<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended SEPTEMBER 30, 1997
Commission File No. 333-08871
MCII HOLDINGS (USA), INC.
(Exact name of registrant as specified in its charter)
Delaware 86-0830781
(State or other jurisdiction of (I.R.S. Employer Identification No.)
(incorporation or organization)
10 East Golf Road, Des Plaines, Illinois 60016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 299-9900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the registrant's Common Stock: 1,000
shares as of April 30, 1997.
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction
H(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
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INDEX
MCII HOLDINGS (USA), INC.
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Narrative Analysis
of the Results of Operations 10
Item 3. Quantitative and Qualitative
Disclosures About Market Risk Omitted
PART II OTHER INFORMATION
Item 1. Legal Proceedings None
Item 2. Changes in Securities Omitted
Item 3. Defaults Upon Senior Securities Omitted
Item 4. Submission of Matters to a Vote
of Security Holders Omitted
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
Some information included in this Report on Form 10-Q may constitute
forward-looking statements that involve a number of risks and uncertainties.
From time to time, information provided by MCII Holdings (USA), Inc. or
statements made by its employees may contain other forward-looking statements.
Factors that could cause actual results to differ materially from the
forward-looking statements include, but are not limited to: general economic
conditions including inflation, interest rate fluctuations, trade restrictions,
and general debt levels; competitive factors including price pressures,
technological developments, and products offered by competitors; inventory
risks due to changes in market demand or business strategies; and changes in
effective tax rates. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date made. MCII
Holdings (USA), Inc. undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
UNAUDITED STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ----------------------
(000 omitted) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales $131,656 $123,908 $498,105 $444,721
Finance income 1,020 2,399 3,596 6,128
-------- -------- -------- --------
132,676 126,307 501,701 450,849
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below) 101,887 95,044 382,769 343,071
Depreciation and amortization 5,835 4,863 15,600 13,932
Interest expense, finance operations 651 1,071 1,902 2,686
Research and development expenses 1,273 1,806 4,768 5,230
Selling, general and administrative expenses 15,973 15,252 48,463 47,972
-------- -------- -------- --------
125,619 118,036 453,502 412,891
-------- -------- -------- --------
Operating Income 7,057 8,271 48,199 37,958
-------- -------- -------- --------
Other income and (expense):
Interest (expense) (4,807) (3,241) (16,150) (11,252)
Other income 3,219 244 4,557 1,895
-------- -------- -------- --------
(1,588) (2,997) (11,593) (9,357)
-------- -------- -------- --------
Income before income taxes 5,469 5,274 36,606 28,601
Income taxes 4,284 (1,439) 18,756 8,656
-------- -------- -------- --------
Income from Continuing Operations 1,185 6,713 17,850 19,945
Discontinued operations:
(Loss) on disposal of transit manufacturing, net - - - (5,000)
-------- -------- -------- --------
Net Income $ 1,185 $ 6,713 $ 17,850 $ 14,945
======== ======== ======== ========
</TABLE>
1
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MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
(000 omitted) 1997 1996
- -----------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 17,155 $ 9,403
Trade and other accounts receivable 64,117 52,667
Current portion of notes receivable 3,957 4,615
Inventories 232,114 188,554
Deferred income taxes 12,210 12,308
Other current assets 20,603 4,068
----------- ----------
Total Current Assets 350,156 271,615
Property, plant, and equipment 119,897 90,243
Notes receivable 15,225 27,574
Investments in affilated companies 20,708 -
Deferred income taxes 12,740 24,244
Intangible assets 231,645 236,954
Other assets 21,022 10,506
----------- ----------
Total Assets $ 771,393 $ 661,136
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 61,790 $ 42,557
Accrued compensation and other benefits 10,071 11,641
Accrued warranties 10,455 9,543
Accrued income taxes 975 6,269
Insurance reserves 5,876 5,325
Other current liabilities 37,630 20,773
Current debt 47,490 148
----------- ----------
Total Current Liabilities 174,287 96,256
Long-term debt 244,587 210,520
Pensions and other benefits 13,428 11,858
Net liabilities of discontinued operations 2,573 89
Other deferred items and insurance reserves 16,742 17,785
Deferred income taxes 5,759 6,073
