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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2000
Commission File No. 333-08871
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE | 86-0706940 | ||
(State or other jurisdiction of | (IRS Employer Identification No. | ) | |
incorporation or organization) | |||
1700 EAST GOLF ROAD, SCHAUMBURG, ILLINOIS 60173 (Address of principal executive offices) (Zip Code) |
|
(Registrant's telephone number, including area code): (847) 285-2000
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 September 30, 2000.
The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information, in accordance with generally accepted accounting principles, has been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Motor Coach Industries International, Inc. Annual Report on Form 10-K dated December 31, 1999. In the opinion of management, these statements contain all adjustments consisting of only normal recurring adjustments necessary to present fairly the financial position as of September 30, 2000, and December 31, 1999, the results of operations for the three and nine month periods ended September 30, 2000, and September 30, 1999 and the Statement of Cash Flows for the nine month periods ended September 30, 2000 and September 30, 1999. The 2000 interim results reported herein may not necessarily be indicative of results of operations for the full year 2000.
FORWARD-LOOKING STATEMENTS
The Company makes "forward-looking statements" throughout this form 10-Q. Whenever the reader reads a statement that is not simply a statement of historical fact, such as when the Company describes what it "believes", "expects", or "anticipates" will occur, and other similar statements, the reader must remember that the Company's expectations may not be correct, even though it believes they are reasonable. The reader is cautioned not to put undue reliance on any forward-looking statement.
The reader should understand that a number of factors, in addition to those discussed herein, could affect the Company and could cause its results to differ materially from those expressed in such forward-looking statements. Among these factors are: (1) increased competition in those markets, (2) the Company's substantial leverage and uncertainties associated with servicing its debt, (3) changes in laws or regulations and approvals and decisions of courts, regulators and governmental bodies, (4) uncertainties associated with the general economic conditions in our markets, (5) dependence on the inter-city coach and transit bus industries, (6) changes in product demand, (7) changes in customer concentration, (8) interest rate fluctuations, (9) risks associated with Mexican operations, (10) foreign currency risks and (11) dependence on suppliers. Further, the Company operates in an industry sector where securities' values may be volatile and may be influenced by economic and other factors beyond our control. The Company does not intend, and undertakes no obligation, to update these forward-looking statements.
2
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED INCOME STATEMENT
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND
1999
|
Three Months Ended Sept. 30 |
Nine Months Ended Sept. 30 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) |
2000 |
1999 |
2000 |
1999 |
|||||||||||
Revenues: | |||||||||||||||
Sales | $ | 138,913 | $ | 186,226 | $ | 494,979 | $ | 671,870 | |||||||
Finance income | 780 | 1,406 | 5,287 | 3,024 | |||||||||||
Total revenues | 139,693 | 187,632 | 500,266 | 674,894 | |||||||||||
Operating Costs and Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cost of sales (exclusive of items shown separately below) | 113,560 | 141,689 | 387,065 | 506,203 | |||||||||||
Cost of sales inventory valuation charge | | | | 21,000 | |||||||||||
Interest expense, finance operations | 324 | 1,183 | 3,252 | 3,007 | |||||||||||
Depreciation and amortization | 7,524 | 6,579 | 22,323 | 19,707 | |||||||||||
Loss on sale of notes receivable through securitization | 780 | | 4,049 | | |||||||||||
Research and development expenses | 2,805 | 3,830 | 7,748 | 8,463 | |||||||||||
Selling, general and administrative expenses | 22,329 | 22,526 | 66,013 | 73,042 | |||||||||||
Total operating costs and expenses | 147,322 | 175,807 | 490,450 | 631,422 | |||||||||||
Operating Income (Loss) |
|
|
(7,629 |
) |
|
11,825 |
|
|
9,816 |
|
|
43,472 |
|
||
Other income and (expense): | |||||||||||||||
Interest expense, net | (14,177 | ) | (14,228 | ) | (41,932 | ) | (30,007 | ) | |||||||
Interest expense pushed down from related party | | | | (11,601 | ) | ||||||||||
Foreign currency translation gain (loss) | (388 | ) | (748 | ) | 1,797 | (1,641 | ) | ||||||||
Other income (expense) | 384 | 996 | (925 | ) | (510 | ) | |||||||||
Total other income and (expense) | (14,181 | ) | (13,980 | ) | (41,060 | ) | (43,759 | ) | |||||||
Income (Loss) before income taxes and extraordinary items |
|
|
(21,810 |
) |
|
(2,155 |
) |
|
(31,244 |
) |
|
(287 |
) |
||
Income tax provision (benefit) | (7,517 | ) | (1,231 | ) | (7,901 | ) | 6,412 | ||||||||
Net income (loss) before extraordinary items | (14,293 | ) | (924 | ) | (23,343 | ) | (6,699 | ) | |||||||
Extraordinary items | | | | (2,614 | ) | ||||||||||
Net income (loss) | $ | (14,293 | ) | $ | (924 | ) | $ | (23,343 | ) | $ | (9,313 | ) | |||
EBITDA: | |||||||||||||||
Operating income (loss) | $ | (7,629 | ) | $ | 11,825 | $ | 9,816 | $ | 43,472 | ||||||
Depreciation and amortization | 7,524 | 6,579 | 22,323 | 19,707 | |||||||||||
Loss on sale of notes receivable through securitization | 780 | | 4,049 | | |||||||||||
Cost of sales inventory valuation charge | | | | 21,000 | |||||||||||
Total | $ | 675 | $ | 18,404 | $ | 36,188 | $ | 84,179 | |||||||
The accompanying notes are an integral part of these statements.
3
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
(dollars in thousands) |
September 30, 2000 |
December 31, 1999 |
|||||||
---|---|---|---|---|---|---|---|---|---|
ASSETS |
|
|
|
|
|
|
|
||
Current assets: |
|
|
|
|
|
|
|
||
Cash and cash equivalents | $ | 23,279 | $ | 15,630 | |||||
Trade and other accounts receivable, net | 129,304 | 145,691 | |||||||
Current portion of notes receivable | 6,910 | 17,483 | |||||||
Inventories, net | 241,981 | 217,083 | |||||||
Deferred income taxes | 37,073 | 25,489 | |||||||
Other current assets | 6,510 | 4,751 | |||||||
Total current assets | 445,057 | 426,127 | |||||||
Property, plant and equipment, net |
|
|
106,411 |
|
|
110,470 |
|
||
Notes receivable | 28,214 | 57,771 | |||||||
Investments in affiliates | 4 | 23,820 | |||||||
Intangible assets, net | 208,109 | 212,723 | |||||||
Deferred income taxes-noncurrent | 14,048 | 19,975 | |||||||
Other non-current assets | 32,171 | 40,388 | |||||||
Total assets |
|
$ |
834,014 |
|
$ |
891,274 |
|
||
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
|
|
|
|
|
|
||
Current liabilities: |
|
|
|
|
|
|
|
||
Accounts payable | $ | 70,882 | $ | 90,183 | |||||
Accrued compensation | 7,204 | 9,149 | |||||||
Accrued warranties | 11,716 | 13,365 | |||||||
Accrued income taxes | 10,934 | 4,695 | |||||||
Customer deposits | 38,518 | 952 | |||||||
Self insurance reserves | 3,411 | 3,101 | |||||||
Net liabilities of discontinued operations | 3,083 | 3,949 | |||||||
Other current liabilities | 20,184 | 30,880 | |||||||
Total current liabilities | 165,932 | 156,274 | |||||||
Long-term debt |
|
|
459,202 |
|
|
536,534 |
|
||
Pensions and other benefits | 18,044 | 16,689 | |||||||
Deferred income taxes | 7,914 | 11,893 | |||||||
Other deferred items and self insurance reserves | 13,398 | 14,767 | |||||||
Total liabilities |
|
|
664,490 |
|
|
736,157 |
|
||
Stockholder's equity |
|
|
|
|
|
|
|
||
Common stock (1000 shares authorized, issued and outstanding) and additional paid-in capital | 386,611 | 341,813 | |||||||
Accumulated deficit | (190,593 | ) | (167,250 | ) | |||||
Accumulated other comprehensive income | (26,494 | ) | (19,446 | ) | |||||
Total stockholder's equity |
|
|
169,524 |
|
|
155,117 |
|
||
Total liabilities and stockholder's equity | $ | 834,014 | $ | 891,274 | |||||
The accompanying notes are an integral part of these statements.
4
MOTORCOACH INDUSTRIES INTERNATIONAL INC.
