UNITED STATES
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission file number 0-23802
MOTIVEPOWER INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0461010
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Reedsdale Street, Pittsburgh, PA 15233
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412) 237-2250
--------------
(Registrant's telephone number, including area code)
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 ( )
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 6, 1997
----- -------------------------------
Common stock, $.01 par value 17,736,443
<PAGE>
21
MOTIVEPOWER INDUSTRIES, INC.
Quarterly Report on Form 10-Q for the
Three and Nine Months Ended September 30, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements PAGE
Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1997 and 1996 ........................ 3
Condensed Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 ................................................ 4
Condensed Consolidated Statements of Cash Flows for the Three and Nine
Months Ended September 30, 1997 and 1996 ............................. 5
Notes to Condensed Consolidated Financial Statements ................. 6
Item 2 Management's Discussion and Analysis of Results of Operations
and Financial Condition .............................................. 10
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 21
Item 3 Defaults upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signature 22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC ...........................
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Thousands of dollars except share data)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................................. $ 73,849 $ 69,046 $ 217,320 $ 205,282
Cost of sales ......................................... (56,350) (56,291) (164,681) (165,894)
------------ ------------ ------------ ------------
Gross profit .......................................... 17,499 12,755 52,639 39,388
General and administrative expense .................... (8,268) (8,278) (27,068) (24,106)
------------ ------------ ------------ ------------
Operating income ...................................... 9,231 4,477 25,571 15,282
Investment income ..................................... 230 418 532 1,661
Interest expense ...................................... (1,275) (1,345) (3,740) (6,992)
Other income - Argentina .............................. 391 13 1,186 1,461
Gain on sale of assets ................................ -- 465 -- 465
Foreign exchange (loss) gain .......................... (66) 118 (222) 172
------------ ------------ ------------ ------------
Income before income taxes ............................ 8,511 4,146 23,327 12,049
Income tax expense .................................... (3,134) (1,558) (9,064) (4,440)
------------ ------------ ------------ ------------
Net income ............................................ $ 5,377 $ 2,588 $ 14,263 $ 7,609
============ ============ ============ ============
Weighted average shares outstanding ................... 18,871,899 17,562,793 18,451,724 17,562,793
Primary earnings per share ............................ $ .28 $ .15 $ .77 $ .43
Weighted average shares outstanding ................... 19,062,308 17,562,793 19,062,308 17,562,793
Fully diluted earnings per share ...................... $ .28 $ .15 $ .75 $ .43
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS At September 30, 1997 and December 31,
1996 (Thousands of dollars except share data)
(Unaudited)
September 30, December 31,
ASSETS 1997 1996
------------------- -------------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents............................................. $ 9,906 $ 5,236
Receivables from customers:
Billed, net of allowance for doubtful accounts of $305 and $284, 41,777 25,754
respectively
Unbilled............................................................ 2,511 468
Inventories............................................................ 80,496 78,438
Deferred income taxes.................................................. 5,432 4,635
Other current assets................................................... 3,641 2,638
------------------- -------------------
Total current assets.............................................. 143,763 117,169
Locomotive lease fleet, net............................................ 1,535 2,083
Property, plant and equipment:
Land................................................................ 1,521 1,737
Buildings and improvements.......................................... 34,282 32,679
Machinery and equipment............................................. 57,503 53,211
------------------- -------------------
Property, plant and equipment - at cost............................. 93,306 87,627
Less - accumulated depreciation..................................... (48,487) (43,644)
------------------- -------------------
Property, plant and equipment - net.................................... 44,819 43,983
Underbillings - MPI de Mexico.......................................... 28,498 19,561
Deferred income taxes.................................................. 14,625 15,348
Goodwill and intangibles............................................... 23,626 24,637
Other.................................................................. 11,247 11,263
------------------- -------------------
Total assets .................................................. $ 268,113 $ 234,044
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt...................................... $ 9,814 $ 11,626
Accounts payable - trade............................................... 22,612 13,470
Accrued expenses and other current liabilities......................... 34,008 28,236
Income taxes payable................................................... 5,530 1,957
Revolving credit borrowings............................................ - 22,431
Advances from customers................................................ 4,301 -
------------------- ------------------
Total current liabilities........................................ 76,265 77,720
Long-term debt......................................................... 37,163 15,535
Commitments and contingencies.......................................... 15,801 18,394
Other.................................................................. 1,432 1,415
------------------- ------------------
Total liabilities................................................ 130,661 113,064
------------------- ------------------
Stockholders' Equity:
Common Stock, par value $.01 per share, authorized 55,000,000
shares; issued 17,705,818 shares at September 30, 1997 and 17,562,793
shares at December 31, 1996..................................... 177 176
Additional paid-in capital.......................................... 204,737 201,661
Deficit............................................................. (61,365) (75,629)
Cumulative translation adjustments, net of tax...................... (5,105) (5,105)
Deferred compensation............................................... (992) (123)
------------------- ------------------
Total stockholders' equity....................................... 137,452 120,980
------------------- ------------------
Total liabilities and stockholders' equity ............................ $ 268,113 $ 234,044
=================== ==================
</TABLE>
The accompanying notes are an integral part of the financial
statements.
