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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 20, 2002
OR
¨ |
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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 000-49828
PACER INTERNATIONAL, INC.
(Exact name of
registrant as specified in its charter)
Tennessee |
|
62-0935669 |
(State or other jurisdiction of organization) |
|
(I.R.S. employer identification no.) |
2300 Clayton Road, Suite 1200
Concord, CA 94520
Telephone Number (877) 917-2237
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 the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.
Class
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|
Outstanding at October 31, 2002
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Common stock, $.01 par value per share |
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36,811,848 shares |
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
FISCAL QUARTER ENDED SEPTEMBER 20,
2002
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Page
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Part 1. Financial Information |
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Item 1. |
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Condensed Consolidated Financial Statements (Unaudited): |
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3 |
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4 |
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5 |
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6 |
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7 |
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Item 2. |
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22 |
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Item 3. |
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32 |
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Item 4. |
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32 |
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Part 2. Other Information |
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Item 1. |
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33 |
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Item 2. |
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33 |
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Item 6. |
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34 |
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35 |
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36 |
2
PART 1FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 20, 2002
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December 28, 2001
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(In millions) |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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$ |
1.1 |
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$ |
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Accounts receivable, net of allowances of $6.4 million and $7.0 million, respectively |
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192.1 |
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204.6 |
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Accounts receivable from APL |
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9.2 |
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6.6 |
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Prepaid expenses and other |
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6.7 |
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8.4 |
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Deferred income taxes |
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5.6 |
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Total current assets |
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209.1 |
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225.2 |
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Property and equipment |
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Property and equipment at cost |
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93.3 |
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87.1 |
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Accumulated depreciation |
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(34.4 |
) |
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(27.8 |
) |
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Property and equipment, net |
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58.9 |
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59.3 |
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Other assets |
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Goodwill, net |
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281.5 |
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281.5 |
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Deferred income taxes |
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47.3 |
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57.5 |
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Other assets |
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8.3 |
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9.4 |
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Total other assets |
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337.1 |
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348.4 |
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Total assets |
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$ |
605.1 |
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$ |
632.9 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities |
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Current maturities of long-term debt and capital leases |
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$ |
6.1 |
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$ |
2.0 |
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Accounts payable and accrued liabilities |
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167.8 |
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203.1 |
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Total current liabilities |
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173.9 |
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205.1 |
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Long-term liabilities |
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Long-term debt and capital leases |
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256.1 |
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395.9 |
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Other |
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2.4 |
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3.2 |
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Total long-term liabilities |
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258.5 |
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399.1 |
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Total liabilities |
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432.4 |
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604.2 |
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Minority interestexchangeable preferred stock of a subsidiary |
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25.7 |
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Commitments and contingencies (Note 10) |
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Stockholders equity |
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Preferred stock: $0.01 par value, 50,000,000 shares authorized, none issued and outstanding |
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Common stock: $0.01 par value, 150,000,000 shares authorized, 36,811,848 and 23,089,494 issued and outstanding at
September 20, 2002 and December 28, 2001, respectively |
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0.4 |
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0.2 |
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Additional paid-in-capital |
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269.9 |
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118.5 |
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Unearned compensation |
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(0.2 |
) |
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(0.3 |
) |
Accumulated deficit |
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(97.3 |
) |
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(114.3 |
) |
Accumulated other comprehensive loss |
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(0.1 |
) |
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(1.1 |
) |
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Total stockholders equity |
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172.7 |
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3.0 |
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Total liabilities and stockholders equity |
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$ |
605.1 |
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$ |
632.9 |
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
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Nine Months Ended
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Sept. 20, 2002
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Sept. 21, 2001
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Sept. 20, 2002
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Sept. 21, 2001
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(in millions, except share and per share amounts) |
Gross revenues (includes related party revenues of $25.2 million, $24.2 million, $73.9 million and $76.9 million,
respectively) |
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$ |
391.5 |
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$ |
398.1 |
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$ |
1,175.0 |
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$ |
1,269.9 |
Cost of purchased transportation and services |
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303.8 |
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317.8 |
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919.7 |
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1,027.9 |
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Net revenues |
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87.7 |
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80.3 |
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255.3 |
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242.0 |
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Operating expenses: |
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Direct operating expenses |
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24.7 |
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22.1 |
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78.0 |
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71.1 |
Selling, general and administrative expenses (includes related party expenses of $3.8 million, $4.1 million, $11.4
million and $12.0 million, respectively) |
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40.0 |
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37.3 |
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115.8 |
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115.4 |
Depreciation and amortization |
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2.5 |
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4.3 |
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7.5 |
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13.3 |
Merger and severance |
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1.2 |
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1.2 |
Other |
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4.0 |
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4.0 |
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Total operating expenses |
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67.2 |
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68.9 |
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201.3 |
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205.0 |
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Income from operations |
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20.5 |
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11.4 |
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54.0 |
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37.0 |
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Interest expense, net |
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6.7 |
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8.6 |
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25.6 |
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29.3 |
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Income before income taxes and minority interest |
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13.8 |
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2.8 |
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28.4 |
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7.7 |
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Income taxes |
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|
5.6 |
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1.8 |
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11.4 |
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3.9 |
Minority interest |
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0.8 |
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Net income |
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$ |
8.2 |
|
$ |
1.0 |
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$ |
17.0 |
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$ |
3.0 |
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Earnings per share (Note 12): |
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Basic: |
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Earnings per share |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.60 |
|
$ |
0.13 |
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Weighted average shares outstanding |
|
|
36,811,848 |
|
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23,089,494 |
|
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28,268,475 |
|
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22,962,056 |
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Diluted: |
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Earnings per share |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.53 |
|
$ |
0.13 |
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Weighted average shares outstanding |
|
|
37,689,832 |
|
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28,452,984 |
|
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31,921,805 |
|
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28,325,546 |
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The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS EQUITY
Nine Months Ended September 20, 2002
(Unaudited)
|
|
Common Stock
|
|
Additional Paid-in-Capital
|
|
Unearned Comp-ensation
|
|
|
Accumulated Deficit
|
|
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Accumulated Other Comprehensive Income (Loss)
|
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Total Stockholders Equity
|
|
|
No. of Shares
|
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Amount
|
|
|
|
|
|
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(in millions, except share amounts) |
Balance December 28, 2001 |
|
23,089,494 |
|
$ |
0.2 |
|
$ |
118.5 |
|
$ |
(0.3 |
) |
|
$ |
(114.3 |
) |
|
$ |
(1.1 |
) |
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.0 |
|
|
|
|
|
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|
17.0 |
Other Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.0 |
|
|
|
1.0 |
|
|
|
18.0 |
Amort.Unearned Compensation |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
Issuance of Common Stock (Note 2 ) |
|
9,250,000 |
|
|
0.1 |
|
|
125.8 |
|
|
|
|
|
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|
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|
125.9 |
Exchange of Pacer Logistics exchangeable preferred stock for common stock (Note 2 ) |
|
4,469,688 |
|
|
0.1 |
|
|
25.6 |
|
|
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25.7 |
Exercise of Common Stock Options |
|
2,666 |
|
|
|
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|
|
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Balance September 20, 2002 |
|
36,811,848 |
|
$ |
0.4 |
|
$ |
269.9 |
|
$ |
(0.2 |
) |
|
$ |
(97.3 |
) |
|
$ |
(0.1 |
) |
|
$ |
172.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
Sept. 20, 2002
|
|
|
Sept. 21, 2001
|
|
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|
(in millions) |
|
CASH FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
17.0 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7.5 |
|
|
|
13.3 |
|
Deferred income taxes |
|
|
15.8 |
|
|
|
5.0 |
|
Minority interest |
|
|
|
|
|
|
0.8 |
|
Gain on sale of property and equipment |
|
|
(0.6 |
) |
|
|
(0.1 |
) |
Merger and severance |
|
|
|
|
|
|
1.2 |
|
Other |
|
|
|
|
|
|
4.0 |
|
Changes in current assets and liabilities: |
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
10.0 |
|
|
|
(14.8 |
) |
Prepaid expenses and other current assets |
|
|
1.7 |
|
|
|
1.8 |
|
Accounts payable and accrued liabilities |
|
|
(24.6 |
) |
|
|
10.7 |
|
Other |
|
|
1.5 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
28.3 |
|
|
|
24.4 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(7.4 |
) |
|
|
(10.7 |
) |
Proceeds from sales of property and equipment |
|
|
0.9 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(6.5 |
) |
|
|
(10.5 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Checks drawn in excess of cash balances |
|
|
(10.9 |
) |
|
|
(9.9 |
) |
Proceeds from issuance of common stock |
|
|
125.9 |
|
|
|
0.1 |
|
Proceeds from issuance of preferred stock |
|
|
|
|
|
|
0.2 |
|
Repurchase of preferred stock |
|
|
|
|
|
|
(0.2 |
) |
Debt, revolving credit facility and capital lease obligation repayment |
|
|
(135.7 |
) |
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(20.7 |
) |
|
|
(13.9 |
) |
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
1.1 |
|
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|
CASH AND CASH EQUIVALENTSBEGINNING OF PERIOD |
|
|
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|
|
|
|
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|
|
CASH AND CASH EQUIVALENTSEND OF PERIOD |
|
$ |
1.1 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the condensed consolidated financial statements.
6
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim financial statements as of September 20, 2002 and for the three and nine months ended September 20, 2002
and September 21, 2001 are condensed and do not contain all information required by generally accepted accounting principles to be included in a full set of financial statements. In the opinion of management, all adjustments, consisting of only
normal recurring adjustments, that are necessary for fair presentation have been included. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for any full fiscal year. These
unaudited interim financial statements and footnotes should be read in conjunction with the audited financial statements for the fiscal year ended December 28, 2001 included in the Companys prospectus dated June 12, 2002 related to the
Companys initial public offering.
All references in the condensed consolidated financial statements to
number of shares outstanding, price per share and per share amounts have been retroactively restated for all periods presented to reflect a 2 for 1 common stock split effective June 7, 2002.
Principles of Consolidation
The consolidated
financial statements as of September 20, 2002 and for the three and nine months ended September 20, 2002 and September 21, 2001 include the accounts of the Company and all entities which the Company controls. 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 other logistics services (the retail segment) in North America.
Other Comprehensive Income
The Company classifies items of comprehensive income by their nature in the financial statements and
displays the accumulated balance of comprehensive income separately from accumulated deficit and additional paid-in-capital in the equity section of the balance sheet.