UNAUDITED STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 and 1999
(dollars in thousands) |
2000 |
1999 |
|||||||
---|---|---|---|---|---|---|---|---|---|
Cash flows provided by (used in) operating activities |
|
|
|
|
|
|
|
||
Net Loss | $ | (23,343 | ) | $ | (9,313 | ) | |||
Adjustments to reconcile Net Loss to Net Cash | |||||||||
Provided by (used in) operations: | |||||||||
Depreciation and amortization | 22,323 | 19,707 | |||||||
Deferred income taxes | (9,711 | ) | (4,108 | ) | |||||
Loss on sale of property | 356 | | |||||||
Loss on securitization | 4,049 | | |||||||
Extraordinary loss on early retirement of debt | | 4,182 | |||||||
Non-cash inventory valuation charge | | 21,000 | |||||||
Non-cash interest expense | 2,413 | | |||||||
Other non-cash items, net | 3,491 | 5,938 | |||||||
All other operating activities | (2,716 | ) | (52,502 | ) | |||||
Net cash provided by (used in) operating activities |
|
|
(3,138 |
) |
|
(15,096 |
) |
||
Cash flows provided by (used in) investing activities |
|
|
|
|
|
|
|
||
Capital expenditures | (13,139 | ) | (19,332 | ) | |||||
Transfer of Mexican subsidiaries | | (1,483 | ) | ||||||
Purchase of majority interest in MCIFS, net of cash received | 338 | | |||||||
Net proceeds from initial securitization | 55,719 | | |||||||
Net proceeds from other securitizations | 46,013 | | |||||||
Proceeds from sale of property and investments | 8,157 | 12,334 | |||||||
Other changes in notes receivable | (54,180 | ) | (26,533 | ) | |||||
Investment in assets held for lease | (3,754 | ) | (8,040 | ) | |||||
Discontinued operations, net changes | (866 | ) | 1,053 | ||||||
Net cash provided by (used in) investing activities |
|
|
38,288 |
|
|
(42,001 |
) |
||
Cash provided by (used in) financing activities |
|
|
|
|
|
|
|
||
Proceeds from issuance of term B loans | | 333,000 | |||||||
Proceeds from issuance of 111/4% senior sub notes | | 150,080 | |||||||
Payment of term B loan principal | (22,497 | ) | (833 | ) | |||||
Payment of 9.02% senior notes | | (105,321 | ) | ||||||
Payment of senior secured discount notes | | (206,500 | ) | ||||||
Payment of debt issuance costs | | (25,046 | ) | ||||||
Payment of parent company senior notes | | (35,574 | ) | ||||||
Net change in related party receivables, payables | | (16,702 | ) | ||||||
Net change in other long-term borrowings | | (21,774 | ) | ||||||
Dividends paid to parent company | | (74,459 | ) | ||||||
Net change in bank credit facilities | (55,000 | ) | (99,594 | ) | |||||
New paid-in-capital, net of transaction costs | 49,996 | 159,270 | |||||||
Net cash provided by (used in) financing activities |
|
|
(27,501 |
) |
|
56,547 |
|
||
Net increase (decrease) in cash |
|
|
7,649 |
|
|
(550 |
) |
||
Cash and cash equivalents at beginning of period |
|
|
15,630 |
|
|
24,038 |
|
||
Cash and cash equivalents at end of period |
|
$ |
23,279 |
|
$ |
23,488 |
|
||
The accompanying notes are an integral part of these statements.
5
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Company is a wholly owned subsidiary of MCII Holdings (USA), Inc. These unaudited financial statements present the accounts of Motor Coach Industries International Inc. ("MCII") together with its subsidiaries (the "Company"). The Company's principal operating subsidiaries are Motor Coach Industries, Inc. ("MCI-U.S."), Motor Coach Industries Limited ("MCI-Canada"), MCI Sales and Service, Inc., MCI Service Parts, Inc., and Motor Coach Industries Mexico, S.A. de C.V. ("MCI- Mexico")
All significant inter-company balances and transactions have been eliminated upon consolidation. Prior period amounts include all reclassifications necessary to conform to current presentations.
NOTE 2. SECURITIZATION TRANSACTION
During the second quarter of 2000, the Company completed an asset securitization of the existing notes receivable and financing lease receivables as of March 31, 2000 of its financing company, BusLease, Inc. (BLI) and its then 25% indirectly-owned equity interest in MCII Funding Inc., and two subsequent asset securitizations on its notes receivables and financing lease receivables entered into with customers subsequent to March 31, 2000. Under the terms of the agreement, BLI sold a substantial portion of its portfolio to MCII Financial Services II, Inc. ("MCIFS2") and BLI remains the servicer of these notes. MCIFS2 and BLI are wholly owned consolidated subsidiaries of the Company. MCIFS2 and MCII Funding Inc. sell the qualifying notes receivable at 97% of the remaining principal to MCII Funding II, Inc. ("MCII Funding II"), an unconsolidated affiliated company. MCII Funding II then sells the qualifying notes receivable to a qualified securitization entity at 100% of the remaining principal balance.
Through September 30, 2000, the Company had realized proceeds of approximately $101.7 million from the sale of MCIFS2 notes receivable resulting in a loss on the securitization of $3.0 million and also recognized a $1.0 million charge from its 25% after-tax share of the losses due to securitization realized by MCII Funding Inc.
NOTE 3. INVENTORY VALUATION CHARGE
In the second quarter of 1999, the Company recorded a non-cash inventory charge of $21.0 million. $15.0 million of this charge was recorded to adjust the inventory of used coaches to reflect a change in asset management in response to the changing dynamics of the marketplace. The remaining $6.0 million charge was recorded to rationalize the inventory of replacement parts in conjunction with a revised plan developed during the second quarter of 1999 to consolidate the Company's replacement parts distribution activities into a single location.
In the second quarter of 1999, the Company recorded a $2.6 million after-tax ($4.2 million pre-tax) extraordinary charge associated with the early retirement of debt in connection with the financial restructuring completed on June 16, 1999. The charge consists primarily of early redemption premiums and other financing costs incurred partially offset by a gain resulting from the recognition of unamortized swap accretion deferred credits.
6
Inventories consisted of the following (dollars in thousands):
|
September 30, 2000 |
December 31, 1999 |
||||||
---|---|---|---|---|---|---|---|---|
Raw Materials | $ | 41,667 | $ | 42,865 | ||||
Work in Process | 60,314 | 41,513 | ||||||
Finished Goods | 167,045 | 163,634 | ||||||
269,026 | 248,012 | |||||||
Inventory Reserves | (27,045 | ) | (30,929 | ) | ||||
Total | $ | 241,981 | $ | 217,083 | ||||
Below is a schedule of outstanding debt as of September 30, 2000 and December 31, 1999 (dollars in thousands):
|
September 30, 2000 |
December 31, 1999 |
|||||||
---|---|---|---|---|---|---|---|---|---|
111/4% senior subordinated notes, due 2009 | $ | 152,250 | $ | 152,250 | |||||
Borrowings under senior secured credit facility: | |||||||||
Term loan B, due 2006 | 308,838 | 331,335 | |||||||
Revolving credit agreement, due 2005 | | 55,000 | |||||||
Total | 461,088 | 538,585 | |||||||
Less unamortized discount on 111/4% senior subordinated notes | (1,886 | ) | (2,051 | ) | |||||
Total | $ | 459,202 | $ | 536,534 | |||||
The Company, during the third quarter of 2000, made a $20 million voluntary repayment of its term loans in addition to its regularly scheduled debt payments. The Company, during the second quarter of 2000, paid all outstanding borrowings under the revolving credit agreement. The Company also signed two amendments that, among their provisions, resulted in an increase in the revolving credit line by $40.0 million to $152.0 million. The Company, at September 30, 2000, had outstanding letters of credit of $79.0 million pledged against that credit line, resulting in $73.0 available for future borrowings. The Company, at September 30, 2000, is in compliance with all loan covenant provisions.
NOTE 7. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In 2000, the Company received an additional capital contribution of $49,996,000, net of transaction costs, from its parent company. The Company also recorded charges of $5,182,000 to stockholders' equity to reflect adjustments in the charges to equity made during 1999 to record the forgiveness of receivables from affiliates associated with the 1999 financial restructuring.
7
NOTE 8. REVENUES, GROSS PROFIT AND OPERATING INCOME, SUPPLEMENTARY INFORMATION
Revenues, gross profit and operating income for the three and nine month periods ended September 30, 2000 and September 30, 1999 were as follows:
|
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(dollars in thousands) |
2000 |
1999 |
2000 |
1999 |
|||||||||||
Revenues: | |||||||||||||||
Coach Sales | $ | 105,481 | $ | 140,441 | $ | 385,780 | $ | 522,146 | |||||||
Customer Support Business | 33,432 | 44,803 | 109,199 | 146,729 | |||||||||||
Finance | 780 | 2,388 | 5,287 | 6,019 | |||||||||||
$ | 139,693 | $ | 187,632 | $ | 500,266 | $ | 674,894 | ||||||||
Gross profit (loss): | |||||||||||||||
Coach Sales | $ | 14,061 | $ | 30,990 | $ | 67,502 | $ | 106,894 | |||||||
Customer Support Business | 7,726 | 9,380 | 29,543 | 25,648 | |||||||||||
Finance | (193 | ) | 574 | 507 | 926 | ||||||||||
$ | 21,594 | $ | 40,944 | $ | 97,552 | $ | 133,468 | ||||||||
Operating income (loss): | |||||||||||||||
Coach Sales | $ | (6,543 | ) | $ | 8,824 | $ | 7,126 | $ | 36,318 | ||||||
Customer Support Business | 78 | 3,208 | 8,416 | 8,177 | |||||||||||
Finance | (1,164 | ) | (207 | ) | (5,726 | ) | (1,023 | ) | |||||||
$ | (7,629 | ) | $ | 11,825 | $ | 9,816 | $ | 43,472 | |||||||
Total assets as of September 30, 2000 were as follows (dollars in thousands):
Coach Sales | $ | 571,938 | ||
Customer Support Business | 208,914 | |||
Finance | 53,162 | |||
$ | 834,014 | |||
NOTE 9. COMPREHENSIVE INCOME (LOSS)
For the nine months ended September 30, 2000 and 1999, the Company's comprehensive income included net income and foreign currency translation losses. The Company recorded a foreign currency translation loss of $7,048,000 for the nine months ended September 30, 2000 compared to a $3,135,000 foreign currency translation gain during the comparable period of 1999. Therefore, total comprehensive income(loss) was ($30,391,000) for the nine months ended September 30, 2000, compared with ($6,178,000) for the comparable period of 1999.
