<PAGE> 1
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 MARCH 31, 1998
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 April 24, 1998
- ---------------------------- -----------------------------
Common stock, $.01 par value 17,807,343
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MOTIVEPOWER INDUSTRIES, INC.
QUARTERLY REPORT ON FORM 10-Q FOR THE
THREE MONTHS ENDED MARCH 31, 1998
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations for the Three 3
Months Ended March 31, 1998 and 1997
Condensed Consolidated Balance Sheets at March 31, 1998 4
and December 31, 1997
Condensed Consolidated Statements of Cash Flows for the Three 5
Months Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature 19
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MOTIVEPOWER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands except share data)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Net sales $ 82,853 $ 69,658
Cost of sales (61,497) (53,833)
------------ ------------
Gross profit 21,356 15,825
Selling, general and administrative expenses (10,353) (8,762)
------------ ------------
Operating income 11,003 7,063
Investment income 279 189
Interest expense (1,213) (1,305)
Other income (expense) - Argentina 90 (39)
Foreign exchange gain (loss) 588 (115)
------------ ------------
Income before income taxes and extraordinary item 10,747 5,793
Income tax expense (3,627) (2,316)
------------ ------------
Income before extraordinary item 7,120 3,477
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $265 (472) --
------------ ------------
Net income $ 6,648 $ 3,477
============ ============
EARNINGS PER COMMON SHARE - BASIC:
Income before extraordinary item $ .40 $ .20
Extraordinary item (.03) --
------------ ------------
Net income $ .37 $ .20
============ ============
Adjusted weighted average common shares outstanding 17,806,268 17,612,793
EARNINGS PER COMMON SHARE - ASSUMING DILUTION:
Income before extraordinary item $ .38 $ .20
Extraordinary item (.02) --
------------ ------------
Net income $ .36 $ .20
============ ============
Adjusted weighted average common shares outstanding 18,549,104 17,782,652
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
3
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MOTIVEPOWER INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1998 AND DECEMBER 31, 1997
(In thousands except share data)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 5,983 $ 16,897
Receivables from customers:
Billed, net of allowance for doubtful accounts of $407 and $394,
respectively 41,742 34,588
Unbilled 1,498 450
Inventories 90,051 81,448
Deferred income taxes 8,359 7,596
Other 4,086 3,358
--------- ---------
Total current assets 151,719 144,337
Locomotive lease fleet, net 1,252 1,468
Property, plant and equipment:
Land 1,408 1,408
Buildings and improvements 37,911 36,095
Machinery and equipment 68,121 64,862
--------- ---------
Property, plant and equipment - at cost 107,440 102,365
Less - accumulated depreciation (50,451) (49,942)
--------- ---------
Property, plant and equipment - net 56,989 52,423
Underbillings - MPI de Mexico 27,722 32,298
Deferred income taxes 5,560 7,724
Goodwill and intangibles 25,960 27,362
Other 16,405 17,490
--------- ---------
Total assets $ 285,607 $ 283,102
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,350 $ 10,725
Accounts payable - trade 25,159 30,340
Accrued expenses and other current liabilities 33,888 36,065
Income taxes payable 2,206 --
Revolving credit borrowings -- 5,000
Advances from customers 864 426
--------- ---------
Total current liabilities 68,467 82,556
Long-term debt 44,483 34,782
Commitments and contingencies 15,646 15,552
Other 5,570 5,664
--------- ---------
Total liabilities 134,166 138,554
--------- ---------
Stockholders' Equity:
Common Stock, par value $.01 per share, authorized 55,000,000
shares; issued and outstanding 17,791,343 shares at March 31,
1998 and 17,774,093 shares at December 31, 1997 178 178
Additional paid-in capital 205,774 205,609
Deficit (48,705) (55,353)
Cumulative translation adjustments, net of tax (5,105) (5,105)
Deferred compensation (701) (781)
--------- ---------
Total stockholders' equity 151,441 144,548
--------- ---------
Total liabilities and stockholders' equity $ 285,607 $ 283,102
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
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MOTIVEPOWER INDUSTRIES, INC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
---- ----
<S> <C> <C>
Operating Activities
Net income $ 6,648 $ 3,477
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation 1,653 1,451
Amortization 826 821
Extraordinary loss on
extinguishment of debt, net of tax 472 --
Receivables from customers (8,202) (13,582)
Inventories (8,408) 1,987
