<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 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 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 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.
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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 RESTATED 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 $ 134,283 $ 125,517 $ 492,134 $ 445,471
Finance income 1,020 2,399 3,596 6,128
--------- --------- --------- ---------
135,303 127,916 495,730 451,599
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below) 101,934 94,251 376,323 337,442
Depreciation and amortization 5,707 4,996 16,030 13,971
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 17,547 15,047 49,370 47,789
--------- --------- --------- ---------
127,112 117,171 448,393 407,118
--------- --------- --------- ---------
Operating Income 8,191 10,745 47,337 44,481
--------- --------- --------- ---------
Other income and (expense):
Interest (expense) (4,808) (3,196) (16,151) (11,207)
Other income 1,751 1,156 3,252 2,807
--------- --------- --------- ---------
(3,057) (2,040) (12,899) (8,400)
--------- --------- --------- ---------
Income before income taxes 5,134 8,705 34,438 36,081
Income taxes 380 2,465 12,516 12,460
--------- --------- --------- ---------
Income from Continuing Operations 4,754 6,240 21,922 23,621
Discontinued operations:
(Loss) on disposal of transit manufacturing, net -- -- -- (5,000)
--------- --------- --------- ---------
Income before extraordinary item 4,754 6,240 21,922 18,621
Extraordinary (charge) for early retirement of debt, net -- -- -- --
--------- --------- --------- ---------
Net Income $ 4,754 $ 6,240 $ 21,922 $ 18,621
========= ========= ========= =========
</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>
September 30, December 31,
(000 omitted) 1997 1996
------------- ------------
Unaudited
Restated
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 17,155 $ 9,403
Trade and other accounts receivable 66,495 52,667
Receivables from affiliates 11,801 --
Current portion of notes receivable 3,957 4,615
Inventories 225,459 188,714
Deferred income taxes 12,210 12,308
Other current assets 22,804 3,715
--------- ---------
Total Current Assets 359,881 271,422
Property, plant, and equipment 122,014 93,493
Notes receivable 25,475 27,574
Investments in affiliates 10,247 1,974
Deferred income taxes -- 2,832
Intangible assets 231,645 236,954
Other assets 28,391 8,531
--------- ---------
Total Assets $ 777,653 $ 642,780
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 61,790 $ 42,557
Payables to affiliates -- 24
Accrued compensation and other benefits 11,641 11,641
Accrued warranties 9,543 9,543
Accrued income taxes -- 7,163
Insurance reserves 5,325 5,325
Net liabilities of discontinued operations 2,573 89
Other current liabilities 33,251 18,998
Current portion of long-term debt 39,951 148
--------- ---------
Total Current Liabilities 164,074 95,488
Long-term debt 252,126 210,520
Pensions and other benefits 13,428 11,858
Other deferred items and insurance reserves 16,667 17,785
Deferred income taxes 5,242 --
--------- ---------
Total Liabilities 451,537 335,651
--------- ---------
Commitments and contingent liabilities
Stockholder's Equity:
Common stock and additional capital 411,524 407,488
Accumulated deficit (68,253) (84,303)
Unfunded pension loss, net (423) (423)
Cumulative translation adjustments (16,732) (15,633)
--------- ---------
Total Stockholder's Equity 326,116 307,129
--------- ---------
Total Liabilities and Stockholder's Equity $ 777,653 $ 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>
Nine Months Ended September 30,
-------------------------------
(000 omitted) 1997 1996
-------- -----------
<S> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income $ 21,922 $ 18,621
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 16,030 13,971
Deferred income taxes 8,172 1,354
Discontinued operations -- 5,000
Gain on sale of property and notes receivable (390) (1,257)
Other noncash items, net (7,348) 1,877
Change in operating assets and liabilities (43,283) 773
-------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (4,897) 40,339
-------- --------
Cash Flows Provided (Used) By Investing Activities:
Capital expenditures (27,263) (49,138)
Purchase of, investment in, businesses -- --
Proceed from sale of property and assets held for lease -- --
Investment in notes receivable (29,834) (24,379)
Collections of notes receivable 12,884 5,854
Proceeds from sale of notes receivable 19,721 17,308
Investment in affiliated companies (10,250) --
Proceeds from sale of business -- --
Discontinued operations, net changes 2,484 5,497
-------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (32,258) (44,858)
-------- --------
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 (33,524) (1,886)
Contribution of capital 4,037 8,831
Dividends paid to parent company (6,000) (7,489)
-------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 45,922 (21,813)
-------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (1,015) 946
-------- --------
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.)
RESTATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
Third Quarter 1997:
As reported $132,676 $ 7,057 $ 5,469 $ 1,185
Charges to inventories and
receivables at UCP - (1,909) (1,909) (1,144)
New coach start-up costs - (161) (161) (96)
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting (2) 2,627 3,204 1,735 4,809
-------- -------- -------- --------
As restated $135,303 $ 8,191 $ 5,134 $ 4,754
======== ======== ======== ========
Third Quarter 1996:
As reported $126,307 $ 8,271 $ 5,274 $ 6,713
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting (2) 1,609 2,474 3,431 (473)
-------- -------- -------- --------
As restated $127,916 $ 10,745 $ 8,705 $ 6,240
======== ======== ======== ========
Nine months 1997:
As reported $501,701 $ 48,199 $ 36,606 $ 17,850
Charges to inventories and
receivables at UCP - (4,060) (4,060) (2,434)
New coach start-up costs - (2,105) (2,105) (1,263)
Insurance claim adjustment - (1,890) (1,890) (1,133)
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting (2) (5,971) 7,193 5,887 8,902
-------- -------- -------- --------
As restated $495,730 $ 47,337 $ 34,438 $ 21,922
======== ======== ======== ========
Nine months 1996:
As reported $450,849 $ 37,958 $ 28,601 $ 19,945
Consolidation/conversion of
Autobuses for U.S. GAAP
reporting (2) 750 6,523 7,480 (1,324)
-------- -------- -------- --------
As restated $451,599 $ 44,481 $ 36,081 $ 18,621
======== ======== ======== ========
</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 Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1997 1996 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Units:
MCII
New Coach Sales 177 175 812 784
Viaggio(R)1000(1) 40 74 120 173
Autobuses
Mexican intercity coach sales 95 4 190 20
Export coach sales (2) 89 72 181 200
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 22,982 19,263 56,650 46,691
-------- --------- -------- --------
$135,303 $127,916 $495,730 $451,599
======== ======== ======== ========
Gross Profit (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 17,228 $ 18,103 $ 70,594 $ 67,488
Replacement Parts 7,336 9,015 27,697 26,287
-------- --------- -------- --------
24,564 27,118 98,291 93,775
Autobuses 7,099 5,209 16,697 17,006
-------- --------- -------- --------
$ 31,663 $ 32,327 $114,988 $110,781
======== ======== ======== ========
Operating Income (000's omitted):
Motor Coach
Coach Manufacturing and Support $ 1,582 $ 3,100 $ 23,850 $ 21,700
Replacement Parts 3,888 4,332 15,777 13,167
-------- --------- -------- --------
5,470 7,432 39,627 34,867
Autobuses 2,721 3,313 7,710 9,614
-------- --------- -------- --------
$ 8,191 $ 10,745 $ 47,337 $ 44,481
======== ======== ======== ========
</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>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw material $ 48,839 $ 47,397
Work in process 56,734 33,860
Finished goods 144,069 126,809
--------- ---------
249,642 208,066
Inventory reserves (24,183) (19,352)
--------- ---------
$ 225,459 $ 188,714
========= =========
</TABLE>
Note 6 - Debt
Debt consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(000 omitted)
<S> <C> <C>
Term notes payable $ 125,000 $ 125,000
United States bank credit facility 118,000 85,000
Canadian bank credit facility 8,755 --
Bancomext export loan facility 9,803 --
Pre-export notes 30,000 --
Note payable 519 668
--------- ---------
292,077 210,668
Less current portion (39,951) (148)
--------- ---------
$ 252,126 $ 210,520
========= =========
</TABLE>
In September 1997 the Company increased its previously existing bank
credit facility to a maximum amount of permitted borrowing of $170.0 million
from the previous maximum of $125.0 million. At September 30, 1997, borrowings
under this facility were $118.0 million.