Other comprehensive income (loss) includes foreign currency translation adjustments and derivative transactions, net of related tax. Other comprehensive income (loss)
consists of the following (in millions):
|
|
Derivative Instrument Fair Value, Net of Amortization
|
|
|
Total Other Comprehensive Income (Loss)
|
|
Balance at December 28, 2001 |
|
$ |
(1.1 |
) |
|
$ |
(1.1 |
) |
Activity during 2002 (net of $0.7 million tax) |
|
|
1.0 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
Balance at September 20, 2002 |
|
$ |
(0.1 |
) |
|
$ |
(0.1 |
) |
|
|
|
|
|
|
|
|
|
7
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
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 that
the $150.0 million principal amount of Senior Subordinated Notes are valued at $151.5 million and $120.0 million as of September 20, 2002 and December 28, 2001, respectively, based on quoted market prices. The carrying value of long-term debt, other
than the Senior Subordinated Notes, approximates fair value due to the floating nature of the interest rates.
Adoption of
Statements of Financial Accounting Standards
In July 2001, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible Assets. SFAS 142 supercedes Accounting Principles Board Opinion No. 17 and addresses the financial
accounting and reporting standards for goodwill and intangible assets subsequent to their initial recognition. The Company adopted SFAS 142 on December 29, 2001 and ceased to amortize goodwill on that date. The carrying amount of goodwill at
September 20, 2002 and December 28, 2001 assigned to the wholesale segment was $23.3 million, and the carrying amount of goodwill at September 20, 2002 and December 28, 2001 assigned to the retail segment was $258.2 million.
As part of the adoption of SFAS 142, the Company completed a goodwill impairment test during the first quarter of fiscal year 2002, and
concluded that no adjustment to the balance of goodwill at the date of adoption was required. The adoption of SFAS 142 removed certain differences between book and tax income; therefore, the Companys estimated fiscal year 2002 effective tax
rate has been adjusted to approximately 40.1%.
A reconciliation of previously reported net income and earnings
per share to the amounts adjusted for the goodwill amortization, net of related income tax is as follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 20, 2002
|
|
Sept. 21, 2001
|
|
Sept. 20, 2002
|
|
Sept. 21, 2001
|
|
|
(in millions, except per share amounts) |
Net income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported |
|
$ |
8.2 |
|
$ |
1.0 |
|
$ |
17.0 |
|
$ |
3.0 |
Add: goodwill amortization, net of tax |
|
|
|
|
|
0.7 |
|
|
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
$ |
8.2 |
|
$ |
1.7 |
|
$ |
17.0 |
|
$ |
5.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.60 |
|
$ |
0.13 |
Effect of goodwill amortization |
|
|
|
|
|
0.03 |
|
|
|
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
$ |
0.22 |
|
$ |
0.07 |
|
$ |
0.60 |
|
$ |
0.25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income as reported |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.53 |
|
$ |
0.13 |
Effect of goodwill amortization |
|
|
|
|
|
0.02 |
|
|
|
|
|
0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income |
|
$ |
0.22 |
|
$ |
0.06 |
|
$ |
0.53 |
|
$ |
0.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
8
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 143 (SFAS 143),
Accounting for Asset Retirement Obligations, in July 2001. SFAS 143, which is effective for fiscal years beginning after June 15, 2002, addresses financial accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS 143 will be adopted by the Company in the 2003 fiscal year. While the Company has not yet completed its analysis of the effects that this new standard may have on its results
of operations, it does not expect the implementation of this standard to have a significant effect on its results of operations or financial condition.
The Financial Accounting Standards Board issued SFAS 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002,
which is effective for fiscal years beginning after May 15, 2002. SFAS 145 rescinds SFAS 4 and SFAS 64, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of
related income tax effect. As a result, gains and losses from debt extinguishment are to be classified as extraordinary only if they meet the criteria in Accounting Principles Board Opinion 30, Reporting the Results of Operation
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Statement also requires that sale-leaseback accounting be used for transactions that are similar
in form and substance to sale-leaseback transactions. The Company does not expect implementation of this standard to have a significant effect on its results of operations or financial condition.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued in July 2002. SFAS No. 146 replaces current accounting
literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. The provisions of the Statement are effective for exit or disposal
activities that are initiated after December 31, 2002. The Company does not expect implementation of this standard to have a significant effect on its results of operations or financial condition.
NOTE 2. INITIAL PUBLIC OFFERING
On June 18, 2002, the Company completed an initial public offering (IPO) of 14,000,000 shares of common stock at $15.00 per share, including 4,750,000 shares by selling stockholders. Total
proceeds on the 9,250,000 shares sold by the Company were approximately $138.8 million. Net proceeds were approximately $125.9 million after deducting $12.9 million of underwriting discounts, commissions and related expenses. The Company repaid
$63.5 million of outstanding term loans and $62.4 million of the revolving credit facility with the proceeds of the offering. In connection with the term loan repayment, the Company expensed to interest expense $0.8 million of deferred loan fees.
In addition, a 2,100,000 share over-allotment option was exercised by the underwriters with all proceeds to the
selling stockholders.
In June 2002, prior to the consummation of the offering, the Company issued 4,469,688
shares of common stock upon the exchange of all outstanding shares of Pacer Logistics exchangeable preferred stock at an exchange rate of 200 shares of common stock for each outstanding share of Pacer Logistics exchangeable preferred stock.
9
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
NOTE 3. STATEMENTS OF OPERATIONS
During the quarter ended September 21, 2001, the Company recorded a total of $6.9 million of charges as further described below.
Direct operating expenses included $1.4 million for the repair and return of 2,700 containers and 1,300 chassis
as part of a program to downsize the container and chassis fleet. Selling, general and administrative expenses included $0.3 million for legal fees related to a civil lawsuit filed by the Company against the former owner of an acquired business.
Other included $1.9 million for the write-off of agent balances due to an agent bankruptcy, $1.6 million for the write-off of IPO costs and $0.5 million for early termination of the chassis and container maintenance agreement. In addition, $1.2
million of merger and severance was charged as described in Note 4 below.
NOTE 4. MERGER AND SEVERANCE
In December 2000, the Company recorded a 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 included $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 was included to cover lease costs for facilities no longer required primarily in Walnut Creek and Memphis. The remaining $0.7 million of this charge was for the write-off of computer software under development.
In September 2001, the Company recorded an additional charge of $1.2 million, including $0.8 million for the
severance of employees in the wholesale segment and $0.4 million for the write-off of retail segment and corporate assets that have been abandoned. In December 2001, the Company recorded $0.5 million for additional lease costs due to the worsening
of the real estate market and the difficulty in subletting facilities no longer required. The December 2001 addition was partially offset by the release of $1.2 million of remaining unused liability from the 2000 charge. The remaining severance is
to be paid to senior management through December 2003. The table below details merger and severance activity through September 20, 2002 (in millions).
|
|
Severance
|
|
|
Facilities and Other
|
|
|
Total
|
|
Beginning balance December 28, 2001 |
|
$ |
1.8 |
|
|
$ |
1.7 |
|
|
$ |
3.5 |
|
Payments |
|
|
(1.3 |
) |
|
|
(0.8 |
) |
|
|
(2.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 20, 2002 |
|
$ |
0.5 |
|
|
$ |
0.9 |
|
|
$ |
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 5. CAPITALIZED SOFTWARE
In March 2001, the Company commenced plans for the conversion from APL Limiteds (the Companys former parent) computer systems
to a stand-alone capability based on information technology systems currently available in the marketplace from unrelated third parties. At September 20, 2002, an aggregate of $9.3 million had been paid to such third parties for the acquisition and
development of software in connection with the conversion project, which has been capitalized in property and equipment under SOP 98-1. This amount includes $6.9 million paid to third party developer under a fixed-price development contract.
Management believes that it is probable that software being developed for internal use will be completed and placed in service as the Company has the ability and intention to complete this software project. However, in the event facts and
circumstances change which would indicate that it is no longer probable that the computer software developed will be completed and placed in service, the Company would evaluate the previously capitalized software for impairment.
During the third quarter of 2002 the Company engaged in the negotiation of proposed contract modifications requested by the
developer that, if accepted and agreed to, would have extended the completion of the development work through the end of 2004 at an increased cost to the Company. The Company has not been able to reach a mutually acceptable agreement with the
developer, and the developer has indicated that it will not be able to complete the contract on its current terms. During the fourth quarter of 2002, the Company instituted arbitration under the agreement seeking damages for the developers
failure to complete the contract.The developer has not yet filed its answer in the proceeding. As the arbitration is in its initial stages, the Company is unable to assess its likely outcome but intends to pursue its claims vigorously. The Company
will continue to avail itself of the services and support under its existing long-term agreement with APL Limited.
NOTE 6. LONG-TERM DEBT
At September 20, 2002, the Company
had $91.4 million available under the $100.0 million revolving credit facility expiring in 2004, subject to borrowing base requirements. At September 20, 2002, the interest rates on the revolving credit facility and term loan were 6.0% and 4.6%,
respectively. During the first three quarters of 2002, the Company repaid $70.8 million of the revolving credit facility, $64.7 million of the term loans and $0.2 million of capital lease obligations. The repayment of the revolving credit facility
and term loans were funded by the Companys initial public offering and operating cash flows. See note 2 for a discussion of the initial public offering.
The revolving and term loan credit facilities are generally guaranteed by all of the Companys existing and future direct and indirect wholly-owned subsidiaries and are collateralized by liens on
the Companys and the Companys subsidiaries properties and assets. The credit agreement contains
10
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
certain restrictions and financial covenants such as an adjusted total leverage ratio and a consolidated interest coverage ratio. At
September 20, 2002, the Company was in compliance with these covenants.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company has signed long-term agreements with APL Limited (the Companys former parent) for the
domestic transportation on the stacktrain network of APL Limiteds international freight for an annual management fee of $6.6 million and for administrative services such as office space and associated office services and payable processing on
a per transaction basis. In addition, the information technology services of APL Limited are currently being provided to the Company under a long-term agreement through the year 2019. The annual fee for these services is $10.0 million.
NOTE 8. MINORITY INTEREST
Pursuant to the Companys 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 was reserved for issuance by Pacer Logistics as payment-in-kind dividends of 7.5% annually. Dividends on the preferred stock ceased to accrue as of
May 28, 2001. The preferred shares were convertible into 200 shares of Pacer International common stock for each preferred share and in conjunction with the Companys initial public offering of common stock in June 2002, the Company issued
4,469,688 shares of common stock upon the exchange of all 22,348.44 outstanding shares of Pacer Logistics exchangeable preferred stock.