Underbillings - MPI de Mexico 4,576 (698)
Accounts payable and accrued expenses (7,358) 3,442
Advances from customers 438 2,814
Other, net 4,090 1,941
-------- --------
Net cash (used in) provided by operating activities (5,265) 1,653
-------- --------
Investing Activities
Additions to property, plant and equipment (6,177) (1,350)
Other, net 38 (156)
-------- --------
Net cash used in investing activities (6,139) (1,506)
-------- --------
Financing Activities
Increase in intangibles -- (1,022)
Net borrowings (repayments) under domestic credit facility 501 (3,784)
Net (repayments) borrowings under Mexican credit facility (175) 3,037
Proceeds from exercise of stock options including tax-related benefit 164 --
-------- --------
Net cash provided by (used in) financing activities 490 (1,769)
-------- --------
Net decrease in cash and cash equivalents (10,914) (1,622)
Cash and cash equivalents at beginning of period 16,897 5,236
-------- --------
Cash and cash equivalents at end of period $ 5,983 $ 3,614
======== ========
Supplemental Disclosures of Cash Flow Information
Interest paid $ 376 $ 103
Income taxes (refund) paid, net (659) 1,745
</TABLE>
The accompanying notes are an integral part of the condensed
consolidated financial statements.
5
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MOTIVEPOWER INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. FINANCIAL STATEMENTS
The condensed consolidated 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 March 31, 1998 and the results of their
operations and their cash flows for the three months ended March 31, 1998 and
1997. These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
for the year ended December 31, 1997 included in Form 10-K. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
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 and parts;
provides locomotive fleet maintenance; overhauls and remanufactures locomotives;
manufactures environmentally friendly, switcher, commuter and mid-range DC and
AC traction diesel-electric and liquefied natural gas locomotives up to 4,000
horsepower; and manufactures components for power, marine and industrial
markets. The Company's primary customers are freight and passenger railroads,
including every Class I railroad in North America.
Certain reclassifications have been made to the 1997 condensed
consolidated financial statements to conform to the 1998 presentation.
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 did not have an 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 adoption of
SFAS 131 did not have an impact on the Company's financial position or results
of operations. See footnote five for the adoption of SFAS 131 as of March 31,
1998.
PENSION AND OTHER POSTRETIREMENT BENEFITS: In February 1998, Statement of
Financial Accounting Standards No. 132, "Employers' Disclosures About Pensions
and other Postretirement Benefits" ("SFAS 132"), was issued. SFAS 132 is
effective for financial statements for fiscal years beginning after December 15,
1997. The Company does not believe the adoption of the standard will have a
material impact on the Company's financial position or results of operations.
COMPUTER SOFTWARE: In March 1998, Statement of Position 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP
98-1"), was issued. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company has not yet determined the
effect of this standard.
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2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1998 1997
--------- ----------
(In thousands)
<S> <C> <C>
Cores $ 6,829 $ 7,477
Raw materials 40,237 35,421
Work in progress 25,962 21,396
Finished goods 17,023 17,154
--------- ----------
$ 90,051 $ 81,448
========= ==========
</TABLE>
Approximately $35.2 million and $30.7 million of total inventories at
March 31, 1998 and December 31, 1997, respectively, were valued on the LIFO cost
method. The excess current replacement cost of these inventories over the stated
LIFO value was $1.3 and $1.2 million at March 31, 1998 and December 31, 1997,
respectively. Two of the Company's domestic subsidiaries value inventory on the
LIFO basis. The Company defines cores as inventory designated for unit exchange
programs.
3. INDEBTEDNESS
Domestic facilities:
On January 27, 1998, the Company closed on two revolving credit
facilities with ABN AMRO Bank, N.V. and Mellon Bank N.A. totaling $200 million.
ABN AMRO subsequently sold participations in these facilities to a syndicate of
10 additional banks. The new credit lines consist of a $100 million five-year
revolving loan and a 364-day $100 million revolving loan which the Company may
renew annually with the approval of the lenders. Under the new facilities, the
Company may issue up to $35 million in letters of credit.