Due to parent company (15,585) (503)
Commitments and contingent liabilities - -
----------- ----------
Total Liabilities 441,791 342,078
----------- ----------
Stockholder's Equity:
Common stock and additional capital 414,851 414,851
Accumulated deficit (30,274) (42,124)
Unfunded pension loss, net (423) (423)
Cumulative translation adjustments (54,552) (53,246)
----------- ----------
Total Stockholder's Equity 329,602 319,058
----------- ----------
Total Liabilities and Stockholder's Equity $ 771,393 $ 661,136
=========== ==========
</TABLE>
2
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MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
UNAUDITED STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
(000 omitted) 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income $ 17,849 $ 14,945
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 15,699 13,932
Deferred income taxes 6,641 (2,699)
Discontinued operations - 5,000
Gain on sale of property and notes receivable (141) (1,257)
Other noncash items, net (2,440) 344
Change in operating assets and liabilities (26,801) 5,219
--------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 10,807 35,484
--------- --------
Cash Flows Provided (Used) By Investing Activities:
Capital expenditures (27,446) (9,630)
Investments in assets held for lease (56,533) (25,663)
Purchase of, investment in, businesses - (750)
Proceed from sale of property and assets held for lease 34,706 139
Investment in notes receivable (29,834) (24,379)
Collections of notes receivable 12,884 5,854
Proceeds from sale of notes receivable 32,175 17,308
Investment in affiliated companies (20,708) -
Proceeds from sale of business - 1,289
Discontinued operations, net changes 2,484 5,497
--------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (52,272) (30,335)
--------- --------
Cash Flows Provided (Used) By Financing Activities:
Net change in bank credit facilities 81,557 (24,000)
Additional short-term borrowings - -
Payment of long-term borrowings (148) (74)
Termination of interest rate swap position - 2,805
Parent company debt (25,989) -
Contribution of capital - (1,716)
Dividends paid to parent company (6,000) (7,489)
--------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 49,420 (30,474)
--------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (203) (61)
--------- --------
NET INCREASE (DECREASE) IN CASH 7,752 (25,386)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,403 30,675
--------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,155 $ 5,289
========= ========
</TABLE>
3
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MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Unaudited Interim Financial Statements
This report updates MCII Holdings (USA), Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1996, in accordance with the instructions to
Form 10-Q. It is presumed that the reader has read the Annual Report on Form
10-K.
The accompanying financial statements are unaudited, but have been
prepared in accordance with generally accepted accounting principles for
interim financial information and in accordance with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation have been included. The interim financial
statements contained herein do not include all of the footnotes and other
information required by generally accepted accounting principles for complete
financial statements, as provided at year end.
The reader is reminded that the results of operations for interim periods
are not necessarily indicative of the results for the complete fiscal year.
Note 2 - Principles of Consolidation and Presentation
The Company is a wholly owned subsidiary of Consorcio G Grupo Dina, S.A.
de C.V. ("Grupo Dina"), a Mexican Corporation. These unaudited financial
statements present the accounts of MCII Holdings (USA), Inc. and its
subsidiaries (the "Company" or "MCII Holdings"). The Company's principal
operating subsidiaries are Motor Coach Industries International, Inc. ( "Motor
Coach"), Transportation Manufacturing Operations, Inc. ( "TMO"), Motor Coach
Industries, Inc. ("MCI-U.S.), Motor Coach Industries Limited ("MCI-Canada"),
Hausman Bus Sales, Inc. ("Hausman"), Universal Coach Parts, Inc. ("UCP"), and
Dina Autobuses S.A. de C.V. ("Autobuses").
On January 31, 1997, the Company acquired from Grupo Dina, its parent
company, 99.99% of the shares of Autobuses as a contribution of capital. This
acquisition represents a combination of entities under common control and has
been accounted for on an "as-if" pooling-of-interest basis, with the
accompanying financial statements restated for all periods presented.
All significant intercompany balances and transactions have been
eliminated on consolidation. Prior period amounts include all
reclassifications necessary to conform to current presentations.
