<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 MARCH 31, 1998
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 9
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 11
Signatures 12
</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.
<PAGE> 3
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 March 31,
(000 omitted) 1998 1997
- ------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C>
Sales $ 222,327 $ 173,285
Finance income 1,225 1,352
--------- ---------
223,552 174,637
--------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below) 174,289 135,928
Depreciation and amortization 5,813 4,899
Interest expense, finance operations 677 614
Research and development expenses 1,863 1,800
Selling, general and administrative expenses 17,639 14,751
--------- ---------
200,281 157,992
--------- ---------
Operating Income 23,271 16,645
--------- ---------
Other income and (expense):
Interest (expense) (4,692) (4,952)
Other income (791) 820
--------- ---------
(5,483) (4,132)
--------- ---------
Income before income taxes 17,788 12,513
Income taxes 7,765 4,774
--------- ---------
Net Income $ 10,023 $ 7,739
========= =========
</TABLE>
1
<PAGE> 4
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
(000 omitted) 1998 1997
- ----------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 25,646 $ 13,997
Trade and other accounts receivable 108,074 88,543
Receivables from affiliates 47,922 16,293
Current portion of notes receivable 6,298 6,625
Inventories 250,711 257,795
Deferred income taxes 9,227 14,430
Other current assets 6,254 7,591
--------- ---------
Total Current Assets 454,132 405,274
Property, plant, and equipment 108,943 106,845
Notes receivable 44,142 42,465
Investments in affiliates 15,648 15,253
Intangible assets 225,443 227,367
Other assets 20,459 23,469
--------- ---------
Total Assets $ 868,767 $ 820,673
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 79,851 $ 67,580
Accrued compensation and other benefits 10,295 12,380
Accrued warranties 10,040 10,020
Accrued income taxes 7,720 7,251
Self insurance reserves 5,234 5,610
Net liabilities of discontinued operations 3,518 2,229
Other current liabilities 34,664 25,111
Current portion of long-term debt 79,715 44,418
--------- ---------
Total Current Liabilities 231,037 174,599
Long-term debt 253,693 268,833
Pensions and other benefits 14,360 14,037
Other deferred items and self insurance reserves 23,644 24,370
Deferred income taxes 6,900 6,916
--------- ---------
Total Liabilities 529,634 488,755
--------- ---------
Commitments and contingent liabilities
Stockholder's Equity:
Common stock and additional capital 409,176 411,524
Accumulated deficit (48,570) (58,590)
Unfunded pension loss, net (703) (577)
Cumulative translation adjustments (20,770) (20,439)
--------- ---------
Total Stockholder's Equity 339,133 331,918
--------- ---------
Total Liabilities and Stockholder's Equity $ 868,767 $ 820,673
========= =========
</TABLE>
2
<PAGE> 5
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>
Three Months Ended March 31,
(000 omitted) 1998 1997
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income $ 10,023 $ 7,739
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 5,813 4,899
Deferred income taxes 5,192 3,224
Gain on sale of property and notes receivable (3) (290)
Other noncash items, net 991 (4,951)
Change in operating assets and liabilities, net 5,542 (15,137)
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 27,558 (4,516)
-------- --------
Cash Flows Provided (Used) By Investing Activities:
Capital expenditures (6,506) (15,475)
Proceeds from sale of property and investments 603 --
Investment in notes receivable (15,119) (10,247)
Collections of notes receivable 14,594 1,451
Proceeds from sale of notes receivable -- 5,429
Discontinued operations, net changes 1,289 2,794
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (5,139) (16,048)
-------- --------
Cash Flows Provided (Used) By Financing Activities:
Additional long-term borrowings 20,157 32,615
Related party receivables/payables (30,596) (14,981)
Capital contribution -- 4,036
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (10,439) 21,670
-------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (331) (1,383)
-------- --------
NET INCREASE (DECREASE) IN CASH 11,649 (277)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,997 9,403
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,646 $ 9,126
======== ========
</TABLE>
3
<PAGE> 6
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
RESTATED 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, 1997, 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. ("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. ( "MCII"), Transportation
Manufacturing Operations, Inc. ( "TMO"), Motor Coach Industries, Inc.
