<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended JUNE 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 8
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 12
Signatures 13
</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 RESTATED STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
(000 omitted) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 184,566 $ 177,289 $ 357,851 $ 319,954
Finance income 1,224 2,377 2,576 3,729
--------- --------- --------- ---------
185,790 179,666 360,427 323,683
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below) 138,461 131,732 274,389 243,191
Depreciation and amortization 5,424 4,643 10,323 8,975
Interest expense, finance operations 637 1,001 1,251 1,615
Research and development expenses 1,695 1,624 3,495 3,424
Selling, general and administrative expenses 17,072 15,793 31,823 32,742
--------- --------- --------- ---------
163,289 154,793 321,281 289,947
--------- --------- --------- ---------
Operating Income 22,501 24,873 39,146 33,736
--------- --------- --------- ---------
Other income and (expense):
Interest (expense) (6,391) (4,065) (11,343) (8,011)
Other income 681 1,077 1,501 1,651
--------- --------- --------- ---------
(5,710) (2,988) (9,842) (6,360)
--------- --------- --------- ---------
Income before income taxes 16,791 21,885 29,304 27,376
Income taxes 7,362 7,488 12,136 9,995
--------- --------- --------- ---------
Income from Continuing Operations 9,429 14,397 17,168 17,381
Discontinued operations:
(Loss) on disposal of transit manufacturing, net -- (5,000) -- (5,000)
--------- --------- --------- ---------
Income before extraordinary item 9,429 9,397 17,168 12,381
Extraordinary (charge) for early retirement of debt, net -- -- -- --
--------- --------- --------- ---------
Net Income $ 9,429 $ 9,397 $ 17,168 $ 12,381
========= ========= ========= =========
</TABLE>
1
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MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
(000 omitted) 1997 1996
- ---------------------------------------------------------------------------------------------
Unaudited
Restated
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 37,135 $ 9,403
Trade and other accounts receivable 79,616 52,667
Current portion of notes receivable 6,291 4,615
Inventories 216,525 188,714
Deferred income taxes 11,194 12,308
Other current assets 10,667 3,715
--------- ---------
Total Current Assets 361,428 271,422
Property, plant, and equipment 111,717 93,493
Notes receivable 40,181 27,574
Investments in affiliates 10,249 1,974
Deferred income taxes -- 2,832
Intangible assets 233,217 236,954
Other assets 14,975 8,531
--------- ---------
Total Assets $ 771,767 $ 642,780
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 58,614 $ 42,557
Payables to affiliates 6,460 24
Accrued compensation and other benefits 10,003 11,641
Accrued warranties 10,474 9,543
Accrued income taxes 5,134 7,163
Insurance reserves 5,919 5,325
Net liabilities of discontinued operations 2,921 89
Other current liabilities 32,270 18,998
Current portion of long-term debt 36,978 148
--------- ---------
Total Current Liabilities 168,773 95,488
Long-term debt 248,268 210,520
Pensions and other benefits 12,912 11,858
Other deferred items and insurance reserves 16,498 17,785
Deferred income taxes 3,957 --
--------- ---------
Total Liabilities 450,408 335,651
--------- ---------
Commitments and contingent liabilities
Stockholder's Equity:
Common stock and additional capital 411,524 407,488
Accumulated deficit (73,007) (84,303)
Unfunded pension loss, net (423) (423)
Cumulative translation adjustments (16,735) (15,633)
--------- ---------
Total Stockholder's Equity 321,359 307,129
--------- ---------
Total Liabilities and Stockholder's Equity $ 771,767 $ 642,780
========= =========
</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 RESTATED STATEMENT OF
CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
(000 omitted) 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income $ 17,168 $ 12,381
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 10,323 8,975
Deferred income taxes 7,903 2,379
Discontinued operations -- 5,000
Gain on sale of property and notes receivable (386) (659)
Other noncash items, net (4,680) 1,942
Change in operating assets and liabilities (34,554) 5,581
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (4,226) 35,599
-------- --------
Cash Flows Provided (Used) By Investing Activities:
Capital expenditures (14,015) (43,774)
Investment in notes receivable (20,321) (18,095)
Collections of notes receivable 3,426 3,214
Proceeds from sale of notes receivable 2,518 7,501
Discontinued operations, net changes 2,832 5,662
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (25,560) (45,492)
-------- --------
Cash Flows Provided (Used) By Financing Activities:
Net change in bank credit facilities 74,726 (22,000)
Payment of long-term borrowings (148) (74)
Termination of interest rate swap position -- 2,805
Parent company debt (14,079) 6,786
Contribution of capital -- 1,342
Dividends paid to parent company (1,963) --
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 58,536 (11,141)
-------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (1,018) 665
-------- --------
NET INCREASE (DECREASE) IN CASH 27,732 (20,369)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,403 30,675
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 37,135 $ 10,306
======== ========
</TABLE>
3
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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, 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. ("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").