8
NOTE 10. RELATED PARTY TRANSACTIONS
Related party transactions for the three and nine month periods ended September 30, 2000 and 1999 were as follows:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(dollars in thousands) |
2000 |
1999 |
2000 |
1999 |
||||||||||
Purchases from affiliated companies: | ||||||||||||||
Goods | $ | 2,158 | $ | 1,005 | $ | 7,528 | $ | 5,090 | ||||||
Services | (638 | ) | 1,425 | 1,197 | 7,120 | |||||||||
$ | 1,520 | $ | 2,430 | $ | 8,725 | $ | 12,210 | |||||||
Sales to affiliated companies: | ||||||||||||||
Goods | $ | 168 | $ | 666 | $ | 907 | $ | 3,175 | ||||||
Charges to affiliated companies: | ||||||||||||||
MCII Funding II | $ | 68 | $ | | $ | 350 | $ | | ||||||
Charges from affiliated companies: | ||||||||||||||
MCII Financial Services (1) | $ | | $ | 594 | $ | 1,005 | $ | 1,484 | ||||||
Grupo Dina Royalties | | | | 2,013 | ||||||||||
Grupo Dina Management Fee | | | | 417 | ||||||||||
$ | | $ | 594 | $ | 1,005 | $ | 3,914 | |||||||
NOTE 11. CHANGES IN OTHER OPERATING ACTIVITIES
Changes in other operating activities for the nine months ended September 30, 2000 and 1999 consisted of:
(dollars in thousands) |
2000 |
1999 |
||||||
---|---|---|---|---|---|---|---|---|
Decrease (increase) in accounts receivable | $ | 27,279 | $ | (5,090 | ) | |||
Decrease (increase) in inventories | (31,601 | ) | (28,134 | ) | ||||
Increase (decrease) in accounts payable | (19,301 | ) | 6,589 | |||||
Increase (decrease) in accrued income taxes | 8,639 | (32,006 | ) | |||||
Increase (decrease) in customer deposits | 32,847 | 12,566 | ||||||
All other changes, net | (20,579 | ) | (6,427 | ) | ||||
Changes in other operating activities | $ | (2,716 | ) | $ | (52,502 | ) | ||
NOTE 12. COMMITMENTS AND CONTINGENT LIABILITIES
Motor Coach Industries Limited's Canadian income tax returns for 1982 through 1992 have been under review for several years by the Canada Customs and Revenue Agency ("CCRA"). During September 2000, Advance Pricing Agreements were entered into by the Company with the Internal Revenue Service and the CCRA. These agreements covered the 1982 through 1999 tax years and resulted in a shift of $35,617,000 of income from the U.S. to Canada. The form of the settlement substantially eliminates the payment and receipt of interest, and thus the net financial differences attributable to the settlement were limited to differentials in tax rates and exchange rates, and did not have a material impact on the Company's financial condition or results of operations.
9
NOTE 13. GUARANTOR CONDENSED UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Income Statement
|
For the Three Months Ended September 30, 2000 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
||||||||||||
|
(dollars in thousands) |
||||||||||||||||
Revenue | $ | | $ | 114,260 | $ | 49,655 | $ | (24,222 | ) | $ | 139,693 | ||||||
Cost of sales (exclusive of items shown separately below) |
|
|
|
|
|
90,531 |
|
|
47,251 |
|
|
(24,222 |
) |
|
113,560 |
|
|
Interest expense, finance operations | | 324 | | | 324 | ||||||||||||
Depreciation & amorization expense | 126 | 4,118 | 3,280 | | 7,524 | ||||||||||||
Loss on securitization of notes receivable | | 780 | | | 780 | ||||||||||||
Research and development expenses | | 1,971 | 834 | | 2,805 | ||||||||||||
Tax profit allocation MCI/MCI Ltd. | | 6,989 | (6,989 | ) | | | |||||||||||
Selling, general and marketing expenses | 4,663 | 12,768 | 4,898 | | 22,329 | ||||||||||||
Operating income (loss) |
|
|
(4,789 |
) |
|
(3,221 |
) |
|
381 |
|
|
|
|
|
(7,629 |
) |
|
Interest (expense) income |
|
|
(8,137 |
) |
|
(6,218 |
) |
|
178 |
|
|
|
|
|
(14,177 |
) |
|
Foreign currency translation gain (loss) | (34 | ) | (200 | ) | (154 | ) | | (388 | ) | ||||||||
Other income (expense) | | (180 | ) | 564 | | 384 | |||||||||||
|
|
|
(8,171 |
) |
|
(6,598 |
) |
|
588 |
|
|
|
|
|
(14,181 |
) |
|
Income (loss) before income taxes |
|
|
(12,960 |
) |
|
(9,819 |
) |
|
969 |
|
|
|
|
|
(21,810 |
) |
|
Income taxes | (5,221 | ) | (3,296 | ) | 1,000 | | (7,517 | ) | |||||||||
Net income (loss) |
|
$ |
(7,739 |
) |
$ |
(6,523 |
) |
$ |
(31 |
) |
$ |
|
|
$ |
(14,293 |
) |
|
10
Condensed Consolidated Income Statement
|
Three Months Ended September 30, 1999 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
||||||||||||
|
(dollars in thousands) |
||||||||||||||||
Revenue | $ | | $ | 151,127 | $ | 78,776 | $ | (42,271 | ) | $ | 187,632 | ||||||
Cost of sales (exclusive of items shown separately below) |
|
|
|
|
|
122,011 |
|
|
63,672 |
|
|
(43,994 |
) |
|
141,689 |
|
|
Interest expense, finance operations | | 1,183 | | | 1,183 | ||||||||||||
Depreciation and amortization expense | 76 | 2,943 | 3,560 | | 6,579 | ||||||||||||
Research and development expenses | | 2,510 | 1,320 | | 3,830 | ||||||||||||
Tax profit allocation MCI/MCI Ltd. | | 6,858 | (6,858 | ) | | | |||||||||||
Selling, general and marketing expenses | (1,244 | ) | 14,276 | 9,494 | | 22,526 | |||||||||||
Operating income (loss) |
|
|
1,168 |
|
|
1,346 |
|
|
7,588 |
|
|
1,723 |
|
|
11,825 |
|
|
Interest (expense) income |
|
|
(9,251 |
) |
|
(3,511 |
) |
|
(1,466 |
) |
|
|
|
|
(14,228 |
) |
|
Foreign currency translation gain (loss) | | | (748 | ) | | (748 | ) | ||||||||||
Other income (expense) | (64 | ) | (486 | ) | 1,546 | | 996 | ||||||||||
|
|
|
(9,315 |
) |
|
(3,997 |
) |
|
(668 |
) |
|
|
|
|
(13,980 |
) |
|
Income (loss) before income taxes |
|
|
(8,147 |
) |
|
(2,651 |
) |
|
6,920 |
|
|
1,723 |
|
|
(2,155 |
) |
|
Income taxes | (3,466 | ) | (285 | ) | 2,520 | | (1,231 | ) | |||||||||
Net income (loss) |
|
$ |
(4,681 |
) |
$ |
(2,366 |
) |
$ |
4,400 |
|
$ |
1,723 |
|
$ |
(924 |
) |
|
11
Condensed Consolidated Income Statement
|
For the Nine Months Ended September 30, 2000 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
||||||||||||
|
(dollars in thousands) |
||||||||||||||||
Revenue | $ | | $ | 412,767 | $ | 184,285 | $ | (96,786 | ) | $ | 500,266 | ||||||
Cost of sales (exclusive of items shown separately below) |
|
|
|
|
|
316,000 |
|
|
167,851 |
|
|
(96,786 |
) |
|
387,065 |
|
|
Interest expense, finance operations | | 3,252 | | | 3,252 | ||||||||||||
Depreciation & amorization expense | 356 | 11,816 | 10,151 | | 22,323 | ||||||||||||
Loss on securitization of notes receivable | 962 | 3,087 | | | 4,049 | ||||||||||||
Research and development expenses | | 5,121 | 2,627 | | 7,748 | ||||||||||||
Tax profit allocation MCI/MCI Ltd. | | 21,682 | (21,682 | ) | | | |||||||||||
Selling, general and marketing expenses | 11,808 | 39,840 | 14,365 | | 66,013 | ||||||||||||
Operating income (loss) |
|
|
(13,126 |
) |
|
11,969 |
|
|
10,973 |
|
|
|
|
|
9,816 |
|
|
Interest (expense) income |
|
|
(30,286 |
) |
|
(11,978 |
) |
|
332 |
|
|
|
|
|
(41,932 |
) |
|
Foreign currency translation gain (loss) | (93 | ) | (39 | ) | 1,929 | | 1,797 | ||||||||||
Other income (expense) | | (337 | ) | (588 | ) | | (925 | ) | |||||||||
|
|
|
(30,379 |
) |
|
(12,354 |
) |
|
1,673 |
|
|
|
|
|
(41,060 |
) |
|
Income (loss) before income taxes |
|
|
(43,505 |
) |
|
(385 |
) |
|
12,646 |
|
|
|
|
|
(31,244 |
) |
|
Income taxes | (17,699 | ) | 1,688 | 8,110 | | (7,901 | ) | ||||||||||
Net income (loss) |
|
$ |
(25,806 |
) |
$ |
(2,073 |
) |
$ |
4,536 |
|
$ |
|
|
$ |
(23,343 |
) |
|
12
Condensed Consolidated Income Statement
|
Nine Months Ended September 30, 1999 |
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
||||||||||||
|
(dollars in thousands) |
||||||||||||||||
Revenue | $ | | $ | 547,492 | $ | 280,331 | $ | (152,929 | ) | $ | 674,894 | ||||||
Cost of sales (exclusive of items shown separately below) |
|
|
|
|
|
422,825 |
|
|
234,970 |
|
|
(151,592 |
) |
|
506,203 |
|
|
Cost of sales inventory valuation charge | | 21,000 | | | 21,000 | ||||||||||||
Interest expense, finance operations | | 3,007 | | | 3,007 | ||||||||||||
Depreciation and amortization expense | 198 | 8,465 | 11,044 | | 19,707 | ||||||||||||