NOTE 9. STOCK OPTION PLANS
On June 13, 2002, the 2002 Stock Option
Plan became effective and serves as the successor to the Companys 1999 Stock Option Plan. The Company initially reserved 500,000 shares of common stock for issuance under the 2002 plan, plus such additional number of shares of the
Companys common stock which remain available for future issuance under the 1999 Plan. In addition, any shares issued under the 1999 plan that are forfeited to or repurchased by the Company or that are issuable upon
11
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
exercise of options that expire or become unexercisable for any reason without having been exercised in full will be available for
grant and issuance under the 2002 plan. The 2002 plan terminates in ten years, unless it is terminated earlier by the Companys board of directors. The table below details the Companys stock option activity for the nine month periods
ended September 20, 2002 and September 21, 2001, respectively.
|
|
Nine Months Ended
|
|
|
Sept. 20, 2002
|
|
Sept. 21, 2001
|
Common Stock Options |
|
|
|
|
Granted |
|
|
|
|
@ $15.00 per share |
|
415,800 |
|
|
@ $12.50 per share |
|
|
|
558,000 |
Exercised |
|
|
|
|
@ $5.00 per share |
|
2,666 |
|
1,000 |
@ $0.11 per share |
|
|
|
365,748 |
Forfeited |
|
323,334 |
|
74,000 |
|
Preferred Stock Options |
|
|
|
|
Exercised |
|
|
|
|
@ $9.00 per share |
|
|
|
27,498 |
All proceeds were used for general corporate purposes and all
forfeitures were due to employee resignations. During 2001, the Company elected, at its discretion, to repurchase and retire the preferred stock that arose from the exercise of the preferred stock options.
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company is party to various legal proceedings, claims and assessments arising in the normal course of its business activities. However, management believes none of these items will have a material
adverse impact on the Companys 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, Interstates retention on its liability policy was $250,000. The court has ordered that restitution of $488,978 be paid
for this omission. The court entered judgment on the August 11, 2000 decision on January 23, 2002. Plaintiffs counsel has appealed the entire ruling and the Company is 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,
12
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
individually or in the aggregate, to have a material adverse impact on the Companys consolidated financial position, results
of operations or liquidity.
NOTE 11. 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 railroads. The retail segment provides trucking services,
intermodal marketing, freight consolidation and handling, international freight forwarding and supply chain management services.
International revenues generated by the Companys retail segment for the first nine months of 2002 were $67.0 million in Europe and $8.8 million in Canada. The Companys wholesale segment generated $34.6 million in revenues
for the first nine months of 2002 from Mexico.
International revenues generated by the Companys retail
segment for the first nine months of 2001 were $83.8 million in Europe and $5.5 million in Canada. The Companys wholesale segment generated $34.6 million in revenues for the first nine months of 2001 from Mexico.
For the nine month periods ended September 20, 2002 and September 21, 2001, the Company had no customers that contributed more than 10% of
the Companys total gross revenues.
13
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The following table presents reportable segment information for the
three and nine months ended September 20, 2002 and September 21, 2001 (in millions).
|
|
Wholesale
|
|
Retail
|
|
Corp./Other
|
|
|
Consolidated
|
3 Months ended September 20, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
188.9 |
|
$ |
229.4 |
|
$ |
(26.8 |
) |
|
$ |
391.5 |
Net revenues |
|
|
52.8 |
|
|
34.9 |
|
|
|
|
|
|
87.7 |
Income from operations |
|
|
16.2 |
|
|
7.9 |
|
|
(3.6 |
) |
|
|
20.5 |
Interest expense, net |
|
|
4.4 |
|
|
2.3 |
|
|
|
|
|
|
6.7 |
Tax expense |
|
|
4.8 |
|
|
2.3 |
|
|
(1.5 |
) |
|
|
5.6 |
Net income |
|
|
7.0 |
|
|
3.3 |
|
|
(2.1 |
) |
|
|
8.2 |
Depreciation |
|
|
1.1 |
|
|
1.4 |
|
|
|
|
|
|
2.5 |
Capital expenditures |
|
|
2.0 |
|
|
0.9 |
|
|
|
|
|
|
2.9 |
Total assets |
|
|
453.6 |
|
|
198.6 |
|
|
(47.1 |
) |
|
|
605.1 |
3 Months ended September 21, 2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
191.5 |
|
$ |
230.3 |
|
$ |
(23.7 |
) |
|
$ |
398.1 |
Net revenues |
|
|
44.5 |
|
|
35.8 |
|
|
|
|
|
|
80.3 |
Income from operations |
|
|
9.9 |
|
|
4.4 |
|
|
(2.9 |
) |
|
|
11.4 |
Interest expense, net |
|
|
4.7 |
|
|
3.9 |
|
|
|
|
|
|
8.6 |
Tax expense |
|
|
3.2 |
|
|
0.3 |
|
|
(1.7 |
) |
|
|
1.8 |
Net income |
|
|
2.0 |
|
|
0.2 |
|
|
(1.2 |
) |
|
|
1.0 |
Depreciation and amortization |
|
|
1.3 |
|
|
3.0 |
|
|
|
|
|
|
4.3 |
Capital expenditures |
|
|
1.5 |
|
|
1.0 |
|
|
|
|
|
|
2.5 |
Total assets |
|
|
451.0 |
|
|
159.2 |
|
|
53.1 |
|
|
|
663.3 |
9 Months ended September 20, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
589.2 |
|
$ |
663.7 |
|
$ |
(77.9 |
) |
|
$ |
1,175.0 |
Net revenues |
|
|
156.6 |
|
|
98.7 |
|
|
|
|
|
|
255.3 |
Income from operations |
|
|
40.7 |
|
|
19.2 |
|
|
(5.9 |
) |
|
|
54.0 |
Interest expense, net |
|
|
15.9 |
|
|
9.7 |
|
|
|
|
|
|
25.6 |
Tax expense |
|
|
9.9 |
|
|
3.9 |
|
|
(2.4 |
) |
|
|
11.4 |
Net income |
|
|
14.9 |
|
|
5.6 |
|
|
(3.5 |
) |
|
|
17.0 |
Depreciation |
|
|
3.5 |
|
|
4.0 |
|
|
|
|
|
|
7.5 |
Capital expenditures |
|
|
5.0 |
|
|
2.4 |
|
|
|
|
|
|
7.4 |
Total assets |
|
|
453.6 |
|
|
198.6 |
|
|
(47.1 |
) |
|
|
605.1 |
9 Months ended September 21, 2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross revenues |
|
$ |
591.5 |
|
$ |
741.5 |
|
$ |
(63.1 |
) |
|
$ |
1,269.9 |
Net revenues |
|
|
132.2 |
|
|
109.8 |
|
|
|
|
|
|
242.0 |
Income from operations |
|
|
24.8 |
|
|
17.2 |
|
|
(5.0 |
) |
|
|
37.0 |
Interest expense, net |
|
|
15.6 |
|
|
13.7 |
|
|
|
|
|
|
29.3 |
Tax expense |
|
|
4.9 |
|
|
1.7 |
|
|
(2.7 |
) |
|
|
3.9 |
Net income |
|
|
4.3 |
|
|
1.8 |
|
|
(3.1 |
) |
|
|
3.0 |
Depreciation and amortization |
|
|
4.1 |
|
|
9.2 |
|
|
|
|
|
|
13.3 |
Capital expenditures |
|
|
5.8 |
|
|
4.9 |
|
|
|
|
|
|
10.7 |
Total assets |
|
|
451.0 |
|
|
159.2 |
|
|
53.1 |
|
|
|
663.3 |
Data in the Corp./Other column
includes corporate amounts (primarily compensation and overhead costs unrelated to a specific segment) and elimination of intercompany balances and subsidiary investment. The 2001 amounts have been restated to separate corporate amounts from the
Retail column and into the Corp./Other column. Intersegment revenues were $26.8 million and $23.7 million for the three month periods ending September 20, 2002 and September 21, 2001, respectively, and $77.9 million and $63.1 million for the nine
month periods ending September 20, 2002 and September 21, 2001, respectively.
14
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
NOTE 12. 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):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 20, 2002
|
|
Sept. 21, 2001
|
|
Sept. 20, 2002
|
|
Sept. 21, 2001
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Net incomebasic |
|
$ |
8.2 |
|
$ |
1.0 |
|
$ |
17.0 |
|
$ |
3.0 |
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for earnings per sharediluted |
|
$ |
8.2 |
|
$ |
1.0 |
|
$ |
17.0 |
|
$ |
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per sharebasic |
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding |
|
|
36,811,848 |
|
|
23,089,494 |
|
|
28,268,475 |
|
|
22,962,056 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
877,984 |
|
|
893,802 |
|
|
870,316 |
|
|
893,802 |
Exchangeable preferred stock of subsidiary |
|
|
|
|
|
4,469,688 |
|
|
2,783,014 |
|
|
4,469,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings per sharediluted |
|
|
37,689,832 |
|
|
28,452,984 |
|
|
31,921,805 |
|
|
28,325,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharebasic |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.60 |
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per sharediluted |
|
$ |
0.22 |
|
$ |
0.04 |
|
$ |
0.53 |
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase 403,800 shares of common stock at $15.00 per
share were outstanding during the third quarter of 2002 but were not included in the computation of diluted earnings per share for the three and nine months ended September 20, 2002 because the options exercise price was greater than the
average market price of the common shares. Options to purchase 838,000 shares of common stock at $12.50 per share were outstanding during the third quarter of 2001 but were not included in the computation of diluted earnings per share for the three
and nine months ended September 21, 2001 because the options exercise price was greater than the average market price of the common shares.
NOTE 13. HEDGING ACTIVITIES
The Company records the fair value of
interest rate swap agreements designated as hedging instruments as a derivative asset or liability. Changes in the fair value of the interest rate swap agreements are reported as unrealized gains or losses in stockholders equity as a component
of accumulated other comprehensive income (loss). If a derivative instrument is designated as a hedge but the derivative instrument is not fully effective in hedging the designated risk, the ineffective portion of the gain or loss is reported in
interest expense immediately.
The Company entered into two interest rate swap agreements on April 11, 2001 with a
combined notional amount of $100.0 million which matured on October 11, 2002, to manage fluctuations in cash flows resulting from interest rate risk. These swap agreements effectively changed the variable-rate cash flows on the Companys
debt obligations to fixed-rate cash flows. Under the terms of the interest rate swap agreements, the Company received variable interest rate payments based on LIBOR and made fixed interest rate payments at 4.43%. The average interest rate for
amounts received during the first nine months of 2002 was approximately 1.9%. There was no statement of operations impact related to the expiration of the swaps on October 11, 2002.