The new facilities provide for revolving borrowings at a variable margin
over the London Interbank Offered Rate ("LIBOR"), or at Prime Rate, at the
Company's option. The margin over LIBOR at which the Company may borrow is
adjusted each fiscal quarter based on the ratio obtained when the Company's
domestic debt at the end of the quarter is divided by the Company's domestic
cash flow over the past four quarters, as measured by earnings before interest
and tax, plus depreciation and amortization ("EBITDA"). At March 31, 1998, the
Company had $19 million drawn under its LIBOR option at an effective annual rate
of 5.7%. On the same day, the Company had $4.5 million drawn under its Prime
Rate option at an effective annual rate of 8.25%.
The Company's maximum borrowings under the facilities are limited to the
lesser of $200 million or 3.5 times trailing 12-month EBITDA. At March 31, 1998,
after giving effect to the results of the first quarter of 1998, the Company's
gross availability under domestic credit facilities was approximately $129
million. After deducting outstanding debt and other reserves, the Company
calculates its net available domestic credit on March 31, 1998 as $98.6 million.
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Mexican facilities:
The Company has two US Dollar-denominated credit facilities with a Mexican bank,
Bancomer S.A., to support its operations in Mexico. The first facility is a $30
million, five year term loan with support from the Export-Import Bank of the
United States ("Ex-Im Bank"). At March 31, 1998, the Company had $24.2 million
outstanding under this non-recourse facility at an effective annual rate of
8.8%. The second facility is a $3.5 million five-year term loan. At March 31,
1998 the Company had approximately $3.2 million outstanding under this
non-recourse facility at an effective annual rate of 11.6%. Both facilities
contain prepayment penalties.
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 March 31, 1998, using a discount rate
of 6.5%, was $2.1 million based on the Permit's Corrective Action Plan, and $2.1
million for contingent additional Permit compliance requirements related to
offsite groundwater contamination. The estimated outlays for each of the five
succeeding years from 1998 to 2002 are: $260,000, $268,000, $317,000, $285,000,
and $293,000. The Company was in compliance with the Permit at March 31, 1998
and December 31, 1997.
Legal Proceedings: In December 1995, Morrison Knudsen (the Company's former
majority stockholder), 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 not less than $5 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. On April 6, 1998, the court denied the appeal.
The Company is involved in legal proceedings incident to the normal
conduct of its business, including contract claims and employee matters.
Although the outcome of any pending legal proceeding
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<PAGE> 9
cannot be predicted with certainty, management believes that such legal
proceedings are adequately provided for in the consolidated financial statements
and that the proceedings individually and in the aggregate, will not have a
material adverse effect on the consolidated operations or financial condition of
the Company.
5. REPORTABLE SEGMENTS
The Company has two reportable segments: locomotive and components. The
reportable segments are comprised of strategic business units which offer
different products and services. The Locomotive group provides fleet
maintenance, overhauling and remanufacturing, and manufacturing of
environmentally friendly switcher, commuter and mid-range, DC and AC traction,
diesel-electric and liquefied natural gas locomotives up to 4,000 horsepower.
The Components group manufactures and distributes primarily aftermarket, or
replacement, new and remanufactured components and parts for freight and
passenger railroads, including every Class I Railroad in North America,
metropolitan transit and commuter rail authorities, original equipment
manufacturers and other customers internationally.
The Company evaluates segment performance based on a number of factors,
including asset management and profit or loss from operations not including
unusual items. The Company accounts for intercompany sales and transfers at
current market prices, as if the sales or transfers were to third parties.
Following is condensed segment financial information for the three months
ended March 31, 1998 and 1997, respectively:
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
(MARCH 31, 1998) (MARCH 31, 1997)
----------------------------------------------- -----------------------------------------------
Locomotive Components Total Locomotive Components Total
------------- ------------- ------------- ------------- ------------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross revenue $ 38,994 $ 52,009 $ 91,003 $ 30,396 $ 46,249 $ 76,645
Intercompany sales 1,774 6,376 8,150 2,515 4,472 6,987
Segment operating income 6,622 7,618 14,240 3,251 7,645 10,896
Segment Assets $ 139,582 $ 139,226 $ 278,808 $ 106,013 $ 114,346 $ 220,359
</TABLE>
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The following reconciles segment information presented above to the condensed
consolidated financial statements.