On January 31, 1997, the Company acquired from 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.
Note 3 - Restated Financial Statements
During the course of the Company's review of its 1997 financial statements, the
Company identified items that were not properly accounted for in its quarterly
reports. Those items principally included charges to inventories and
receivables at the Company's U.S. parts subsidiary, UCP; expensing previously
capitalized start-up costs incurred in 1997 related to the development of the
Company's new line of coaches; and properly converting the financial statements
of Autobuses to U.S. generally accepted accounting principles. Because the
charges affected the financial statements contained in each of the Company's
three previously filed 1997 quarterly reports, the Company is restating its
financial reports for those periods.
The restatement of consolidated income statement information is as follows:
<TABLE>
<CAPTION>
Operating Income Net Income
(000 omitted) Revenues Income Before Taxes (1)
<S> <C> <C> <C> <C>
Second Quarter 1997:
As reported $190,190 $ 21,550 $ 16,222 $ 8,341
Charges to inventories and
receivables at UCP - (478) (478) (287)
New coach start-up costs - 95 95 56
Insurance claim adjustment - (1,890) (1,890) (1,133)
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting(2) (4,400) 3,224 2,842 2,452
-------- -------- -------- --------
As restated $185,790 $ 22,501 $ 16,791 $ 9,429
======== ======== ======== ========
Second Quarter 1996:
As reported $180,357 $ 21,824 $18,057 $ 9,960
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting(2) (681) 3,049 3,828 (563)
-------- -------- -------- --------
As restated $179,666 $ 24,873 $ 21,885 $ 9,397
======== ======== ======== ========
Six months 1997:
As reported $369,025 $ 41,142 $ 31,137 $ 16,665
Charges to inventories and
receivables at UCP - (2,151) (2,151) (1,290)
New coach start-up costs - (1,944) (1,944) (1,167)
Insurance claim adjustment - (1,890) (1,890) (1,133)
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting(2) (8,598) 3,989 4,152 4,093
-------- -------- -------- --------
As restated $360,427 $ 39,146 $ 29,304 $ 17,168
======== ======== ======== ========
Six months 1996:
As reported $324,542 $ 29,687 $ 23,327 $ 13,232
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting(2) (859) 4,049 4,049 (851)
-------- -------- -------- --------
As restated $323,683 $ 33,736 $ 27,376 $ 12,381
======== ======== ======== ========
</TABLE>
- ----------------
(1) All adjustments were tax affected at the appropriate effective tax rate.
(2) The adjustments primarily relate to properly accounting for related party
sale-leaseback transactions, eliminating intercompany profit in ending
inventory, eliminating Mexican GAAP inflation accounting, using the U.S. dollar
as the functional currency in 1997, and applying SFAS No. 109, "Accounting for
Income Taxes".