Interest expense for the three and nine months ended September 20, 2002 includes no net gains or losses representing cash flow hedge ineffectiveness, since the critical
terms of the Companys swap agreements and debt obligations are matched. The Company recognizes additional interest expense resulting from amortization of amounts deferred to other comprehensive income (loss).
15
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
NOTE 14. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In conjunction with the Companys recapitalization and acquisition of Pacer Logistics on May 28, 1999,
the Company issued $150.0 million of 11.75% senior subordinated notes due June 1, 2007 and entered into a credit agreement that provided for a seven-year $135.0 million term loan due May 28, 2006 and a five-year $100.0 million revolving credit
facility due May 28, 2004. In addition, on December 22, 2000, the Company entered into an amendment to the credit agreement that provided for an additional term loan in the amount of $40.0 million that was borrowed to finance the acquisition of Rail
Van. The outstanding principal amount of the $40.0 million term loan was repaid in June 2002 with proceeds from the Companys initial public offering. The notes are fully and unconditionally guaranteed, on a senior subordinated basis, jointly
and severally, by each of the Companys subsidiaries. The term and revolving loans and letters of credit under the credit agreement are guaranteed by all of the Companys existing and future direct and indirect wholly-owned subsidiaries.
The Companys obligations and the obligations of such subsidiaries are collateralized by a first priority lien on substantially all of the Companys 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.
The accompanying
condensed consolidating financial information has been prepared and presented pursuant to SEC Regulation S-X Rule 3-10 Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. This
information is not intended to present the financial position, results of operations and cash flows of the individual companies or groups of companies in accordance with generally accepted accounting principles.
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
Three Months Ended September 20, 2002 (dollars in millions)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
Gross revenues |
|
$ |
188.9 |
|
$ |
229.4 |
|
$ |
(26.8 |
) |
|
$ |
391.5 |
Cost of purchased transportation and Services |
|
|
136.1 |
|
|
194.5 |
|
|
(26.8 |
) |
|
|
303.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
52.8 |
|
|
34.9 |
|
|
|
|
|
|
87.7 |
Operating expenses |
|
|
36.6 |
|
|
30.6 |
|
|
|
|
|
|
67.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
16.2 |
|
|
4.3 |
|
|
|
|
|
|
20.5 |
Interest expense |
|
|
4.4 |
|
|
2.3 |
|
|
|
|
|
|
6.7 |
Equity in net earnings of subsidiary |
|
|
1.2 |
|
|
|
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
13.0 |
|
|
2.0 |
|
|
(1.2 |
) |
|
|
13.8 |
Income taxes |
|
|
4.8 |
|
|
0.8 |
|
|
|
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8.2 |
|
$ |
1.2 |
|
$ |
(1.2 |
) |
|
$ |
8.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Three Months Ended September 21, 2001 (dollars in millions)
|
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
Gross revenues |
|
$ |
191.5 |
|
|
$ |
230.3 |
|
|
$ |
(23.7 |
) |
|
$ |
398.1 |
Cost of purchased transportation and Services |
|
|
147.0 |
|
|
|
194.5 |
|
|
|
(23.7 |
) |
|
|
317.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
44.5 |
|
|
|
35.8 |
|
|
|
|
|
|
|
80.3 |
Operating expenses |
|
|
36.2 |
|
|
|
32.7 |
|
|
|
|
|
|
|
68.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
8.3 |
|
|
|
3.1 |
|
|
|
|
|
|
|
11.4 |
Interest expense |
|
|
4.7 |
|
|
|
3.9 |
|
|
|
|
|
|
|
8.6 |
Equity in net earnings of subsidiary |
|
|
(0.4 |
) |
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority Interest |
|
|
3.2 |
|
|
|
(0.8 |
) |
|
|
0.4 |
|
|
|
2.8 |
Income taxes |
|
|
2.2 |
|
|
|
(0.4 |
) |
|
|
|
|
|
|
1.8 |
Minority interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.0 |
|
|
$ |
(0.4 |
) |
|
$ |
0.4 |
|
|
$ |
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 20, 2002 (dollars in millions)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
Gross revenues |
|
$ |
589.2 |
|
$ |
663.7 |
|
$ |
(77.9 |
) |
|
$ |
1,175.0 |
Cost of purchased transportation and Services |
|
|
432.6 |
|
|
565.0 |
|
|
(77.9 |
) |
|
|
919.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
156.6 |
|
|
98.7 |
|
|
|
|
|
|
255.3 |
Operating expenses |
|
|
115.9 |
|
|
85.4 |
|
|
|
|
|
|
201.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
40.7 |
|
|
13.3 |
|
|
|
|
|
|
54.0 |
Interest expense |
|
|
15.9 |
|
|
9.7 |
|
|
|
|
|
|
25.6 |
Equity in net earnings of subsidiary |
|
|
1.6 |
|
|
|
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
26.4 |
|
|
3.6 |
|
|
(1.6 |
) |
|
|
28.4 |
Income taxes |
|
|
9.4 |
|
|
2.0 |
|
|
|
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
17.0 |
|
$ |
1.6 |
|
$ |
(1.6 |
) |
|
$ |
17.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Nine Months Ended September 21, 2001 (dollars in millions)
|
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
Gross revenues |
|
$ |
591.5 |
|
|
$ |
741.5 |
|
|
$ |
(63.1 |
) |
|
$ |
1,269.9 |
Cost of purchased transportation and services |
|
|
459.3 |
|
|
|
631.7 |
|
|
|
(63.1 |
) |
|
|
1,027.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
132.2 |
|
|
|
109.8 |
|
|
|
|
|
|
|
242.0 |
Operating expenses |
|
|
109.0 |
|
|
|
96.0 |
|
|
|
|
|
|
|
205.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
23.2 |
|
|
|
13.8 |
|
|
|
|
|
|
|
37.0 |
Interest expense |
|
|
15.6 |
|
|
|
13.7 |
|
|
|
|
|
|
|
29.3 |
Equity in net earnings (losses) of subsidiary |
|
|
(0.6 |
) |
|
|
|
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes and minority interest |
|
|
7.0 |
|
|
|
0.1 |
|
|
|
0.6 |
|
|
|
7.7 |
Income taxes |
|
|
4.0 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
3.9 |
Minority interest |
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
3.0 |
|
|
$ |
(0.6 |
) |
|
$ |
0.6 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE
SHEETS
September 20, 2002 (dollars in millions)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
91.0 |
|
$ |
127.0 |
|
$ |
(8.9 |
) |
|
$ |
209.1 |
Property and equipment, net |
|
|
46.4 |
|
|
12.5 |
|
|
|
|
|
|
58.9 |
Investment in subsidiaries |
|
|
239.5 |
|
|
|
|
|
(239.5 |
) |
|
|
|
Goodwill, net |
|
|
23.3 |
|
|
258.2 |
|
|
|
|
|
|
281.5 |
Deferred income taxes |
|
|
45.8 |
|
|
1.5 |
|
|
|
|
|
|
47.3 |
Other assets |
|
|
7.6 |
|
|
0.7 |
|
|
|
|
|
|
8.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
453.6 |
|
$ |
399.9 |
|
$ |
(248.4 |
) |
|
$ |
605.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
53.4 |
|
$ |
129.4 |
|
$ |
(8.9 |
) |
|
$ |
173.9 |
Long-term debt |
|
|
225.8 |
|
|
30.3 |
|
|
|
|
|
|
256.1 |
Other liabilities |
|
|
1.7 |
|
|
0.7 |
|
|
|
|
|
|
2.4 |
Total stockholders equity (deficit) |
|
|
172.7 |
|
|
239.5 |
|
|
(239.5 |
) |
|
|
172.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
453.6 |
|
$ |
399.9 |
|
$ |
(248.4 |
) |
|
$ |
605.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
December 28, 2001 (dollars in millions)
|
|
Parent
|
|
Guarantor Subsidiaries
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
66.5 |
|
$ |
162.9 |
|
$ |
(4.2 |
) |
|
$ |
225.2 |
Property and equipment, net |
|
|
45.1 |
|
|
14.2 |
|
|
|
|
|
|
59.3 |
Investment in subsidiaries |
|
|
239.5 |
|
|
|
|
|
(239.5 |
) |
|
|
|
Goodwill, net |
|
|
23.3 |
|
|
258.2 |
|
|
|
|
|
|
281.5 |
Deferred income taxes |
|
|
56.8 |
|
|
0.7 |
|
|
|
|
|
|
57.5 |
Other assets |
|
|
8.5 |
|
|
0.9 |
|
|
|
|
|
|
9.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
439.7 |
|
$ |
436.9 |
|
$ |
(243.7 |
) |
|
$ |
632.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
184.3 |
|
$ |
25.0 |
|
$ |
(4.2 |
) |
|
$ |
205.1 |
Long-term debt |
|
|
250.8 |
|
|
145.1 |
|
|
|
|
|
|
395.9 |
Other liabilities |
|
|
1.6 |
|
|
1.6 |
|
|
|
|
|
|
3.2 |
Minority interestexchangeable preferred stock of a subsidiary |
|
|
|
|
|
25.7 |
|
|
|
|
|
|
25.7 |
Total stockholders equity (deficit) |
|
|
3.0 |
|
|
239.5 |
|
|
(239.5 |
) |
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
439.7 |
|
$ |
436.9 |
|
$ |
(243.7 |
) |
|
$ |
632.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
Nine Months Ended September 20, 2002 (dollars in millions)
|
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Consolidating Adjustments
|
|
|
Consolidated Pacer
|
|
Net cash provided by (used in) operating activities |
|
$ |
18.6 |
|
|
$ |
9.7 |
|
|
$ |
|
|
|
$ |
28.3 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(5.0 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
(7.4 |
) |
Proceeds from sales of property and equipment |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(4.1 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
(6.5 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checks drawn in excess of cash balances |
|
|
13.0 |
|
|
|
(23.9 |
) |
|
|
|
|
|
|
(10.9 |
) |
Proceeds from issuance of common stock |
|
|
125.9 |
|
|
|
109.8 |
|
|
|
(109.8 |
) |
|
|
125.9 |
|
Debt, revolving credit facility and capital lease obligation repayment |
|
|
(135.4 |
) |
|
|
(110.1 |
) |
|
|
109.8 |
|
|
|
(135.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
3.5 |
|
|
|
(24.2 |
) |
|
|
|
|
|
|
(20.7 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
18.0 |
|
|
|
(16.9 |
) |
|
|
|
|
|
|
1.1 |
|
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
18.0 |
|
|
$ |
(16.9 |
) |
|
$ |
|
|
|
$ |
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Nine Months Ended September 21, 2001 (dollars in millions)
|
|
Parent
|
|
|
Guarantor Subsidiaries
|
|
|
Consolidating Adjustments
|
|
Consolidated Pacer
|
|
Net cash (used in) provided by operating activities |
|
$ |
13.2 |
|
|
$ |
11.2 |
|
|
$ |
|
|
$ |
24.4 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(5.8 |
) |
|
|
(4.9 |
) |
|
|
|
|
|
(10.7 |
) |
Proceeds from sales of property and equipment |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5.6 |
) |
|
|
(4.9 |
) |
|
|
|
|
|
(10.5 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Checks drawn in excess of cash balances |
|
|
(3.8 |
) |
|
|
(6.1 |
) |
|
|
|
|
|
(9.9 |
) |
Proceeds from issuance of common stock |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
Proceeds from issuance of preferred stock |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
0.2 |
|
Repurchase of preferred stock |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
(0.2 |
) |
Debt, revolving credit facility and capital lease obligation repayment |
|
|
(3.9 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(7.6 |
) |
|
|
(6.3 |
) |
|
|
|
|
|
(13.9 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report on Form
10-Q 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 markets 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. In some cases you can identify these statements 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 information currently available to us and are 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, the forward-looking statements we make in this quarterly report. 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
quarterly report include:
|
|
|
General economic and business conditions; |
|
|
|
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; |
|
|
|
Availability of qualified personnel; |
|
|
|
Changes in, or the failure to comply with, government regulation; |
|
|
|
Terrorism and acts of war; and |
|
|
|
The other risk factors detailed from time to time in the documents filed by the Company with the Securities and Exchange Commission, including those set forth
under the caption Risk Factors in the prospectus dated June 12, 2002 for our initial public offering. |
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 quarterly report.