<PAGE>
<TABLE>
<CAPTION>
MOTIVEPOWER INDUSTRIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Thousands of dollars)
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------ --------------------------
1997 1996 1997 1996
---- ---- ---- ----
Operating Activities
<S> <C> <C> <C> <C>
Net income $ 5,377 $ 2,588 $14,263 $ 7,609
---- ---- ---- ----
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . 1,575 2,084 4,941 5,369
Amortization . . . . . . . . . . . . . . . . . 851 833 2,488 2,540
Gain on sale of assets . . . . . . . . . . . . . - (465) - (465)
Receivables from customers . . . . . . . . . . . (6,695) 1,721 (18,066) (3,641)
Inventories . . . . . . . . . . . . . . . . . . (2,622) 1,884 (2,058) 6,575
Underbillings - MPI de Mexico . . . . . . . . . (4,777) (258) (8,937) (5,272)
Accounts payable and accrued expenses . . . . . 3,741 4,153 14,330 4,899
Advances from customers . . . . . . . . . . . . 1,487 (5,807) 4,301 11,864
Other, net . . . . . . . . . . . . . . . . . . . (3) 595 1,523 3,803
---- ---- ---- ----
Net cash (used in) provided by operating activities . . (1,066) 7,328 12,785 33,281
---- ---- ---- ----
Investing Activities
Additions to property, plant and equipment . . . . . . (3,143) (2,053) (7,833) (3,366)
Deletions from property, plant and equipment . . . . 1,558 - 2,122 -
Proceeds from sale of locomotive lease fleet, net . . - 15 - 10,071
Proceeds from sale of assets. . . . . . . . . . . . . - 3,762 - 3,762
Other, net . . . . . . . . . . . . . . . . . . . . . . (205) (357) 33 386
---- ---- ---- ----
Net cash (used in) provided by investing activities . . (1,790) 1,367 (5,678) 10,853
---- ---- ---- ----
Financing Activities
Increase in intangibles . . . . . . . . . . . . . . . . (114) (130) (1,477) (350)
Change in payable to Morrison Knudsen . . . . . . . . - (35,634) - (35,634)
Net borrowings (repayments) of debt . . . . . . . . . . 442 25,007 (2,615) (12,093)
Proceeds from exercise of stock options. . . . . . . . 1,418 - 1,655 -
---- ---- ---- ----
Net cash provided by (used in) financing activities . . 1,746 (10,757) (2,437) (48,077)
---- ---- ---- ----
Net (decrease) increase in cash and cash equivalents . (1,110) (2,062) 4,670 (3,943)
Cash and cash equivalents at beginning of period . . . 11,016 3,815 5,236 5,696
---- ---- ---- ----
Cash and cash equivalents at end of period . . . . . $ 9,906 $ 1,753 $9,906 $ 1,753
==== ==== ==== ====
Supplemental Disclosures of Cash Flow Information
Interest paid . . . . . . . . . . . . . . . . . . . . $ 392 $ 716 $ 1,526 $ 989
Income taxes paid, net . . . . . . . . . . . . . . . 1,752 121 4,686 182
</TABLE>
The accompanying notes are an integral part of the
financial statements.
<PAGE>
MOTIVEPOWER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements
Basis of Presentation: The financial statements included herein are unaudited.
In the opinion of management, these statements include all adjustments
consisting of normal, recurring adjustments necessary for a fair presentation of
the financial position of MotivePower Industries, Inc. and subsidiaries (the
"Company") at September 30, 1997 and the results of their operations and their
cash flows for the three and nine month periods ended September 30, 1997 and
1996. These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 1996 included in Form 10-K. The results of operations for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year.
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
Earnings Per Share: In February 1997 Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" ("SFAS 128") was issued. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier adoption is not permitted. The adoption of
SFAS 128 is not expected to materially affect the Company's calculations of
earnings per share and will have no impact on the Company's financial position
or results of operations.
Employee stock options are considered common stock equivalents and are
reflected in earnings per share calculations when their effect, using the
treasury stock method, is dilutive.
Comprehensive Income: In June 1997 Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" ("SFAS 130") was issued. SFAS 130 is
effective for financial statements issued for periods beginning after December
15, 1997. The adoption of SFAS 130 will have no impact on the Company's
financial position or results of operations.
Segment Information: In June 1997 Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131") was issued. SFAS 131 is effective for financial statements issued
for periods beginning after December 15, 1997. The Company has not yet
determined the effect of this standard.
2. Inventories
Inventories consist of the following:
(Unaudited)
September 30, December 31,
1997 1996
------- -------
(In thousands)
Raw materials ...................................... $37,887 $50,699
Work in progress ................................... 24,591 13,912
Finished goods ..................................... 18,018 13,827
------- -------
$80,496 $78,438
======= =======
Approximately $31 million and $34 million of total inventories at
September 30, 1997 and December 31, 1996, respectively, were valued on the LIFO
cost method. The excess current replacement cost of these inventories over the
stated LIFO value was $1 million and $902,000 at September 30, 1997 and December
31, 1996, respectively. Two of the Company's domestic subsidiaries value
inventory on the LIFO basis.
3. Indebtedness
On February 27, 1997, the Company and a syndicate of lenders led by
Bank of America NT and SA entered into a Second Amended and Restated Credit
Agreement to replace the Company's Restated Agreement with BankAmerica Business
Credit. The facility consists of a $20 million amortizing term loan and a $55
million revolving credit line including a $15 million letter of credit
sub-facility. The entire $75 million facility is for a term of four years and is
collateralized by substantially all of the domestic assets of the Company.
Interest rate spreads charged under the new facility will reset at the end of
each quarter based on the ratio of the Company's quarter-ending debt to trailing
12-month cash flow. Both base rate and LIBOR borrowings are available, at the
Company's discretion. Interest rates range from LIBOR plus 0.5% to LIBOR plus
2.0%, and base rate to base rate plus 1.0%. For the first six months of the
facility, interest rates may not go below LIBOR plus 1.0% for LIBOR-based
borrowings, and the base rate for base rate borrowings. The effective interest
rate was 6.54% for domestic borrowings and 8.83% for international borrowings at
September 30, 1997 and 8.61% and 8.44% respectively at December 31, 1996.
