28, 1999, among Neptune Orient Lines
Limited, APL Limited, Pacer International, Inc. and Coyote Acquisition LLC.
(Incorporated by reference to Exhibit No. 4.5 to the Company's Registration Statement
on Form S-4 dated August 12, 1999).
10.10 Administrative Services Agreement, dated as of May 29, 2000, between APL Limited and
Pacer International, Inc. (Incorporated by reference to Exhibit No. 10.12 to the
Company's Registration Statement on Form S-1 dated January 12, 2001).
10.11 IT Supplemental Agreement, dated as of May 11, 1999, between APL Limited, APL Land
Transport Services, Inc. and Coyote Acquisition LLC. (Incorporated by reference to
Exhibit No. 10.10 to the Company's Registration Statement on Form S-4 dated
November 5, 1999).
10.12 Stacktrain Services Agreement, dated as of May 28, 1999, among American President
Lines, Ltd., APL Co. Pte. Ltd., APL Limited and Pacer International, Inc.
(Incorporated by reference to Exhibit No. 4.8 to the Company's Registration Statement
on Form S-4 dated August 12, 1999).
10.13 TPI Chassis Sublet Agreement, dated as of May 28, 1999, among American President
Lines, Ltd., APL Co. Pte. Ltd., APL Limited and Pacer International, Inc.
(Incorporated by reference to Exhibit No. 4.9 to the Company's Registration Statement
on Form S-4 dated August 12, 1999).
10.14 Equipment Supply Agreement, dated as of May 28, 1999, among American President Lines,
Ltd., APL Co. Pte. Ltd., APL Limited and Pacer International, Inc. (Incorporated by
reference to Exhibit No. 4.10 to the Company's Registration Statement on Form S-4
dated August 12, 1999).
10.15 Primary Obligation and Guaranty Agreement, dated as of March 15, 1999, by Neptune
Orient Lines Limited in favor of Coyote Acquisition LLC and APL land Transport
Services, Inc. (Incorporated by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-4 dated August 12, 1999).
45
Exhibit
Number Exhibit Description
- ------------- -----------------------------------------------------------------------------------------
10.16 Management Agreement, dated as of May 28, 1999, between Apollo Management IV, L.P. and
Pacer International, Inc. (Incorporated by reference to Exhibit No. 4.15 to the
Company's Registration Statement on Form S-4 dated August 12, 1999).
10.17 Tax Sharing Agreement, dated as of May 28, 1999, by and among Coyote Acquisition LLC,
Pacer International, Inc. and Pacer Logistics, Inc. (Incorporated by reference to
Exhibit No. 4.16 to the Company's Registration Statement on Form S-4 dated August 12,
1999).
10.18 Intermodal Transportation Agreement No. 1111, dated as of May 4, 1999 between CSX
Intermodal, Inc., APL Land Transport Services, Inc., APL Limited and APL Co. Pte. Ltd.
(Incorporated by reference to Exhibit No. 10.19 to the Company's Registration
Statement on Form S-4 dated November 5, 1999).
10.19 Domestic Incentive Agreement, dated as of May 4, 1999, between CSX Intermodal, Inc.
and Pacer International, Inc. (Incorporated by reference to Exhibit No. 10.20 to the
Company's Registration Statement on Form S-4 dated November 5, 1999).
10.20 Rail Transportation Agreement, dated as of October 11, 1996, between Union Pacific
Railroad Company, APL Land Transport Services, Inc., American President Lines, Ltd.,
and APL Co. Pte. Ltd. (Incorporated by reference to Exhibit No. 10.21 to the
Company's Registration Statement on Form S-4 dated November 5, 1999).
10.21 Asset Purchase Agreement dated December 31, 1999, among Conex Acquisition Corporation,
Conex Global Logistics Services, Inc., MSL Transportation Group, Inc., Jupiter
Freight, Inc., The Michael W. Keller Living Trust, The Uchida Family Trust, Michael
Keller and Shigehiro Uchida. (Incorporated by reference to Exhibit No. 2.1 to the
Company's Current Report on Form 8-K dated January 13, 2000).
10.22 Amendment dated January 12, 2000 to Asset Purchase Agreement dated December 31, 2000.
(Incorporated by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K
dated January 13, 2000).
10.23 Employment Agreement dated January 13, 2000, between Conex Acquisition Corporation and
Michael Keller. (Incorporated by reference to Exhibit No. 10.23 to the Company's
Annual Report on Form 10-K dated March 30, 2000).
10.24 Employment Agreement dated January 13, 2000, between Conex Acquisition Corporation and
Shigehiro Uchida. (Incorporated by reference to Exhibit No. 10.24 to the Company's
Annual Report on Form 10-K dated March 30, 2000).
10.25 Equipment Services Agreement dated December 31, 1999 among Transamerica Leasing, Inc.,
Pacer Logistics, Inc. and the Company. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the Quarter ended April 7, 2000).
10.26 Rail Car Lease Agreement dated September 1, 2000 among GATX Third Aircraft Corporation
and the Company. (Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the Quarter ended September 22, 2000).
46
Exhibit
Number Exhibit Description
- ------------- -----------------------------------------------------------------------------------------
10.27 Pacer International, Inc. 1999 Stock Option Plan. (Incorporated by reference to
Exhibit No. 10.29 to the Company's Registration Statement on Form S-1 dated January
12, 2001).
10.28 Stock Purchase Agreement, dated August 31, 2000 by and among Pacer International,
Inc., GTS Transportation Services, Inc. and all of the Shareholders of GTS
Transportation Services, Inc. (Incorporated by reference to Exhibit No. 10.30 to the
Company's Registration Statement on Form S-1 dated January 12, 2001).
10.29 Stock Purchase Agreement, dated October 31, 2000 by and among Pacer International,
Inc., all of the Stockholders of RFI Group, Inc., Everett Fleisig, Bernard W. Robbins,
and Certain Trusts that are owners of Certain Stockholders of RFI Group, Inc.
(Incorporated by reference to Exhibit No. 10.31 to the Company's Registration
Statement on Form S-1 dated January 12, 2001).
10.30 Employment Agreement, dated as of October 31, 2000, between Pacer International, Inc.
and Mitchel Robbins. (Incorporated by reference to Exhibit No. 10.32 to the Company's
Registration Statement on Form S-1 dated January 12, 2001).
10.31 Employment Agreement, dated as of October 31, 2000, between Pacer International, Inc.
and Allan Baer. (Incorporated by reference to Exhibit No. 10.33 to the Company's
Registration Statement on Form S-1 dated January 12, 2001).
10.32 Stock Purchase Agreement, dated December 18, 2000 by and among Pacer International,
Inc., Rail Van, Inc., Rail Van LLC and all of the Shareholders of Rail Van, Inc.
(Incorporated by reference to Exhibit No. 10.2 to the Company's Current Report on Form
8-K dated January 8, 2001).
10.33 Equipment Use Agreement, dated May 28, 1999, between PAMC UC and Pacer International,
Inc. (Incorporated by reference to Exhibit No. 10.35 to the Company's Registration
Statement on Form S-1 dated January 12, 2001).
10.34 Employment Agreement dated as of December 22, 2000 between Pacer International, Inc.
and Jeffrey R. Brashares. (Incorporated by reference to Exhibit B to the Company's
Current Report on Form 8-K dated January 8, 2001).
10.35 Employment Agreement dated as of December 22, 2000 between Pacer International, Inc.
and Denis M. Bruncak. (Incorporated by reference to Exhibit C to the Company's
Current Report on Form 8-K dated January 8, 2001).
10.36 Employment Agreement dated as of December 1, 1998 between Pacer International, Inc.
and Lawrence C. Yarberry.*
10.37 Employment Agreement dated as of April 12, 2000 between Pacer International, Inc. and
Eugene K. Pentimonti.*
____________
* Filed
herewith
47
B. Reports on Form 8-K
During the three months ended December 29, 2000, one report on Form 8-K was
filed by the Company:
1. Current Report on Form 8-K filed November 14, 2000 reporting the October
31, 2000 acquisition of RFI Group, Inc.
C. Other Exhibits
No exhibits in addition to those previously filed or listed in Item 14(a)(2)
are filed herein.
D. Other Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts - filed herein.
48
SIGNATURE
---------
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.
PACER INTERNATIONAL, INC.
Date: February 28, 2001 By: /s/ Joseph P. Atturio
------------------- ---------------------
Joseph P. Atturio
Vice President, Controller and Secretary
(Principal Accounting Officer)
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 in the capacities and on the dates indicated.
Date: February 28, 2001 By: /s/ Donald C. Orris
----------------- ---------------------
Donald C. Orris
Chairman, Chief Executive Officer and
Director
(Principal Executive Officer)
Date: February 28, 2001 By: /s/ Lawrence C. Yarberry
----------------- -------------------------
Lawrence C. Yarberry
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: February 28, 2001 By: /s/ Joshua J. Harris
----------------- ---------------------
Joshua J. Harris
Director
Date: February 28, 2001 By: /s/ Bruce H. Spector
----------------- ---------------------
Bruce H. Spector
Director
Date: February 28, 2001 By: /s/ Marc E. Becker
----------------- -------------------
Marc E. Becker
Director
Date: February 28, 2001 By: /s/ Timothy J. Rhein
----------------- ---------------------
Timothy J. Rhein
Director
Date: February 28, 2001 By: /s/ Michael S. Gross
----------------- ---------------------
Michael S. Gross
Director
Date: February 28, 2001 By: /s/ Thomas L. Finkbiner
----------------- ------------------------
Thomas L. Finkbiner
Director
49
PACER INTERNATIONAL INC. AND SUBSIDIARY COMPANIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
----
Report of Independent Accountants (PricewaterhouseCoopers LLP) ........................... F-2
Report of Independent Public Accountants (Arthur Andersen LLP) ........................... F-3
Consolidated Balance Sheets of Pacer International, Inc. as of December 29, 2000 and
December 31, 1999........................................................................ F-4
Consolidated Statement of Operations of Pacer International, Inc. for the fiscal years
ended December 29, 2000 and December 31, 1999 and American President Lines
Stacktrain Services - a division of APL Land Transport Services, Inc. - Statement
of Operations for the fiscal year ended December 25, 1998................................ F-5
Consolidated Statement of Stockholders' Equity of Pacer International, Inc. for the
fiscal years ended December 29, 2000 and December 31, 1999 and American
President Lines Stacktrain Services - a division of APL Land Transport Services, Inc.