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
NET SALES:
Gross revenue from segments $ 91,003 $ 76,645
Elimination of intercompany sales (8,150) (6,987)
========= =========
Net sales $ 82,853 $ 69,658
========= =========
OPERATING INCOME:
Segment operating income $ 14,240 $ 10,896
Unallocated corporate expenses (3,237) (3,833)
--------- ---------
Operating income $ 11,003 $ 7,063
========= =========
ASSETS:
Segment assets $ 278,808 $ 220,359
Corporate assets, including domestic deferred taxes 6,799 23,180
========= =========
Total assets $ 285,607 $ 243,539
========= =========
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
MotivePower's business strategy is to grow and continue to strengthen its
core businesses, including manufacturing and distributing engineered locomotive
components and parts; providing locomotive fleet maintenance; overhauling and
remanufacturing locomotives; and manufacturing environmentally friendly
switcher, commuter and mid-range, DC and AC traction, diesel-electric and
liquefied natural gas locomotives up to 4,000 horsepower. The Company is looking
to expand further into other niche power, marine and industrial markets by
growing the existing business in these markets and by modifying certain existing
products to fit new applications.
The Company has outlined a six-part strategy to carry out its growth
plan: 1. Capitalize on the railroads' desire to outsource non-transportation
functions such as maintenance and repair projects by continuing to improve
quality and by reducing product cycle times; 2. Continue to grow its Mexican
operations by expanding current capabilities and by pursuing new opportunities
created by the Mexican government's railroad privatization program; 3. Expand
sales of components in targeted non-NAFTA markets, such as South America, the
Middle East and the Pacific Rim; 4. Expand sales of similar components into
non-rail markets; 5. Acquire companies that provide products or services that
complement the Company's current capabilities either geographically or
technically, or that expand the Company's current product line; and 6. Develop
alliances and joint ventures with other major rail industry suppliers.
As market conditions, technological developments or other factors
change, the Company will modify its strategy accordingly.
The Company recorded net income of $6.6 million, or 36 cents per
diluted share, on sales of $82.9 million in the first quarter of 1998 compared
to net income of $3.5 million, or 20 cents per diluted share, on sales of $69.7
million in the first quarter of 1997. The increase in profits is attributed to
higher sales and increased profit margins in the Locomotive Group.
SIGNIFICANT EVENTS
During the quarter ended March 31, 1998, and subsequently, the Company
announced the following contracts through its subsidiaries:
- On February 18, 1998 Boise Locomotive Company was awarded a $7 million
contract to build three new commuter locomotives for a California
commuter rail line known as Caltrain.
- On March 2, 1998 MPI de Mexico signed a new 17-year contract in Mexico
valued at $419 million. The new agreement replaces a previous
contract. Under the new contract with TFM S.A. de C.V. ("TFM"), MPI de
Mexico will overhaul and maintain 168 locomotives at its San Luis
Potosi facility in the Northeast Region of Mexico.
- On March 19, 1998 Boise Locomotive Company was awarded a $22 million
contract by Helm Financial Corporation to overhaul locomotives that
will be leased to the Union Pacific Railroad, the largest railroad in
North America.
- On April 2, 1998 Boise Locomotive Company was awarded a $6 million
contract to manufacture and maintain four low-horsepower locomotives
for CMC Railroad Inc., a privately held terminal switching company in
Dayton, Texas.
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<PAGE> 12
During the quarter ended March 31, 1998, and subsequently, the Company
has been party to the following transactions and events.
- On March 4, 1998 the Company and the Electro-Motive Division of
General Motors ("EMD") formed a strategic alliance to design,
manufacture and market low-horsepower, switcher and branchline
locomotives in the United States, Canada and Mexico. Under a marketing
and supply agreement, Boise Locomotive Company will be the exclusive
manufacturer of EMD's private brand, 1,500- and 2,000- horsepower
locomotives for the NAFTA market.
- On March 30, 1998 the Company and Westinghouse Air Brake Company
("WABCO") formed a joint venture in Mexico to build locomotive and
railcar components. Initially the joint venture will rebuild air brake
components for locomotives and railcars but it is expected to expand
into other related products in the future.
- On March 30, 1998 the Company was named the 1998 recipient of the
Furman Selz "Golden Gear" Award, which is awarded annually to a
Company who demonstrates "manufacturing excellence and superior stock
performance."