On May 23, 1997, the Company entered into Amendment No.1 to the Second
Amended and Restated Credit Agreement. The amendment increases the limit on the
issuance of performance bonds from $10 million to $30 million, increases the
limit on the issuance of letters of credit in support of performance bonds from
$2.5 million to $10 million and increases the limit on the aggregate amount of
letters of credit from $15 million to $20 million.
4. Commitments and Contingencies
The Company has commitments and performance guarantees arising from
locomotive remanufacturing contracts and maintenance agreements, and warranties
from the sale of new locomotives, remanufactured locomotives and components for
locomotives and engines.
Environmental: The Company is subject to a RCRA Part B Closure Permit (the
"Permit") issued by the Environmental Protection Agency and the Idaho Department
of Health and Welfare, Division of Environmental Quality relating to the
monitoring and treatment of groundwater contamination on, and adjacent to, the
Company's Boise Locomotive facility. In compliance with the Permit, the Company
has drilled wells onsite to retrieve and treat contaminated groundwater, and
onsite and offsite to monitor the amount of hazardous constituents. The Company
has estimated the expected aggregate undiscounted costs to be incurred over the
next 24 years, adjusted for inflation at 3% per annum, to be $4.8 million, based
on the Permit's Corrective Action Plan, and $4.4 million for contingent
additional Permit compliance requirements related to off-site groundwater
contamination.
The discounted liability at September 30, 1997, using a discount rate of 6.5%,
was $2.1 million based on the Permit's Corrective Action Plan, and $2 million
for contingent additional Permit compliance requirements related to offsite
groundwater contamination. The estimated outlays for each of the five succeeding
years from 1997 to 2001 are: $253,000, $260,000, $268,000, $317,000, and
$284,000. The Company was in compliance with the Permit at December 31, 1996 and
September 30, 1997.
Legal Proceedings: In December 1995, Morrison Knudsen, the Company and certain
of Morrison Knudsen's directors and officers were named as defendants in a
complaint (the "Pilarczyk Lawsuit") filed in the United States District Court
for the Northern District of New York by plaintiffs who were principals in
and/or held substantial stock in TMS, Inc. ("TMS"), a New York corporation
acquired by Morrison Knudsen on December 30, 1992. The complaint, which seeks
five million dollars in damages, alleges among other things, violations of
Section 10(b), Rule 10b-5 and Section 20(a) of the Securities Exchange Act of
1934, breach of contract, unjust enrichment, negligent misrepresentation and
common law fraud during Morrison Knudsen's acquisition of TMS in 1992.
Plaintiffs assert that the Company, which was not formed by Morrison Knudsen
until 1993, is fully responsible for the acts of Morrison Knudsen. However, the
actions complained of occurred before the Company was formed and the Company did
not assume such liabilities of Morrison Knudsen. A motion to dismiss, filed in
April 1996 on behalf of all defendants to the Pilarczyk Lawsuit, was granted on
May 19, 1997. On June 10, 1997 plaintiffs appealed the dismissal in the U.S.
District Court, Northern District of New York. The Company with the advice of
outside counsel, believes the causes of action in the Pilarczyk Lawsuit relating
to the Company are without merit. The Company intends to make appropriate
requests to the court to seek to require the plaintiff to pay the Company's
legal fees and costs.
The Company is engaged in a commercial dispute with a former supplier,
Samyoung Machinery Industrial Co. and Samyoung (America), Inc. (collectively,
"Samyoung"). The Company filed suit on April 16, 1996 alleging delivery of
defective product and seeking damages in excess of $1 million. Samyoung denies
that the product was defective and countersued to recover $300,000 under the
contract, and $10 million for trade libel and interference with prospective
economic relationships as a result of the Company allegedly making false
disparaging statements concerning the diesel engine assembly liners to
customers. The Company, with the advice of outside counsel, believes that
Samyoung's claims are without merit, and, to date, no evidence supporting
Samyoung's counterclaims has come to light through the discovery being conducted
by the parties. The Company intends to vigorously prosecute its own claims and
defend against Samyoung's counterclaims.
On June 25, 1997, Theodore E. Nelson ("Nelson"), then President and former 51%
owner of Touchstone Company ("Touchstone"), a wholly-owned subsidiary of the
Company, filed suit, seeking an unspecified amount of damages, against
Touchstone, Inc. (sic), MotivePower Industries, Inc. and Michael Wolf (President
of MotivePower Industries, Inc.) in the Chancery Court of Tennessee, Madison
County, Tennessee. Nelson disputed the amount of bonus or other monies earned by
him under his employment agreement with Touchstone, which was purchased on
February 1, 1994 by Morrison Knudsen Corporation, the former parent company of
MotivePower Industries. The complaint listed a variety of causes of action
including civil conspiracy, breach of contract, breach of duty of good faith and
fair dealing, misrepresentation, promissory fraud, and tortious interference
with contract and sought compensatory, punitive and treble damages and
attorney's fees in unspecified amounts. The Company, with the advice of outside
counsel, believed that Nelson's claims were without merit. On September 15,
1997, the Company filed a counterclaim with causes of action in breach of
contract, breach of fiduciary duty, appropriation of business or corporate
opportunity, fraud and deceit, breach of duty of good faith and fair dealing,
and civil conspiracy. In October 1997 the Company settled the disputes between
itself and Mr. Nelson, and Mr. Nelson resigned from Touchstone to pursue other
business opportunities. The estimated cost of the settlement had previously been
provided for in the financial statements. Touchstone's board of directors
appointed Jack E. Floyd as President of Touchstone upon the resignation of Mr.
Nelson. The board of directors for Touchstone had also initiated a management
transition program at Touchstone in the second quarter, and under this program,
the board of directors for Touchstone added a new vice president of sales and
marketing.