- Statement of Divisional Control Account for the fiscal year ended December 25, 1998.... F-6
Consolidated Statement of Cash Flows of Pacer International, Inc. for the fiscal years
ended December 29, 2000 and December 31, 1999 and American President Lines
Stacktrain Services - a division of APL Land Transport Services, Inc. - Statement of
Cash Flows for the fiscal year ended December 25, 1998................................... F-7
Notes to Consolidated Financial Statements................................................ F-8
Schedule II - Valuation and Qualifying Accounts........................................... F-32
All other schedules are omitted because they are not applicable or because
the required information is shown in the financial statements or the notes
thereto. Columns omitted from schedules filed have been omitted because the
information is not applicable.
F-1
Report of Independent Accountants
To the Board of Directors and Shareholders of Pacer International, Inc.:
In our opinion, the consolidated financial statements listed in the index on
page F-1 present fairly, in all material respects, the financial position of
Pacer International, Inc. and its subsidiaries at December 29, 2000 and
December 31, 1999, and the results of their operations and their cash flows
for the years ended December 29, 2000 and December 31, 1999, in conformity
with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedules for
the years ended December 29, 2000 and December 31, 1999 listed in the index
referred to above present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, 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 our
opinion.
PricewaterhouseCoopers LLP
San Francisco, California
March 13, 2001
F-2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To APL Land Transport Services, Inc., a wholly-owned subsidiary of APL Limited:
We have audited the accompanying statements of operations, divisional control
account and cash flows of American President Lines Stacktrain Services (a
division of APL Land Transport Services, Inc., a Tennessee corporation and a
wholly-owned subsidiary of APL Limited) for the fiscal year ended December 25,
1998. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards 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. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of American
President Lines Stacktrain Services for the fiscal year ended December 25, 1998,
in conformity with accounting principles generally accepted in the United
States.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth herein in relation
to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
January 29, 1999, except
with respect to the
reclassification discussed
in Note 1, as to which the
date is November 3, 2000.
F-3
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 29, 2000 AND DECEMBER 31, 1999
December 29, 2000 December 31, 1999
----------------- -----------------
(In millions)
ASSETS
Current assets
Cash and cash equivalents........................................ $ - $ 12.2
Accounts receivable, net of allowances of $9.0 million and $3.0
million, respectively........................................... 215.7 114.7
Accounts receivable from APL..................................... 6.0 39.6
Prepaid expenses and other....................................... 10.3 2.9
Deferred income taxes............................................ 9.7 4.4
-------- --------
Total current assets........................................... 241.7 173.8
-------- --------
Property and equipment
Property and equipment at cost................................... 74.3 61.8
Accumulated depreciation......................................... (17.8) (11.4)
-------- --------
Property and equipment, net.................................... 56.5 50.4
-------- --------
Other assets
Goodwill, net.................................................... 289.8 143.1
Deferred income taxes............................................ 59.0 75.7
Other assets..................................................... 11.4 12.0
-------- --------
Total other assets............................................. 360.2 230.8
-------- --------
Total assets....................................................... $ 658.4 $ 455.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt and capital leases.......... $ 1.9 $ 1.5
Accounts payable and other accrued liabilities................... 227.2 176.0
-------- --------
Total current liabilities...................................... 229.1 177.5
-------- --------
Long-term liabilities
Long-term debt and capital leases................................ 403.5 282.9
Other............................................................ 3.7 2.9
-------- --------
Total long-term liabilities.................................... 407.2 285.8
-------- --------
Total liabilities.................................................. 636.3 463.3
-------- --------
Minority interest - exchangeable preferred stock of a subsidiary... 25.0 23.4
-------- --------
Commitments and contingencies (Notes 8 & 12)
Stockholders' equity
Preferred stock, par value $0.01 per share; 1,000,000 shares
authorized; none issued and outstanding........................ - -
Common stock, par value $0.01 per share; 20,000,000 shares
authorized; 11,361,373 and 10,440,000 issued and
outstanding in 2000 and 1999, respectively..................... 0.1 0.1
Additional paid-in capital....................................... 118.7 104.3
Other equity..................................................... (0.3) -
Treasury stock................................................... (0.2) -
Accumulated deficit.............................................. (121.3) (136.1)
Other accumulated comprehensive income........................... 0.1 -
-------- --------
Total stockholders' equity (deficit)........................... (2.9) (31.7)
-------- --------
Total liabilities and stockholders' equity......................... $ 658.4 $ 455.0
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE FISCAL YEARS ENDED
DECEMBER 29, 2000 AND DECEMBER 31, 1999
AND
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 25, 1998
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Dec. 29, 2000 Dec. 31, 1999 Dec. 25, 1998
--------------- --------------- ---------------
(in millions, except per share data)
Gross revenues............................................... $ 1,281.3 $ 927.7 $ 598.9
Cost of purchased transportation and services................ 1,005.6 735.4 466.3
--------------- --------------- ---------------
Net revenues............................................. 275.7 192.3 132.6
--------------- --------------- ---------------
Operating expenses:
Direct operating expenses.................................. 90.4 76.8 64.5
Selling, general and administrative expenses............... 102.6 58.9 28.3
Depreciation and amortization.............................. 11.6 8.6 6.6
Merger, severance and other................................ 7.7 - -
--------------- --------------- ---------------
Total operating expenses.................................. 212.3 144.3 99.4
--------------- --------------- ---------------
Income from operations....................................... 63.4 48.0 33.2
--------------- --------------- ---------------
Interest expense, net........................................ 34.1 18.6 -
--------------- --------------- ---------------
Income before income taxes and minority interest............. 29.3 29.4 33.2
--------------- --------------- ---------------
Income taxes or charge in lieu of income taxes............... 12.9 11.7 12.6
--------------- --------------- ---------------
Minority interest............................................ 1.6 1.1 -
--------------- --------------- ---------------
Net income................................................... $ 14.8 $ 16.6 $ 20.6
=============== =============== ===============
Earnings per share (Note 15):
Basic:
Earnings per share........................................ $ 1.35 $ 0.78
=============== ===============
Weighted average shares outstanding....................... 10,970,770 10,440,000
=============== ===============
Diluted:
Earnings per share........................................ $ 1.19 $ 0.68
=============== ===============
Weighted average shares outstanding....................... 13,793,363 13,488,827
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AS OF DECEMBER 29, 2000 AND
DECEMBER 31, 1999 AND
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
STATEMENT OF DIVISIONAL CONTROL ACCOUNT AS OF DECEMBER 25, 1998
Preferred Stock Common Stock
------------------ -------------------- Additional Divisional
No. of No. of Paid-in- Accumulated Control
Shares Amount Shares Amount Capital Deficit Account
-------- -------- ---------- -------- ---------- ----------- ----------
(in millions, except share amounts)
Balance December 26, 1997................... - $ - - $ - $ - $ - $ 29.6
Net Income.................................. - - - - - - 20.6
Intercompany Funding........................ - - - - - - 5.4
------- -------- ---------- -------- ---------- ----------- ----------
Balance December 25, 1998................... - $ - - $ - $ - $ - $ 55.6
======= ======== ========== ======== ========== =========== ==========
Net Income.................................. - - - - - 16.6 -
Distribution to Shareholders................ - - - - - (300.0) -
Effects of Recapitalization................. - - - - - 147.3 (55.6)
Issuance of Common Stock.................... - - 10,440,000 0.1 104.3 - -
------- -------- ---------- -------- ---------- ----------- ----------
Balance December 31, 1999................... - - 10,440,000 $ 0.1 $ 104.3 $ (136.1) $ -
======= ======== ========== ======== ========== =========== ==========
Net Income.................................. - - - - - 14.8 -
Change in Cumulative Translation
Adjustments.............................. - - - - - - -
------- -------- ---------- -------- ---------- ----------- ----------
Total Comprehensive Income.................. - - - - - 14.8 -
Issuance of Preferred Stock for Exercise
of Options................................ 17,499 - - - 0.2 - -
Repurchase of Preferred Stock............... - - - - - - -
Unearned Compensation....................... - - - - 0.3 - -
Amort - Unearned Compensation (Note 6)...... - - - - - - -
Issuance of Common Stock for Acquisitions... - - 580,000 - 13.0 - -
Issuance of Common Stock for Exercise
of Options................................ - - 341,373 - 0.9 - -
------- -------- ---------- -------- ---------- ----------- ----------
Balance December 29, 2000................... 17,499 - 11,361,373 $ 0.1 $ 118.7 $ (121.3) $ -
======= ======== ========== ======== ========== =========== ==========
Treasury Stock Other
---------------- Cumulative Total
Other No. of Comprehensive Stockholders'
Equity Shares Amount Income Equity(Deficit)
-------- ------- ------- -------------- -----------------
Balance December 26, 1997................... $ - - $ - $ - $ 29.6
Net Income.................................. - - - - 20.6
Intercompany Funding........................ - - - - 5.4
-------- ------- ------- ------------- ---------------
Balance December 25, 1998................... $ - - $ - $ - $ 55.6
======== ======= ======= ============= ===============
Net Income.................................. - - - - 16.6
Distribution to Shareholders................ - - - - (300.0)
Effects of Recapitalization................. - - - - 91.7
Issuance of Common Stock.................... - - - - 104.4
-------- ------- ------- ------------- ---------------
Balance December 31, 1999................... $ - - $ - $ - $ (31.7)
======== ======= ======= ============= ===============
Net Income.................................. - - - - 14.8
Change in Cumulative Translation
Adjustments.............................. - - - 0.1 0.1
-------- ------- ------- ------------- ---------------
Total Comprehensive Income.................. - - - 0.1 14.9
Issuance of Preferred Stock for Exercise
of Options................................ - - - - 0.2
Repurchase of Preferred Stock............... - (17,499) ( 0.2) - (0.2)
Unearned Compensation....................... (0.3) - - - -
Amort - Unearned Compensation (Note 6)...... - - - - -
Issuance of Common Stock for Acquisitions... - - - - 13.0
Issuance of Common Stock for Exercise
of Options................................ - - - - 0.9
-------- ------- ------- ------------- ---------------
Balance December 29, 2000................... $ (0.3) (17,499) $( 0.2) $ 0.1 $ (2.9)
======== ======= ======= ============= ===============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE FISCAL YEARS ENDED
DECEMBER 29, 2000 AND DECEMBER 31, 1999 AND
AMERICAN PRESIDENT LINES STACKTRAIN SERVICES,
a division of APL Land Transport Services, Inc.