4
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Note 3 - Revenues, Gross Profit and Operating Income, Supplementary Information
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Units:
Motor Coach
New Coach Sales 177 249 812 783
Leased Coaches 83 (65) 83 86
Used Coach Sales 98 98 368 399
------------- ------------- ------------- -------------
Total Coach Deliveries 358 282 1,263 1,268
------------- ------------- ------------- -------------
Autobuses
Intercity
United States 40 74 120 173
Mexico and Other 95 4 190 20
------------- ------------- ------------- -------------
Total Deliveries 135 78 310 193
------------- ------------- ------------- -------------
Revenues (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 66,846 $ 67,924 $ 292,939 $ 284,735
Replacement Parts 45,475 40,729 146,141 120,173
------------- ------------- ------------- -------------
112,321 108,653 439,080 404,908
Autobuses 20,355 17,654 62,621 45,941
------------- ------------- ------------- -------------
$ 132,676 $ 126,307 $ 501,701 $ 450,849
------------- ------------- ------------- -------------
Gross Profit (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 17,389 $ 18,125 $ 72,699 $ 67,555
Replacement Parts 9,184 8,993 31,478 26,220
------------- ------------- ------------- -------------
26,573 27,118 104,177 93,775
Autobuses 3,565 3,074 12,853 11,317
------------- ------------- ------------- -------------
$ 30,138 $ 30,192 $ 117,030 $ 105,092
------------- ------------- ------------- -------------
Operating Income (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 1,743 $ 3,100 $ 27,845 $ 21,700
Replacement Parts 5,797 4,332 19,837 13,167
------------- ------------- ------------- -------------
7,540 7,432 47,682 34,867
Autobuses (483) 839 517 3,091
------------- ------------- ------------- -------------
S 7,057 $ 8,271 $ 48,199 $ 37,958
------------- ------------- ------------- -------------
</TABLE>
5
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Note 4 - Debt
Debt consisted of the following (000's omitted):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Pre-export notes $ 30,000 $ -
Pre-export loans 9,803 -
Current portion of long-term debt 7,687 148
--------- ---------
47,490 148
--------- ---------
Term notes payable 125,000 125,000
Borrowings under bank credit facility 118,000 85,000
Canadian revolving credit facility 8,754 -
Note payable 520 668
--------- ---------
252,274 210,668
Current portion of long-term debt (7,687) (148)
--------- ---------
244,587 210,520
--------- ---------
$ 292,077 $ 210,668
--------- ---------
</TABLE>
On May 28, 1997, a subsidiary of Autobuses issued $30.0 million in
short-term notes, maturing on November 26, 1997, to be used to finance the
manufacture of motor coaches by Autobuses for export to the United States.
Autobuses also has a pre-export credit line with Banco Mexicano de Comercio
Exterior of approximately $20,0 million. At September 30, 1997, borrowings
under this facility were $9.8 million and were classified as current.
Canadian revolving credit loans were made available to a subsidiary of the
Company under an agreement which provided a credit facility of Cdn$10.0 million
(equivalent to $7.2 million) and expired on January 31, 1997. This agreement
was extended by a replacement credit facility of Cdn$19.0 million (equivalent
to $13.8 million). At September 30, 1997, borrowings under this facility were
$8.8 million, of which $7.5 million was classified as current.
The Company has also modified its previously existing bank credit
facility to increase the maximum amount of permitted borrowing to $170.0
million from the previous maximum of $125.0 million. At September 30, 1997,
borrowings under this facility were $118.0 million.
The Company has retained the services of Salomon Brothers Inc to review its
organization and financial structure, to recommend improvements, and to
assist in implementing such improvements. Plans are underway to refinance the
Company through new credit facilities. To the extent that the Company
refinances its existing debt, it may recognize an extraordinary loss on the
retirement of debt that could be approximately $8.5 million before taxes.
6
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Note 5 - Inventories
Inventories consisted of the following (000's omitted):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 48,839 $ 47,397
Work in process 56,734 33,860
Finished goods 148,944 126,648
-------- --------
254,517 207,905
Inventory reserves (22,403) (19,351)
-------- --------
$232,114 $188,554
-------- --------
</TABLE>
Note 6 - Cash Flow Effect of Change in Operating Assets and Liabilities
Change in operating assets and liabilities consisted of:
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, September 30,
1997 1996
---- ----
(000's omitted)
<S> <C> <C>
Decrease (Increase) in Operating Assets:
Receivables $(11,433) $ (855)
Inventories (40,312) (9,109)
Other operating assets (15,406) 2,383
-------- ------
(67,151) (7,581)
-------- ------
Increase (Decrease) in Operating Liabilities:
Accounts payable 19,233 14,023
Accrued income taxes (5,524) (6,651)
Other operating liabilities 26,641 5,428
-------- ------
40,350 12,800
-------- ------
Net Cash Flow Effect $(26,801) $5,219
-------- ------
</TABLE>
The use of cash for increased working capital in 1997 is attributable to
Motor Coach on an overall basis, while the variability by category is
attributable to Autobuses. Overall, Motor Coach's working capital increased by
$31.6 million in 1997, while Autobuses working capital declined by $4.8
million.