In the ordinary course of its business, the Company is involved in legal
proceedings incident to the normal conduct of its business, including contract
claims and employee matters.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company is a leader in the manufacturing of products for rail and other
power-related industries. Through its subsidiaries, the Company manufactures and
distributes engineered locomotive components; provides locomotive fleet
maintenance and overhauls, and diesel engine overhauls; manufactures new,
environmentally friendly, switcher, commuter and mid-range locomotives up to
4,000 horsepower; and manufactures components for power, marine and industrial
markets.
The Company recorded net income of $5.4 million, or 28 cents of primary
earnings per share, (fully diluted EPS was also 28 cents per share), on sales of
$73.8 million in the third quarter of 1997 compared to net income of $2.6
million, or 15 cents of primary earnings per share, (fully diluted EPS was also
15 cents per share) on sales of $69 million in the third quarter of 1996. For
the nine months ended September 30, 1997 the Company recorded net income of
$14.3 million or 77 cents of primary earnings per share, (fully diluted EPS was
75 cents per share) on sales of $217.3 million compared to net income of $7.6
million, or 43 cents of primary earnings per share, (fully diluted EPS was also
43 cents per share) on sales of $205.3 million for the nine months ended
September 30, 1996. The increase in profits in both periods of 1997 is the
result of higher sales volume, improved gross margins resulting from cost
reductions, productivity improvements and product mix, and substantially lower
corporate interest expense due to debt reduction and lower financing costs. The
difference between primary and fully diluted earnings per share arises from the
accounting method required to be used for stock options. The Company anticipates
that the effect on earnings per share in the fourth quarter of 1997 will be
similar to the third quarter of 1997, assuming current stock prices.
As the Company continues to focus on operating improvements, management has
identified the following six growth opportunities for the future: 1) outsourcing
by the railroads as they look to become more efficient in light of the recent
mergers; 2) expanding privatization of the Mexican market and opportunities to
enhance maintenance capabilities in Mexico; 3) international sales targeting
specifically the Pacific Rim, Latin America, Central Europe and the Mid-East for
component parts and original equipment locomotives; 4) new products in
traditional markets and new markets for traditional products as the Company
explores expanded applications of its proven products; 5) alliances with
Original Equipment Manufacturers combining skills to improve both products and
service; and 6) acquisitions that contribute to earnings and complement the
existing product base.
In February 1997, the U.S. Environmental Protection Agency issued a notice
of Proposed Rulemaking (NPRM) relating to requirements for the control of
emissions from locomotives and engines used in locomotives as required by the
Clean Air Act. The final rules are expected to be issued in late 1997. The
Company, in order to best serve its customers and the railroad industry, has
begun research and development which will allow the Company to become a full
service emissions company that is capable of supplying customers emissions needs
for kits, engines, remanufactured and new locomotives, maintenance,
documentation and testing services. The Company believes that development of
products and services related to emissions control will protect current sales of
related component parts and will position the Company to capitalize on EPA
regulatory opportunities as they develop. In addition, the Company anticipates
that the marine industry will be similarly regulated in the future, at which
point the Company would be well positioned to serve those needs. The Company's
expenditures relating to this project are expected to be approximately $300,000
in 1997, $3.8 million in 1998, and $3 million per year thereafter.
This document contains certain statements regarding the Company's goals and
expectations, including statements that suggest the Company will increase
revenues and earnings, and otherwise improve its business operations. Statements
such as these, and other statements that discuss the future of the Company or
the rail industry, are forward-looking statements. The Company's actual results
could differ materially from the results suggested in any forward-looking
statement. Factors that could cause or contribute to these material differences
include, but are not limited to, the following:
- --Continued consolidation by U.S. and Canadian railroads, which could cause them
to reduce purchases of goods and services;
- --Changes in the Mexican government's railroad privatization efforts;
- --A general decline in the U.S. or Mexican economy;
- --A decrease in NAFTA rail traffic as measured by revenue ton-miles and
locomotive fleet utilization;
- --The Company's inability to secure new or retain existing domestic contracts;
- --The Company's inability to grow through strategic alliances, joint
ventures or acquisitions.
<PAGE>
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
The following table sets forth the percentage of sales represented by
certain items in the Company's Condensed Consolidated Statements of Operations:
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales .......................... 100.0% 100.0% 100.0% 100.0%
Cost of sales ...................... (76.3) (81.5) (75.8) (80.8)
------ ------ ------ ------
Gross profit ....................... 23.7 18.5 24.2 19.2
General and administrative expense . (11.2) (12.0) (12.5) (11.7)
------ ------ ------ ------
Operating income ................... 12.5 6.5 11.7 7.5
Investment income .................. .3 .6 .2 .8
Interest expense ................... (1.7) (2.0) (1.7) (3.4)
Other income - Argentina ........... .5 -- .6 .7
Gain on sale of assets ............. -- .7 -- .2
Foreign exchange (loss) gain ....... (.1) .2 (.1) .1
------ ------ ------ ------
Income before income taxes ......... 11.5 6.0 10.7 5.9
Income tax expense ................. (4.2) (2.3) (4.2) (2.2)
------ ------ ------ ------
Net income ......................... 7.3% 3.7% 6.5% 3.7%
====== ====== ====== ======
<PAGE>
</TABLE>
Consolidated Operations
Three Months Ended September 30, 1997
- -------------------------------------
Net sales for the three months ended September 30, 1997 were $73.8
million, compared to $69 million for the three months ended September 30, 1996,
an increase of 7%. Excluding sales from divested operations, the sales increase
for the three months ended September 30, 1997 was 11%. The increase in sales is
primarily attributed to increased sales in the Components Group, principally
international sales at Motor Coils. Increased locomotive maintenance sales at
MPI de Mexico were offset by a decrease in sales at Boise Locomotive. The
decrease in sales at Boise Locomotive between periods is attributed to the sale
of switcher locomotives in the 1996 period, which were not repeated in the 1997
period.