Results of Operations
This Managements Discussion and Analysis
(MD&A) should be read in conjunction with the MD&A, including a discussion of our Critical Accounting Policies, and the footnotes to the Consolidated Financial Statements included in the Companys prospectus dated June 12,
2002 related to the Companys initial public offering.
22
Three Months Ended September 20, 2002 Compared to Three Months Ended September
21, 2001
The following table sets forth our historical financial data for the three months ended September
20, 2002 and September 21, 2001 (in millions).
|
|
2002
|
|
|
2001
|
|
|
Change
|
|
|
% Change
|
|
Gross revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
188.9 |
|
|
$ |
191.5 |
|
|
$ |
(2.6 |
) |
|
-1.4 |
% |
Retail |
|
|
229.4 |
|
|
|
230.3 |
|
|
|
(0.9 |
) |
|
-0.4 |
|
Inter-segment elimination |
|
|
(26.8 |
) |
|
|
(23.7 |
) |
|
|
(3.1 |
) |
|
13.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
391.5 |
|
|
|
398.1 |
|
|
|
(6.6 |
) |
|
-1.7 |
|
Cost of purchased transportation and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
136.1 |
|
|
|
147.0 |
|
|
|
(10.9 |
) |
|
-7.4 |
|
Retail |
|
|
194.5 |
|
|
|
194.5 |
|
|
|
|
|
|
|
|
Inter-segment elimination |
|
|
(26.8 |
) |
|
|
(23.7 |
) |
|
|
(3.1 |
) |
|
13.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
303.8 |
|
|
|
317.8 |
|
|
|
(14.0 |
) |
|
-4.4 |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
52.8 |
|
|
|
44.5 |
|
|
|
8.3 |
|
|
18.7 |
|
Retail |
|
|
34.9 |
|
|
|
35.8 |
|
|
|
(0.9 |
) |
|
-2.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
87.7 |
|
|
|
80.3 |
|
|
|
7.4 |
|
|
9.2 |
|
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
24.7 |
|
|
|
22.1 |
|
|
|
2.6 |
|
|
11.8 |
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
24.7 |
|
|
|
22.1 |
|
|
|
2.6 |
|
|
11.8 |
|
Selling, general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
10.8 |
|
|
|
9.9 |
|
|
|
0.9 |
|
|
9.1 |
|
Retail |
|
|
25.6 |
|
|
|
26.3 |
|
|
|
(0.7 |
) |
|
-2.7 |
|
Corporate |
|
|
3.6 |
|
|
|
1.1 |
|
|
|
2.5 |
|
|
227.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
40.0 |
|
|
|
37.3 |
|
|
|
2.7 |
|
|
7.2 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
1.1 |
|
|
|
1.3 |
|
|
|
(0.2 |
) |
|
-15.4 |
|
Retail |
|
|
1.4 |
|
|
|
3.0 |
|
|
|
(1.6 |
) |
|
-53.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2.5 |
|
|
|
4.3 |
|
|
|
(1.8 |
) |
|
-41.9 |
|
Merger and severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
|
|
|
|
0.8 |
|
|
|
(0.8 |
) |
|
-100.0 |
|
Retail |
|
|
|
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
-100.0 |
|
Corporate |
|
|
|
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
-100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
1.2 |
|
|
|
(1.2 |
) |
|
-100.0 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
|
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
-100.0 |
|
Retail |
|
|
|
|
|
|
1.9 |
|
|
|
(1.9 |
) |
|
-100.0 |
|
Corporate |
|
|
|
|
|
|
1.6 |
|
|
|
(1.6 |
) |
|
-100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
4.0 |
|
|
|
(4.0 |
) |
|
-100.0 |
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
16.2 |
|
|
|
9.9 |
|
|
|
6.3 |
|
|
63.6 |
|
Retail |
|
|
7.9 |
|
|
|
4.4 |
|
|
|
3.5 |
|
|
79.5 |
|
Corporate |
|
|
(3.6 |
) |
|
|
(2.9 |
) |
|
|
(0.7 |
) |
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
20.5 |
|
|
|
11.4 |
|
|
|
9.1 |
|
|
79.8 |
|
Interest expense, net |
|
|
6.7 |
|
|
|
8.6 |
|
|
|
(1.9 |
) |
|
-22.1 |
|
Income tax expense |
|
|
5.6 |
|
|
|
1.8 |
|
|
|
3.8 |
|
|
211.1 |
|
Net income |
|
$ |
8.2 |
|
|
$ |
1.0 |
|
|
$ |
7.2 |
|
|
720.0 |
|
23
Overview. As a result of strength in our wholesale segment domestic operations and retail
segment auto operations, our results for the third quarter of 2002 improved over the third quarter of 2001 as well as showing improvement over our first and second quarter 2002 results. We were able to increase net revenues, income from operations,
net income and earnings per share for the 2002 quarter compared to the 2001 quarter. While our results for the 2002 quarter improved overall, they continued to be negatively impacted by the general economic downturn and a cyclical slowdown in the
automotive sector of our wholesale segment. Our retail segment operations most affected by the economic downturn were our truck brokerage, freight handling and international freight forwarding operations. Our retail auto operations improved over the
prior years quarter due primarily to the addition of business from Toyota. Our wholesale operations were also affected by reduced automotive and international shipments as discussed below.
Gross Revenues. Gross revenues decreased $6.6 million, or 1.7%, for the three months ended September 20, 2002 compared to the three
months ended September 21, 2001. However, as discussed below, net revenues increased 9.2% for the 2002 quarter compared to the 2001 quarter. Gross revenues in our retail segment decreased $0.9 million reflecting reductions primarily in the truck
brokerage, freight handling and freight forwarding operations associated with the general economic downturn, partially offset by the addition of business from Toyota. Wholesale segment gross revenues decreased $2.6 million reflecting decreases in
wholesale automotive and wholesale international operations partially offset by an increase in wholesale third-party domestic operations. The wholesale automotive operations decrease in freight revenues reflected the cyclical slowdown in the
automotive sector. The wholesale segment continues to handle all of the containerized auto business moved by rail in and out of Mexico. The wholesale international operations decrease in freight revenues was primarily the result of the loss of low
margin business of an international shipping customer in the fourth quarter of 2001. The increase in the wholesale third-party domestic operations was a result of increased freight revenues from several intermodal marketing companies, including our
intermodal marketing operations. Contributing to the overall decrease in wholesale segment gross revenues was a lower fuel surcharge in the 2002 quarter compared to the 2001 quarter. In addition, we saw an increase in ancillary revenues of $2.5
million from railcar rental and container per diem revenue associated with the increase in equipment under lease in the 2002 quarter partially offset by lower repositioning revenue.
Through our strategy to increase the use of intercompany services and cross-selling activities, our retail segment usage of our wholesale segment for rail transportation
increased segment revenues by $3.1 million, or 13.1%, in the 2002 quarter compared to the 2001 quarter. Cross-selling activities within the retail segment increased segment revenues by $2.5 million, or 60.4%, in the 2002 quarter compared to the 2001
quarter.
Net Revenues. Net revenues increased $7.4 million, or 9.2%, for the 2002
quarter compared to the 2001 quarter. The retail segments net revenues decreased $0.9 million primarily due to the economic downturn discussed above. The retail segment gross margin decreased to 15.2% during the 2002 quarter compared to 15.5%
during the 2001 quarter due primarily to changes in business mix. The wholesale segments net revenues increased $8.3 million in the 2002 quarter compared to the 2001 quarter primarily due to strength in wholesale third-party domestic
operations and ancillary revenues described above, as well as improved yield management. Equipment repositioning costs were less in the 2002 quarter as a result of the increase in domestic traffic volume, especially the northbound general freight
traffic out of Mexico that began to increase in the fourth quarter of 2001. The wholesale segment gross margin increased to 27.9% in the 2002 quarter from 23.2% in the 2001 quarter primarily due to business mix changes and increases in higher margin
ancillary services discussed above. The gross margin on freight transportation increased to 23.0% in the 2002 quarter compared to 20.0% in the 2001 quarter due primarily to the loss of the low margin international shipping customer and other changes
in business mix.
Direct Operating Expenses. Direct operating expenses, which are
only incurred by the wholesale segment, increased $2.6 million, or 11.8%, in the 2002 quarter compared to the 2001 quarter due to increased railcar lease and maintenance expenses as a result of the expansion of the fleet of railcars during the
latter part of 2001 and increased container and chassis maintenance costs to improve fleet quality, partially offset by reduced container and chassis lease expenses as a result of the downsizing of
24
the container and chassis fleet during 2001 and the related 2001 charge of $1.4 million for container and chassis return costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased $2.7 million, or 7.2%, in the 2002 quarter compared to the 2001 quarter primarily as the result of increased compensation expense reflecting infrastructure needs in our wholesale segment partially offset by savings in our retail segment
associated with reduced headcount in the 2002 quarter. The retail segment employed approximately 61 fewer people during the 2002 quarter primarily as a result of our fiscal year 2001 consolidation and integration activities. Our corporate costs
increased in the 2002 quarter due primarily to increased compensation expense.