STATEMENT OF CASH FLOWS FOR THE FISCAL YEAR ENDED DECEMBER 25, 1998
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Dec. 29, 2000 Dec. 31, 1999 Dec. 25, 1998
-------------- -------------- --------------
(in millions)
Cash Flows from Operating Activities
Net Income..................................................... $ 14.8 $ 16.6 $ 20.6
Adjustments to Reconcile Net Income to
Net Cash Provided By Operating Activities:
Depreciation and Amortization............................... 11.6 8.6 6.6
Gain on Sale of Property and Equipment...................... (0.1) - (0.4)
Deferred Taxes.............................................. 6.7 4.6 1.0
Minority Interest........................................... 1.6 1.1 -
Merger, Severance and Other................................. 7.7 - -
Change in Current Assets and Liabilities excluding
effects of acquisitions:
Accounts Receivable....................................... (14.3) (10.8) (10.5)
Receivable from APL....................................... 2.2 (39.6) -
Intercompany Trade Receivables............................ - - (1.0)
Prepaid Expenses and Other Current Assets................. (5.1) - (0.1)
Accounts Payable and Accrued Liabilities.................. (23.2) 39.4 16.2
Other..................................................... (0.7) 0.9 (0.6)
------------- -------------- -------------
Net Cash Provided by Operating Activities..................... 1.2 20.8 31.8
------------- -------------- -------------
Cash Flows from Investing Activities
Acquisitions, Net of Cash Acquired............................. (125.6) (112.0) -
Capital Expenditures........................................... (5.5) (2.0) (39.7)
Proceeds from Sales of Property and Equipment.................. 0.4 40.0 1.2
------------- -------------- -------------
Net Cash Used In Investing Activities......................... (130.7) (74.0) (38.5)
------------- -------------- -------------
Cash Flows from Financing Activities
Checks Drawn in Excess of Cash Balances........................ 10.9 - -
Proceeds of Long-Term Debt, Net of Costs....................... 122.6 277.5 -
Proceeds from Issuance of Common Stock......................... 0.9 104.4 -
Proceeds from Issuance of Preferred Stock...................... 0.2 - -
Repurchase of Preferred Stock.................................. (0.2) - -
Distribution to APL and Recap Costs............................ - (311.7) -
Redemption of Preferred Stock of Subsidiary.................... - (2.0) -
Intercompany Funding, Net...................................... - - 6.7
Debt, Revolving Credit Facility and Capital Lease
Obligation Repayment.......................................... (17.1) (2.8) -
------------- -------------- -------------
Net Cash Provided By Financing Activities..................... 117.3 65.4 6.7
------------- -------------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents........... (12.2) 12.2 -
------------- -------------- -------------
Cash and Cash Equivalents at Beginning of Year/Period.......... 12.2 - -
------------- -------------- -------------
Cash and Cash Equivalents at End of Year/Period................ $ - $ 12.2 $ -
============= ============== =============
Disclosure of Non-Cash Financing Activities:
Issuance of Common Stock for acquisitions...................... $ 13.0 $ - $ -
Issuance of 8.0% subordinated note for acquisition............. $ 5.0 $ - $ -
Issuance of Exchangeable Preferred Stock for recapitalization.. $ - $ 24.3 $ -
Issuance of note payable to management for recapitalization.... $ - $ 0.4 $ -
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Pacer International, Inc. ("Pacer" or the "Company") is a leading non-
asset based third-party logistics provider offering a broad array of services to
facilitate the movement of freight from origin to destination. We operate in
two segments, the wholesale segment and the retail segment (see Note 9 to the
Consolidated Financial Statements for segment information). The wholesale
segment provides intermodal rail service in North America by selling intermodal
service to shippers pursuant to agreements with intermodal rail carriers. The
retail segment provides trucking services, intermodal marketing, freight
consolidation and handling, international freight forwarding and supply chain
management services.
The Company has operated as an independent, stand-alone company only since
the recapitalization in May 1999. From 1984 until the recapitalization, the
wholesale business was conducted by various entities owned directly or
indirectly by APL Limited.
As of May 28, 1999, APL Land Transport Services, Inc. ("APLLTS") was
recapitalized through the purchase of shares of its common stock by affiliates
of Apollo Management, L.P. and two other investors from APL Limited and its
redemption of a portion of the shares of common stock held by APL Limited.
After the recapitalization, APLLTS formed a transitory subsidiary that was
merged with and into Pacer Logistics, making Pacer Logistics a wholly-owned
subsidiary of APLLTS. In connection with these transactions, APLLTS was renamed
Pacer International, Inc. Until November 1998, APLLTS consisted of two operating
divisions: Stacktrain Services Division and the Automotive Division. On
November 20, 1998, APLLTS transferred all of its assets, except those of the
Stacktrain Services Division, to its parent, APL Limited.
As part of the recapitalization, the assets and liabilities of the Company
remained at their historical basis for financial reporting purposes; for income
tax purposes, the transaction has been treated as a taxable transaction such
that the consolidated financial statements reflect a "step-up" in tax basis
resulting in the establishment of a deferred tax asset.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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. Significant estimates include allowance
for doubtful accounts, rail valuation cost and valuation of deferred income
taxes. Actual results could differ from those estimates.
Allocation of Expenses
Prior to May 28, 1999, APLLTS was a wholly-owned subsidiary of APL Limited
(as discussed above) and was allocated certain expenses. These expenses
included systems support, office space, salaries, and other corporate services
which were either allocated or charged on a cost reimbursement basis.
Management believes that these allocations were reasonable. Subsequent to May
28, 1999, the corporate administrative services previously provided by APL
Limited are incurred directly by the wholesale segment.
F-8
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and all entities in which the Company has more than a 50% equity ownership. For
the year ended December 29, 2000, this includes Conex assets acquired January
13, 2000, GTS Transportation Services, Inc. acquired August 31, 2000, RFI Group,
Inc. acquired October 31, 2000 and Rail Van Inc. acquired December 22, 2000. For
the year ended December 31, 1999, this includes Pacer Logistics acquired May 28,
1999. All significant intercompany transactions and balances have been
eliminated in consolidation.
Industry Segments
The Company operates in two reportable industry segments, providing
intermodal rail stacktrain services (the "Wholesale" segment) and providing
logistic services (the "Retail" segment) in North America. The Wholesale
segment's fiscal year ends on the last Friday in December and the Retail
segment's calendar year ends on the last day in December.
Goodwill
Goodwill represents the excess of cost over the estimated fair value of
the net tangible and intangible assets acquired and is being amortized over 40
years on a straight-line basis after consideration of the characteristics of
each acquisition. The Company evaluates the carrying value of goodwill and
recoverability should events or circumstances occur that bring into question the
realizable value or impairment of goodwill. The Company's principal
considerations in determining impairment include the strategic benefit to the
Company of the business related to the goodwill as measured by undiscounted
current and expected future operating income levels of the business and expected
undiscounted future cash flows. When goodwill is determined to not be
recoverable, an impairment is recognized as a charge to operations to the extent
the carrying value of related assets (including goodwill) exceeds the sum of the
undiscounted cash flows from those related assets. Amortization expense was
$4.7 million, $2.4 million and $0.6 million for 2000, 1999 and 1998,
respectively; and accumulated amortization was $7.5 million and $2.8 million at
December 29, 2000 and December 31, 1999, respectively.
Deferred Financing Costs
The deferred financing costs included in other assets relate to the cost
incurred in the placement of the Company's debt and are being amortized using
the effective interest method over the terms of the related debt which range
from 5 to 7 years.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.
Revenue Recognition
The Company's wholesale segment recognizes revenue and rail linehaul
expenses on a percentage-of-completion basis and remaining expenses as incurred.
Revenues from retail transportation activities including highway and rail
brokerage, local cartage and specialized trucking are generally recorded when
delivery requirements are met. Revenues from freight handling activities are
recorded upon receipt at the warehouse and storage revenues are recorded as
earned. Supply chain management/consulting services net revenues are recorded
as earned.
F-9
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Property and Equipment
Property and equipment are recorded at cost. For assets financed under
capital leases, the present value of the future minimum lease payments is
recorded at the date of acquisition as property and equipment, with a
corresponding amount recorded as a capital lease obligation. Depreciation and
amortization are provided on a straight-line basis over the estimated useful
lives of the assets as follows:
Classification Estimated Useful Life
-------------- ---------------------
Rail Cars.................... 28 Years
Containers and Chassis....... 5 Years
Leasehold Improvements....... Term of Lease
Other........................ 3 to 7 Years
When assets are sold, the applicable costs and accumulated
depreciation are removed from the accounts, and any gain or loss is included in
income. Expenditures for maintenance and repairs are expensed as incurred.
Income Taxes
The Company recognizes income tax expense using the liability method of
accounting for deferred income taxes. A deferred tax asset or liability is
recorded based upon the tax effect of temporary differences between the tax
bases of assets and liabilities and their carrying value for financial reporting
purposes. Deferred tax expense or benefit is the result of changes in the
deferred tax assets and liabilities during the year.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
The Company sells primarily on net 30-day terms, performs credit evaluation
procedures on its customers and generally does not require collateral on its
accounts receivable. The Company maintains an allowance for potential credit
losses.
The Company had one customer in 2000 and two customers in 1999 accounting
for 10% or more of revenues. Union Pacific generated $146.9 million of revenues
in both segments in 2000. The Hub Group generated $128.2 million of revenues in
the Wholesale segment in 1999 and Union Pacific generated $100.8 million of
revenues in both reporting segments in 1999. The receivables from Union Pacific
were $6.0 million and $7.7 million at December 29, 2000 and December 31, 1999,
respectively. The receivable from Hub Group was $7.4 at December 31, 1999. In
addition, the Company had a receivable from APL Limited at December 29, 2000 of
$6.0 million primarily for freight transportation and the repositioning of APL
Limited's equipment.
Financial Instruments
The carrying amounts for cash, accounts receivables and accounts payable
approximate fair value due to the short-term nature of these instruments.
Management estimates the Company's debt at December 29, 2000 approximates fair
value based on interest rates for similar issues and financings.