Research and development expenses | | 5,196 | 3,267 | | 8,463 | ||||||||||||
Tax profit allocation MCI/MCI Ltd. | | 31,643 | (31,643 | ) | | | |||||||||||
Selling, general and marketing expenses | (1,076 | ) | 43,664 | 30,454 | | 73,042 | |||||||||||
Operating income (loss) |
|
|
878 |
|
|
11,692 |
|
|
32,239 |
|
|
(1,337 |
) |
|
43,472 |
|
|
Interest (expense) income |
|
|
(17,726 |
) |
|
(10,971 |
) |
|
(1,310 |
) |
|
|
|
|
(30,007 |
) |
|
Interest expense pushed down from related party | (11,601 | ) | | | | (11,601 | ) | ||||||||||
Foreign currency translation gain (loss) | | | (1,641 | ) | | (1,641 | ) | ||||||||||
Other income (expense) | 90 | (1,202 | ) | 602 | | (510 | ) | ||||||||||
(29,237 | ) | (12,173 | ) | (2,349 | ) | | (43,759 | ) | |||||||||
Income (loss) before income taxes |
|
|
(28,359 |
) |
|
(481 |
) |
|
29,890 |
|
|
(1,337 |
) |
|
(287 |
) |
|
Income taxes | (6,345 | ) | 1,255 | 11,502 | | 6,412 | |||||||||||
(22,014 | ) | (1,736 | ) | 18,388 | (1,337 | ) | (6,699 | ) | |||||||||
Extraordinary loss | (2,614 | ) | | | | (2,614 | ) | ||||||||||
Net income (loss) |
|
$ |
(24,628 |
) |
$ |
(1,736 |
) |
$ |
18,388 |
|
$ |
(1,337 |
) |
$ |
(9,313 |
) |
|
13
Condensed Consolidated Balance Sheet
|
September 30, 2000 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
|||||||||||||
|
(dollars in thousands) |
|||||||||||||||||
ASSETS | ||||||||||||||||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cash and cash equivalents | $ | 18,485 | $ | 2,905 | $ | 1,889 | $ | | $ | 23,279 | ||||||||
Trade and other accounts receivable, net | 11,294 | 81,561 | 36,449 | | 129,304 | |||||||||||||
Intercompany receivables (payables) | 691,499 | (476,834 | ) | (5,193 | ) | (209,472 | ) | | ||||||||||
Current portion of notes receivable | | 6,372 | 538 | | 6,910 | |||||||||||||
Inventories, net | | 179,394 | 62,999 | (412 | ) | 241,981 | ||||||||||||
Deferred income taxes | 21,881 | 13,299 | 1,893 | | 37,073 | |||||||||||||
Other current assets | 1,523 | 2,879 | 2,108 | | 6,510 | |||||||||||||
Total Current Assets |
|
|
744,682 |
|
|
(190,424 |
) |
|
100,683 |
|
|
(209,884 |
) |
|
445,057 |
|
||
Property plant & equipment | 1,315 | 60,155 | 44,972 | (31 | ) | 106,411 | ||||||||||||
Notes receivable | | 17,237 | 10,977 | | 28,214 | |||||||||||||
Investments in affiliates | 160,390 | | | (160,386 | ) | 4 | ||||||||||||
Intangibles assets | 1,692 | 140,956 | 65,461 | | 208,109 | |||||||||||||
Deferred income tax- long term | | (1,683 | ) | 15,731 | | 14,048 | ||||||||||||
Other assets | 19,820 | 7,149 | 5,202 | | 32,171 | |||||||||||||
Total Assets |
|
$ |
927,899 |
|
$ |
33,390 |
|
$ |
243,026 |
|
$ |
(370,301 |
) |
$ |
834,014 |
|
||
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Current Liabilites: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Accounts payable | $ | 1,437 | $ | 43,837 | $ | 25,608 | $ | | $ | 70,882 | ||||||||
Accrued compensation | 552 | 3,142 | 3,510 | | 7,204 | |||||||||||||
Accrued warranties | | 9,973 | 1,743 | | 11,716 | |||||||||||||
Accrued income taxes | 6,671 | (6,987 | ) | 10,815 | 435 | 10,934 | ||||||||||||
Customer deposits | | 32,654 | 5,864 | | 38,518 | |||||||||||||
Self insurance reserves | 3,411 | | | | 3,411 | |||||||||||||
Net liabilities of discontinued operations | | 3,083 | | | 3,083 | |||||||||||||
Other current liabilities | 12,338 | 3,407 | 4,439 | | 20,184 | |||||||||||||
Total Current Liabilities |
|
|
24,409 |
|
|
89,109 |
|
|
51,979 |
|
|
435 |
|
|
165,932 |
|
||
Long-term debt |
|
|
459,202 |
|
|
|
|
|
|
|
|
|
|
|
459,202 |
|
||
Pensions and other benefits | 13,635 | | 4,409 | | 18,044 | |||||||||||||
Deferred income taxes | 2,756 | | 5,158 | | 7,914 | |||||||||||||
Other deferred items & self insurance reserves | 5,221 | 8,177 | | | 13,398 | |||||||||||||
Total Liabilites |
|
|
505,223 |
|
|
97,286 |
|
|
61,546 |
|
|
435 |
|
|
664,490 |
|
||
Stockholder's Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Common stock and additional capital |
|
|
623,276 |
|
|
124,613 |
|
|
120,623 |
|
|
(481,901 |
) |
|
386,611 |
|
||
Accumulated deficit | (200,564 | ) | (188,509 | ) | 87,046 | 111,434 | (190,593 | ) | ||||||||||
Accumulated other comprehensive income | (36 | ) | | (26,189 | ) | (269 | ) | (26,494 | ) | |||||||||
Total Stockholder's Equity |
|
|
422,676 |
|
|
(63,896 |
) |
|
181,480 |
|
|
(370,736 |
) |
|
169,524 |
|
||
Total Liabilities and Stockholder's Equity |
|
$ |
927,899 |
|
$ |
33,390 |
|
$ |
243,026 |
|
$ |
(370,301 |
) |
$ |
834,014 |
|
||
14
Condensed Consolidated Balance Sheet
|
December 31, 1999 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
|||||||||||||
|
(dollars in thousands) |
|||||||||||||||||
ASSETS | ||||||||||||||||||
Current Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cash and cash equivalents | $ | 4,163 | $ | 2,204 | $ | 9,263 | $ | | $ | 15,630 | ||||||||
Trade and other accounts receivable, net | 6,782 | 91,407 | 47,502 | | 145,691 | |||||||||||||
Intercompany receivables (payables) | 758,889 | (543,678 | ) | (5,755 | ) | (209,456 | ) | | ||||||||||
Current portion of notes receivable | | 16,924 | 559 | | 17,483 | |||||||||||||
Inventories | | 163,478 | 55,105 | (1,500 | ) | 217,083 | ||||||||||||
Deferred income taxes | 7,146 | 16,546 | 1,797 | | 25,489 | |||||||||||||
Other current assets | 653 | 2,920 | 1,178 | | 4,751 | |||||||||||||
Total Current Assets |
|
|
777,633 |
|
|
(250,199 |
) |
|
109,649 |
|
|
(210,956 |
) |
|
426,127 |
|
||
Property, plant & equipment, net |
|
|
1,161 |
|
|
52,681 |
|
|
56,659 |
|
|
(31 |
) |
|
110,470 |
|
||
Notes receivable | | 54,833 | 2,938 | | 57,771 | |||||||||||||
Investments in affiliates | 160,388 | | | (136,568 | ) | 23,820 | ||||||||||||
Intangible assets, net | 1,729 | 141,374 | 69,620 | | 212,723 | |||||||||||||
Deferred income taxes-noncurrent | 1,483 | 2,694 | 15,798 | | 19,975 | |||||||||||||
Other non-current assets | 20,811 | 11,844 | 7,733 | | 40,388 | |||||||||||||
Total Assets |
|
$ |
963,205 |
|
$ |
13,227 |
|
$ |
262,397 |
|
|
(347,555 |
) |
$ |
891,274 |
|
||
LIABILITIES AND STOCKHOLDER'S EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Accounts payable | $ | 2,541 | $ | 48,034 | $ | 39,608 | | $ | 90,183 | |||||||||
Accrued compensation | 1,195 | 3,861 | 4,093 | | 9,149 | |||||||||||||
Accrued warranties | | 10,115 | 3,250 | | 13,365 | |||||||||||||
Accrued income taxes | 1,084 | (183 | ) | 3,794 | | 4,695 | ||||||||||||
Customer deposits | 952 | |||||||||||||||||
Self insurance reserves | 3,101 | | | | 3,101 | |||||||||||||
Net liabilities of discontinued operations | | 3,949 | | | 3,949 | |||||||||||||
Other current liabilities | 7,017 | 8,811 | 16,004 | (952 | ) | 30,880 | ||||||||||||
Total Current Liabilities |
|
|
14,938 |
|
|
74,587 |
|
|
66,749 |
|
|
|
|
|
156,274 |
|
||
Long-term debt |
|
|
536,534 |
|
|
|
|
|
|
|
|
|
|
|
536,534 |
|
||
Pensions and other benefits | 12,393 | | 4,296 | | 16,689 | |||||||||||||
Other deferred items & self insurance reserves | 6,169 | 8,598 | | | 14,767 | |||||||||||||
Deferred income taxes | 853 | 4,786 | 6,254 | | 11,893 | |||||||||||||
Total Liabilities |
|
|
570,887 |
|
|
87,971 |
|
|
77,299 |
|
|
|
|
|
736,157 |
|
||
Stockholder's Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Common stock and additional paid-in capital | 578,463 | 98,456 | 120,623 | (455,729 | ) | 341,813 | ||||||||||||
Accumulated deficit | (186,109 | ) | (173,200 | ) | 83,616 | 108,443 | (167,250 | ) | ||||||||||
Accumulated other comprehensive income | (36 | ) | | (19,141 | ) | (269 | ) | (19,446 | ) | |||||||||
Total Stockholder's Equity |
|
|
392,318 |
|
|
(74,744 |
) |
|
185,098 |
|
|
(347,555 |
) |
|
155,117 |
|
||
Total Liabilities and Stockholder's Equity |
|
$ |
963,205 |
|
$ |
13,227 |
|
$ |
262,397 |
|
$ |
(347,555 |
) |
$ |
891,274 |
|
||
15
Condensed Consolidated Statement of Cash Flows
|
For the Nine Months Ended September 30, 2000 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