Depreciation and
Amortization. Depreciation and amortization expenses decreased $1.8 million, or 41.9%, for the 2002 quarter compared to the 2001 quarter primarily as a result of adopting SFAS 142 on December 29, 2001 and ceasing the
amortization of goodwill during 2002. Depreciation expense was $2.5 million and $2.6 million in the 2002 and 2001 quarters, respectively, and goodwill amortization expense was $0 and $1.7 million for the 2002 quarter and 2001 quarter, respectively.
Merger and Severance. In September 2001, we recorded a $1.2 million pre-tax charge
including $0.8 million for the severance of employees in the wholesale segment and $0.4 million for the write-off of retail segment and corporate assets that were no longer feasible and were abandoned.
Other. Other expenses in the 2001 period included $0.5 million for early termination costs associated with
the termination of a chassis and container maintenance agreement, $1.9 million for the write-off of agent balances due to an agent bankruptcy and $1.6 million for the write-off of costs relating to our initial public offering.
Income From Operations. Income from operations increased $9.1 million, or 79.8%, from $11.4
million in the 2001 quarter to $20.5 million in the 2002 quarter. The increase in operating profit is a result of the increase in net revenues and wholesale segment margins described above. Wholesale segment income from operations increased $6.3
million due primarily to the strength in wholesale third-party domestic operations, increased ancillary revenues and the absence in the 2002 quarter of the 2001 merger and severance and other charges and the charge for the container and chassis
return program, partially offset by increased labor costs associated with the infrastructure needs of the wholesale division. Retail segment income from operations increased $3.5 million reflecting the elimination of goodwill amortization expense,
savings associated with reduced headcount related to our year 2001 consolidation and integration activities and the absence in the 2002 quarter of the 2001 merger and severance and other charges, partially offset by the effects of the economic
downturn discussed above.
Interest Expense. Interest expense decreased by $1.9
million, or 22.1%, for the 2002 quarter compared to the 2001 quarter due to a lower level of outstanding debt and lower interest rates in 2002. In June 2002, we completed our initial public offering of common stock and repaid $125.9 million of our
variable interest rate bank debt.
Income Tax Expense. Income tax expense increased
$3.8 million in the 2002 quarter compared to the 2001 quarter due to higher pre-tax income in the 2002 quarter partially offset by a lower effective income tax rate. The effective tax rate decreased to 40.6% during the 2002 quarter compared to 64.3%
for the 2001 quarter due to the adoption of SFAS 142 on December 29, 2001 and ceasing the amortization of goodwill during 2002.
Net Income. Net income increased $7.2 million from $1.0 million in the 2001 quarter to $8.2 million in the 2002 quarter due to the increased income from operations discussed above, coupled with reduced
interest expense due to lower debt levels and interest rates in the 2002 quarter. Partially offsetting this increase was increased income tax expense associated with higher pre-tax income in the 2002 quarter.
25
Nine Months Ended September 20, 2002 Compared to Nine Months Ended September
21, 2001
The following table sets forth our historical financial data for the nine months ended September 20,
2002 and September 21, 2001 (in millions).
|
|
2002
|
|
|
2001
|
|
|
Change
|
|
|
% Change
|
|
Gross revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
$ |
589.2 |
|
|
$ |
591.5 |
|
|
$ |
(2.3 |
) |
|
-0.4 |
% |
Retail |
|
|
663.7 |
|
|
|
741.5 |
|
|
|
(77.8 |
) |
|
-10.5 |
|
Inter-segment elimination |
|
|
(77.9 |
) |
|
|
(63.1 |
) |
|
|
(14.8 |
) |
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,175.0 |
|
|
|
1,269.9 |
|
|
|
(94.9 |
) |
|
-7.5 |
|
Cost of purchased transportation and services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
432.6 |
|
|
|
459.3 |
|
|
|
(26.7 |
) |
|
-5.8 |
|
Retail |
|
|
565.0 |
|
|
|
631.7 |
|
|
|
(66.7 |
) |
|
-10.6 |
|
Inter-segment elimination |
|
|
(77.9 |
) |
|
|
(63.1 |
) |
|
|
(14.8 |
) |
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
919.7 |
|
|
|
1,027.9 |
|
|
|
(108.2 |
) |
|
-10.5 |
|
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
156.6 |
|
|
|
132.2 |
|
|
|
24.4 |
|
|
18.5 |
|
Retail |
|
|
98.7 |
|
|
|
109.8 |
|
|
|
(11.1 |
) |
|
-10.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
255.3 |
|
|
|
242.0 |
|
|
|
13.3 |
|
|
5.5 |
|
Direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
78.0 |
|
|
|
71.1 |
|
|
|
6.9 |
|
|
9.7 |
|
Retail |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
78.0 |
|
|
|
71.1 |
|
|
|
6.9 |
|
|
9.7 |
|
Selling, general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
34.4 |
|
|
|
30.9 |
|
|
|
3.5 |
|
|
11.3 |
|
Retail |
|
|
75.5 |
|
|
|
81.3 |
|
|
|
(5.8 |
) |
|
-7.1 |
|
Corporate |
|
|
5.9 |
|
|
|
3.2 |
|
|
|
2.7 |
|
|
84.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
115.8 |
|
|
|
115.4 |
|
|
|
0.4 |
|
|
0.3 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
3.5 |
|
|
|
4.1 |
|
|
|
(0.6 |
) |
|
-14.6 |
|
Retail |
|
|
4.0 |
|
|
|
9.2 |
|
|
|
(5.2 |
) |
|
-56.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7.5 |
|
|
|
13.3 |
|
|
|
(5.8 |
) |
|
-43.6 |
|
Merger and severance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
|
|
|
|
0.8 |
|
|
|
(0.8 |
) |
|
-100.0 |
|
Retail |
|
|
|
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
-100.0 |
|
Corporate |
|
|
|
|
|
|
0.2 |
|
|
|
(0.2 |
) |
|
-100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
1.2 |
|
|
|
(1.2 |
) |
|
-100.0 |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
|
|
|
|
0.5 |
|
|
|
(0.5 |
) |
|
-100.0 |
|
Retail |
|
|
|
|
|
|
1.9 |
|
|
|
(1.9 |
) |
|
-100.0 |
|
Corporate |
|
|
|
|
|
|
1.6 |
|
|
|
(1.6 |
) |
|
-100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
4.0 |
|
|
|
(4.0 |
) |
|
-100.0 |
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale |
|
|
40.7 |
|
|
|
24.8 |
|
|
|
15.9 |
|
|
64.1 |
|
Retail |
|
|
19.2 |
|
|
|
17.2 |
|
|
|
2.0 |
|
|
11.6 |
|
Corporate |
|
|
(5.9 |
) |
|
|
(5.0 |
) |
|
|
(0.9 |
) |
|
18.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
54.0 |
|
|
|
37.0 |
|
|
|
17.0 |
|
|
45.9 |
|
Interest expense, net |
|
|
25.6 |
|
|
|
29.3 |
|
|
|
(3.7 |
) |
|
-12.6 |
|
Income tax expense |
|
|
11.4 |
|
|
|
3.9 |
|
|
|
7.5 |
|
|
192.3 |
|
Minority interest |
|
|
|
|
|
|
0.8 |
|
|
|
(0.8 |
) |
|
-100.0 |
|
Net income |
|
$ |
17.0 |
|
|
$ |
3.0 |
|
|
$ |
14.0 |
|
|
466.7 |
|
26
Overview. As a result of strength primarily in our
wholesale segment domestic operations, our results for the first nine months of 2002 improved over the first nine months of 2001. We were able to increase net revenues, income from operations, net income and earnings per share for the 2002 period
compared to the 2001 period. While our results for the 2002 period improved overall, they continued to be negatively impacted by the general economic downturn and a cyclical slowdown in the automotive sector. Our retail segment operations most
affected by the economic downturn were our truck brokerage, freight handling and international freight forwarding operations. Our wholesale operations were also affected by reduced automotive and international shipments as discussed below.
Gross Revenues. Gross revenues decreased $94.9 million, or 7.5%, for the nine
months ended September 20, 2002 compared to the nine months ended September 21, 2001. However, as discussed below, net revenues increased 5.5% for the 2002 period compared to the 2001 period. Gross revenues in our retail segment decreased $77.8
million reflecting reductions primarily in the truck brokerage and freight handling operations associated with the cyclical slowdown in the automotive sector and less freight forwarding business. Wholesale segment gross revenues decreased $2.3
million reflecting decreases in wholesale automotive and wholesale international operations partially offset by an increase in wholesale third-party domestic operations. The wholesale automotive operations decrease in freight revenues reflected the
cyclical slowdown in the automotive sector. The wholesale segment continues to handle all of the containerized auto business moved by rail in and out of Mexico. The wholesale international operations decrease in freight revenues was primarily the
result of the loss of low margin business of an international shipping customer in the fourth quarter of 2001. The increase in the wholesale third-party domestic operations was a result of increased freight revenues from several intermodal marketing
companies, including our intermodal marketing operations. Contributing to the overall decrease in wholesale segment gross revenues was a lower fuel surcharge in the 2002 period compared to the 2001 period. In addition, we saw an increase in
ancillary revenues of $10.4 million from railcar rental and container per diem revenue associated with the increase in equipment under lease in the 2002 period partially offset by lower repositioning revenue.
Through our strategy to increase the use of intercompany services and cross-selling activities, our retail segment usage of our wholesale
segment for rail transportation increased segment revenues by $14.8 million, or 23.5%, in the 2002 period compared to the 2001 period. Cross-selling activities within the retail segment increased segment revenues by $6.0 million, or 62.5%, in the
2002 period compared to the 2001 period.
Net Revenues. Net revenues increased $13.3
million, or 5.5%, for the 2002 period compared to the 2001 period. The retail segments net revenues decreased $11.1 million primarily due to the economic downturn discussed above. The retail segment gross margin increased to 14.9% during the
2002 period compared to 14.8% during the 2001 period due primarily to yield management initiatives and changes in business mix. The wholesale segments net revenues increased $24.4 million in the 2002 period compared to the 2001 period
primarily due to strength in wholesale third-party domestic operations and ancillary revenues described above, as well as improved yield management. Equipment repositioning costs were less in the 2002 period as a result of the increase in domestic
traffic volume, especially the northbound general freight traffic out of Mexico that began to increase in the fourth quarter of 2001. The wholesale segment gross margin increased to 26.6% in the 2002 period from 22.4% in the 2001 period primarily
due to business mix changes and increases in higher margin ancillary services discussed above. The gross margin on freight transportation increased to 21.6% in the 2002 period compared to 19.9% in the 2001 period due primarily to the loss of the low
margin international shipping customer and other changes in business mix.