F-10
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Reclassification
During 2000, the Company reclassified railcar rental income of $10.3 and
$8.1 million for the fiscal years ended December 31, 1999 and December 25, 1998,
respectively from direct operating expenses to revenues to be consistent with
the Company's classification of container per diem revenue. The Company also
reclassified corresponding financial information presented in Notes 3, 9 and 15
for such change. The reclassification had no effect on the Company's income from
operations or net income.
Certain other reclassifications have been made to the 1998 and 1999
balances to conform to the 2000 presentation. These reclassifications had no
effect on the Company's financial position or net income.
Earnings per Share
The computation of earnings per share-basic is based on net income
available to common shareholders and the weighted-average number of outstanding
common shares. The computation of earnings per share-diluted includes the
dilutive effect, if any, of outstanding Pacer Logistics 7.5% Exchangeable
Preferred Stock calculated using the as if converted method, and common stock
options.
Reliance on Independent Contractors
The Company relies upon the services of independent contractors for
underlying transportation services for their customers. Contracts with
independent contractors are, in most cases, terminable upon short notice by
either party. Although the Company believes its relationships with independent
contractors are good, there can be no assurance that the Company will continue
to be successful in retaining and recruiting independent contractors or that
independent contractors who terminate their contracts can be replaced by equally
qualified persons.
Dependence on Railroads and Equipment and Service Availability
The Company is dependent upon the major railroads in the United States for
substantially all of the intermodal services provided by the Company. In many
markets rail services are limited to a few railroads or even a single railroad.
Consequently, a reduction in or elimination of rail service to a particular
market is likely to adversely affect the Company's ability to provide intermodal
transportation services to some of the Company's customers. Furthermore,
significant rate increases, work stoppage or adverse weather conditions can
impact the railroads and therefore the Company's ability to provide cost-
effective services to its customers.
In addition, the Company is dependent in part on the availability of rail,
truck and ocean services provided by independent third parties. If the Company
were unable to secure sufficient equipment or other transportation services to
meet its customers' needs, its results of operations could be materially
adversely affected on a temporary or permanent basis.
F-11
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Concentration of Business on Intermodal Marketing
Significant portions of the Company's revenues are derived from intermodal
marketing. As a result, a decrease in demand for intermodal transportation
services relative to other transportation services could have a material adverse
affect on the Company's results of operations.
Other Comprehensive Income
The Company classifies items of comprehensive income by their nature in the
financial statements and display the accumulated balance of comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of the balance sheet.
The assets and liabilities of the Company's foreign operations have been
translated at rates of exchange at the balance sheet date and related revenues
and expenses have been translated at average rates of exchange in effect during
the year. The resulting cumulative translation adjustments have been included
as other comprehensive income on the Consolidated Statements of Stockholders'
Equity.
Stock-Based Compensation
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25 ("APB
No. 25"), "Accounting for Stock Issued to Employees" and related interpretations
and complies with the disclosure provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." Under APB
No. 25, compensation cost is recognized based on the difference, if any, on the
date of grant between the fair value of the Company's stock and the amount an
employee must pay to acquire the stock.
Recently Issued Accounting Pronouncements
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101
("SAB 101"), "Revenue Recognition in Financial Statements" as amended by Staff
Accounting Bulletins No. 101A and 101B. These bulletins summarize certain of
the staff's views about applying generally accepted accounting principles to
revenue recognition in financial statements. The SEC has recently issued further
guidance with respect to adoption of specific issues addressed by SAB 101. The
adoption of SAB 101 during the fourth quarter of 2000 did not have a material
impact on the financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an Interpretation of APB
25." This interpretation clarifies (1) the definition of employee for purposes
of applying Opinion 25, (2) the criteria for determining whether a plan
qualifies as a noncompensatory plan, (3) the accounting consequence of various
modifications to the terms of a previously fixed stock option or award, and (4)
the accounting for an exchange of stock compensation awards in a business
combination. This interpretation is effective July 1, 2000, but certain
conclusions in this interpretation cover specific events that occur after either
December 15, 1998 or January 12, 2000. To the extent that this interpretation
covers events occurring during the period after December 15, 1998 or January 12,
2000, but before the effective date of July 1, 2000, the effects of applying
this interpretation are recognized on a prospective basis from July 1, 2000. The
adoption of FIN 44 did not have a material impact on the Company's financial
statements.
F-12
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2. MERGER, SEVERANCE AND OTHER
In December 2000, the Company recorded a pre-tax charge of $7.7 million
relating to the consolidation of retail segment operations resulting from the
December 22, 2000 acquisition of Rail Van (See Note 3). The charge includes $5.0
million for the severance of 99 employees from the Chicago, Memphis, Los Angeles
and Walnut Creek offices and the termination of agency agreements. An additional
$2.0 million is included to cover lease costs through lease termination in 2006
for facilities no longer required primarily in Walnut Creek and Memphis.
Employee terminations and agency closures will be phased-in and completed during
2001 as operations are consolidated in Columbus, Ohio. The remaining $0.7
million of this charge is for the write-off of computer software under
development as we will be utilizing Rail Van's systems. Payments for this charge
will be funded from cash from operations and, if necessary, borrowings under the
Company's $100.0 million revolving credit facility.
NOTE 3. ACQUISITIONS
The Company completed four retail segment acquisitions during 2000. The
table below summarizes the preliminary purchase price allocation, net of cash
acquired for each acquisition, followed by a description of each transaction.
2000 Acquisitions Purchase Price Allocation, net of Cash Acquired
Rail
Conex GTS RFI Van Total
----- ------ ------ ------ -------
(in millions)
Accounts receivable, net..... $ 6.2 $ 6.7 $ 11.0 $ 62.8 $ 86.7
Prepaid expenses and other... 0.3 - 0.9 0.5 1.7
Property and equipment ...... 0.6 0.1 1.1 5.9 7.7
Goodwill..................... 32.0 21.2 17.4 75.2 145.8
Liabilities.................. (1.7) (10.2) (11.9) (68.4) (92.2)
----- ------ ------ ------ ------
Total purchase price......... $37.4 $ 17.8 $ 18.5 $ 76.0 $149.7
===== ====== ====== ====== ======
On January 13, 2000, pursuant to the terms of an asset purchase agreement,
the Company acquired substantially all of the assets and assumed specified
liabilities of Conex Global Logistics Services, Inc., MSL Transportation Group,
Inc., and Jupiter Freight, Inc. (collectively "Conex"), a multipurpose provider
of transportation services including intermodal marketing, local trucking and
freight consolidation and handling. The purchase price of $37.4 million
included acquisition fees of $1.3 million, a cash payment to owners of $25.1
million, the issuance to Conex shareholders of an 8.0% subordinated note in the
aggregate principal amount of $5.0 million and the issuance to Conex
shareholders of 300,000 shares (valued in the aggregate at $6.0 million) of
common stock of Pacer International, Inc. The Company borrowed $15.0 million
under the revolving credit facility to fund the acquisition. The results of
operations for the acquired assets are included in the Company's consolidated
financial statements beginning January 1, 2000.
F-13
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
On August 31, 2000, the Company acquired all of the capital stock of GTS
Transportation Services, Inc. ("GTS"), a provider of transportation services
including logistics and truck brokerage in North America. The purchase price of
$17.8 million included acquisition fees and expenses of approximately $0.6
million, a net cash payment to owners of $15.0 million and a maximum earn-out
amount of $2.2 million. The Company borrowed $10.0 million under the revolving
credit facility to fund the acquisition. In connection with the acquisition,
former owners of GTS that continued as employees were granted 30,000 options
(issued at the date of agreement and at consummation) to purchase the Company's
common stock. The results of operations for the acquired company are included
in the Company's consolidated financial statements beginning September 1, 2000.
On October 31, 2000, the Company acquired all of the capital stock of RFI
Group, Inc. ("RFI"), a provider of international freight forwarding and freight
transportation services. The purchase price of $18.5 million included
acquisition costs of $0.5 million, a net cash payment to owners of $16.4 million
and an estimated working capital adjustment of $1.6 million. A portion of the
net cash payment was used to repay $5.2 million of indebtedness. The Company
borrowed $18.0 million under the revolving credit facility to fund the
acquisition. In connection with the acquisition, former owners of RFI that
continued as employees were granted 45,000 plan and 80,000 non-plan options
(issued at the date of agreement and at consummation) to purchase the Company's
common stock. The results of operations for the acquired company are included
in the Company's consolidated financial statements beginning November 1, 2000.
On December 22, 2000, the Company acquired all of the capital stock of Rail
Van Inc. ("Rail Van"), a provider of intermodal transportation and other
logistics services. The purchase price of $76.0 million included $4.0 million
of acquisition costs, a cash payment to owners of $67.0 million, the issuance to
Rail Van shareholders of 280,000 shares of the Company's common stock valued in
the aggregate at $7.0 million and a post-closing adjustment to be determined of
an estimated $2.0 million to be refunded by the sellers to the Company based on
Rail Van's results for 2000 through December 22. The acquisition was funded by
a borrowing of $40.2 million under the Company's revolving credit facility, the
issuance of $40.0 million in new term loans under the credit agreement and the
issuance of common stock. Proceeds from these loans were also used to repay
$8.9 million in Rail Van debt assumed during the transaction. The results of
operations for the acquired company are included in the Company's consolidated
financial statements beginning December 23, 2000. A Section 338(h)(10) election
will be made to allow the acquisition of Rail Van to be treated as an
acquisition of assets for tax purposes.
On May 28, 1999, the Company acquired the common stock of Pacer Logistics,
Inc., a privately-held third party logistics provider. The Company paid $137.5
million for the acquisition which included acquisition fees of $2.9 million and
assumed indebtedness of $62.6 million. The Company financed the acquisition
with a portion of the proceeds from the Senior Subordinated Note offering and
with funds under the credit facility. The acquisition resulted in goodwill of
$123.1 million.
F-14
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The acquisitions of Pacer Logistics, Inc. Conex assets, GTS, RFI and Rail
Van have been accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations". The aggregate
purchase price as shown above has been allocated to the underlying assets and
liabilities based upon preliminary estimates of fair values at the date of
acquisition, which may be updated based on final appraisals, with the remainder
allocated to goodwill to be amortized over 40 years. The Company determined 40-
year amortization periods were appropriate after considering a number of
factors: 1) there are no legal, regulatory or contractual provisions associated
with the acquisitions that may limit the useful lives of the goodwill, 2) the
services provided by the acquisitions (as part of the Company's retail segment)
are not subject to obsolescence, and 3) the Company is not aware of any expected
actions of competitors and others that may restrict the retail segment's ability
to successfully compete in the industry. Though the fair value estimates are
preliminary, management does not believe there will be a material change to
goodwill when these estimates are finalized.