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). This facility was increased, in July 1997,
to provide up to Cdn$30.0 million (equivalent to $21.7 million).
At September 30, 1997, borrowings under this facility were $8.8 million.
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>
Nine months ended
------------------------------
September 30, September 30,
1997 1996
------------- -------------
(000 omitted)
<S> <C> <C>
Decrease (Increase) in Operating Assets:
Receivables $(13,828) $ (4,254)
Inventories (36,162) (7,231)
Other operating assets (16,149) (242)
-------- --------
(66,139) (11,727)
-------- --------
Increase (Decrease) in Operating Liabilities:
Accounts payable 19,233 14,378
Accrued income taxes (8,884) (5,857)
Other operating liabilities 12,507 3,979
-------- --------
22,856 12,500
-------- --------
Net Cash Flow Effect $(43,283) $ 773
======== ========
</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 $12.0 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 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 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 MCII purchased from Dina,
in the ordinary course of business, $2.3 million and $1.7 million, respectively,
in goods and services. During the same period, Autobuses purchased from Dina,
in the ordinary course of business, $24.2 million and $5.9 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
<PAGE> 11
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. The production and delivery delays experienced due to the
flood are expected to be recovered in the second half 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 $135.3
million, an increase of 6% from $127.9 million in 1996. Increased revenues were
recorded in all business areas, except MCII's coach manufacturing operations,
except MCII's coach manufacturing.
The overall gross margin for the third quarter of 1997, defined as
sales less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales decreased to 23.4% compared with 25.3% for the third quarter
of 1996. Most of the decrease occurred at MCII's replacement parts business,
where third quarter 1997 gross profits were unusually low due to a combination
of high provisions for obsolescence ($1.1 million) and higher material costs
($0.8 million).
Operating income was $8.2 million in the third quarter of 1997 compared
with $10.8 million in 1996. Decreased earnings were report in all business
areas.
Income from continuing operations was $4.8 million in 1997, compared
with $6.2 million in the third quarter of 1996. The decrease was essentially due
to lower operating income and higher net interest expense.
MCII. MCII's revenues for the third quarter of 1997 were $112.3
million, an increase of 3% over $108.7 million in the third quarter of 1996.
Coach revenues decreased 2% to $66.8 million from $67.9 million in 1996. New
coach sales were 177 units in the third quarter of 1997, compared with 175 units
in the third quarter of 1996; however, used coach sales declined by $4.1 million
during the third quarter of 1997. Replacement parts' revenues increased 12% to
$45.5 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 third quarter of 1997 decreased to 21.9%, compared
with 25.0% in the same quarter of the prior year. Coach margins decreased
slightly ( to 25.8% from 26.7%), while replacement parts margins declined to
16.1% in the third quarter of 1997, compared with 22.1% in the third quarter of
1996. Replacement parts' gross profits were unusually low due to a combination
of high provisions for obsolescence ($1.1 million) and higher material costs
($0.8 million).
Operating income was $5.5 million for the third quarter of 1997,
compared with $7.4 million in the third quarter of 1996. Coach's operating
income was down $1.5 million due to the flood clean-up problems, while
replacement parts' operating income decreased $0.4 million, due to lower gross
profits.
Autobuses. Autobuses' revenues in the third quarter of 1997 were $23.0
million, an increase of 19% from $19.3 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 95 units, compared with 4 units in 1996. Sales of
Autobuses' Viaggios in the United States were 40 units in 1997, compared with 74
units in 1996.