Direct Operating
Expenses. Direct operating expenses, which are only incurred by the wholesale segment, increased $6.9 million, or 9.7%, in the 2002 period compared to the 2001 period due to increased railcar lease and maintenance expenses
as a result of the expansion of the fleet of railcars during the latter part of 2001 and increased container and chassis maintenance costs to improve fleet quality, partially offset by reduced container and chassis lease expenses as a result of the
downsizing of the container and chassis fleet during 2001 and the related 2001 charge of $1.4 million for container and chassis return costs.
27
Selling, General and Administrative
Expenses. Selling, general and administrative expenses increased $0.4 million, or 0.3%, in the 2002 period compared to the 2001 period primarily as the result of increased compensation expense reflecting infrastructure
needs of our wholesale segment and increased corporate compensation expense, partially offset by savings in our retail segment associated with reduced headcount in the 2002 period. The retail segment employed approximately 115 fewer people during
the 2002 period primarily as a result of our fiscal year 2001 consolidation and integration activities. In addition, during March 2001, we terminated the container and chassis maintenance management contract and brought that function in-house, which
while increasing administrative labor costs for our wholesale segment, reduced repair and maintenance costs and provided for more control of the maintenance function.
Depreciation and Amortization. Depreciation and amortization expenses decreased $5.8 million, or 43.6%, for the 2002 period compared to the
2001 period as a result of adopting SFAS 142 on December 29, 2001 and ceasing the amortization of goodwill during 2002. Depreciation expense was $7.5 million and $7.9 million in the 2002 period and 2001 period, respectively, and goodwill
amortization expense was $0 and $5.4 million for the 2002 period and 2001 period, respectively.
Merger and
Severance. In September 2001, we recorded a $1.2 million pre-tax charge including $0.8 million for the severance of employees in the wholesale segment and $0.4 million for the write-off of retail segment and corporate
assets that are no longer feasible and have been abandoned.
Other. Other expenses
in the 2001 period included $0.5 million for early termination costs associated with the termination of a chassis and container maintenance agreement, $1.9 million for the write-off of agent balances due to an agent bankruptcy and $1.6 million for
the write-off of costs relating to our initial public offering.
Income From
Operations. Income from operations increased $17.0 million, or 45.9%, from $37.0 million in the 2001 period to $54.0 million in the 2002 period. The increase in operating profit is a result of the increase in net revenues
and margins described above. Wholesale segment income from operations increased $15.9 million due primarily to the strength in wholesale third-party domestic operations, increased ancillary revenues and the absence in the 2002 period of the 2001
merger and severance and other charges and the charge for the container and chassis return program, partially offset by increased labor costs associated with the infrastructure needs of the wholesale division. Retail segment income from operations
increased $2.0 million reflecting the elimination of goodwill amortization expense, savings associated with reduced headcount related to our year 2001 consolidation and integration activities and the absence in the 2002 period of the 2001 merger and
severance and other charges, partially offset by the economic downturn discussed above.
Interest
Expense. Interest expense decreased by $3.7 million, or 12.6%, for the 2002 period compared to the 2001 period due to a lower level of outstanding debt and lower interest rates in 2002. In June 2002, we completed our
initial public offering of common stock and repaid $125.9 million of our variable interest rate bank debt. Included in interest expense for the 2002 period were $0.8 million of loan fees written-off associated with the debt repayment from our IPO.
Income Tax Expense. Income tax expense increased $7.5 million in the 2002 period
compared to the 2001 period due to higher pre-tax income in the 2002 period partially offset by a lower effective income tax rate. The effective tax rate decreased to 40.1% during the 2002 period compared to 50.6% for the 2001 period due to the
adoption of SFAS 142 on December 29, 2001 and ceasing the amortization of goodwill during 2002.
Minority
Interest Expense. Minority interest expense, which represented 7.5% paid-in-kind dividends on the Series B exchangeable preferred stock of our subsidiary Pacer Logistics, decreased $0.8 million because the dividends ceased
to accrue as of May 28, 2001. As a result, we have not recognized any minority interest expense since that date. All 22,348.44 outstanding shares of Series B exchangeable
28
preferred stock of Pacer Logistics were exchanged for common stock in conjunction with our IPO at an exchange rate of 200 shares of common stock
for each outstanding share of exchangeable preferred stock.
Net Income. Net income
increased $14.0 million from $3.0 million in the 2001 period to $17.0 million in the 2002 period due to the increased income from operations discussed above, coupled with reduced interest expense due to lower debt levels and interest rates in the
2002 period. Partially offsetting this increase was increased income tax expense associated with higher pre-tax income in the 2002 period.
Liquidity and Capital Resources
Cash provided by operating activities was $28.3
million and $24.4 million for the first nine months of 2002 and 2001, respectively. The increased source of cash was due to a reduction in accounts receivable and improved income from operations partially offset by lower accounts payable. The lower
accounts receivable resulted from improved collection efforts and the lower accounts payable resulted from improved payables processing, both associated with the consolidation of our retail segment operations in Ohio. Decreased gross revenues and
expense levels during the 2002 period resulting from the economic downturn also contributed to the lower levels of receivables and payables. In addition, we made merger and severance payments of $2.1 million and $3.0 million during the 2002 period
and 2001 period, respectively, and $2.0 million of acquisition fees were paid in the 2001 period for the acquisitions of GTS, RFI and Rail Van. Lower interest costs during the 2002 period associated with the repayment of debt related to our June
2002 IPO also contributed to the improved operating cash flow. Cash generated from operating activities is typically used to pay down debt, for working capital purposes, to fund capital expenditures and for acquisitions. Working capital increased to
$35.2 million at September 20, 2002 compared to $17.2 million at September 21, 2001 due to improved operations.
Our operating cash flows are also the primary source for funding our contractual obligations. The table below summarizes our major commitments, consisting of long-term debt, capital lease and operating lease requirements as of
September 20, 2002.
Debt and Lease Obligation Payment Requirements
($ in millions)
|
|
Total
|
|
Remaining in 2002
|
|
Fiscal Year 2003
|
|
Fiscal Year 2004
|
|
Fiscal Years 2005 - 2006
|
|
Thereafter
|
Long-term debt |
|
$ |
262.0 |
|
$ |
0.3 |
|
$ |
6.1 |
|
$ |
1.1 |
|
$ |
104.5 |
|
$ |
150.0 |
Operating leases(1) |
|
|
337.1 |
|
|
16.1 |
|
|
48.9 |
|
|
44.0 |
|
|
69.9 |
|
|
158.2 |
Capital leases |
|
|
0.2 |
|
|
0.1 |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
599.3 |
|
$ |
16.5 |
|
$ |
55.1 |
|
$ |
45.1 |
|
$ |
174.4 |
|
$ |
308.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
These amounts represent the aggregate operating lease expense that will be reflected in our statement of operations during these periods to the extent these
operating leases remain outstanding. |
Our total long-term debt was incurred to finance our
recapitalization, the acquisition of Pacer Logistics in 1999 and the acquisitions of Conex, GTS, RFI and Rail Van during the year 2000. There were no acquisitions in 2001 or in the first nine months of 2002. The majority of the operating lease
requirements relate to our wholesale segments lease of railcars, containers and chassis. We do not anticipate additional equipment leases during 2002 other than for the replacement of approximately 700 containers anticipated to be retired by
the end of 2002. In addition, each year a portion of the operating leases require renewal or can be terminated based upon equipment requirements. Partially offsetting these lease payment requirements are railcar and container per diem revenues which
were $46.0 million in the first nine months of 2002, $35.6 million in the first nine months of 2001 and $52.5 million in the full year 2001.
Based upon the current level of operations, management believes that operating cash flow and availability under the revolving credit facility will be adequate to meet our working capital, capital
29
expenditure and other cash needs for at least the next two years, although no assurance can be given in this regard. Our largest customer
generated $93.5 million, or 8.0%, of our gross revenues during the first nine months of 2002 and $128.1 million, or 7.7%, of our gross revenues in the year 2001. Loss of this customer, or others, could have an adverse impact on our results of
operations and operating cash flows. In addition, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, our results of operations and operating cash flows could be adversely
impacted.
Effective September 29, 2002 (during our fiscal fourth quarter), the west coast ports were shut down as
a result of a labor dispute. On October 9, 2002, the ports were reopened as a result of a court order implementing provisions of the Taft-Hartley Act. Third party international loadings and repositioning revenue from our wholesale segment were
adversely impacted during the shutdown of the ports and are currently constrained as the railroads work to restore operations to normal levels. In addition, railcar utilization declined during the shutdown impacting railcar revenues. Our retail
segment has also been impacted by the shutdown with local trucking and harbor drayage on the west coast experiencing lower volumes and our international freight forwarding operations were impacted due to reduced ship sailings. We anticipate that it
will take a number of weeks before our wholesale and retail operations return to normalized levels. While the strikes overall impact on the Company thus far has not been significant, we cannot give assurance that that will remain the case if
the strike resumes after the 90-day Taft-Hartley cooling-off period and continues for an extended period of time.
Cash flows used in investing activities were $6.5 million and $10.5 million for the first nine months of 2002 and 2001, respectively. The use of cash during both the 2002 and 2001 periods was for capital expenditures primarily for
the planned conversion from APL Limiteds computer systems to a stand-alone capability for our wholesale segment and the expansion of our retail segment computer system to handle all of our retail operations requirements. In March 2001, we
commenced plans for the conversion from APL Limiteds computer systems to a stand-alone capability based on information technology systems currently available in the market place from unrelated third parties. At September 20, 2002, an aggregate
of $9.3 million had been paid to such third parties for the acquisition and development of software in connection with the conversion project, which has been capitalized in property and equipment under SOP 98-1. This amount includes $6.9 million
paid to a third party developer under a fixed-price development contract. We believe that it is probable that software being developed for internal use will be completed and placed in service as we have the ability and intention to complete this
software project. However, in the event facts and circumstances change which would indicate that it is no longer probable that the computer software developed will be completed and placed in service, we would evaluate the previously capitalized
software for impairment.