|||||||||||||
|
(dollars in thousands) |
|||||||||||||||||
Cash Flows Provided By (Used In) Operating Activities | ||||||||||||||||||
Net Income (Loss) |
|
$ |
(25,806 |
) |
$ |
(2,073 |
) |
$ |
4,536 |
|
$ |
|
|
$ |
(23,343 |
) |
||
Adjustments to Reconcile Net Loss to Net Cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Provided By (Used In) Operations: | ||||||||||||||||||
Depreciation and amortization | 356 | 11,816 | 10,151 | | 22,323 | |||||||||||||
Deferred income taxes | (11,349 | ) | 2,763 | (1,125 | ) | | (9,711 | ) | ||||||||||
Loss on sale of property and investments | | 199 | 157 | | 356 | |||||||||||||
Loss on securitizations | 962 | 3,087 | | | 4,049 | |||||||||||||
Non-cash interest expense | 2,413 | | | | 2,413 | |||||||||||||
Other non-cash items | (4,706 | ) | 6,618 | 1,579 | | 3,491 | ||||||||||||
All other operating activities | 12,732 | (6,722 | ) | (8,710 | ) | (16 | ) | (2,716 | ) | |||||||||
Net Cash Provided By (Used In) Operating Activities |
|
|
(25,398 |
) |
|
15,688 |
|
|
6,588 |
|
|
(16 |
) |
|
(3,138 |
) |
||
Cash Flows Provided By (Used In) Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Capital expenditures | $ | (507 | ) | $ | (7,160 | ) | $ | (5,472 | ) | $ | | $ | (13,139 | ) | ||||
Investment in assets held for lease | | (3,754 | ) | | | (3,754 | ) | |||||||||||
Purchase of MCIFS, net of cash received | 338 | | | | 338 | |||||||||||||
Proceeds from sale of property and investments | | 8,067 | 90 | | 8,157 | |||||||||||||
Net proceeds from securitization of notes receivable | | 101,732 | | | 101,732 | |||||||||||||
Other changes in notes receivable | | (46,162 | ) | (8,018 | ) | | (54,180 | ) | ||||||||||
Discontinued operations, net changes | | (866 | ) | | | (866 | ) | |||||||||||
Net Cash Provided By (Used In) Investing Activities |
|
|
(169 |
) |
|
51,857 |
|
|
(13,400 |
) |
|
|
|
|
38,288 |
|
||
Cash Provided By (Used In) Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Payment of term B loan principal | (22,497 | ) | | | | (22,497 | ) | |||||||||||
Net change in bank credit facilities | (55,000 | ) | | | | (55,000 | ) | |||||||||||
Net change in related party receivables/payables | 67,390 | (66,844 | ) | (562 | ) | 16 | | |||||||||||
New paid-in capital, net of transaction costs | 49,996 | | | | 49,996 | |||||||||||||
Net Cash Provided By (Used In) Financing Activities |
|
|
39,889 |
|
|
(66,844 |
) |
|
(562 |
) |
|
16 |
|
|
(27,501 |
) |
||
Net Increase (Decrease) in Cash |
|
|
14,322 |
|
|
701 |
|
|
(7,374 |
) |
|
|
|
|
7,649 |
|
||
Cash and Cash Equivalents at Beginning of Period |
|
|
4,163 |
|
|
2,204 |
|
|
9,263 |
|
|
|
|
|
15,630 |
|
||
Cash and Cash Equivalents at End of Period |
|
$ |
18,485 |
|
$ |
2,905 |
|
$ |
1,889 |
|
$ |
|
|
$ |
23,279 |
|
||
16
Condensed Consolidated Statement of Cash Flows
|
Nine Months Ended September 30, 1999 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
MCII |
Guarantors |
Non-Guarantors |
Eliminations |
Consolidated |
|||||||||||||
|
(dollars in thousands) |
|||||||||||||||||
Cash Flows Provided By (Used In) Operating Activities | ||||||||||||||||||
Net Income (Loss) |
|
$ |
(24,628 |
) |
$ |
(1,736 |
) |
$ |
18,388 |
|
$ |
(1,337 |
) |
$ |
(9,313 |
) |
||
Adjustments to Reconcile Net Loss to Net Cash | ||||||||||||||||||
Provided By (Used In) Operations: | ||||||||||||||||||
Depreciation and amortization | 198 | 8,465 | 11,044 | | 19,707 | |||||||||||||
Extraordinary loss on early retirement of debt | 4,182 | | | | 4,182 | |||||||||||||
Noncash inventory valuation charge | | 21,000 | | | 21,000 | |||||||||||||
All other operating activities | 47,583 | (49,698 | ) | (58,461 | ) | 1,337 | (50,672 | ) | ||||||||||
Net Cash Provided By (Used In) Operating Activities |
|
|
27,335 |
|
|
(21,969 |
) |
|
(29,029 |
) |
|
|
|
|
(15,096 |
) |
||
Cash Flows Provided By (Used In) Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Capital expenditures | (350 | ) | (16,878 | ) | (2,104 | ) | | (19,332 | ) | |||||||||
Proceeds from sale of property and investments | | 12,275 | 59 | | 12,334 | |||||||||||||
Change in notes receivable | | (26,533 | ) | | | (26,533 | ) | |||||||||||
Discontinued operations, net changes | | 1,053 | | | 1,053 | |||||||||||||
Investments in assets held for lease | | (8,040 | ) | | | (8,040 | ) | |||||||||||
Transfer of Mexican subsidiaries | | | (1,483 | ) | | (1,483 | ) | |||||||||||
Net Cash Provided By (Used In) Investing Activities |
|
|
(350 |
) |
|
(38,123 |
) |
|
(3,528 |
) |
|
|
|
|
(42,001 |
) |
||
Cash Provided By (Used In) Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Proceeds from issuance of term B loans | 333,000 | | | | 333,000 | |||||||||||||
Proceeds from issuance of 111/4% senior sub notes | 150,080 | | | | 150,080 | |||||||||||||
Payment of term B loan principal | (833 | ) | | | | (833 | ) | |||||||||||
Payment of 9.02% senior notes | (105,321 | ) | | | | (105,321 | ) | |||||||||||
Payment of senior secured discount notes | (206,500 | ) | | | | (206,500 | ) | |||||||||||
Payment of debt issuance costs | (25,046 | ) | | | | (25,046 | ) | |||||||||||
Payment of parent company senior notes | (35,574 | ) | | | | (35,574 | ) | |||||||||||
Net change in other long-term borrowings | (21,774 | ) | | | | (21,774 | ) | |||||||||||
Net change in related party receivables, payables | (104,145 | ) | 49,066 | 38,377 | | (16,702 | ) | |||||||||||
Dividends paid to parent company | (74,459 | ) | | | | (74,459 | ) | |||||||||||
Net change in bank credit facilities | (91,000 | ) | | (8,594 | ) | | (99,594 | ) | ||||||||||
New paid-in-capital, net of transaction costs | 159,270 | | | | 159,270 | |||||||||||||
Net Cash Provided By (Used In) Financing Activities |
|
|
(22,302 |
) |
|
49,066 |
|
|
29,783 |
|
|
|
|
|
56,547 |
|
||
Net Increase (Decrease) in Cash |
|
|
4,683 |
|
|
(2,459 |
) |
|
(2,774 |
) |
|
|
|
|
(550 |
) |
||
Cash and Cash Equivalents at Beginning of Period |
|
|
5,415 |
|
|
3,801 |
|
|
14,822 |
|
|
|
|
|
24,038 |
|
||
Cash and Cash Equivalents at End of Period |
|
$ |
10,098 |
|
$ |
1,342 |
|
$ |
12,048 |
|
$ |
|
|
$ |
23,488 |
|
||
17
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
On June 16, 1999, MCII Holdings (USA), Inc. ("the Parent Company") completed a plan to financially restructure and reorganize itself. This move was necessitated because the Parent Company did not anticipate being able to generate sufficient cash flow to fund both its short term requirements for the debt payments and working capital needs and meet the required expiration of the Senior Credit Facility. On June 16, 1999 the Parent Company received $175 million from an investment group led by Joseph Littlejohn & Levy Fund III, in exchange for a 61% equity investment in the Parent Company, $50 million in Senior Notes of the Parent Company and warrants to purchase up to an additional 10% of the Parent Company's common stock on a fully dilutive basis. Consorcio G. Grupo Dina, S.A. de C.V. ("Grupo Dina") now owns a minority interest in the Parent Company. The Parent Company then made an additional $175 million equity investment in the Company. The Company also secured a $445 million Senior Secured Credit Facility and issued approximately $152 million of 111/4% Senior Subordinated Notes due 2009 at a discount of 98.575%. The $445 million Senior Secured Credit Facility consists of $333 million variable rate term loans due in 2006 and a $112 million revolving credit agreement due in 2005 (the "Revolver"). The Company used the proceeds from the equity investment, Senior Subordinated Notes, and the terms loans issued under the Senior Secured Credit Facility to pay off all of the Company's outstanding debt, $35.0 million of Parent Company senior notes, and make a final distribution to Grupo Dina of approximately $75 million. As part of the financial restructuring and reorganization, the Parent Company retained ownership of Transportation Manufacturing Operations, Inc. ("TMO") and Dina Autobuses, S.A. de C.V. ("Autobuses") and transferred its interest in its other minor Mexican subsidiaries to Grupo Dina. TMO's name was officially changed to Motor Coach Industries International, Inc. (MCII). Autobuses has become a subsidiary of MCII and its name has been changed to Motor Coach Industries Mexico, S.A. de C.V.