Gross profit for the three months ended September 30, 1997 was $17.5
million or 24%, compared to $12.8 million, or 18%, for the three months ended
September 30, 1996. The increase in gross profit is attributed to the increased
sales volume, continuing cost reductions, productivity improvements and a
favorable product mix.
General and administrative expense for the three months ended September
30, 1997 was $8.3 million, compared to $8.3 million for the three months ended
September 30, 1996. Although general and administrative expense is the same as
the prior period, current period expense includes costs for incentive related
programs ($700,000) and stock option and stock appreciation programs ($433,000).
These costs were offset by cost reductions, allowing overall costs between
periods to remain level.
Investment income for the three months ended September 30, 1997 was
$230,000 compared to $418,000 for the three months ended September 30, 1996. The
decrease is primarily attributed to a decrease in funds invested at MPI de
Mexico, partially offset by an increase in funds invested domestically.
Interest expense for the three months ended September 30, 1997 was $1.3
million compared to $1.3 million for the three months ended September 30, 1996.
A decrease in domestic interest expense resulting from decreased borrowings and
a rate reduction was offset by increased borrowings at MPI de Mexico needed to
support the investment in facilities and equipment.
Other income - Argentina for the three months ended September 30, 1997
was $391,000 compared to $13,000 for the three months ended September 30, 1996.
For both periods, this other income represents amounts received from the
Company's restructured investments in Argentina. Due to the uncertain financial
strength of the other parties involved, the Company recognizes income only when
funds are actually received.
The gain on sale of assets of $465,000 for the three months ended
September 30, 1996 is the result of net sale proceeds in excess of net assets
sold associated with the sale of Alert Manufacturing and Supply Co.
A foreign exchange loss of $66,000 was realized for the three months
ended September 30, 1997 compared to a foreign exchange gain of $118,000 for the
three months ended September 30, 1996, as a result of fluctuations in the
Mexican peso.
Income tax expense for the three months ended September 30, 1997 was
$3.1 million, or 36.8% of pre-tax income, compared to $1.6 million or 37.6% of
pre-tax income for the three months ended September 30, 1996. The increase in
the expense is directly related to the increased pre-tax income between periods.
The Company has formed a Foreign Sales Corporation ("FSC"), which reduced the
effective tax rate for the current quarter when compared to the previous years
quarter as well as the previous two quarters of 1997. In addition, the Company
anticipates that future periods' tax expense will be reduced through the use of
the FSC.
Nine Months Ended September 30, 1997
- ------------------------------------
Net sales for the nine months ended September 30, 1997 were $217.3
million, compared to $205.3 million for the three months ended September 30,
1996, an increase of 6%. Excluding sales from divested operations, the sales
increase for the nine months ended September 30, 1997 was 13%. The increase in
sales is primarily attributed to increased international sales in the Components
Group and increased locomotive maintenance sales at MPI de Mexico. Sales at
Boise Locomotive decreased as a result of decreased sales of switcher
locomotives between periods.
Gross profit for the nine months ended September 30, 1997 was $52.6
million or 24%, compared to $39.4 million, or 19%, for the nine months ended
September 30, 1996. The increase in gross profit is attributed to the increased
sales volume, a favorable product mix, continuing cost reductions and
productivity improvements.
General and administrative expense for the nine months ended September
30, 1997 was $27.1 million, compared to $24.1 million for the nine months ended
September 30, 1996. The increase is primarily attributed to approximately $2
million of expenses related to stock appreciation rights and stock options, and
approximately $2.5 million of performance related incentive expenses. These
costs were partially offset by cost reductions in other areas.
Investment income for the nine months ended September 30, 1997 was
$532,000 compared to $1.7 million for the nine months ended September 30, 1996.
The decrease is primarily attributed to a decrease in funds invested at MPI de
Mexico.
Interest expense for the nine months ended September 30, 1997 was $3.7
million compared to $7 million for the nine months ended September 30, 1996. The
decrease is attributed to decreased domestic borrowings, the redemption in
September 1996 of $56.6 million of debt owed to the Company's former majority
shareholder and a decrease in the interest rate charged on domestic borrowings.
These decreases were partially offset by increased borrowings under the Mexican
credit facility needed to support the investments in facilities and equipment.
Other income - Argentina for the nine months ended September 30, 1997
was $1.2 million compared to $1.5 for the nine months ended September 30, 1996.
For both periods, this other income represents amounts received from the
Company's investments in Argentina. Due to the uncertain financial strength of
the other parties involved, the Company recognizes income only when funds are
actually received.
The gain on sale of assets of $465,000 for the nine months ended
September 30, 1996 is the result of net sale proceeds in excess of net assets
sold associated with the sale of Alert Manufacturing and Supply Co.
A foreign exchange loss of $222,000 was realized for the nine months
ended September 30, 1997 compared to a foreign exchange gain of $172,000 for the
nine months ended September 30, 1996, as a result of fluctuations in the Mexican
peso.
Income tax expense for the nine months ended September 30, 1997 was
$9.1 million, or 38.9 % of pre-tax income, compared to $4.4 million or 36.8% of
pre-tax income for the nine months ended September 30, 1996. The increase in the
expense for the nine months ended September 30, 1997 compared to the nine months
ended September 30, 1996 is related to the increased pre-tax income between
periods, the reduced availability of net operating loss carryforwards in 1997 in
conjunction with Morrison Knudsen distributing its remaining ownership stake in
the Company as part of Morrison Knudsen's bankruptcy settlement in October 1996,
partially offset by the utilization of the FSC in the current quarter.