Gross margin for the third quarter of 1997 increased to 30.9%, compared
with 27.0% in the third quarter of 1996. The size of the increase in Mexican
sales more than offset the affect of its less profitable products.
Operating income was $2.7 million for the third quarter of 1997,
compared with $3.3 million in the third quarter of 1996. The reduced third
quarter results were due mainly to higher general, selling, and administrative
expenses.
Interest Expense. In the third quarter of 1997, net interest expense
increased to $4.8 million from $3.2 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 third
quarter of 1997 and 1996 were 7.4% and 28.3% respectively. The Company
experiences a generally high effective tax rate due to the amortization expense
of nondeductible goodwill. The decrease in the 1997 third quarter was due to
the relatively high increase in earnings in Mexico which are not taxed due to
losses in prior years and inflation indexed tax deductions.
COMPARISON OF FIRST NINE MONTHS 1997 TO FIRST NINE MONTHS 1996
General. Revenues for the nine months ended September 30, 1997 were
$495.7 million, an increase of 10% from $451.6 million in 1996. Increased
revenues were recorded in all business areas.
The overall gross margin for the first nine months of 1997, defined as
sales less cost of sales (exclusive of depreciation and amortization), as a
percentage of sales decreased to 23.2% compared with 24.5% for the first nine
months of 1996. Most of the decrease occurred at Autobuses where increased sales
volume favored less profitable products.
Operating income was $47.3 million in the first nine months of 1997
compared with $44.5 million in 1996. The increase was primarily attributable to
increased sales.
Income from continuing operations was $21.9 million in 1997, compared
with $23.6 million in the first nine months of 1996. The decrease was
essentially due to higher net interest expense. Net income was $21.9 million in
1997, compared with $18.6 million in the first nine 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 nine months of 1997 were $439.1
million, an increase of 8% over $404.9 million in the first nine months of 1996.
Coach revenues increased 3% to $292.9 million as new coach sales were 812 units
in the first nine months of 1997, compared with 784 units in the first nine
months of 1996 as customer demand continued strong, but flood related problems
restricted production and deliveries. Replacement parts' revenues increased 22%
to $146.1 million. The increase was due in
10
<PAGE> 13
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 nine months of 1997 increased slightly to
22.4%, compared with 23.2% in the same nine month period of the prior year.
Operating income was $47.3 million for the first nine months of 1997,
compared with $44.5 million in the first nine months of 1996. The improved first
nine months results were due to increased sales volume, better control of costs
and expenses, and the nonrecurrence of a $1.3 million restructuring charge
recorded in the first quarter of 1996. Results were adversely affected by flood
related problems and expenses.
Order backlog for the United States and Canada as of September 30, 1997
was 638 units, which included 64 units for Greyhound Lines Inc.("GLI"), compared
with 563 units of which 86 were for GLI at September 30, 1996.
Autobuses. Autobuses' revenues in the first nine months of 1997 were
$56.7 million, an increase of 21% from $46.7 million in the first nine months of
the prior year. This was caused by an increase in sales in the domestic Mexican
market where 1997 sales were 190 units, compared with 20 units in 1996. Sales of
Autobuses' Viaggios in the United States were 120 units in 1997, compared with
173 units in 1996.
Gross margin for the first nine months of 1997 decreased to 29.5%,
compared with 36.4% in the first nine months of 1996. The increase in Mexican
sales occurred among less profitable products.
Operating income was $7.7 million for the first nine months of 1997,
compared with $9.6 million in the first nine months of 1996. The decrease in
results during first nine 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 September 30, 1997 was 275 intercity
coaches, which included 203 units for the export market.
Interest Expense. In the first nine months of 1997, net interest
expense increased to $16.2 million from $11.2 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
nine months of 1997 and 1996 were 36.3% and 34.5% respectively.
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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