During the third quarter of 2002 we engaged in the negotiation of proposed contract
modifications requested by the developer that, if accepted and agreed to, would have extended the completion of the development work through the end of 2004 at an increased cost to us. We have not been able to reach a mutually acceptable agreement
with the developer, and the developer has indicated that it will not be able to complete the contract on its current terms. During the fourth quarter of 2002, we instituted arbitration under the agreement seeking damages for the developers
failure to complete the contract. The developer has not yet filed its answer in the proceeding. As the arbitration is in its initial stages, we are unable to assess its likely outcome but intend to pursue our claims vigorously. We will continue to
avail ourselves of the services and support under our existing long-term agreement with APL Limited.
Cash flows
used in financing activities were $20.7 million and $13.9 million for the first nine months of 2002 and 2001, respectively. During the 2002 period, we completed our IPO as discussed below. Proceeds of $125.9 million, net of fees and expenses, from
this transaction were used to repay $63.5 million of term loans and $62.4 million of the revolving credit facility. In addition, during the 2002 period we repaid $1.2 million of term loans, $8.4 million of the revolving credit facility and $0.2
million of capital lease obligations. During the 2001 period, $3.0 million was repaid under the revolving credit facility, $0.9 million was repaid on the term loans and $0.2 million of capital lease obligations were repaid.
On June 18, 2002, we completed an initial public offering of 14,000,000 shares of common stock at $15.00 per share, including 4,750,000
shares sold by selling stockholders. Total proceeds on the 9,250,000 shares sold by us were approximately $138.8 million. Net proceeds were approximately $125.9 million after deducting $12.9 million in underwriting discounts, commissions and related
fees. We repaid $63.5 million of outstanding term loans and $62.4 million of the revolving credit facility with the proceeds of the offering. In addition, a 2,100,000 share over-allotment option was exercised by the underwriters with all proceeds to
the selling stockholders.
30
Prior to the consummation of the offering, we issued 4,469,688 shares of common stock upon the exchange of all
outstanding shares of Pacer Logistics exchangeable preferred stock at an exchange rate of 200 shares of common stock for each outstanding share of Pacer Logistics exchangeable preferred stock.
We entered into two interest rate swap agreements on April 11, 2001 with a combined notional amount of $100.0 million, which matured on October 11, 2002, to manage
fluctuations in cash flows resulting from interest rate risk. These swap agreements effectively changed the variable-rate cash flows on our debt obligations to fixed-rate cash flows. Under the terms of the interest rate swap agreements, we received
variable interest rate payments based on LIBOR and made fixed interest rate payments at 4.43%. Our average interest rate for amounts received during the first nine months of 2002 was approximately 1.9%. There was no statement of operations impact
related to the expiration of the swaps on October 11, 2002.
The revolving and term loan 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 September 20, 2002, we had $91.4 million available under
the revolving credit facility, subject to borrowing base requirements. The credit agreement contains certain restrictions and financial covenants such as an adjusted total leverage ratio and a consolidated interest coverage ratio. At September 20,
2002, the Company was in compliance with these covenants.
The wholesale segment took delivery of 874 primarily
53-foot chassis and 701 primarily 53-foot containers financed through operating leases and returned 1,114 primarily 48-foot chassis and 712 primarily 48-foot containers during the 2002 period.
Other Matters
The Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 143 (SFAS 143), Accounting for Asset Retirement Obligations, in July 2001. SFAS 143, which is effective for fiscal years beginning after June 15, 2002,
addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. We will adopt SFAS 143 in the 2003 fiscal year. While we have not yet completed our
analysis of the effects that this new standard may have on our results of operations, we do not expect the implementation of this standard to have a significant effect on our results of operations or financial condition.
The Financial Accounting Standards Board issued SFAS 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections as of April 2002, which is effective for fiscal years beginning after May 15, 2002. SFAS 145 rescinds SFAS 4 and SFAS 64, which required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, gains and losses from debt extinguishment are to be classified as extraordinary only if they meet the criteria in Accounting Principles
Board Opinion 30, Reporting the Results of OperationReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The Statement also requires that
sale-leaseback accounting be used for transactions that are similar in form and substance to sale-leaseback transactions. We do not expect implementation of this standard to have a significant effect on its results of operations or financial
condition.
SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued
in July 2002. SFAS No. 146 replaces current accounting literature and requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of commitment to an exit or disposal plan. The
provisions of the Statement are effective for exit or disposal activities that are initiated after December 31, 2002. We do not expect implementation of this standard to have a significant effect on its results of operations or financial condition.
31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk is affected primarily by changes in interest rates. Under our policies, we may use hedging techniques and derivative financial instruments to reduce the impact of adverse changes in market prices.
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.
Effective April 11, 2001, we entered into two interest rate swap agreements totaling a notional amount of $100.0 million, to
manage fluctuations in cash flows resulting from interest rate risk. As of September 20, 2002, a liability of $0.2 million is included in accounts payable and accrued liabilities and offset in other accumulated comprehensive income (loss) which
represents the fair market value of the swaps. The swaps terminated on October 11, 2002. Based upon the average variable interest rate debt outstanding during the first nine months of 2002, a 1% change in our variable interest rates would effect our
pre-tax earnings by approximately $1.8 million on an annual basis.
As our foreign business expands, we will be
subjected to greater foreign currency risk.
ITEM 4. CONTROLS AND PROCEDURES
As of a date (the
Evaluation Date) within the 90 days prior to the date of this report, the Company performed an evaluation under the supervision and with the participation of the Companys management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Companys disclosure controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, the Companys management, including
the Chief Executive Officer and Chief Financial Officer, unanimously concluded that the Companys disclosure controls and procedures were effective as of the Evaluation Date. There have been no significant changes in the Companys internal
controls or in other factors that could significantly affect internal controls subsequent to the Evaluation Date and the date of this report.
32
PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note 10 to the Notes to Condensed
Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the
first nine months of 2002, a former management member exercised options to purchase 2,666 shares of our common stock at an average purchase price of $5.00 per share. Proceeds were used for general corporate purposes. We granted 415,800 options
during the first nine months of 2002 to management personnel to purchase Pacer International, Inc. common stock at $15.00 per share.
During the first nine months of 2001, certain members of our senior management exercised options to purchase 365,748 shares of our common stock at an average purchase price of $0.11 per share and exercised options to
purchase 1,000 shares at an average purchase price of $5.00 per share. The proceeds were used to repay the remaining portion of the notes payable to management that were part of the purchase price for Pacer Logistics acquired on May 28, 1999 and for
general corporate purposes. In addition, certain members of senior management exercised 27,498 Pacer International, Inc. preferred stock options with an exercise price of $9.00 per share. We elected, at our discretion, to repurchase and retire the
preferred stock that was issued upon the exercise of the options. We granted 558,000 options during the first nine months of 2001 to management personnel to purchase Pacer International, Inc. common stock at $12.50 per share.
These shares of common stock were issued in reliance upon the exemption from registration under Section 4(2) of the Securities
Act of 1933 as transactions by an issuer not involving any public offering and Rule 701 promulgated under the Securities Act. The purchasers represented their intentions to acquire the shares for investment only and not with a view to resale or
distribution, and appropriate legends were affixed to the share certificates issued.
On June 18, 2002, we
completed an initial public offering of 14,000,000 shares of common stock at $15.00 per share, including 4,750,000 shares by selling stockholders. The principal underwriters for this offering were Credit Suisse First Boston Corporation and Bear,
Stearns & Co. Inc. Total proceeds on the 9,250,000 shares sold by us were approximately $138.8 million. We incurred underwriting discounts, commissions and related fees of approximately $12.9 million. Net proceeds of $125.9 million have been
used to repay $63.5 million of outstanding term loans and $62.4 million of the revolving credit facility. In addition, a 2,100,000 share over-allotment option was exercised by the underwriters with all proceeds to the selling stockholders.
Prior to the consummation of the offering, we issued 4,469,688 shares of common stock upon the exchange of all
22,348.44 outstanding shares of Pacer Logistics exchangeable preferred stock at an exchange rate of 200 shares of common stock for each outstanding share of Pacer Logistics exchangeable preferred stock. These shares of common stock were issued in
reliance upon the exemption from registration under Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involving any public offering.
Pursuant to a Plan of Reorganization among us and Coyote Acquisition LLC, prior to the effective date of the registration statement relating to our initial public offering, Coyote Acquisition LLC
contributed all of its assets to us in exchange solely for newly issued shares of our common stock. Coyote Acquisition LLCs assets consisted solely of 17,824,000 shares of our common stock. We issued 17,824,000 shares of our common stock to
Coyote Acquisition LLC in the transaction. The reorganization had no effect on the number of shares owned by Coyote Acquisition LLC or their rights as a stockholder. These shares of common stock were issued in reliance upon the exemption from
registration under Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involving any public offering. Coyote Acquisition LLC distributed 16,041,600 of these shares to its sole member, Apollo Investment Fund IV, L. P.
33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
|
|
Description
|
|
10.1 |
|
Employment Agreement dated as of September 30, 2002 between Pacer International, Inc. and Carl K.
Kooyoomjian.* |
(b) During the three months ended September 20, 2002, no reports on Form 8-K were filed by the Company.
34
Pursuant to the requirements 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. |
|
By: |
|
/s/ D.C. ORRIS
|
|
|
Chairman, President and Chief Executive Officer (Principal Executive Officer) |
Date: October 29, 2002
By: |
|
/s/ L.C. YARBERRY
|
|
|
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
Date: October 29, 2002
35
I, D.C. Orris, certify that:
1. I have reviewed this quarterly
report on Form 10-Q of Pacer International, Inc.;
2. Based on my knowledge, this
quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial
statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the Evaluation Date); and
c) presented in this
quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors
and the audit committee of registrants board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
b) any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
6. The registrants other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
|
By: |
|
/s/ D.C. ORRIS
|
|
|
D.C. Orris Chairman, President
and Chief Executive Officer |
Date: October 29, 2002
36
I, L.C. Yarberry, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pacer International, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly
report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
c) evaluated the
effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and
d) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrants other certifying officers and I
have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):
c) all significant deficiencies in the design or operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
d) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal
controls; and
6. The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
|
|
By: |
|
/s/ L.C. YARBERRY
|
|
|
L.C. Yarberry Executive Vice
President and Chief Financial Officer |
Date: October 29, 2002
37
PACER INTERNATIONAL, INC. AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit No.
|
|
Description
|
|
10.1 |
|
Employment Agreement dated as of September 30, 2002 between Pacer International, Inc. and Carl K.
Kooyoomjian. |
38