FINANCIAL CONDITION AND LIQUIDITY
In February 1997, the Company entered into a Second Amended
and Restated Credit Agreement which consists of a $20 million amortizing term
loan and a $55 million revolving credit line including a $15 million letter of
credit sub-facility. In addition to providing increased borrowing capacity, the
credit agreement also provides for a reduction in interest rates as compared to
the Company's previous credit facility.
On May 23, 1997, the Company entered into Amendment No.1 to the Second
Amended and Restated Credit Agreement. The amendment increases the limit on the
issuance of performance bonds from $10 million to $30 million, increases the
limit on the issuance of letters of credit in support of performance bonds from
$2.5 million to $10 million and increases the limit on the aggregate amount of
letters of credit from $15 million to $20 million.
In February 1997, the Board of Directors of the Company approved the
funds to construct a new facility and relocate the Company's Touchstone
operations. On October 3,1997, Touchstone signed a contract for construction of
the facility. Currently, the total project cost is estimated at approximately
$5.3 million, inclusive of the land which was purchased earlier this year. The
Company is, and will continue to, monitor and review the project in an attempt
to reduce the overall project cost to approximately $5 million. The Company
intends to fund the project through local Industrial Revenue Bonds. It is
anticipated that the new facility will be available for occupancy on or about
May 1, 1998.
On July 3, 1997 the Company entered into a 90-day outright forward
foreign exchange transaction with a domestic bank in an effort to protect
Company assets in Mexico against a possible currency devaluation. On October 7,
1997, the contract was renewed for another 90-day period. The contract is marked
to market on a monthly basis.
The table below highlights the debt and cash position of the Company at the
dates indicated.
September 30, September 30,
1997 1996
---- ----
(In thousands)
Domestic-revolver ............................. $ -- $39,576
Domestic-term loan ............................. 19,375 --
MPI de Mexico credit facility .................. 27,602 14,525
Other domestic debt ............................ -- 1,829
------- -------
Total debt ..................................... $46,977 $55,930
======= =======
Cash and equivalents ........................... $ 9,906 $ 1,753
======= =======
With the revised domestic credit agreement, the Company's cash position
and the Company's profitable operating results, management believes that its
financing is adequate to support its normal operations and capital spending
requirements. This is a forward-looking statement, and factors such as a
decrease in rail traffic, a reduction in railroads' capital and maintenance
spending plans with regard to their locomotive fleets, or the Company's
inability to retain existing contracts and/or obtain new contract awards are
among the factors which could affect the Company's financing needs.
The following table summarizes the net changes in cash flows.
Nine Months Ended
September 30,
1997 1996
---- ----
(In thousands)
Net cash provided by (used in)
Operating activities ............................... $ 12,785 $ 33,281
Investing activities ............................... (5,678) 10,853
Financing activities ............................... (2,437) (48,077)
-------- --------
Net increase (decrease) in cash and equivalents .... $ 4,670 $ (3,943)
======== ========
Cash and equivalents at end of period .............. $ 9,906 $ 1,753
======== ========
Net cash provided by operating activities totaled $12.8 million for the
first nine months of 1997, compared to $33.3 million for the first nine months
of 1996. During the first nine months of 1997, accounts receivable increased
$18.1 million principally as a result of increased sales at the operating
groups, including a very strong sales month in September 1997. Inventories in
the first nine months of 1997 increased $2.1 million primarily from the
manufacturing of two new demonstration models of the switcher locomotive being
used for "test drives" by potential customers in North America. Offsetting these
working capital increases, was an increase in accounts payable and accrued
expenses in the first nine months of 1997 of $14.3 million. Depreciation and
amortization for the first nine months of 1997 was $7.4 million.
Net cash used in investing activities totaled $5.7 million for the first
nine months of 1997 compared to net cash provided by investing activities of
$10.9 million for the first nine months of 1996. The first nine months of 1996
were favorably affected by $10.1 million of proceeds from the sale of the
locomotive lease fleet, and $3.8 million of proceeds from the sale of Alert
Manufacturing and Supply Co. The majority of the 1997 activity relates to
additions to property, plant and equipment, with the largest expenditures being
made at MPI de Mexico. Offsetting the additions were $2.1 million of fixed asset
disposals, the majority being the sale of the Touchstone production facility.
The Company expects additions to property, plant and equipment in 1997 to be
significantly greater than 1996 as a result of the construction of a new
facility at Touchstone and contractual obligations for fixed asset additions at
MPI de Mexico. Actual capital expenditures could vary based on availability of
capital, interest rate increases and changes in market conditions.
Net cash used in financing activities totaled $2.4 million for the first
nine months of 1997, compared to $48.1 million for the first nine months of
1996. The 1996 activity is principally the pay down of debt by the Company,
including the Morrison Knudsen debt, as part of its restructuring plan. The 1997
activity is the net pay down of debt with cash generated by operations, and an
increase in intangible assets, principally bank fees, paid in connection with
the closing of the new domestic credit facility offset by proceeds from the
exercise of stock options.
COMPONENTS GROUP
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
--------- --------- -------- ---------
(In
thousands)
Net sales ................... $ 37,011 $ 30,859 $117,267 $ 108,816
Less: divested operations ... -- (1,025) -- (7,154)
========= ========= ======== =========
Adjusted net sales .......... $ 37,011 $ 29,834 $117,267 $ 101,662
========= ========= ======== =========
Percentage change ........... 24% 15%
Operating income ............ $ 5,534 $ 3,385 $ 20,406 $ 14,743
Less: divested operations ... -- 180 -- (142)
========= ========= ======== =========
Adjusted operating income ... $ 5,534 $ 3,565 $ 20,406 $ 14,601
========= ========= ======== =========
Percentage change ........... 55% 40%
The increase in adjusted net sales for the three-month and nine-month
period ended September 30, 1997 compared to the three-month and nine-month
period ended September 30, 1996 is primarily attributed to increased sales at
Motor Coils, Engine Systems and Power Parts in both the international and
domestic markets. The increase in adjusted operating income for the three-month
and nine-month period ended September 30, 1997, compared to the three-month and
nine-month period ended September 30, 1996 is primarily attributed to the
increased sales volume, particularly the international portion, in addition to
cost reductions and production efficiencies at the operating entities.