The Motor Coach increase was caused by a $35.8 million increase in
inventories due to increases in coaches imported from Mexico for resale in the
United States so that adequate supplies will be available during the peak
delivery season. The 1997 inventory increase was also affected by production
and delivery delays caused by the threat of flooding along the Red River.
7
<PAGE> 10
The Autobuses decline in working capital is the net result of large
changes in most working capital categories as activity levels increased and
more natural operating conditions were established. Accounts receivable
increased $11.0 million, while accounts payable increased $12.3 million and
accrued liabilities increased $10.4 million. Advances to supplies increased
$10.0 million, while advances from customers increased $7.2 million.
Note 7 - Related Party Transactions
The Company provides for allocable management and administrative expenses
incurred by Grupo Dina. In the first nine months of 1997, the provision for
such expenses was $0.75 million, following a reduction in the annual fee
estimate for 1997. The amounts due to Grupo Dina for such expenses at
September 30, 1997 and December 31, 1996 were $1.0 million and $1.0 million,
respectively.
During the first nine months of 1997 and 1996 Motor Coach purchased from
Grupo Dina, in the ordinary course of business, $2.3 million and $1.7 million,
respectively, in goods and services.
During the first nine months of 1997 and 1996 Autobuses purchased from
Grupo Dina, in the ordinary course of business, $30.4 million and $7.6 million,
respectively, in goods and services.
The total amounts due to Grupo Dina and other related parties were $15.6
million at September 30, 1997 and $0.5 million at December 31, 1996.
During the first quarter of 1997, Autobuses issued a note of approximately
$10 million to the Gomez Flores family in exchange for a minority interest in
Arrendadora Financiera Dina ("AF Dina"). The Gomez Flores family controls
Empresarial G, S.A. de C.V. ("Empresarial G") which owns a controlling interest
in Grupo Dina. AF Dina is a leasing company which provides financing in
connection with sales of Grupo Dina products (primarily in Mexico).
On September 12, 1997, the Company purchased 25% of the common stock of
MCI Financial Services Inc. ("MFS") for $250,000. The remaining common stock
was purchased by members of the Gomez Flores family for $750,000. The Company
purchased $10.0 million of MFS's preferred stock and anticipates that it may
be required to purchase another $10.0 million to $15.0 million. MFS began
operations on September 12, 1997 and used its original capital and available
credit facilities to purchase from the Company $19.4 million of notes
receivable and $12.8 million of vehicle lease contracts.
8
<PAGE> 11
Note 8 - Deferred Design, Engineering, and Start-Up Costs
The Company has deferred design, engineering, and start-up costs of $15.5
million related to the development of new Motor Coach coaches being introduced
in 1997 and subsequent years. New accounting guidance is being considered
which may require the expensing of a portion of these costs at the time that
such accounting guidance is adopted. The amount involved is estimated at this
time to be approximately $7.0 million.
Note 9 - Commitments and Contingent Liabilities
The Company's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada. Authorities have proposed imputing
additional income relating to transactions with a U. S. based subsidiary of the
Company. A formal reassessment has been issued by Revenue Canada on the 1985
return and the Company has filed a notice of objection to such reassessment.
In the event of an adverse judgment, the additional income taxes for 1982
through 1992 could amount to up to $26 million plus interest of approximately
$45 million, both before recoveries of U. S. Federal income taxes which may be
available to offset a portion of any additional taxes paid to Canada. Based on
its review of current relevant information, including the advice of outside
counsel, the Company is of the opinion that Revenue Canada's arguments for the
1982 through 1992 period are without merit and that any liability from this
matter will not be material to its financial condition or results of
operations.
The Company may be subject to potential reassessments for the years
subsequent to 1992 on the same basis which could result in additional income
taxes and interest for those years. However, the Company believes that any
additional taxes paid to Canada would be substantially offset by recovery of
taxes paid in the United States.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S NARRATIVE ANALYSIS OF THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company does business in the United States and Canada through Motor
Coach and in Mexico through Autobuses.
HIGHLIGHTS
Flooding along the Red River threatened Motor Coach's plants in Pembina,
North Dakota and Winnipeg, Manitoba and forced their temporary closure during
the second quarter of 1997. Neither location was damaged, but production and
deliveries were disrupted for four weeks and delivery of approximately 120
units was delayed. This was a costly and disruptive experience for the
Company. The production and delivery delays experienced due to the flood are
expected to be fully recovered by the end of the year.
Mexican economic recovery continued. Inflation during the first nine
months of 1997 was 12.0%, compared with 20.4% in the same period last year.