4
<PAGE> 7
Note 4 - Revenues, Gross Profit and Operating Income, Supplementary Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Units:
MCII
New Coach Sales 333 351 635 609
Viaggio(R) 1000(1) 45 65 80 99
Autobuses
Mexican intercity coach sales 34 6 95 16
Export coach sales (2) 55 77 92 128
Revenues (000's omitted):
Motor Coach
Coach Manufacturing and Support $115,655 $121,751 $226,093 $216,811
Replacement Parts 49,860 40,559 100,666 79,444
-------- -------- -------- --------
165,515 162,310 326,759 296,255
Autobuses 20,275 17,356 33,668 27,428
-------- -------- -------- --------
$185,790 $179,666 $360,427 $323,683
======== ======== ======== ========
Gross Profit (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 29,561 $ 29,248 $ 53,366 $ 49,385
Replacement Parts 10,885 8,808 20,361 17,272
-------- -------- -------- --------
40,446 38,056 73,727 66,657
Autobuses 5,516 8,533 9,598 11,797
-------- -------- -------- --------
$ 45,962 $ 46,589 $ 83,325 $ 78,454
======== ======== ======== ========
Operating Income (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 13,313 $ 14,869 $ 22,268 $ 18,600
Replacement Parts 7,004 4,597 11,889 8,835
-------- -------- -------- --------
20,317 19,466 34,157 27,435
Autobuses 2,184 5,407 4,989 6,301
-------- -------- -------- --------
$ 22,501 $ 24,873 $ 39,146 $ 33,736
======== ======== ======== ========
</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 5 - Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
Raw material $ 56,074 $ 47,397
Work in process 46,095 33,860
Finished goods 128,405 126,809
--------- ---------
230,574 208,066
Inventory reserves (14,049) (19,352)
--------- ---------
$ 216,525 $ 188,714
========= =========
</TABLE>
Note 6 - Debt
Debt consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---- ----
(000 omitted)
<S> <C> <C>
Term notes payable $ 125,000 $ 125,000
United States bank credit facility 117,000 85,000
Canadian bank credit facility 5,822 --
Bancomext export loan facility 6,830 --
Pre-export note 30,000 --
Note payable 594 668
--------- ---------
285,246 210,668
Less current portion (36,978) (148)
--------- ---------
$ 248,268 $ 210,520
========= =========
</TABLE>
Canadian revolving credit loans are 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 while a replacement credit facility of Cdn$19.0 million
(equivalent to $13.8 million) was being finalized.
In September 1996, the National Bank Foreign Trade S.N.C. ("Bancomext")
provided a $20,000,000 credit facility to Autobuses to be used in conjunction
with export sales.
On May 28, 1997, an indirect subsidiary of the Company issued $30.0
million in short-term pre-export notes, maturing on November 26, 1997, to be
used to finance the manufacture by Autobuses of motor coaches for export to the
United States.
6
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Note 7 - Cash Flow Effect of Change in Operating Assets and Liabilities
Change in operating assets and liabilities consisted of:
<TABLE>
<CAPTION>
Six months ended
------------------------
June 30 June 30
1997 1996
---- ----
(000 omitted)
<S> <C> <C>
Decrease (Increase) in Operating Assets:
Receivables $(26,949) $(16,838)
Inventories (27,313) 6,187
Other operating assets (6,599) 496
-------- --------
(60,861) (10,155)
-------- --------
Increase (Decrease) in Operating Liabilities:
Accounts payable 16,057 20,313
Accrued income taxes (1,375) (5,257)
Other operating liabilities 11,625 680
-------- --------
26,307 15,736
-------- --------
Net Cash Flow Effect $(34,554) $ 5,581
======== ========
</TABLE>
Note 8 - Noncash Activities
During the first quarter of 1997, the Company gave a note payable to
members of the group consisting of the indirect controlling shareholders of the
Company in the amount of $10.2 million in exchange for a small minority
interest (less than 5%) in Arrendador Financiera Dina S.A. de C.V. ("AF Dina").
Dina owned the majority of AF Dina, a finance company furnishing financial
services to Dina.
During the first six months of 1997, AF Dina loaned $10.8 million to
Autobuses to help finance its transit bus leasing program. Most of the funds
were used in a sale leaseback program which capitalized transit buses which
were largely leased by Autobuses to Transportes y Services Terrestres G S.A. de
C.V. ("TSTG"). TSTG is controlled by members of the group consisting of the
indirect controlling shareholders of the Company
Note 9 - Related Party Transactions
The Company provides for allocable management and administrative
expenses incurred by Dina. In the first six months of 1997, the provision for
such expenses was $1.5 million. The amounts due to Dina for such expenses at
June 30, 1997 and December 31, 1996 were $1.7 million and $1.0 million,
respectively.