LOCOMOTIVE GROUP
Three Months Ended Nine Months Ended
September 30, September 30,
-------- --------
1997 1996 1997 1996
-------- -------- -------- --------
(In
thousands)
Net sales ...................... $ 36,839 $ 38,188 $100,053 $ 96,466
Less: divested operations ...... -- (1,404) -- (6,037)
-------- -------- -------- --------
Adjusted net sales ............. $ 36,839 $ 36,784 $100,053 $ 90,429
======== ======== ======== ========
Percentage change .............. 0% 11%
Operating income ............... $ 6,531 $ 3,581 $ 15,909 $ 8,396
Less: divested operations ...... -- (210) -- (1,531)
-------- -------- -------- --------
Adjusted operating income ...... $ 6,531 $ 3,371 $ 15,909 $ 6,865
======== ======== ======== ========
Percentage change .............. 94% 132%
The adjusted net sales for the three-month period ended September 30, 1997
remained constant when compared to the three-month period ended September 30,
1996. In comparing the periods, sales decreased at Boise Locomotive, as a direct
result of decreased switcher locomotive sales. This sales decrease was offset by
an increase in sales at MPI de Mexico under the base contract and additional
non-contract work. The increase in operating income for the three-month period
ended September 30, 1997 compared to the three-month period ended September 30,
1996 is primarily attributed to increased operating efficiencies at Boise
Locomotive and improved operating efficiencies and increased sales volume at MPI
de Mexico.
The increase in adjusted net sales for the nine-month period ended
September 30, 1997 compared to the nine-month period ended September 30, 1996 is
a result of decreased sales at Boise Locomotive, principally switcher
locomotives, offset by increased sales at MPI de Mexico under the base contract
and non-contract work. The increase in operating income for the nine-month
period ended September 30, 1997 compared to the nine-month period ended
September 30, 1996 is primarily attributed to the sales volume increase at MPI
de Mexico and operating efficiencies, and cost reductions at both Boise
Locomotive and MPI de Mexico.
SIGNIFICANT EVENTS
During the quarter ended September 30, 1997, and subsequently, MotivePower
Industries announced the following contracts through its subsidiaries:
-On August 25, 1997 Touchstone Company was awarded a two-year contract
renewal for inventory management and supply of heat exchanger products by
the Union Pacific Railroad. Based on current volumes, the contract is
worth about $6 million.
- On September 15, 1997, Motor Coils Manufacturing Company was awarded
$3.4 million of international contracts to supply locomotive traction
motors and components. The orders included a $1.7 million worth of
orders from Korea, Brazil, and Australia. It is anticipated these
orders will be filled in thefourth quarter of 1997 and the first quarter
of 1998.
- On September 17, 1997, Engine Systems signed a two year contract with the
Union Pacific Railroad to supply locomotive turbochargers and
related components. The contract is expected to generate approximately
$17 million in revenue over the next two years, compared to
approximately $12 million in the previous two years.
- On September 24, 1997, Boise Locomotive Company was awarded a contract to
overhaul six locomotives for approximately $7 million for the Mass Transit
Administration of the Maryland Department of Transportation. The work will
be completed during the first half of 1998.
- On October 16, 1997, Boise Locomotive was awarded contracts worth
approximately $30 million to overhaul locomotives for Burlington Northern
and Sante Fe Railway, First Union Rail Corporation, and Tri-County Commuter
Rail Authority. The contracts are expected to begin in the fourth quarter of
this year and be completed by the third quarter of 1998.
OTHER SIGNIFICANT EVENTS
On July 24, 1997 Touchstone sold its existing production facilities in
Jackson, Tennessee for $1.1 million and concurrently entered into a short-term
lease of the same facilities through May 1998, at which time a manufacturing
facility currently in the early stages of construction is expected to be
available for occupancy. The sale of the facilities was made at book value.
On August 18, 1997, MotivePower Industries common stock began trading on the
New York Stock Exchange under the symbol "MPO". Since going public in April
1994, the Company's stock had traded on Nasdaq.
On August 22, 1997, the Board of Directors of MotivePower Industries Inc.
amended the Company's Stockholder Rights Plan, increasing the exercise price
from $16 per share to $80 per share. The plan was neither adopted nor amended in
response to any specific take over bid.
On September 8, 1997, MotivePower Industries announced that Boise
Locomotive has manufactured demonstration models of its two new low-horsepower
locomotives that railroads can test drive and fully evaluate at their respective
locations. The units are booked for demonstrations through January 1998.
On March 6, 1997 the Company signed a letter of intent to sell its
Mountaintop, Pa facility to Summit Manufacturing Inc. The agreement extended the
term of the letter to October 31, 1997. The Company and Summit did not close the
sale of the property by October 31, 1997, and accordingly the Company has put
the property back on the market, and Summit has forfeited the hand money
($100,000) and the retention payments ($100,000). The Company will continue to
pursue the sale of the property to Summit but will also pursue sale of the
facility to other interested parties. It is not anticipated the sale of the
facility will close in 1997.
On October 7, 1997 Jack E. Floyd, vice president of finance and controller
of Boise Locomotive Company, was named president of Touchstone Company. Floyd
replaced Ted Nelson, who resigned to pursue other business opportunities, after
serving as president of Touchstone since 1982.