Total intercity coach sales in Mexico were 251 in third quarter of 1997,
compared with 68 in the third quarter of 1996. Sales for the first nine months
of 1997 were 584, compared with 247 in the same period of 1996.
COMPARISON OF THIRD QUARTER 1997 TO THIRD QUARTER 1996
General. Revenues for the quarter ended September 30, 1997 were $132.7
million, an increase of 5% compared with revenues of $126.3 million in the
third quarter of 1996. Sales of replacement parts and Autobuses increased 12%
and 15%, respectively, while Motor Coach's coach and support revenues decreased
2%.
The overall gross margin, defined as revenues less cost of sales
(exclusive of depreciation and amortization) and interest expense of finance
operations, as a percentage of sales was 22.7% in the third quarter of 1997,
compared with 23.9% in 1996. This decrease was essentially the result of $2.5
million in additional allowances for obsolete and slow-moving inventories at
Motor Coach. Excluding these additional allowances gross margin would have
been 24.6% during the third quarter of 1997. This basic improvement was the
result of cost reduction and control efforts.
Operating income was $7.1 million in the third quarter of 1997, compared
with $8.3 million in 1996. The benefit of higher sales and cost reduction and
control efforts was offset by additional inventory allowances of $2.5 million
and $0.9 million of additional provisions for bad debts. Excluding these
additional allowances and provisions operating income would have been $10.5
million in the third quarter of 1997.
10
<PAGE> 13
MOTOR COACH
Coach Manufacturing and Support. Coach manufacturing and support revenues
were $66.8 million in the third quarter of 1997, a decrease of $1.1 million,
or 2%, compared with 1996. Last year benefited as a large number of leased
units were purchased outright by their operators.
Gross margins were 26.0% in the 1997 third quarter, compared with 26.6%
last year. During the third quarter of 1997 additional allowances were made
for obsolete and slow-moving inventories of $2.5 million. Excluding these
allowances gross margins would have been 29.8% in the third quarter of 1997.
The basic improvement was due to cost reduction and control efforts.
Operating income was $1.7 million, a decline of approximately $1.3 million
from $3.1 million in the third quarter in 1996. The 1997 quarter included
additional inventory allowances of $2.5 million and $0.9 million of additional
provisions for bad debts. Excluding these additional allowances and provisions
operating income would have been $5.1 million in the third quarter of 1997.
Replacement Parts. Replacement Parts' sales were $45.5 million in the
third quarter of 1997, an improvement of $4.7 million, or 12%, compared with
1996. Much of the sales increase was due to the acquisition of Flxible
Corporation's transit bus parts business in 1996.
Gross margins were 20.2% in the 1997 third quarter, compared with 22.1%
last year, caused by competitive pressures.
Operating income was $5.8 million, an increase of $1.5 million from the
third quarter in 1996. The increase resulted from higher sales.
AUTOBUSES
Autobuses. Autobuses' sales increased 15% to $20.4 million in 1997,
compared with $17.7 million in 1996. Sales in Mexico showed significant
improvement, with intercity coach sales reaching 95 units in 1997 from 4 units
in 1996. This restricted unit availability in the United States where unit
sales declined to 40 units from 74 units last year. Inventories were increased
in the United States by the end of the quarter and United States sales will be
better supported in the future.
Gross margins were 17.5% in the 1997 third quarter, compared with 17.4%
last year. The benefits from a continuing program of cost reductions were
offset by a less profitable mix of sales as volume shifted from the United
States to Mexico.
Operating income was a loss of $0.5 million in the third quarter, a
decline of $1.3 million from the third quarter in 1996, due to higher selling,
general, and administrative expenses.
Other Income and Expense. Other expenses were $1.6 million in the third
quarter of 1997, compared with $3.0 million last year. Interest expenses
increased $1.6 million to $4.8 million in 1997 due to higher debt levels. This
was more than offset by foreign exchange gains of $2.8 million recognized in
the third quarter of 1997.
11
<PAGE> 14
Income Taxes. The effective tax rate for the third quarter of 1997 was
78%, compared with a tax benefit of 27% last year. The increase was primarily
due to deferred tax adjustments for the inflation related factors allowed under
Mexican tax rules. These adjustments had a negative effect on 1997
calculations and a beneficial effect on 1996 calculations.
Net income. Net income was $1.2 million for the third quarter of 1997,
compared to $6.7 million in 1996. This is reflective of the adverse change in
deferred taxes in Mexico and the additional inventory allowances and provisions
for bad debts recorded in the third quarter of 1997.