RESULTS OF OPERATIONS
The following table sets forth the percentage of sales represented by
certain items in the Company's Condensed Consolidated Statement of Operations:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-----------------------
1998 1997
------ -----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales (74.2) (77.3)
----- -----
Gross profit 25.8 22.7
Selling, general and administrative expenses (12.5) (12.6)
----- -----
Operating income 13.3 10.1
Investment income .3 .3
Interest expense (1.4) (1.8)
Other income (expense) - Argentina .1 (.1)
Foreign exchange gain (loss) .7 (.2)
----- -----
Income before income taxes and extraordinary item 13.0 8.3
Income tax expense (4.4) (3.3)
----- -----
Income before extraordinary item 8.6 5.0
Extraordinary item (.6) --
----- -----
Net income 8.0% 5.0%
===== =====
</TABLE>
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<PAGE> 13
CONSOLIDATED OPERATIONS
Three Months Ended March 31, 1998
Net sales for the first quarter of 1998 were $82.9 million, compared to
$69.7 million for the first quarter of 1997, an increase of 19%. The increase in
net sales is primarily attributed to increased net sales in the Locomotive Group
resulting from increased locomotive overhaul work for third party lessors,
additional locomotives under maintenance contracts in Mexico, an increase in car
repair demand and the sale of two switcher locomotives. In addition, net sales
increased in the Components Group primarily as a result of net sales from the
companies acquired in December, 1997.
Gross profit for the first quarter of 1998 was $21.4 million or 26% of
net sales compared to $15.8 million or 23% of net sales for the first quarter of
1997. The first quarter of 1998 was favorably affected by a gain of $1.2 million
related to a 1994 contract contingency that expired during the quarter. In
addition, the increase in gross profit is attributed to the overall increase in
sales volume and a product mix that favored higher margin product lines. Gross
profit in the first quarter of 1998 was reduced by $621,000 of expenses for the
relocation of certain facilities expected to reduce costs, to improve
productivity and efficiency, and to increase throughput.
Selling, general and administrative expenses for the first quarter of
1998 were $10.4 million, compared to $8.8 million for the first quarter of 1997.
As a percentage of net sales, selling, general and administrative expenses
decreased to 12.5% in the first quarter of 1998 from 12.6% in the first quarter
of 1997. The increase in selling, general and administrative expenses is
attributed to increases in variable cost incentive programs and expenses from
the companies acquired in December, 1997.
Investment income for the first quarter of 1998 was $279,000 compared
to $189,000 for the first quarter of 1997. The increase is primarily attributed
to increased earnings on funds invested in Mexico.
Interest expense for the first quarter of 1998 was $1.2 million
compared to $1.3 million for the first quarter of 1997. The decrease is
primarily attributed to lower domestic borrowings at reduced interest rates,
offset by an increase in borrowings on the Mexican credit facility.
Other income (expense) - Argentina for the first quarter of 1998 was
$90,000 of income compared to $39,000 of expense for the first quarter of 1997.
The expense in 1997 related to miscellaneous expenses associated with the
Company's investments in Argentina, and the income in 1998 represents funds
received from those same investments. Due to the uncertain financial strength of
the other parties involved, the Company recognizes income only when funds are
actually received.
The Company incurred a foreign exchange gain of $588,000 in the first
quarter of 1998, compared to a foreign exchange loss of $115,000 in the first
quarter of 1997. The gain was the result of the Company holding a net liability
position in pesos in Mexico during the first quarter of 1998 in which the peso
weakened relative to the dollar. As a result of the new Mexican contract, the
Company invoices in dollars instead of pesos and collects receivables faster.
Income tax expense for the first quarter of 1998 was $3.6 million, or
34% of pre-tax income, compared to $2.3 million or 40% of pre-tax income for the
first quarter of 1997. The decrease in income tax expense as a percentage of
pre-tax income is primarily attributed to a lower effective tax rate in Mexico
and the utilization of a Foreign Sales Corporation.
The Company recorded an extraordinary loss on the extinguishment of
debt of $472,000, net of an income tax benefit of $265,000, in the first quarter
of 1998. The loss represents the write off of unamortized costs incurred
previously under the Company's prior domestic credit facility.
13
<PAGE> 14
SEGMENT OPERATIONS
COMPONENTS GROUP
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------------------------
1998 1997
------------ -----------
(In thousands)
<S> <C> <C>
Net sales $ 45,633 $ 41,777
Operating income $ 7,618 $ 7,645
</TABLE>
The increase in net sales for the first quarter of 1998 is primarily
the result of net sales from the two companies acquired in late 1997 which
totaled $4.2 million. Operating income remained unchanged in the first quarter
of 1998 primarily as a result of $621,000 of expenses incurred during the
quarter for the relocation of certain facilities.