In May and December 2000, the Company reviewed and increased the gross
goodwill recorded on the 1999 acquisition of Pacer Logistics by $0.5 million and
$2.4 million, respectively. In December 2000, the Company determined the
deferred tax asset arising as a result of the 2000 acquisitions. This entry
increased gross goodwill by $2.8 million.
Pro forma results of operations, giving effect to the Company's acquisition
of Conex assets, GTS, RFI and Rail Van (and the Company's recapitalization and
acquisition of Pacer Logistics which occurred on May 28, 1999) at the beginning
of each period presented is as follows:
Fiscal Year Ended Fiscal Year Ended
December 29, 2000 December 31, 1999
----------------- -----------------
(unaudited)
Gross revenues...................... $1,897.4 $1,791.5
Income before extraordinary items... 8.8 18.2
Net income.......................... 8.8 18.2
Earnings per share:
Basic............................. $ 0.78 $ 1.66
Diluted........................... $ 0.74 $ 1.41
NOTE 4. LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases are summarized as follows (in millions):
December 29, December 31,
2000 1999
------------ ------------
Senior subordinated notes (11.75%; due June 1, 2007)... $ 150.0 $ 150.0
Term loan (9.4%; due May 28, 2006)..................... 173.0 134.3
Revolving credit facility (8.9%; due May 28, 2004)..... 76.8 -
Subordinated note (8.0%; due January 13, 2003)......... 5.0 -
Capital lease obligations (Note 12).................... 0.6 0.1
------- -------
Total........................................... $ 405.4 $ 284.4
Less current portion................................... 1.9 1.5
------- -------
Long-term portion............................... $ 403.5 $ 282.9
======= =======
In conjunction with the Company's recapitalization and acquisition of Pacer
Logistics on May 28, 1999, the Company issued $150.0 million aggregate principal
amount of 11.75% senior subordinated notes due June 1, 2007 under the indenture
dated as of May 28, 1999. Interest on the notes is payable semi-annually in
cash on each June 1 and December 1, commencing on December 1, 1999. The Company
may redeem the notes, in whole at any time or in part from time to time on and
after June 1, 2003, upon not less than 30 nor more than 60 days' notice, at
F-15
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
the following redemption prices: 2003 -105.875%; 2004 -102.938%; 2005 and
thereafter -100.00%. The indenture provides that upon the occurrence of a
change of control, each holder of notes will have the right to require that the
Company purchase all or a portion of such holder's notes at a purchase price
equal to 101.0% of the principal amount thereof plus accrued interest to the
date of purchase.
The notes are fully and unconditionally guaranteed, on a senior
subordinated basis, jointly and severally, by each of the Company's
subsidiaries. The indenture contains covenants limiting the Company's ability to
incur additional indebtedness, and restricts the Company's ability to pay
dividends or make other restricted payments, consummate asset sales, or
otherwise dispose of all or substantially all of the assets of the Company and
its subsidiaries.
On May 28, 1999, the Company also entered into a credit agreement that
originally provided for a seven-year $135.0 million term loan (the "Term Loan")
which was used to finance the recapitalization and specified indebtedness of the
Company and a five-year $100.0 million revolving credit facility (the "Revolving
Credit Facility"). The interest rate for the Term Loan is the lesser of 2% in
excess of the prime lending rate as determined by the administrative agent, 2.5%
in excess of the federal funds rate, or 3% in excess of the Eurodollar rate
subject to increases and decreases based upon achievement of financial ratios.
The Term Loan requires minimum scheduled repayments of $1.35 million annually
between the year 2000 and 2005. The interest rate for the Revolving Credit
Facility is the lesser of 1.5% in excess of the prime lending rate as determined
by the administrative agent, 1.5% in excess of the federal funds rate or 2.5% in
excess of the Eurodollar rate subject to increases and decreases based upon
achievement of financial ratios. At December 29, 2000, the interest rate for
the Term Loan and Revolving Credit Facility was 9.4% and 8.9% respectively. The
rates for the Term Loan and Revolving Credit Facility are reset on a monthly
basis.
The Company must pay a commitment fee equal to 0.5% per annum on the unused
portion of the Revolving Credit Facility, subject to decreases based on the
achievement of financial ratios and subject to increases based on the amount of
unused commitments. In addition, the credit agreement contains customary
covenants, the most restrictive of which limits the Company's ability to declare
dividends, prepay debt, make investments, incur additional indebtedness, make
capital expenditures, engage in mergers, acquisitions and asset sales, and issue
redeemable common stock and preferred stock, subject to exceptions. The Company
is also required to comply with specified financial covenants including a
consolidated interest coverage ratio and an adjusted total leverage ratio. At
December 29, 2000, the Company was in compliance with these covenants. At
December 29, 2000, the Company had $19.0 million available under the Revolving
Credit Facility. On August 9, 1999, the Company entered into a first amendment
to the credit agreement to increase the maximum amount that can be drawn under
the revolving credit facility on the day of notification of borrowing to $10.0
million from $2.5 million. On January 7, 2000, the Company entered into a
second amendment to the credit agreement to modify the definition of excess cash
flow to allow for the acquisition of Conex assets.
In conjunction with the transactions described above in Note 3, the Company
borrowed $83.2 million under the Revolving Credit Facility, issued $40.0 million
in new term loans (as discussed below) and issued Conex shareholders an 8%
subordinated note in the aggregate principal amount of $5.0 million due January
13, 2003.
On December 22, 2000, the Company entered into a third amendment to the
credit agreement to provide for an additional term loan in the amount of $40.0
million which was borrowed to finance the acquisition of Rail Van. Similar to
the original term loan, the interest rate for the new term loan is the lesser of
2% in excess of the prime lending rate as determined by the administrative
agent, 2.5% in excess of the federal funds rate, or 3% in excess of the
Eurodollar
F-16
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
rate subject to increases and decreases based upon achievement of certain
financial ratios. At December 29, 2000, the interest rate for the new term loan
was 9.4%. The new term loan requires minimum scheduled repayments of $0.4
annually between 2001 and 2005. The maturity date for the new term loan is May
28, 2006.
The loans and letters of credit under the credit agreement are guaranteed
by all of the existing and future direct and indirect wholly-owned subsidiaries.
The Company's obligations and the obligations of such subsidiaries are
collateralized by a first priority perfected lien on substantially all of the
Company's properties and assets and all of the properties and assets of such
subsidiaries, whether such properties and assets are now owned or subsequently
acquired, subject to exceptions.
During 2000, the Company repaid $0.1 million in capital lease obligations,
$8.9 million of debt assumed as part of the Rail Van acquisition, $6.4 million
of the Revolving Credit Facility, $1.3 million of the Term Loan and $0.4 million
of notes payable to management.
Contractual maturities of long-term debt (including capital lease
obligations) during each of the five years subsequent to 2000 and thereafter are
as follows (in millions):
2001........................ $ 1.9
2002........................ 2.0
2003........................ 6.8
2004........................ 78.6
2005........................ 1.8
Thereafter.................. 314.3
-------
Total..................... $ 405.4
=======
At December 31, 1999, the Company was a party to an interest rate swap
agreement for which it paid a fixed rate on an aggregate notional amount of
$2.7 million which is used to hedge its variable interest rate exposure on
certain debt and is accounted for as an adjustment of interest expense over the
life of the debt. The Company receives a variable rate of interest on the swap
of 5.5% at December 31, 1999 and pays a fixed rate based on LIBOR, which was
5.9% at December 31, 1999. During 1999, an insignificant amount was charged to
interest expense for the swap. The swap terminated on January 10, 2000.
NOTE 5. INCOME TAXES
The Company is required to file separate U.S. corporate income tax returns,
independent of Pacer Logistics, Inc. and its subsidiaries. The Company and its
subsidiary, Pacer Logistics, Inc., would be eligible to elect and file U.S.
consolidated corporation income tax returns if the Company owns at least 80% of
the total voting power and total value of the stock of Pacer Logistics, Inc.
For federal and state income tax purposes, the recapitalization of the
Company was a taxable business combination and a qualified stock purchase. The
buyer and seller jointly agreed to treat the transaction as an asset acquisition
in accordance with Section 338 (h)(10) of the Internal Revenue Code and such
election has been made. An allocation of the purchase price to the tax basis of
assets and liabilities based on their respective fair value at May 28, 1999 was
finalized for income tax purposes during the year.
F-17
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In connection with the recapitalization, the Company recorded a deferred
tax asset of approximately $81.2 million at May 28, 1999 related to future tax
deductions for the net excess of the tax basis of the assets and liabilities
over the financial statement carrying amounts with a corresponding credit to
Stockholders' Equity.
For periods prior to May 28, 1999, APLLTS' operating results were included
in the consolidated income tax returns of APL Limited. A charge in lieu of
income taxes was recorded using the separate return method, as if the Company
were a separate taxpayer.
The reconciliation of the net effective income tax rate to the U.S. federal
statutory income tax rate is as follows:
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Dec. 29, 2000 Dec. 31, 1999 Dec. 25, 1998
------------- ------------- -------------
U.S. Federal Statutory Rate........... 35.0% 35.0% 35.0%
Increases (Decreases) in Rate
Resulting From:
State Tax, Net of Federal Benefit... 6.0% 3.8% 2.2%
Permanent Book/Tax Differences
and Other......................... 3.0% 1.0% 0.8%
-------- -------- --------
Net Effective Tax Rate................ 44.0% 39.8% 38.0%
======== ======== ========
The provision for income taxes is as follows (in millions):
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Dec. 29, 2000 Dec. 31, 1999 Dec. 25, 1998
------------- ------------- -------------
Current:
Federal....................... $ 4.8 $ 6.3 $ 10.6
State......................... 1.4 0.9 1.0
Foreign.......................