During the first six months of 1997 and 1996 the MCII purchased from
Dina, in the ordinary course of business, $6.2 million and $1.1 million,
respectively, in goods and services. During the same period, Autobuses
purchased from Dina, in the ordinary course of business, $17.6 million and
$4.4 million, respectively, in goods and services.
7
<PAGE> 10
Note 10 - 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.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain amounts have been restated from the previously filed quarterly
Management's Discussion and Analysis (see Note 3 to the Consolidated Financial
Statements). All references included in this Management's Discussion and
Analysis are to restated amounts.
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.
HIGHLIGHTS
Flooding along the Red River threatened the Company'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.
Mexican gross domestic product grew by 8.8% in the second quarter of 1997,
compared with last year's second quarter, following an increase of 5.1% in the
first quarter. Gains in the second half of 1996 are likely to slow the
comparative growth shown in the second half of 1997, but year-to-year growth is
expected to be good.
COMPARISON OF SECOND QUARTER 1997 TO SECOND QUARTER 1996
General. Revenues for the quarter ended June 30, 1997 were $185.8 million,
an increase of 3% from $179.7 million in 1996. Increased revenues were
recorded in all business areas, except MCII's coach manufacturing operations.
The overall gross margin for the second quarter of 1997, defined as sales
less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales decreased to 24.7% compared with 25.9% for the second
quarter of 1996. Most of the decrease occurred at Autobuses, where second
quarter 1996 gross profits were unusually high due to a mix of sales that
disproportionally favored exports to the United States.
Operating income was $22.5 million in the second quarter of 1997 compared
with $24.9 million in 1996. MCII's coach operating income was adversely
affected by flood related problems and Autobuses was not able to repeat the
unusually strong performance of the second quarter 1996.
Income from continuing operations was $9.4 million in 1997, compared with
$14.4 million in the second quarter of 1996. The decrease was essentially due
to lower operating income and higher net interest expense. Net income was $9.4
million in 1997, compared with $9.4 million in the second quarter of 1996, due
to inclusion in 1996 of a $5.0 million, net of tax, additional provision on the
disposal of the transit manufacturing line of business.
MCII. MCII's revenues for the second quarter of 1997 were $165.5 million,
an increase of 2% over $162.3 million in the second quarter of 1996. Coach
revenues decreased 5% to $115.7 million as new coach sales were 333 units in
the second quarter of 1997, compared with 351 units in the second quarter of
1996 due to flood related problems. Replacement parts' revenues increased 23%
to $49.9 million. The increase was due in part to additional sales generated
through the acquisition of the assets of the Flxible Corporation, as well as
increased sales in both the coach and transit product lines due to increased
sales promotion programs.
9
<PAGE> 12
Gross margin for the second quarter of 1997 increased to 24.4%, compared
with 23.5% in the same quarter of the prior year. Coach margins increased
slightly, while replacement parts margins were unchanged.
Operating income was $20.3 million for the second quarter of 1997, compared
with $19.5 million in the second quarter of 1996. Coach's operating income
was down $1.6 million due to the flood related problems, while replacement
parts' operating income increased $2.4 million, due to stronger sales.
Autobuses. Autobuses' revenues in the second quarter of 1997 were $20.3
million, an increase of 17% from $17.4 million in the same quarter of the prior
year. This was caused by an increase in sales in the domestic Mexican market
where 1997 sales were 34 units, compared with 6 units in 1996. Sales of
Autobuses' Viaggios in the United States were 45 units in 1997, compared with
65 units in 1996.
Gross margin for the second quarter of 1997 decreased to 27.2%, compared
with 49.2% in the second quarter of 1996. The increase in Mexican sales
occurred among less profitable products, while higher margin sales in the
United States declined.
Operating income was $2.2 million for the second quarter of 1997, compared
with $5.4 million in the second quarter of 1996. The reduced second quarter
results were due mainly to a less favorable mix of product sales and higher
general, selling, and administrative expenses.
Interest Expense. In the second quarter of 1997, net interest expense
increased to $6.4 million from $4.1 million in 1996. The increase reflected
higher average debt levels during the 1997 quarter.