LOCOMOTIVE GROUP
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
-------------------------------------
1998 1997
------------ -----------
(In thousands)
<S> <C> <C>
Net sales $ 37,220 $ 27,881
Operating income $ 6,622 $ 3,251
</TABLE>
The increase in net sales for the first quarter of 1998 is primarily
the result of increased overhaul work for third party lessors, additional
locomotives under maintenance contracts in Mexico, an increase in car repair
demand and the sale of two switcher locomotives. The increase in operating
income for the first quarter of 1998 is the result of the increased sales volume
and mix favoring higher margin product lines and the $1.2 million gain on the
expiration of the 1994 contract contingency.
FINANCIAL CONDITION AND LIQUIDITY
On January 27, 1998 the Company closed on two new revolving credit
facilities with ABN AMRO Bank N.V. and Mellon Bank NA totaling $200 million. The
new credit lines consist of a $100 million five-year revolving loan, and a
364-day $100 million revolving loan which the Company may renew annually with
the approval of the lenders. Under the new facilities the Company may issue up
to $35 million in letters of credit.
14
<PAGE> 15
The Company anticipates that capital spending in 1998 will approximate
$28 million. Listed below are the 1998 planned project costs and the actual
expenditures incurred through March 31, 1998:
<TABLE>
<CAPTION>
1998 PLANNED MARCH 31, 1998
PROJECT COSTS YTD ACTUAL
------------- ----------
(In thousands)
<S> <C> <C>
Expansion of Production Facilities $15,600 $ 3,871
Equipment Upgrades 4,800 551
Information Systems 2,100 456
Maintenance 5,500 1,299
======= ========
Total $28,000 $ 6,177
======= ========
</TABLE>
In addition to the planned capital expenditures in 1998, the Company
will incur costs to relocate equipment from Motors Coils to MPI de Mexico in
order to produce certain qualified locomotive components, and will also incur
costs at Touchstone to move equipment from the existing facility to the new
manufacturing facility currently under construction. As of March 31, 1998 the
costs expensed to date for these projects totaled approximately $621,000. The
Company's ability to complete these projects in a timely and efficient manner
could have an impact on the Company's results of operations for the balance of
the year.
The table below highlights the debt and cash position of the Company:
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
-------------- -----------------
(In thousands)
<S> <C> <C>
Domestic revolver $ 23,500 $ 5,000
Domestic term loan -- 17,999
MPI de Mexico credit facility 27,333 27,508
-------- --------
Total debt $ 50,833 $ 50,507
Cash and cash equivalents (5,983) (16,897)
-------- --------
Net debt $ 44,850 $ 33,610
======== ========
</TABLE>
15
<PAGE> 16
The following table summarizes the net changes in cash flows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1997
-------- -------
(In thousands)
<S> <C> <C>
Net cash (used in) provided by:
Operating activities $ (5,265) $ 1,653
Investing activities (6,139) (1,506)
Financing activities 490 (1,769)
-------- -------
Net decrease in cash and cash equivalents $(10,914) $(1,622)
======== =======
Cash and cash equivalents at end of period $ 5,983 $ 3,614
======== =======
</TABLE>
Net cash used in operating activities totaled $5.3 million for the
first three months of 1998, compared to net cash provided by operating
activities of $1.7 million for the first three months of 1997. During the first
three months of 1998, accounts receivable increased $8.2 million principally as
a result of increased net sales at Boise Locomotive and the new contract terms
at MPI de Mexico which allows for current billings for locomotive overhauls
performed. Inventories increased $8.4 million in the first three months of 1998
as a result of inventory increases at Boise Locomotive for switcher locomotives
and overhaul contracts, and planned inventory increases at Motor Coils and
Touchstone as they prepare for facility relocations and interruptions to normal
production cycles. Accounts payable decreased $7.4 million in the first three
months of 1998 through the normal course of operations. Offsetting these uses of
cash were the Company's net income for the period of $6.6 million, a reduction
in underbillings of $4.6 million as a result of the Mexico contract change for
overhaul billings, depreciation and amortization of $2.5 million and other net
changes of $4.1 million which is primarily changes in the Company's income
taxes payable.