------- ------ ------
Total Current............... 6.2 7.2 11.6
Deferred:
Federal....................... 5.2 3.7 1.0
State......................... 1.5 0.8 -
------- ------ ------
Total Deferred.............. 6.7 4.5 1.0
------- ------ ------
Total Provision................ $ 12.9 $ 11.7 $ 12.6
======= ====== ======
F-18
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table shows the tax effects of the Company's cumulative
temporary differences included in the Consolidated Balance Sheets at December
29, 2000 and December 31, 1999 (in millions):
December 29, December 31,
2000 1999
------------ ------------
Property and Equipment............................ $ (4.8) $ (0.7)
Allowance for Doubtful Accounts................... 3.8 1.2
Accrued Liabilities............................... 6.0 3.5
Tax Basis in Excess of Book - Recapitalization.... 67.7 81.2
Other............................................. (4.0) (5.1)
------ ------
Total Net Deferred Tax Asset............... $ 68.7 $ 80.1
====== ======
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
asset will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Pacer has not recognized
a valuation allowance since management has determined that it is more likely
than not that the results of future operations will generate sufficient taxable
income to realize all deferred tax assets.
NOTE 6. PENSION PLANS AND STOCK OPTION PLANS
Effective May 28, 1999, the Company's employees were eligible for the
Pacer Logistics, Inc. 401(k) plan and no longer participate in the former
parent's pension, postretirement benefits and profit-sharing plans. Under the
Pacer Logistics, Inc. 401(k) plan, the Company matches 50% of the first 6% of
base salary contributed by the employee. Matching contributions by the Company
to the plan in 2000 and 1999 were $0.8 million and $0.5 million, respectively.
In 1998, contributions by the former parent to the prior profit-sharing plan
were $3.5 million.
The former parent maintained defined benefit pension plans for certain
domestic shoreside employees, healthcare benefit plans for retired employees and
profit-sharing plans for non-union employees. The costs and benefits of these
plans were allocated by the former parent to the Company and were included in
general and administrative expenses.
On May 28, 1999, the Board of Directors authorized the creation of the
Pacer International, Inc. 1999 Stock Option Plan under which 1,793,747 options
for the Company's common stock were authorized, of which 1,243,488 options have
been granted and are outstanding at December 29, 2000. Of the options granted,
470,247 and 92,614 were part of the 1997 and 1998 Pacer Logistics, Inc. Stock
Option Plan, respectively, that were rolled over as part of the acquisition of
Pacer Logistics. In addition, under the 1999 Stock Option Plan, options to
purchase 44,997 shares of preferred stock were granted which were rolled over
from the 1997 Pacer Logistics Stock Option Plan. There are no cash-out
provisions for the Company's common or preferred stock in the event of exercise.
F-19
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The 1999 plan provided for initial grants to specified employees. The
aggregate number of shares subject to these initial grants was 985,500 and their
exercise price was $10.00 per share. These initial grants were divided into
three tranches, Tranche A, Tranche B and Tranche C. Tranche A options vest in
five equal installments on the date of the grant's first five anniversary dates,
provided the employee is employed by the Company on each anniversary date.
Tranche B options generally vest on the date of grant's seventh anniversary date
if the employee is employed by the Company on that date. However, if on any of
the grant's first five anniversary dates certain per share target values are
attained and the employee is employed by the Company on that date, then 20% of
the Tranche B options will vest. Accelerated vesting of the Tranche B options is
possible if a sale of the Company occurs prior to the date of grant's fifth
anniversary and the fair market value of the per share consideration to be
received by the shareholder equals or exceeds an amount calculated in accordance
with this plan. Tranche C options vest in substantially the same manner as
Tranche B options, including acceleration upon a sale of the Company, except
that the per share target values as of a given anniversary date are increased.
Options granted to non-employee directors vest in four equal installments on the
date of grant's first four anniversary dates.
In 1999, subsequent to the initial grants, 80,000 options were granted to
management personnel to purchase Pacer International, Inc. common stock at
$20.00 per share. In addition, 24,000 options with an exercise price of $10.00
per share were forfeited due to employee resignations.
During 2000, 151,500 options were granted under the plan to management
personnel to purchase Pacer International, Inc. common stock at $20.00 per
share, and 145,000 options were granted to management personnel at $25.00 per
share. Options forfeited due to employee resignations were 301,000 options with
an exercise price of $10.00 per share, and 15,000 options with an exercise price
of $20.00 per share. Certain members of management exercised 287,373 options to
purchase Pacer International Inc. common stock at an average exercise price of
$1.22 per share, and 54,000 options were exercised by management at $10.00 per
share. In addition, certain members of management exercised 17,499 Pacer
International, Inc. preferred stock options with an exercise price of $9.00 per
share. The Company elected, at its discretion, to repurchase the preferred
stock that arose from the exercise of the options.
A vested option that has not yet been exercised will automatically
terminate on the first to occur of the grant's tenth anniversary, ninety days
following the employee's termination of employment for any reason other than
death or disability, twelve months following the employee's termination of
employment due to death or disability, or as otherwise determined by the
committee.
Each option that is vested as of the date of the sale of the Company
remains exercisable until the sale's closing, after which time such option is
unenforceable. Non-vested Tranche A, Tranche B and Tranche C options will vest
in accordance with the vesting schedules described above, however, an option
that vests after the Company is sold will remain exercisable for 10 days before
such portion of the option terminates and is of no further force or effect. All
options granted under this plan are nontransferable except upon death, by such
employee's will or the laws of descent and distribution, or transfers to family
members of the employee that are approved by the committee.
This plan has a term of ten years, subject to earlier termination by the
Board of Directors, who may modify or amend this plan in any respect, provided
that no amendment or modification affects an option already granted without the
consent of the option holder.
F-20
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following table summarizes the transactions of the Pacer International,
Inc. 1999 Stock Option Plan adopted May 28, 1999 as of December 29, 2000.
Common Stock Preferred Stock
------------ ---------------
Balance at December 25, 1998.................... - -
Options rolled over............................. 562,861 44,997
Granted......................................... 1,065,500 -
Cancelled or expired............................ (24,000) -
---------- --------
Balance at December 31, 1999.................... 1,604,361 44,997
Granted......................................... 296,500 -
Canceled or expired............................. (316,000) -
Exchanged....................................... - -
Exercised....................................... (341,373) (17,499)
---------- --------
Balance at December 29, 2000.................... 1,243,488 27,498
========== ========
Weighted average exercise price of options
exercised..................................... $ 2.61 $ 9.00
Weighted average exercise price of options
granted....................................... $ 22.40 None granted
Weighted average exercise price, end of year.... $ 12.02 $ 9.00
Options exercisable, end of year................ 206,030 9,999
Options available for future grant.............. 208,886 -
The following table summarizes information about stock options outstanding at
December 29, 2000:
Options Outstanding Options Exercisable
--------------------------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Range of Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life (Months) Price Exercisable Price
- ------------------- ------------- --------------- ---------- ------------- ----------
Common Stock
------------
$ 0.22 182,874 75 $ 0.22 - $ 0.22
$ 2.96 - - $ 2.96 - $ 2.96
$ 8.61 29,364 97 $ 8.61 29,364 $ 8.61
$ 10.00 669,750 100 $10.00 164,666 $10.00
$ 20.00 216,500 112 $20.00 12,000 $20.00
$ 25.00 145,000 113 $25.00 - $25.00
--------- --------
Total 1,243,488 100 $12.02 206,030 $10.38
Preferred Stock
---------------
$ 9.00 27,498 58 $ 9.00 9,999 $ 9.00
F-21
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
In addition, 80,000 non-plan options were granted upon consummation of the
RFI acquisition on October 31, 2000. These options vest immediately and are
exercisable on or before March 31, 2001.
Included in selling, general and administrative expenses on the Statement
of Operations is $22,000 of amortization of unearned compensation.
The Company applies APB Opinion 25 interpretations in accounting for its
stock option plans. Had compensation expense been determined for the stock
options granted in 2000 and 1999 based on the fair value at grant date
consistent with SFAS 123 "Accounting for Stock-Based Compensation", the
Company's pro forma net income and earnings per share for 2000 and 1999 would
not have been significantly different.
The fair value of each stock option granted is estimated on the date of
grant using the minimum value method of option pricing with the following
weighted-average assumptions for grants: dividend yield of 0.0%, risk-free
interest rate of 5.9% and expected life of 7 years (in determining the "minimum
value", SFAS 123 does not require the volatility of the Company's common stock
underlying the options to be calculated or considered because the Company is not
publicly traded).
F-22
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. RELATED PARTY TRANSACTIONS
The following table summarizes related party transactions recorded in the
Statements of Operations.
Fiscal Year Ended
---------------------------------------------
December 29, December 31, December 25,
Related Party Type 2000 1999 1998
- -------------------------------- ----------------------- ------------ ------------ ------------
Gross Revenues:
APL Limited Freight transportation $ 90.6 $ 49.1 $ 38.7
APL Limited Avoided repositioning 16.2 21.0 20.0
APL Limited International freight
Management fee 6.6 3.9 -
--------- --------- --------
Total related party revenues $ 113.4 $ 74.0 $ 58.7
========= ========= ========
Operating Expenses:
Direct operating expenses:
Lease, maintenance and
APL Limited repair expense $ - $ 7.0 $ 19.5
--------- --------- --------
Selling, general and
administrative expenses:
APL Limited Corporate overhead $ - $ 5.6 $ 14.4
APL Limited Administrative services 0.6 1.1 -
APL Limited Information technology
services 10.0 5.8 -
APL de Mexico, S.A. de C.V. Agency services 2.7 1.8 0.5
Apollo Management Management fee 0.5 0.3 -
A&G Investments Facility lease 0.5 0.3 -
KU Realty, Inc. Facility lease 1.8 - -
Rich Hyland Facility lease - 0.1 -
--------- --------- --------
Total related party SG&A expenses $ 16.1 $ 15.0 $ 14.9
--------- --------- --------
Interest Expense:
Mike Keller $5.0 Million Sub Note $ 0.2 $ - $ -
--------- --------- --------
Total related party expenses $ 16.3 $ 22.0 $ 34.4
========= ========= ========
Management believes that the terms of the related party transactions listed
above were at fair market rates.