COMPARISON OF THE FIRST NINE MONTHS 1997 TO THE FIRST NINE MONTHS 1996
General. Revenues for the nine months ended September 30, 1997 were
$501.7 million, an increase of 11% compared with revenues of $450.8 million
in the same period of 1996. Sales increases occurred in every category of
the Company.
The overall gross margin, defined as revenues less cost of sales
(exclusive of depreciation and amortization) and interest expense of finance
operations, as a percentage of sales was 23.3% in the first nine months of
1997, unchanged from 23.3% in 1996
Operating income was $48.2 million in the first nine months of 1997,
compared with $38.0 million in 1996.
MOTOR COACH
Coach Manufacturing and Support. Coach manufacturing and support revenues
were $292.9 million in the first nine months of 1997, an increase of $8.2
million, or 3%, compared with 1996. Most of this advance came in the first
quarter, as the second and, to a far lesser extent, third quarter were
adversely affected by the Red River flood conditions.
Gross margins were 24.8% in the 1997 third quarter, compared with 23.7%
last year. Excluding the third quarter's additional inventory allowances gross
margin would have been 25.6%, with the year-to-year improvement largely due to
cost reduction and control efforts.
Operating income was $27.8 million, an increase of $6.1 million from the
same period in 1996, due to cost reduction and control efforts.
Order backlog for Motor Coach as of September 30, 1997 was 638 units,
which included 64 units for Greyhound Lines Inc. ("GLI"), compared with 563
units at September 30, 1996, which included 86 units for GLI. The order
backlog for customers other than GLI of 574 units represented an increase of
20% compared with the 477 non-GLI backlog a year ago.
Replacement Parts. Replacement Parts' sales were $146.1 million in the
first nine months of 1997, an improvement of $26.0 million, or 22%, compared
with 1996. Much of the sales increase was due to the acquisition of Flexible
Corporation's transit bus parts business in 1996.
Gross margins were 21.5% in the 1997 first nine months, compared with
21.8% last year and operating income was $19.8 million, an increase of $6.7
million from the same period in 1996.
12
<PAGE> 15
AUTOBUSES
Autobuses. Autobuses' sales increased 36% to $62.6 million first nine
months of 1997, compared with $45.9 million in 1996. Sales in Mexico showed
significant improvement, with intercity coach sales reaching 190 units in 1997
from 20 units in 1996. This restricted unit availability in the United States
where unit sales declined to 120 units from 173 units last year.
Gross margins were 20.5% in the first nine months of 1997, compared with
24.6% last year. Most of the decline was caused by the adverse effects of
lower volume in the United States and a less profitable mix of products sold in
Mexico and elsewhere. In addition, unfavorable exchange rates against the
United States dollar increased the cost of purchased components and local
inflation increased manufacturing costs. Cost reduction efforts have reduced
the adverse effects of these factors, but did not offset them for the nine
month period.
Operating income was $0.5 million in the first nine months of 1997, a
decline of $2.6 million from the third quarter in 1996. Lower earnings on
sales to the United States accounted for most of the reduction.
Other Income and Expense. Other expenses were $11.6 million in the first
nine months of 1997, compared with $9.6 million last year. Interest expenses
increased $4.9 million to $16.2 million in 1997 due to higher debt levels.
This was partially offset by foreign exchange gains of $2.8 million recognized
in the third quarter of 1997.
Income Taxes. The effective tax rate for the first nine months of 1997
was 51%, compared with 30% last year. The increase was primarily due to
deferred tax adjustments for the inflation related factors allowed under
Mexican tax rules. These adjustments had a negative effect on 1997
calculations and a beneficial effect on 1996 calculations.
Net Income. Net income was $17.9 million for the first nine months of
1997, compared to $14.9 million in 1996. The 1996 results included an
extraordinary expense of $5.0 million, net of income taxes, due to adjustments
in the provision for disposal of the transit manufacturing business in 1994.
Income from continuing operations was $19.9 million in 1996, or $2.1 million
more than the current year. This is reflective of the additional inventory
allowances and provisions for bad debts recorded in the third quarter of 1997.
13
<PAGE> 16
PART II. - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K on
November 28, 1997, reporting an event under Item 5
on Form 8-K.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
MCII HOLDINGS (USA), INC.
(Registrant)
November 28, 1997 By /s/ James D. Guerra
------------------------------------
James D. Guerra
Vice President
Comptroller and USA/Canada Treasurer
(Principal Financial Officer
and Authorized Officer)
15
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