On October 23, 1997, the Company announced that it has signed a Memorandum
of Understanding with ANI Railway Transportation Group to create an exclusive
distribution agreement for the Pacific Rim Region.
BACKLOG
The Company's total backlog at September 30, 1997 is summarized as follows:
1997 Other Years Total Backlog
---------------------- --------------------- ------------------
(In thousands)
$ 70,100 $ 378,400 $ 448,500
PRO-FORMA INFORMATION
The following table highlights certain operating line items exclusive of
Alert Manufacturing and Supply Company and Power Parts Sign Company which were
sold in July 1996 and October 1996, respectively, and the portion of the
Locomotive Lease Fleet sold in 1996.
Three Months Three Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ---------------------------------
(In thousands)
As reported As reported Adjustments As adjusted
----------------- -------- -------- --------
Net sales .............. $ 73,849 $ 69,046 ($ 2,429) $ 66,617
Gross profit ........... $ 17,499 $ 12,755 ($ 297) $ 12,458
Operating income ....... $ 9,231 $ 4,477 ($ 30) $ 4,447
Nine Months Nine Months
Ended Ended
September 30, 1997 September 30, 1996
------------------ ------------------------------
(In thousands)
As reported As reported Adjustments As adjusted
------------------- -------- -------- --------
Net sales .............. $ 217,320 $205,282 ($13,191) $192,091
Gross profit ........... $ 52,639 $ 39,388 ($2,761) $ 36,627
Operating income ....... $ 25,571 $ 15,282 ($ 1,673) $ 13,609
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legal Proceedings: In December 1995, Morrison Knudsen, the
Company and certain of Morrison Knudsen's directors and officers were named as
defendants in a complaint (the "Pilarczyk Lawsuit") filed in the United States
District Court for the Northern District of New York by plaintiffs who were
principals in and/or held substantial stock in TMS, Inc. ("TMS"), a New York
corporation acquired by Morrison Knudsen on December 30, 1992. The complaint,
which sought five million dollars in damages, alleges among other things,
violations of Section 10(b), Rule 10b-5 and Section 20(a) of the Securities
Exchange Act of 1934, breach of contract, unjust enrichment, negligent
misrepresentation and common law fraud during Morrison Knudsen's acquisition of
TMS in 1992. Plaintiffs asserted that the Company, which was not formed by
Morrison Knudsen until 1993, is fully responsible for the acts of Morrison
Knudsen. However, the actions complained of occurred before the Company was
formed and the Company did not assume such liabilities of Morrison Knudsen. A
motion to dismiss, filed in April 1996 on behalf of all defendants to the
Pilarczyk Lawsuit, was granted on May 19, 1997. On June 10, 1997 plaintiffs
appealed the dismissal in the U.S. District Court, Northern District of New
York. The Company with the advice of outside counsel, believes the causes of
action in the Pilarczyk Lawsuit relating to the Company are without merit. The
Company intends to make appropriate requests to the court to seek to require the
plaintiff to pay the Company's legal fees and costs.
The Company is engaged in a commercial dispute with a former supplier,
Samyoung Machinery Industrial Co. and Samyoung (America), Inc. (collectively,
"Samyoung"). The Company filed suit on April 16, 1996 alleging delivery of
defective product and seeking damages in excess of $1 million. Samyoung denies
that the product was defective and countersued to recover $300,000 under the
contract, and $10 million for trade libel and interference with prospective
economic relationships as a result of the Company allegedly making false
disparaging statements concerning the diesel engine assembly liners to
customers. The Company, with the advice of outside counsel, believes that
Samyoung's claims are without merit, and, to date, no evidence supporting
Samyoung's counterclaims has come to light through the discovery being conducted
by the parties. The Company intends to vigorously prosecute its own claims and
defend against Samyoung's counterclaims.
On June 25, 1997, Theodore E. Nelson ("Nelson"), then President and former 51%
owner of Touchstone Company ("Touchstone"), a wholly-owned subsidiary of the
Company, filed suit, seeking an unspecified amount of damages, against
Touchstone, Inc. (sic), MotivePower Industries, Inc. and Michael Wolf (President
of MotivePower Industries, Inc.) in the Chancery Court of Tennessee, Madison
County, Tennessee. Nelson disputed the amount of bonus or other monies earned by
him under his employment agreement with Touchstone, which was purchased on
February 1, 1994 by Morrison Knudsen Corporation, the former parent company of
MotivePower Industries. The complaint listed a variety of causes of action
including civil conspiracy, breach of contract, breach of duty of good faith and
fair dealing, misrepresentation, promissory fraud, and tortious interference
with contract and sought compensatory, punitive and treble damages and
attorney's fees in unspecified amounts. The Company, with the advice of outside
counsel, believed that Nelson's claims were without merit. On September 15,
1997, the Company filed a counterclaim with causes of action in breach of
contract, breach of fiduciary duty, appropriation of business or corporate
opportunity, fraud and deceit, breach of duty of good faith and fair dealing,
and civil conspiracy. In October 1997 the Company settled the disputes between
itself and Mr. Nelson, and Mr. Nelson resigned from Touchstone to pursue other
business opportunities. The estimated cost of the settlement had previously been
provided for in the financial statements. Touchstone's board of directors
appointed Jack E. Floyd as President of Touchstone upon the resignation of Mr.
Nelson. The board of directors for Touchstone had also initiated a management
transition program at Touchstone in the second quarter, and under this program,
added a new vice president of sales and marketing.
In the ordinary course of its business, the Company is involved in legal
proceedings incident to the normal conduct of its business, including contract
claims and employee matters.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOTIVEPOWER INDUSTRIES INC.
By: /s/ William D. Grab
-----------------------
William D. Grab
Vice President, Controller and
Principal Accounting Officer
Date: November 6, 1997
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