("MCI-U.S.), Motor Coach Industries Limited ("MCI-Canada"), Hausman Bus Sales,
Inc. ("HBSI"), Universal Coach Parts, Inc. ("UCP"), and Dina Autobuses S.A. de
C.V. ("Autobuses").
All significant intercompany balances and transactions have been eliminated on
consolidation. Prior period amounts include all reclassifications necessary to
conform to current presentations.
4
<PAGE> 7
Note 3 - Revenues, Gross Profit and Operating Income, Supplementary Information
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Units:
MCII
New Coach Sales 421 302
Viaggio(R) 1000(1) 20 35
Autobuses
Mexican intercity coach sales 65 61
Export coach sales (2) 29 37
Revenues (000's omitted):
MCII
Coach Manufacturing and Support $ 151,581 $ 110,438
Replacement Parts 48,722 50,806
--------- ---------
200,303 161,244
Autobuses 23,249 13,393
--------- ---------
$ 223,552 $ 174,637
========= =========
Gross Profit (000's omitted):
MCII
Coach Manufacturing and Support $ 35,016 $ 23,805
Replacement Parts 9,360 9,476
--------- ---------
44,376 33,281
Autobuses 2,977 4,082
--------- ---------
$ 47,353 $ 37,363
========= =========
Operating Income (000's omitted):
MCII
Coach Manufacturing and Support $ 19,279 $ 8,955
Replacement Parts 5,416 4,885
--------- ---------
24,695 13,840
Autobuses (1,424) 2,805
--------- ---------
$ 23,271 $ 16,645
========= =========
</TABLE>
- ---------------------------------------
(1) Represents sales of Viaggio(R) 1000 coaches, manufactured by
Autobuses and sold by the Company's wholly owned subsidiary, HBSI, to the
Company's customers in the U.S. and Canadian markets.
(2) These figures primarily represent sales of Viaggio(R) 1000 coaches
to the U.S.
5
<PAGE> 8
Note 4 - Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"),
which is effective for fiscal years beginning after December 15, 1997. SFAS No.
130 requires that comprehensive income be reported in a financial statement that
is displayed with the same prominence as other financial statements (although
for interim financial reporting footnote disclosure of comprehensive income is
acceptable). Comprehensive income includes net income and all other nonowner
changes in equity that are not reported in net income.
The Company adopted SFAS No. 130 in 1998. For the quarters ended March
31, 1998 and 1997, the Company's comprehensive income included net income,
foreign currency translation losses, and minimum pension liability adjustments.
The foreign currency translation losses totaled $331,000 and $1,467,000 for the
quarters ended March 31, 1998 and 1997, respectively. The minimum pension
liability losses totaled $126,000 and zero for the quarters ended March 31, 1998
and 1997, respectively. Therefore, total comprehensive income was $9,566,000 for
the quarter ended March 31, 1998, compared with $6,272,000 for the same quarter
of 1997.