The Company provided intermodal services to APL Limited. These services
include moving containers from ports to inland points, moving containers from
inland points to ports, and repositioning empty containers. These transactions
were performed on a cost reimbursement basis. Thus, no revenues or expenses were
recognized for financial reporting purposes. Reimbursements amounted to $79.2
million, $273.6 million and $276.7 million for the fiscal years ended December
29, 2000, December 31, 1999 and December 25, 1998, respectively. In April 2000,
the Company transferred the processing of APL Limited's international traffic
receivables and payables to APL Limited, which had previously been included in
the Company's balance sheet, resulting in a decrease in both accounts receivable
and accounts payable of approximately $33.0 million. The transfer to APL Limited
was facilitated by changes in computer software which were not previously
available. At December 29, 2000 and December 31, 1999 the Company had a
receivable from APL Limited for these transactions of $0 and $31.3 million,
respectively. The Company continues to handle APL Limited's international
F-23
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
traffic under contract for an annual management fee of $6.6 million in 2000 and
$3.9 million in 1999.
Prior to the recapitalization, APLLTS shared in expenses of the former
parent for services including systems support, office space and other corporate
services. These expenses were $5.6 million and $14.4 million for the period
ended May 28, 1999 and the fiscal year ended December 25, 1998, respectively.
Pursuant to the recapitalization, the Company has signed long-term agreements
with APL Limited for administrative services such as billing and accounts
receivable and payable processing on a per transaction basis. For 2000 and the
seven months ended December 31, 1999, $0.6 million and $1.1 million was paid for
these services, respectively. In addition, the information technology services
of APL Limited are currently being provided to the Company. For the fiscal
years ended December 29, 2000 and December 31, 1999, $10.0 million and $5.8
million was paid for these services, respectively.
In addition, the Company receives a credit from APL Limited for the
repositioning expense that APL Limited has avoided due to the Company using APL
Limited's containers in surplus locations. The total amount of revenue
recognized for these services was $16.2 million, $21.0 million and $20.0 million
for the fiscal years ended December 29, 2000, December 31, 1999 and December 25,
1998, respectively. At December 29, 2000 and December 31, 1999, $1.6 million and
$3.7 million was receivable from APL Limited, respectively.
The Company also provides services to the Automotive Division of APL
Limited. These services include moving containers primarily in the U.S.--Mexico
trade. Total amount of revenue recognized for these services was $90.6 million,
$49.1 million and $38.7 million for the fiscal years ended December 29, 2000,
December 31, 1999 and December 25, 1998, respectively. At December 29, 2000 and
December 31, 1999, $4.4 million and $4.6 million was receivable from APL Limited
including related drayage and miscellaneous charges, respectively.
Prior to the recapitalization, APLLTS received an allocation for lease and
maintenance and repair expenses from APL Limited. These expenses were $7.0
million and $19.5 million for the fiscal years ended December 31, 1999 and
December 25, 1998, respectively.
APL de Mexico, S.A. de C.V. (APL Mexico), a wholly owned Mexican subsidiary
of the APL Limited, provides various agency services to the Company with respect
to its bills of lading in Mexico. Expenses recorded by the Company from APL
Mexico were $2.7 million, $1.8 million and $0.5 million for the fiscal years
ended December 29, 2000, December 31, 1999 and December 25, 1998, respectively.
At December 29, 2000 and December 31, 1999, $0.5 million and $1.2 million was
payable to APL Mexico, respectively.
The Company has entered into a management agreement with Apollo Management
("Apollo") for financial and strategic services as the Board of Directors may
reasonably request. The annual fee which has been paid for these services was
$0.5 million, and for the partial year ended December 31, 1999 was $0.3 million.
The Company leases a facility consisting of office, warehousing and
trucking space from A&G Investments, a California general partnership of which
Messrs. Goldfein and Steiner are the only partners. Mr. Goldfein is a
stockholder and a former Director and Executive Vice President of the Company.
Mr. Steiner is a stockholder and a former Executive Vice President of the
Company. Lease payments were $0.5 million and $0.3 million for the years ended
December 29, 2000 and December 31, 1999, respectively.
F-24
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company leases warehouse and dock facilities in Southern California
from KU Realty, Inc. which is owned by Messrs. Keller and Uchida. Mr. Keller is
a stockholder and President of the Freight Consolidation and Handling Division
of the Company. Lease payments were $1.8 million for the year ended December
29, 2000.
In April 2000, the Company repaid $0.4 million in notes payable to certain
members of senior management including accrued interest. The notes were part of
the purchase price for Pacer Logistics acquired on May 28, 1999.
In August 2000, the Company paid a scheduled semi-annual interest payment
of $0.2 million to one member of senior management on the $5.0 million 8.0%
subordinated note issued in January 2000 as part of the purchase price for the
acquisition of Conex assets.
The Company leased a facility consisting of office space from Richard P.
Hyland, a stockholder and a former Executive Vice President of the Company.
Such lease was pursuant to an oral agreement and was on a month-to-month basis.
The lease terminated on December 31, 1999.
In connection with the acquisition of Rail Van, the Company assumed a lease
that had been entered into by Rail Van with an entity associated with certain
former shareholders of Rail Van. This lease commences in April, 2001, with an
annual rental payment of approximately $1.3 million.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal proceedings, claims and assessments,
including environmental, arising in the normal course of its business
activities. However, management believes none of these items will have a
material adverse impact on the Company's consolidated financial position,
results of operations or liquidity.
Two subsidiaries of Pacer Logistics, Interstate Consolidation, Inc. and
Intermodal Container Service, Inc., were named defendants in a class action
filed in July 1997 in the State of California, Los Angeles Superior Court,
Central District, alleging, among other things, breach of fiduciary duty, unfair
business practices, conversion and money had and received in connection with
monies allegedly wrongfully deducted from truck drivers' earnings. The
defendants entered into a Judge Pro Tempore Submission Agreement dated as of
October 9, 1998, pursuant to which the plaintiffs and defendants have waived
their rights to a jury trial, stipulated to a certified class, and agreed to a
minimum judgement of $250,000 and a maximum judgement of $1.75 million. On
August 11, 2000, the Court issued its Statement of Decision, in which Interstate
Consolidation, Inc. and Intermodal Container Service, Inc. prevailed on all
issues except one. The only adverse ruling was a Court finding that Interstate
failed to issue certificates of insurance to the owner-operators and therefore
failed to disclose that in 1998, the Company's retention on its liability policy
was $250,000. The court has ordered that restitution of $488,978 be paid for
this omission. Plaintiff's counsel has indicated he intends to appeal the
entire ruling. Defendants will be appealing the restitution issue. Based upon
information presently available and in light of legal and other defenses and
insurance coverage, management does not expect these legal proceedings, claims
and assessments, individually or in the aggregate, to have a material adverse
impact on the Company's consolidated financial position, results of operations
or liquidity.
F-25
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 9. SEGMENT INFORMATION
The Company has two reportable segments, the Wholesale segment and the
Retail segment, which have separate management teams and offer different but
related products and services. The Wholesale segment provides intermodal rail
service in North America by selling intermodal service to shippers pursuant to
agreements with intermodal rail trains. The Retail segment provides trucking
services, intermodal marketing, freight consolidation and handling,
international freight forwarding and supply chain management services. Prior to
May 28, 1999, the Company had only one reportable segment, the Wholesale
segment.
The acquisition of RFI on October 31, 2000 increased the Company's
international operations into Europe and Asia. Revenues generated from the RFI
international operations since acquisition were $18.0 million. The Company's
Wholesale segment generated $51.7 million in revenues for 2000 from Mexico and
the Retail segment generated $12.4 million from Canada.
The following table presents reportable segment information for the fiscal
years ended December 29, 2000, December 31, 1999 and December 25, 1998 (in
millions).
Wholesale Retail Other Consolidated
----------- ---------- --------- --------------
Fiscal year ended December 29, 2000
Gross revenues....................... $814.7 $503.9 $(37.3) $1,281.3
Net revenues......................... 183.2 92.5 275.7
Income from operations............... 49.7 13.7 63.4
Interest expense, net................ 25.3 8.8 34.1
Tax expense.......................... 12.5 0.4 12.9
Net income........................... 11.9 4.5 (1.6) 14.8
Depreciation and amortization........ 5.4 6.2 11.6
Capital expenditures................. 2.0 3.5 5.5
Total assets......................... 457.2 279.4 (78.2) 658.4
Fiscal year ended December 31, 1999
Gross revenues....................... $713.2 $233.2 $(18.7) $ 927.7
Net revenues......................... 154.1 38.2 192.3
Income from operations............... 38.9 9.1 48.0
Interest expense, net................ 16.4 2.2 18.6
Tax expense.......................... 8.5 3.2 11.7
Net income........................... 14.0 3.7 (1.1) 16.6
Depreciation and amortization ....... 6.0 2.6 8.6
Capital expenditures................. 0.1 1.9 2.0
Total assets......................... 391.7 139.9 (76.6) 455.0
Fiscal year ended December 25, 1998
Gross revenues ...................... $598.9 $ - $ - $ 598.9
Net revenues......................... 132.6 - - 132.6
Income from operations............... 33.2 - - 33.2
Interest expense, net................ - - - -
Tax expense.......................... 12.6 - - 12.6
Net income........................... 20.6 - - 20.6
Depreciation and amortization ....... 6.6 - - 6.6
Capital expenditures................. 39.7 - - 39.7
Total assets......................... 156.1 - - 156.1
F-26
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Data in the "Other" column includes elimination of intercompany balances and
subsidiary investment. All intersegment services are provided and purchased at
quoted market rates.
For the year ended December 29, 2000, the Company had one customer which
contributed more than 10% of the Company's total gross revenues. Total gross
revenues of $146.9 million were generated from Union Pacific (generated by both
reporting segments).
For the year ended December 31, 1999, the Company had two customers,
respectively which contributed more than 10% of the Company's total gross
revenues. Total gross revenues of $128.2 million were generated by the
wholesale segment from Hub Group and total gross revenues of $100.8 million were
generated from Union Pacific (generated by both reporting segments).
NOTE 10. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 29, 2000 and
December 31, 1999 ($ in millions):
2000 1999
------ ------
Railcars.......................................... $ 26.9 $ 26.9
Containers and Chassis............................ 27.2 27.6
Leasehold improvements and Other.................. 20.2 7.3
------ ------
Total........................................ 74.3 61.8
Less: Accumulated Depreciation and Amortization... (17.8) (11.4)
------ ------
Property and Equipment, net..................... $ 56.5 $ 50.4
====== ======
Depreciation and amortization of property and equipment was $6.9 million,
$6.2 million and $6.0 million for the years ended December 29, 2000, December
31, 1999 and December 25, 1998, respectively. During 2000, the Company retired
$0.5 million of accumulated depreciation associated with the sale of containers
and chassis. Equipment under capital lease are included above with a cost of
$1.0 million and accumulated amortization of $0.4 million at December 29, 2000.