During the second quarter of 2000, the Company executed two amendments to its $445.0 million Senior Secured Credit Facility dated June 16, 1999. These amendments provided the Company the opportunity to complete an asset securitization on its long-term receivables and finance leases, increased the Revolver credit line $20.0 million, allows the Company to increase the Revolver credit line by up to an additional $40.0 million, and redefined certain loan covenant provisions contained in the Senior Secured Credit Facility. In conjunction with the execution of the amendments, the Parent Company issued additional shares of its common stock to the investment group led by JLL Fund III in exchange for $50.0 million in cash, and the Parent Company subsequently made an additional capital contribution of $50.0 million in the Company. After the issuance of the additional shares of stock, the investment group led by JLL Fund III holds a 69% equity investment in the Parent Company. The Company, during the third quarter, increased its credit line on the Revolver by an additional $20.0 million to a total of $152.0 million at September 30, 2000. The Company, at September 30, 2000, had no outstanding borrowings under the Revolver and had letters of credit totaling $79.0 million against the Revolver.
During the second quarter of 2000, the Company also completed the asset securitization transaction permitted under terms of the bank amendments signed by the Company. The Company executed several agreements in conjunction with this asset securitization deal (together referred to as "Asset Securitization Agreement"), allowing it to sell qualifying receivables and financing leases to a qualified securitization entity up to an aggregate outstanding amount of $250 million. Under the terms of the Asset Securitization Agreement, Bus-Lease, Inc. ("BLI") sold a substantial portion of its portfolio to MCII Financial Services II, Inc. ("MCIFS2") and BLI became servicer of the notes. Both companies are wholly owned, consolidated subsidiaries of the Company. The Company, then, completed an initial securitization where MCIFS2 and MCII Funding Inc. (together with MCII Financial Services Inc., referred to as "MCIFS1"), an indirectly owned 25% unconsolidated affiliate of the Company, sold qualifying receivables and leases to MCII Funding II, Inc., an unconsolidated
18
affiliated company, at 97% of the remaining principal balance. MCII Funding II, Inc., then sold these receivables and leases at 100% of the remaining principal balance to the Special Purpose Accounts Receivable Corporation ("SPARC"). MCIFS2 and MCI Funding Inc. recognized losses on the sale of notes to MCII Funding II, Inc. while MCII Funding II, Inc. recognized gains on the sale of the notes to SPARC. The Company recognized net proceeds from the initial securitization of $55.7 million, which were primarily used to pay down the Revolver. MCIFS1 also received net proceeds of approximately $127.5 million from the initial securitization which were used to repay its outstanding notes payable. The Company, through September 30, 2000, completed additional securitization transactions resulting in net proceeds of $46.0 million, which were used to fund ongoing operations and make a voluntary repayment on its outstanding term loans of $20 million in addition to its required payments.
The Company's total debt to total capitalization ratio decreased from 78% as of December 31, 1999 to 73% on September 30, 2000. The Company incurred $13.1 million in capital expenditures during the first nine months of 2000. The Company's working capital, excluding cash and cash equivalents, also increased from $254.2 million at the end of 1999 to $255.8 million on September 30, 2000.
Net cash used in operating activities during the first nine months of 2000 totaled $3.1 million compared to $15.1 million of cash used in operating activities for the comparable period of 1999. The major causes for the decrease in net cash used in operating activities are increases in cash generated from changes in accounts receivable and customer deposits of approximately $32.4 and $20.3 million, respectively, offset partially by cash used from changes in accounts payable of approximately $25.9 million and the impact of the increase in net losses, excluding depreciation and amortization, of approximately $11.4 million.
Net cash provided by investing activities totaled $38.3 million for the first nine months of 2000 compared to $42.0 million of cash used in investing activities during the same period of 1999. During the first nine months of 2000, the Company realized approximately $101.7 million in proceeds from the securitization of its qualifying notes receivable and finance leases. Capital expenditures during the first nine months of 2000 totaled approximately $13.1 million compared to $19.3 million during the comparable period of 1999. The Company used approximately $57.9 million, net of collections, during the first nine months of 2000 to finance customer coach purchases through its finance operations, compared to approximately $34.6 million, net, during the comparable period of 1999. Part of this increase in year-over-year net financing is attributed to the securitization transactions as the Company now sells its notes receivables instead of receiving payments from customers. Capital expenditures for 1999 include approximately $14.4 million associated with the construction of a new replacement parts distribution facility in Louisville, Kentucky, while capital expenditures in 2000 include approximately $4.0 million of expenditures associated with new systems and distribution equipment at Louisville, approximately $4.5 million associated with equipment additions in the Canadian new coach manufacturing facility and approximately $1.6 million associated with tooling for the new G-Coach. Proceeds from the sale of property and investments during the first nine months of 2000 of $8.2 million consists primarily of the sale of leased buses, while the $12.3 million of proceeds during the comparable period of 1999 consists of approximately $5.5 million from the sale of the Des Plaines, IL distribution facility and the balance primarily due to the sale of leased buses.
Net cash used in financing activities was $27.5 million for the nine months ended September 30, 2000 compared to $32.2 million of cash provided by financing activities for the comparable period of 1999. The cash used in financing activities in 2000 is attributable to the Company using proceeds from a $50.0 million equity investment by the Parent Company and a portion of the proceeds realized from the asset securitizations to pay off its existing borrowings under the revolving credit facility and a $20 million voluntary repayment in addition to its regularly scheduled payments on its term loans. The cash provided by financing activities during the comparable period of 1999 was primarily the result of the financial restructuring completed in June of 1999.
19
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000
AS COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1999
OVERVIEW
Revenues for the three months ended September 30, 2000 were $139.7 million, a decrease of $47.9 million, or 26%, from $187.6 million during the comparable period of 1999. This decline is primarily attributable to a lower number of new coach units sold and a decline in revenue from the sale of related replacement parts.