Note 5 - Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(000 omitted)
<S> <C> <C>
Raw material $ 48,596 $ 48,938
Work in process 50,721 61,230
Finished goods 175,509 170,879
--------- ---------
274,826 281,047
Inventory reserves (24,115) (23,252)
--------- ---------
$ 250,711 $ 257,795
========= =========
<CAPTION>
Note 6 - Debt
Debt consisted of the following:
March 31, December 31,
1998 1997
(000 omitted)
<S> <C> <C>
Term notes payable $ 125,000 $ 125,000
United States bank credit facility 139,000 135,000
Canadian bank credit facility 14,322 12,033
Bancomext export loan facility 18,975 6,496
Pre-export notes 34,376 34,203
Notes payable 1,735 519
--------- ---------
333,408 313,251
Less current portion (79,715) (44,418)
--------- ---------
$ 253,693 $ 268,833
========= =========
</TABLE>
6
<PAGE> 9
Note 7 - Cash Flow Effect of Change in Operating Assets and Liabilities
Change in operating assets and liabilities consisted of:
<TABLE>
<CAPTION>
Three months ended
March 31, March 31,
1998 1997
---- ----
(000 omitted)
<S> <C> <C>
Decrease (Increase) in Operating Assets:
Receivables $(19,883) $(32,267)
Inventories 6,508 1,270
Other operating assets (50) (7,830)
-------- --------
(13,425) (38,827)
-------- --------
Increase (Decrease) in Operating Liabilities:
Accounts payable 12,271 18,045
Accrued income taxes 533 (2,505)
Other operating liabilities 6,163 8,150
-------- --------
18,967 23,690
-------- --------
Net Cash Flow Effect $ 5,542 $(15,137)
======== ========
</TABLE>
Note 8 - Related Party Transactions
The Company provides for allocable management and administrative
expenses incurred by Dina. In the first quarter of 1998 and 1997, the provision
for such expenses was $250,000 and $500,000, respectively. The amounts accrued
for such expenses were paid at March 31, 1998 and December 31, 1997.
During the first quarters of 1998 and 1997 MCII purchased from Dina, in
the ordinary course of business, $2,789,000 and $1,735,000, respectively, in
goods and services. During the same period, Autobuses purchased from Dina, in
the ordinary course of business, $4,900,000 and $3,400,000, respectively, in
goods and services.
7
<PAGE> 10
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 related to transactions with a U.S. based subsidiary of the
Company. A formal reassessment has been issued by Revenue Canada on the 1985
return. A notice of objection has been filed by the Company for 1985. In the
event of an adverse judgment, the additional income taxes for 1982 through 1992
could amount to $25,000,000 plus interest of approximately $45,000,000 and, in
addition, 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. These amounts are all before recoveries of U.S. federal
income taxes which may be available to offset a portion of any additional taxes
paid to Canada as these years are still open for U.S. federal income tax
purposes. In accordance with SFAS No. 109, "Accounting for Income Taxes," a
portion of any ultimate liability owed as a result of this issue would be
treated as an adjustment of Dina's purchase price on acquiring the Company,
resulting in an increase of purchase goodwill. (If the ultimate liability was
$70,000,000, then approximately $48,000,000 would be a purchase accounting
adjustment.) 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 are without merit and that any liability from this matter
will not be material to its financial condition or results of operations.
Note 10 - New Accounting Pronouncements
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities", requires that all start-up related costs, including organizational
costs be expensed as incurred and all previous capitalized costs be written off.
SOP 98-5 becomes effective for the Company in 1999, however, the adoption of SOP
98-5 will not have a material impact on the Company, as it is consistent with
the Company's existing accounting policy.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company is a leading designer, manufacturer and marketer of
intercity coaches and related replacement parts for the North American market.
The Company has achieved a strong market position through enhanced product
design and quality, a used coach business that supports trade-in activity and a
significant replacement parts and service business that supports coaches in the
Company's primary markets, as well as buses used in transit and school bus
transportation.
COMPARISON OF FIRST QUARTER 1998 TO FIRST QUARTER 1997
General. Revenues for the quarter ended March 31, 1998 were $223.6
million, an increase of 28% from $174.6 million in 1997. Increased revenues were
recorded in all business areas, except replacement parts.
The overall gross margin for the first quarter of 1998, defined as
sales less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales decreased to 21.2% compared with 21.4% for the first quarter
of 1997. Most of the decrease occurred at Autobuses where 25% of total sales
occurred in transit buses, which normally have a lower profit margin than do
intercity coaches.
Operating income was $23.3 million in the first quarter of 1998
compared with $16.6 million in 1996. The increase was primarily attributable to
increased revenues at MCII's coach manufacture operations and MCII's lower
overall selling, general, and administrative expenses.
Net income was $10.0 million in 1998, compared with $7.7 million in the
first quarter of 1997. This was essentially due to increased operating income.