Income Taxes. The Company's effective income tax rates in the second
quarter of 1997 and 1996 were 43.8% and 34.2% respectively. The Company
experiences a generally high effective tax rate due to the amortization expense
of nondeductible goodwill. The increase in 1997 was due to the decrease in
earnings in Mexico which are not taxed due to losses in prior years and
inflation indexed tax deductions.
COMPARISON OF FIRST SIX MONTHS 1997 TO FIRST SIX MONTHS 1996
General. Revenues for the six months ended June 30, 1997 were $360.4
million, an increase of 11% from $323.7 million in 1996. Increased revenues
were recorded in all business areas.
The overall gross margin for the first six months of 1997, defined as sales
less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales decreased to 23.1% compared with 24.2% for the first six
months of 1996. Most of the decrease occurred at Autobuses where increased
sales volume favored less profitable products.
Operating income was $39.1 million in the first six months of 1997 compared
with $33.7 million in 1996. The increase was primarily attributable to
increased revenues and lower selling, general, and administrative expenses.
Income from continuing operations was $17.2 million in 1997, compared with
$17.4 million in the first six months of 1996. The decrease was essentially
due to higher net interest expense. Net income was $17.2 million in 1997,
compared with $12.4 million in the first six months of 1996, due to inclusion
in 1996 of a $5.0 million, net of tax, additional provision on the disposal of
the transit manufacturing line of business in 1996.
MCII. MCII's revenues for the first six months of 1997 were $326.8
million, an increase of 10% over $296.3 million in the first six months of
1996. Coach revenues increased 4% to $226.1 million as new coach sales were
635 units in the first six
10
<PAGE> 13
months of 1997, compared with 609 units in the first six months of 1996 as
customer demand continued strong, but flood related problems restricted
production and deliveries. Replacement parts' revenues increased 27% to $100.7
million. The increase was due in part to additional sales generated through
the acquisition of the assets of the Flxible Corporation, as well as increased
sales in both the coach and transit product lines due to increased sales
promotion programs.
Gross margin for the first six months of 1997 increased slightly to 22.6%,
compared with 22.5% in the same six month period of the prior year.
Operating income was $34.2 million for the first six months of 1997,
compared with $27.4 million in the first six months of 1996. The improved
first six months results were due to increased sales volume, better control of
costs and expenses, and the nonreoccurrence of a $1.3 million restructuring
charge recorded in the first quarter of 1996.
Order backlog for the United States and Canada as of June 30, 1997 was 658
units, which included 147 units for Greyhound Lines Inc.("GLI") and represented
an estimated 120 units delayed by flood related problems.
Autobuses. Autobuses' revenues in the first six months of 1997 were $33.7
million, an increase of 23% from $27.4 million in the first six months of the
prior year. This was caused by an increase in sales in the domestic Mexican
market where 1997 sales were 95 units, compared with 16 units in 1996. Sales
of Autobuses' Viaggios in the United States were 80 units in 1997, compared
with 99 units in 1996.
Gross margin for the first six months of 1997 decreased to 28.5%, compared
with 43.0% in the first six months of 1996. The increase in Mexican sales
occurred among less profitable products.
Operating income was $5.0 million for the first six months of 1997,
compared with $6.3 million in the first six months of 1996. The decrease in
results during first six months of 1997 was due mainly to an adverse mix in
products sold and higher general, selling, and administrative expenses.
Order backlog for Autobuses as of June 30, 1997 was 483 intercity coaches,
which included 285 units for the export market.
Interest Expense. In the first six months of 1997, net interest expense
increased to $11.3 million from $8.0 million in 1996. The increase reflected
higher average debt levels during the 1997 quarter.
Income Taxes. The Company's effective income tax rates in the first six
months of 1997 and 1996 were 41.4% and 36.5% respectively. The Company
experiences a generally high effective tax rate due to the amortization expense
of nondeductible goodwill. The increase in 1997 was due to the decrease in
earnings in Mexico which were not taxed due to losses in prior years and
inflation indexed tax deductions.
11
<PAGE> 14
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.
12
<PAGE> 15
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)
13
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