Gross profit for the three months ended September 30, 2000, was $21.6 million, a decrease of $19.3 million or 47% from the $40.9 million earned during the comparable period of 1999 as gross margins decreased from 21.8% earned during 1999 to 15.5% earned in 2000. The primary reasons for the gross margin decline are the impact of lower sales volume, new product startup costs, and unabsorbed fixed costs at the Mexican manufacturing facility.
Depreciation and amortization expenses have increased by $0.9 million, or 14% due primarily to an increase in depreciation expense from the wear and tear associated with coaches used on short-term leasing arrangements, and higher depreciation expense associated with the new distribution center and computer systems in Louisville, Kentucky, and new manufacturing equipment in Winnipeg, Canada.
The Company, during the third quarter of 2000, realized a loss on the sale of notes receivable through securitization of approximately $0.8 million. The loss arises from the sale of receivables to an unconsolidated affiliated company at 97% of the remaining principal. The unconsolidated affiliated company then sells the notes to the qualified securitization entity at 100% of the remaining principal and realizes a gain on the sale of notes to this entity.
Selling, general and administrative expenses for the three months ended September 30, 2000 of $22.3 million decreased $0.2 million, or 1%, from the $22.5 million of expenses realized in the comparable period of 1999.
Operating losses for the three months ended September 30, 2000 of $7.6 million were $19.4 million lower than the $11.8 million of operating income earned during the comparable period of 1999.
Interest expense for the Company for the three months ended September 30, 2000 decreased $0.1 million or 1% from the comparable period of 1999 as lower average borrowings were largely offset by higher average rates.
Foreign currency translation losses of $0.4 million for 2000 compared to $0.8 million for 1999 were primarily due to peso and Canadian dollar fluctuations against the US dollar and changes in the monetary position of the Company's Mexican subsidiary.
The Company recognized other income of $0.4 million for the three months ended September 30, 2000 compared to $1.0 million for the same period of 1999. This income is primarily due to gains realized on the disposal of fixed assets.
The income tax benefit for the three months ended September 30, 2000 increased $6.3 million from the comparable period of 1999. This increase is primarily due to an increase of $19.7 million in loss before taxes.
COACH SALES
Revenues from coach sales of $105.5 million for the three months ended September 30, 2000, decreased by $35.0 million or 25% from the comparable period of 1999. Revenue from new coaches decreased by $27.8 million or 23% as sales of new inter-city coaches totaled 301 units (223 units in the United States and Canada) compared to 454 units (292 units in the United States and Canada) during the same period of the prior year. The drop in unit sales is caused primarily by a decline in unit sales to the independent tour and charter operators, reflecting a substantial softening in market conditions. Also impacting unit sales in the third quarter were unexpected quality and delivery problems with some
20
of its component part suppliers that were experienced during the last two weeks of September. This resulted in the Company's inability to deliver coaches to the public sector originally scheduled for delivery during the quarter. Partially offsetting the drop in unit demand from the independents is an increase in the Company's order level from the public sector. Order backlog as of September 30, 2000 was 1,172 units (1,034 units in the United States and Canada), compared to 497 units, (467 units in the United States and Canada) at December 31, 1999. Pre-owned coach revenue during the three months ended September 30, 2000, decreased $7.1 million or 46% from the comparable period of 1999 due to the mix of units sold as the Company concentrated on clearing out its stock of older model coaches.
Gross profits for coach sales of $14.1 million for the three months ended September 30, 2000 decreased $16.9 million or 55% from the comparable period of 1999 as the gross margins decreased from 22.1% earned in 1999 to 13.3% earned in 2000. The decrease in the gross margins is primarily attributed to the impact of the lower volume of coaches sold during the period, more aggressive discounting to meet competition, and losses incurred at the Company's Mexican manufacturing facility in preparation for production of the Company's new G-series and F-35 series coaches. These increased costs were partially offset by the impact of cost reduction programs instituted during the second half of 1999.
Coach sales reported an operating loss of $6.5 million for the three months ended September 30, 2000, which was $15.4 million lower than the same period last year. Lower selling expenses partially offset the decline in gross profits.
CUSTOMER SUPPORT BUSINESS
Revenues for the Customer Support Business of $33.4 million for the three months ended September 30, 2000 declined by $11.4 million or 25% from the comparable period of 1999. The decrease is primarily due to a generally lower availability of replacements parts due to supplier problems experienced by the Company, caused, in one case, by a major competitor's acquisition of a component parts supplier and, in another case, by failure of a Mexico supplier to provide certain transit parts.
Gross profits from the Customer Support Business of $7.7 million for the three months ended September 30, 2000, were $1.7 million or 17% lower than the same period of 1999. The gross margins increased from 20.9% in 1999 to 23.1% in 2000 due primarily to the mix of products sold.
Operating income of $0.1 million for the three months ended September 30, 2000 compares to $3.2 million earned during the comparable period of 1999. The lower operating income is primarily the result of the lower gross profits and higher selling, general, and administrative expenses still reflecting relocation, training, and systems implementation expenses at the new distribution center.
FINANCE OPERATIONS
Revenues from finance operations of $0.8 million for the three months ended September 30, 2000 decreased $1.6 million or 67% from the comparable period of 1999. The decrease in revenues reflects a change in strategy by the Company which involves the Company now securitizing its notes receivables each month instead of holding the notes to maturity.
Operating losses from finance operations of $1.2 million for the three months ended September 30, 2000, included $0.8 million of losses realized from the securitization of notes receivable. Excluding this loss, operating losses of $0.4 million were incurred for the three months ended September 30, 2000 compared to operating losses of $0.2 million for the same period of 1999.
21
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999.
OVERVIEW
Revenues for the nine months ended September 30, 2000 were $500.3 million, a decrease of $174.6 million from $674.9 million for the comparable period of 1999. Included in 1999 revenues was approximately $10.5 million in revenue realized from subsidiary operations that were contributed to Grupo Dina as part of the financial restructuring plan completed on June 16, 1999. The year-over-year revenue decline, excluding this 1999 revenue, would have been $164.1 million or 24.7%.
Gross profits of $97.6 million for the first nine months of 2000 are $35.9 million, or 27% lower than the $133.5 million earned during the comparable period of 1999. Included in the 1999 gross profits is a $21.0 million non-cash inventory charge to reduce pre-owned coach and replacement part inventories that did not reoccur in 2000. Gross margins, exclusive of this charge, decreased from 22.9% in 1999 to 19.5% in 2000. The lower gross margin is primarily due to the impact of the lower sales volume, new product startup costs, and unabsorbed fixed costs at the Mexican manufacturing facility.
Depreciation and amortization expenses for the first nine months of 2000 have increased by $2.6 million over the comparable period of 1999 due to an increase in depreciation expense from the wear and tear expense associated with coaches used as demo coaches or out on short-term lease, and to higher depreciation expense associated with the new distribution center and computer systems in Louisville, Kentucky, and new manufacturing equipment in Winnipeg, Canada.
The Company, during the first nine months of 2000, has realized losses on the securitization of notes receivable of approximately $4.0 million. This loss is comprised of losses of approximately $3.0 million associated with the sale of receivables by MCIFS2 and $1.0 million from its 25% share of the after-tax losses incurred by MCIFS1 associated with the original securitization transaction completed during the second quarter of 2000. These losses arise from the sale of receivables to an unconsolidated affiliated Company at 97% of the remaining principal and an MCIFS1 pre-tax writeoff of approximately $2.0 million of deferred charges associated with the issuance of notes payable to other lenders, which were paid off from its proceeds of the securitization.
Selling, general and administrative expenses for the nine months ended September 30, 2000 of $66.0 million decreased $7.0 million from $73.0 million for the comparable period of 1999. Contributing to the decrease in selling, general and administrative expenses is approximately $2.4 million in royalty and management fees charged by Grupo Dina during the first nine months of 1999 that did not reoccur during the comparable period of 2000 as a result of the financial restructuring. Approximately $1.5 million of other costs incurred in 1999 were also eliminated in 2000 as a result of the financial restructuring. The balance of the decrease is primarily due to lower selling costs as a result of lower sales volume and lower benefit costs as a result of cost improvement initiatives implemented in late 1999 and 2000.
Operating income for the first nine months of 2000 totaled $9.8 million, a decrease of $33.7 million or 77% from the $43.5 million earned during the comparable period of 1999. Included in 1999 operating earnings is the impact of the $21.0 million non-cash inventory charge and included in 2000 is the $4.0 million of losses on the sale of notes receivable through securitization. Excluding the impact of these two charges, that did not occur in their respective comparable periods, the operating income margin declined from 9.6% in 1999 to 2.8% in 2000.
Interest expense for the Company for the nine months ended September 30, 2000 was $0.3 million higher than the comparable period of 1999 as the impact of higher average rates were partially offset by lower average borrowings.
22
Foreign currency translation gains of approximately $1.8 million for the first nine months of 2000, compared to a $1.6 million loss for the comparable period of 1999, was primarily due to peso and Canadian dollar fluctuations against the US dollar and changes in the monetary position of the Company's Mexican subsidiary.
The Company recognized other expense of $0.9 million for the nine months ended September 30, 2000 compared to $0.5 million for the same period of 1999. These expenses are primarily due to losses on the disposal of fixed assets.