MCII. MCII's revenues for the first quarter of 1998 were $200.3
million, an increase of 24% over $161.2 million in the first quarter of 1997.
Coach revenues increased 37% to $151.6 million as new coach sales were 421 units
in the first quarter of 1998, compared with 302 units in the first quarter of
1997 with customer demand continuing to be strong. Replacement parts' revenues
decreased 4% to $48.7 million due to decreased demand from municipal transit bus
operators.
Gross margin for the first quarter of 1998 increased to 22.2%, compared
with 20.6% in the same quarter of the prior year. Coach margins increased to
23.1%, compared with 21.6% last year and replacement parts margins increased to
19.2%, compared with 18.7%.
Operating income was $24.7 million for the first quarter of 1998,
compared with $13.8 million in the first quarter of 1997. The improved first
quarter results were due to increased sales volume and better control of costs
and expenses.
Order backlog for the United States and Canada as of March 31, 1998 was
570 units, compared with 632 units at March 31, 1997.
Autobuses. Autobuses' revenues in the first quarter of 1998 were $23.2
million, an increase of $9.8 million, or 74%, from $13.4 million in the same
quarter of the prior year. This was caused by an increase in sales in the
domestic Mexican market where 1998 sales included 209 Citus transit buses with
revenues of $6.0 million while 1997 sales contained no sales of this model.
Current quarter sales also included 65 intercity coach sales in Mexico, compared
with 61 units in 1997. Sales of Autobuses' Viaggios in the United States were 20
units in 1998, compared with 35 units in 1997.
9
<PAGE> 12
Gross margin for the first quarter of 1998 decreased to 12.8%, compared
with 30.5% in the first quarter of 1997. The increase in Mexican sales occurred
largely among less profitable products.
There was an operating loss of $1.4 million for the first quarter of
1998, compared with operating income of $2.8 million in the first quarter of
1997. The first quarter 1998 results were due mainly to increased selling,
general, and administrative expenses that reached $4.1 million in the first
quarter of 1998, compared with $1.2 million in the first quarter of 1997.
At March 31, 1998, Autobuses' backlog of intercity coaches was 642, of
which 412 were for the domestic Mexican market and 230 were for the export
market. At March 31, 1997, Autobuses' backlog of intercity coaches was 618, of
which 278 were for the domestic Mexican market and 340 were for the export
market.
Interest Expense. In the first quarter of 1998, net interest expense
was $4.7 million, compared with $5.0 million in 1997.
Income Taxes. The Company's effective income tax rates in the first
quarter of 1998 and 1997 were 43.7% and 38.2% respectively. The Company
experiences a generally high effective tax rate due to the amortization expense
of nondeductible goodwill. The increased effective tax rate in 1998 was
primarily due to lower earnings in Mexico.
10
<PAGE> 13
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 February
18, 1997, reporting an event under Item 2 and Item 7 on Form
8-K.
11
<PAGE> 14
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)
May 15, 1998 By /s/ Gullermo Kareh
---------------------------
Gullermo Kareh
Executive Vice President, Chief Financial Officer,
General Counsel, and Secretary
(Principal Financial Officer
and Authorized Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 25,646
<SECURITIES> 0
<RECEIVABLES> 159,522
<ALLOWANCES> (3,526)
<INVENTORY> 250,711
<CURRENT-ASSETS> 454,132
<PP&E> 141,318
<DEPRECIATION> (32,375)
<TOTAL-ASSETS> 868,767
<CURRENT-LIABILITIES> 231,037
<BONDS> 253,693
0
0
<COMMON> 409,176
<OTHER-SE> (70,043)
<TOTAL-LIABILITY-AND-EQUITY> 868,767
<SALES> 222,327
<TOTAL-REVENUES> 223,552
<CGS> 174,289
<TOTAL-COSTS> 200,281
<OTHER-EXPENSES> 791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,692
<INCOME-PRETAX> 17,788
<INCOME-TAX> 7,765
<INCOME-CONTINUING> 10,023
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,023
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