During 2000, the Company added $7.8 million in property and equipment due
to the acquisition of Conex assets, GTS, RFI and Rail Van. In addition, capital
expenditures of $5.5 million primarily for leasehold improvements and computer
and related equipment were incurred during 2000. The Company received $0.4
million from the sale of containers and other equipment during the year and
retired $0.8 million of property.
As part of the recapitalization of the Company and acquisition of Pacer
Logistics, the Company received $39.6 million in net proceeds from the sale and
leaseback of 199 railcars originally purchased in 1998. A deferred gain of $1.6
million was recorded upon sale and is being amortized over the 13 year life of
the lease. An additional $0.4 million was received from sales of other property
in 1999.
F-27
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 29, 2000 and December
31, 1999 were as follows (in millions):
2000 1999
--------------- ---------------
Accounts Payable ...................................... $ 102.7 $ 49.2
Accrued Rail Liability ................................ 37.5 71.8
Accrued Volume Rebates Payable ........................ 11.5 10.1
Accrued Equipment Maintenance and Lease ............... 13.5 8.1
Accrued Acquisition Costs ............................. 8.1 1.0
Accrued Compensation and Benefits ..................... 6.7 3.8
Merger, Severance and Other ........................... 6.1 -
Accrued Interest Payable .............................. 2.9 2.7
Other Accrued Liabilities ............................. 38.2 29.3
--------------- ---------------
Total Accounts Payable and Accrued Liabilities ..... $ 227.2 $ 176.0
=============== ===============
NOTE 12. LEASES
The Company leases certain doublestack railcars, containers, chassis, data
processing equipment and other property. Future minimum lease payments under
noncancelable leases at December 29, 2000 for the five years subsequent to 2000
and thereafter are summarized as follows (in millions):
Capital Operating
Leases Leases
--------------- ---------------
2001................................................... $ 0.3 $ 50.1
2002................................................... 0.3 42.4
2003................................................... 0.1 35.6
2004................................................... - 31.3
2005................................................... - 25.5
Thereafter............................................. - 159.4
--------------- ---------------
Total Minimum Payments ................................ $ 0.7 $ 344.3
===============
Less amount representing interest (at an
effective rate of 9%).................................. 0.1
---------------
Present value of minimum lease payments ............... $ 0.6
===============
Rental expense was $66.7 million, $50.4 million, $ 49.7 million for the
fiscal years ended December 29, 2000, December 31, 1999 and December 25, 1998,
respectively. The net book value of property under capital lease at December 29,
2000 and December 31, 1999 was approximately $0.6 million and $0.2 million,
respectively.
On May 28, 1999 the Company received, as part of the Company's
recapitalization and acquisition of Pacer Logistics, $39.6 million in net
proceeds from the sale and leaseback (operating) of 199 railcars originally
purchased in 1998.
The Company took delivery of 4,156 containers, 3,425 chassis and 285
railcars during 2000 all financed through operating leases. The Company took
delivery of 1,500 new 53-foot containers and chassis in the fourth quarter of
1999 financed through an operating lease.
The Company receives income from others for the use of its doublestack
railcars and containers. These income amounts are included in gross revenues.
Rental income was $30.1 million, $16.9 million and $13.4 million for the fiscal
years ended December 29, 2000,
F-28
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
December 31, 1999 and December 25, 1998, respectively.
NOTE 13. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow
information is as follows ($ in millions):
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Dec. 29, 2000 Dec. 31, 1999 Dec. 25, 1998
--------------------- -------------------- ------------------------
Cash Payments:
Interest....................... $32.3 $15.4 $ -
Income Taxes................. $10.8 $ 2.5 $3.4
NOTE 14. MINORITY INTEREST
Pursuant to the Company's recapitalization and acquisition of Pacer
Logistics, 24,300 of Pacer Logistics' one million authorized shares of preferred
stock were issued to certain management shareholders of Pacer Logistics as 7.5%
exchangeable preferred stock on May 28, 1999. The remainder have been reserved
for issuance by Pacer Logistics as payment-in-kind dividends of 7.5% annually.
The preferred shares are convertible into 100 shares of Pacer International
common stock for each preferred share and may be converted at the holders option
until May 28, 2001. Subject to limitations under the Company's credit
agreement, the Company has the option to convert the Pacer Logistics
exchangeable preferred stock into Pacer International preferred stock or cash
anytime after August 28, 2000. The shares are manditorily redeemable for $1,000
per share by Pacer International on May 28, 2009. Prior to conversion, the
preferred stock of the subsidiary has no voting rights.
F-29
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 15. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share-
basic and diluted (in millions, except share and per share amounts):
Fiscal year ended Fiscal year ended
December 29, 2000 December 31, 1999
--------------------------- -----------------------------
Numerator:
Net income........................................... $ 14.8 $ 16.6
Less: Net income for the period January 1, 1999
through May 28, 1999 (a) ..................... - (8.5)
--------------------------- -----------------------------
Net income-basic................................... $ 14.8 $ 8.1
Minority interest.................................. 1.6 1.1
-------------------------- -----------------------------
Numerator for earnings per share-diluted ............ $ 16.4 $ 9.2
=========================== =============================
Denominator:
Denominator for earnings per share-basic:
Common shares outstanding ........................ 10,970,770 10,440,000
Effect of dilutive securities:
Stock options..................................... 587,749 813,982
Exchangeable preferred stock of subsidiary........ 2,234,844 2,234,844
-------------------------- -----------------------------
Denominator for earnings per share-diluted ........... 13,793,363 13,488,826
=========================== =============================
Earnings per share-basic.............................. $ 1.35 $ 0.78
=========================== =============================
Earnings per share-diluted ........................... $ 1.19 $ 0.68
=========================== =============================
(a) Net income for the period from January 1, 1999 through May 28, 1999 has
been excluded as prior to the recapitalization on May 28, 1999 was a
division of APL Limited and did not have common stock.
Earnings per share for fiscal years prior to December 31, 1999 is not
presented as the Company was an operating division and earnings per share was
not meaningful.
F-30
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 16. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for each
of the quarters in 2000 and 1999 (in millions, except per share amounts):
Quarters (a)
----------------------------------------------------------------------------
First Second Third Fourth
------------- ----------------- ------------- ---------------
Fiscal year ended December 29, 2000 (b)
Gross revenues................................ $308.6 $299.6 $307.2 $365.9
Net revenues.................................. 65.5 65.9 66.3 78.0
Income from operations (c) .................. 17.5 20.1 18.8 7.0
Net income (c)................................ 4.4 6.9 6.0 (2.5)
Basic earnings (loss) per share .............. $ 0.41 $ 0.62 $ 0.54 $(0.22)
Diluted earnings (loss) per share (g)......... $ 0.36 $ 0.52 $ 0.46 $(0.15)
Fiscal year ended December 31, 1999 (d)
Gross revenues................................ $166.0 $197.7 $260.8 $303.2
Net revenues.................................. 36.2 40.9 53.3 61.9
Income from operations........................ 7.5 11.4 15.0 14.1
Net income.................................... 4.7 5.4 4.1 2.4
Basic earnings per share...................... (e) $ 0.16(f) $ 0.39 $ 0.23
Diluted earnings per share ................... (e) $ 0.13(f) $ 0.34 $ 0.21
(a) Gross revenues and net revenues since the third quarter of 1999 have been
restated from amounts previously reported to reflect the reclassification
of railcar rental income to gross revenues from direct operating expense to
be consistent with the Company's classification of container per diem
revenue. The reclassification had no effect on the Company's income from
operations or net income.
(b) 2000 amounts include the results of operations since acquisition for the
acquisitions of Conex assets on January 13, 2000, GTS on August 31, 2000,
RFI on October 31, 2000 and Rail Van on December 22, 2000.
(c) In December 2000 the Company recorded a $7.7 million merger, severance and
other charge for the consolidation and restructuring of the retail segment.
(d) 1999 amounts include the results of operations of Pacer Logistics, Inc.
since its acquisition on May 28, 1999.
(e) Earnings per share data is not applicable as prior to the recapitalization
the Company was a division of APL Limited and did not have common stock.
(f) The earnings per share amounts for the second quarter of 1999 are based on
results for the period May 28, 1999 through June 25, 1999, as prior to the
recapitalization on May 28, 1999, the Company was a division of APL Limited
and did not have common stock.
(g) Diluted earnings per share for the fourth quarter of 2000 excludes the
effects of stock options as they were determined to be anti-dilutive, but
does include the effect of the minority interest on diluted earnings.
F-31
Schedule II
Pacer International, Inc. (Formerly known as American President Lines Stacktrain
Services)
Valuation and Qualifying Accounts
For the fiscal years ended December 29, 2000, December 31, 1999 and December 25,
1998
(in millions)
Column A Column B Column C Column D Column E
- ---------------------------------------------------------------------------------------------------------------
Balances at Additions Balances at
Beginning (Charged)/ End of
of Fiscal Credited to Fiscal
Description Period Income Deductions (1) Other Period
- ---------------------------------------------------------------------------------------------------------------
December 29, 2000
- -----------------
Allowance for doubtful
accounts.................. $(3.0) $(1.8) $1.6 $(5.8) (2) $(9.0)
December 31, 1999
- -----------------
Allowance for doubtful
accounts.............. $(0.7) $(0.8) $0.4 $(1.9) (3) $(3.0)
December 25, 1998
- -----------------
Allowance for doubtful
accounts.............. $(0.9) $ - $ - $ 0.2 (4) $(0.7)
_________
(1) Represents write-off of amounts.
(2) Represents the historical allowance recorded on Conex, GTS, RFI and Rail
Van books at the date of acquisition.
(3) Represents the historical allowance recorded on Pacer Logistics books at
the date of acquisition.
(4) Represents a reduction of the allowance based on historical analysis.
F-32
EXHIBIT INDEX
Exhibit Document Description
- ----------------------------------------------------------------------------
10.36 Employment Agreement dated as of December 1, 1998 between
Pacer International, Inc. and Lawrence C. Yarberry.
10.37 Employment Agreement dated as of April 12, 2000 between
Pacer International, Inc. and Eugene K. Pentimonti.