The income tax benefit for the nine months ended September 30, 2000 increased $14.3 million from the comparable period of 1999. This increase is due to an increase of $30.1 million in the loss before taxes and the impact of the 1999 non-deductible interest expense of $11.6 million associated with the push-down of Parent Company debt.
The Company recognized an extraordinary loss of $2.6 million after-tax ($4.2 million pre-tax) during the second quarter of 1999 due to the early retirement of debt as a result of the 1999 financial restructuring and reorganization.
COACH SALES
Revenues from coach sales of $385.8 million for the nine months ended September 30, 2000, decreased by $136.4 million or 26% from the comparable period of 1999. Revenue from new coaches decreased by $102.4 million or 22% as sales of new inter-city coaches totaled 1123 units (920 units in the United States and Canada) compared to 1550 units (1201 units in the United States and Canada) during the same period of the prior year. The decline in unit deliveries is due primarily to a decline in coach deliveries to the independent tour and charter market, reflecting a substantial softening in market conditions. Also impacting unit deliveries were unexpected quality and delivery problems with some of its component part suppliers experienced during the last two weeks of September. This resulted in the Company's inability to deliver coaches to the public sector that were originally scheduled for delivery during the third quarter. Pre-owned coach revenue during the nine months ended September 30, 2000, decreased $34.0 million or 53% over the comparable period of 1999, due primarily to a decrease of 28% in the number of used coaches sold, and a unit mix change as the Company concentrates on clearing out its older models.
Gross profits for coach sales of $67.5 million for the nine months ended September 30, 2000 decreased $39.4 million or 37% from the comparable period of 1999. Gross profits for 1999 included a $15.0 million non-cash pre-owned coach inventory charge taken during the second quarter that reflected a change in asset management strategy in response to the changing dynamics of the marketplace. Gross margins, excluding this charge, decreased from 23.3% realized during the first nine months of 1999 to 17.5% realized during the comparable period of 2000. The decrease in the gross margins is primarily attributed to the impact of the lower volume of coaches sold during the period and losses incurred at the Company's Mexican manufacturing facility in preparation for production of the Company's new G-series and F-35 series coaches.
Operating income from coach sales of $7.1 million for the nine months ended September 30, 2000 decreased $29.2 million from the same period last year. Excluding the $15.0 million non-cash inventory charge incurred during 1999, operating income margins decreased from 9.8% for the nine months ended September 30, 2000 to 1.8% for the comparable period of 1999. The elimination of Dina royalty and management fees coupled with lower selling expenses as a result of lower sales and lower benefit costs as a result of cost reduction initiatives taken during late 1999 and early 2000 were the primary factors contributing to the lower year-over-year selling, general, and administrative expenses.
23
CUSTOMER SUPPORT BUSINESS
Revenues for the Customer Support Business of $109.2 million for the nine months ended September 30, 2000 declined by $37.5 million or 26% from the comparable period of 1999. Effective June 16, 1999, as part of the financial restructuring, the Company contributed its Mexican parts company to Grupo Dina which resulted in a decrease in revenue of approximately $8.4 million from a year ago. Approximately $11.3 million of the revenue decline is attributable to the problems experienced with product availability created by the acquisition of a component parts supplier by a major competitor and a Mexico supplier's inability to supply certain transit parts. The balance of the decline is largely attributable to a backlog issue experienced in the first quarter of 2000 associated with the relocation of a major warehouse to Louisville, Kentucky, product mix, and a general decline in market demand for the Company's products.
Gross profits from Customer Support Business of $29.5 million for the nine months ended September 30, 2000, were $3.9 million or 15% above the same period of 1999. Gross profits for 1999 included a $6.0 million non-cash inventory charge taken during the second quarter to rationalize inventories in connection with a revised plan developed in the second quarter of 1999 to consolidate the Company's distribution activities into a single location. Excluding the impact of this charge, gross margins increased from 21.6% in 1999 to 27.1% in 2000. The increase in the gross margin percentage is largely driven by product mix changes.
Operating income from the Customer Support Business of $8.4 million was $0.2 million or 3% higher than the comparable period of 1999. Operating income margins, excluding the impact of the $6.0 million non-cash inventory charge incurred in 1999, decreased from 9.6% for the nine months ended September 30, 1999 to 7.7% for the comparable period of 2000. The lower operating income margin for 2000 is due primarily to $3.7 million of higher selling, general and administrative expense primarily due to higher expenses associated with the implementation of its plan to consolidate its distribution center operations in Louisville, KY and the implementation of a new computer system.
FINANCE OPERATIONS
Revenues from finance operations of $5.3 million for the nine months ended September 30, 2000 decreased $.7 million or 12% from the comparable period of 1999. The decrease in revenues is due to a change in strategy implemented during the second quarter of 2000 which involves the Company now securitizing its notes each month instead of holding its notes to maturity.
Operating losses from finance operations for the nine months ended September 30, 2000 of $5.7 million include $4.0 million in losses associated with the securitization of notes receivable. Exclusive of this charge, operating losses increased by $0.8 million due primarily to the lower gross profits and higher selling, general, and administrative expenses.
RECENT EVENTS
On October 6, 2000 the Company issued a press release announcing that earnings for the third quarter of 2000 would be lower than previously anticipated and, in response to those results and the softer market conditions that are expected to continue into 2001, the Company is conducting a review of all of its operations with the intention of announcing a restructuring charge during the fourth quarter.
In the Company's second quarter, 2000 report on Form 10-Q filed with the SEC, the Company announced that Greyhound Lines, Inc. ("Greyhound"), a major customer of the Company, had reported that its parent company, Laidlaw, Inc., would no longer provide financing and cash funding to Greyhound. On October 25, 2000, Greyhound, in a press release, announced it had closed a financing arrangement with Foothill Capital Corporation for a two-year revolving line of credit of up to
24
$125 million. With closure of this agreement, Greyhound stated that it would be "independent of its parent company with respect to near-term financing needs." The agreement would provide Greyhound "with the working capital needed to fund its seasonal cash flow needs and capital expenditure requirements, as well as repay a $43 million intercompany advance to Laidlaw."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial position, results of our operations or cash flows due to adverse changes in financial and commodity market prices and rates. As a result of the financial restructuring discussed above, we are exposed to market risk in the area of change in U.S. interest rates. This exposure is directly related to our normal operating and funding activities.
Because the Company's obligations under its Senior Credit Facility include interest at floating rates, based on certain quoted rates, the Company is sensitive to changes in prevailing interest rates. An increase of 1% in the applicable base interest rates, based upon $308.8 million of borrowings under the facility as of September 30, 2000, would result in additional annual interest expense of approximately $3.0 million ($1.8 million after tax) and would not be material to the Company's cash flow or financial position.
FOREIGN CURRENCY
As a company with multi-national operations, certain of the Company's transactions are denominated in foreign currencies. The Company uses financial instruments to hedge or reduce its overall exposure to the effects of currency fluctuations in its cash flows. The Company's policy is not to speculate in such financial instruments for profit or gain. Instruments used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract.
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In the ordinary course of business, the Company is party to various employment and other legal actions as plaintiff or defendant. We are also subject to various product liability lawsuits in the United States and Canada for personal injuries and property damage, allegedly relating to the use of products manufactured or sold by us. We consider litigation of this nature to be in the ordinary course of business and, while we maintain product liability insurance in customary amounts to cover such matters, we cannot be assured that insurance will be available in the future or on terms acceptable to us. While the Company cannot determine with certainty the ultimate outcome of such lawsuits, it believes that it is not involved in any current litigation, or arbitration proceedings, which if determined adversely to it, either individually or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations.
The Company's Canadian subsidiary's (Motor Coach Industries Limited) income tax returns for 1982 through 1992 were under review for several years by the Canada Customs and Revenue Agency ("CCRA"). The CCRA proposed imputing additional income in Canada related to transactions with a US-based affiliate of the Company. A formal reassessment was issued by the CCRA for the 1985 return, and the Company filed a Notice of Objection for 1985 and requested Competent Authority relief from CCRA with respect to 1982-92. Thereafter, several years of negotiation took place involving the CCRA, IRS, and the Company. On May 26, 2000, the CCRA and the IRS reached an agreement in principle to settle the Company's cross-border transfer pricing issued by shifting certain income from the U.S. to Canada. The settlement documents were signed by all parties in September 2000, and cover the 1982-99 tax years. The settlement will not have a material adverse affect on the Company's financial condition or results of operations.
On August 8, 2000, the Company filed a suit against its former CEO, James P. Bernacchi and ABC Bus Companies, Inc. ("ABC") in the U.S. District Court for the Northern District of Illinois. The suit alleged that Bernacchi violated the terms of the non-compete provision in his employment agreement by going to work for the Company's competitor, ABC. The parties subsequently agreed to settle the lawsuit and the case was dismissed in October, 2000. The settlement will not have a material adverse effect on the Company's financial condition or results of operations.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
None.
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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.
MOTOR COACH INDUSTRIES INTERNATIONAL, INC. | ||||
November 20, 2000 |
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By: |
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/s/ HORST O. SIEBEN Horst O. Sieben Chief Financial Officer |
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