Net cash used in investing activities totaled $6.1 million for the
first three months of 1998, compared to $1.5 million for the first three months
of 1997, consisting primarily of capital expenditures for both periods. Capital
expenditures for the first three months of 1998 totaled $6.2 million for the
projects noted in the table shown previously in this section. The Company
anticipates 1998 capital spending will approximate $28 million consisting mostly
of projects which are designed to expand capacity and increase productivity and
efficiency.
Net cash provided by financing activities totaled $490,000 for the
first three months of 1998 compared to net cash used in financing activities of
$1.8 million for the first three months of 1997. The net cash provided by
financing activities consists of $164,000 from the exercise of stock options and
net borrowings on the Company's domestic credit facility of $501,000, offset by
$175,000 of net paybacks on the Mexican credit facility.
BACKLOG
- -------
The Company defines backlog as future sales commitments which
constitute a binding agreement between the Company and the customer. Examples
include signed contracts and purchase orders. The Company is the preferred
supplier of certain components to certain customers, having received notice of
the customers' estimate of anticipated purchases. Because these notices are not
16
<PAGE> 17
binding commitments, the Company does not include these amounts in backlog
calculations. At March 31, 1998 these anticipated purchases totaled $97 million.
The Company's multi-year locomotive fleet maintenance contracts account
for the majority of the Locomotive Group backlog. Multi-year fleet maintenance
contracts are expected to continue to produce additional components and parts
sales.
The backlog as of March 31, 1998 and December 31, 1997 and the expected year of
recognition is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998
(In thousands)
1998 1999 OTHER YEARS ORDER BACKLOG
--------- --------- ----------- -------------
<S> <C> <C> <C> <C>
Components $ 30,380 $ 16 $ 30,396
$ --
Locomotive 102,528 79,409 560,338 742,275
--------- --------- --------- ---------
Total $ 132,908 $ 79,409 $ 560,354 $ 772,671
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
(In thousands)
1998 OTHER YEARS ORDER BACKLOG
--------- ----------- -------------
<S> <C> <C> <C>
Components $ 36,135 $ -- $ 36,135
Locomotive 136,772 364,948 501,720
--------- --------- ---------
Total $ 172,907 $ 364,948 $ 537,855
========= ========= =========
</TABLE>
INFORMATION TECHNOLOGY
The Company is currently engaged in a multi-year project to upgrade and
improve its information systems. The project includes hardware and software
upgrades, training, implementation, and hiring of staff to manage the systems
going forward. The Company expects that the project will improve working capital
through improved material management and production planning and control, in
addition to cost reductions for communications and other related expenses. As
part of the project, the Company will be installing software that is Year 2000
compliant and is coordinating with its customers and suppliers throughout NAFTA.
The Company does not expect the costs associated with Year 2000 compliance to be
significant at March 31, 1998.
Statements in this Form 10-Q regarding the Company's efforts to
maximize stockholder value or its efforts to improve operations by increasing
productivity or efficiency are forward-looking statements. The Company's actual
results could differ materially from the results suggested in any
forward-looking statements. Factors that could cause or contribute to these
material differences include, but are not limited to, the following: a general
decline in the NAFTA economy, which could cause a decrease in rail traffic;
continued consolidation by U.S. railroads, which could cause them to reduce
purchases of goods and services; changes in the Mexican government's railroad
privatization program; a strengthening of the U.S. dollar in targeted foreign
markets; the Company's ability to timely and efficiently complete current and
future expansion and productivity enhancement projects, and implement related
productivity improvement plans; and the Company's ability to maintain current
favorable relations with its labor
17
<PAGE> 18
unions. In making these forward-looking statements, the Company assumes no
obligation to update them or advise of changes in the assumptions on which they
were based.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no reportable legal proceedings initiated in the quarter ended
March 31, 1998 and there were no material developments to any previously
reported legal proceedings not included in this Form 10-Q.
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:
21.01 Subsidiaries of the Company
27.01 Article 5 Financial Data Schedule for the quarter ended March 31,
1998.
REPORTS ON FORM 8-K
A current report on Form 8-K (Item 5) dated March 4, 1998 to report a
press release announcing the awarding of the TFM contract and the
strategic alliance formed with EMD.
18
<PAGE> 19
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: April 28, 1998
19
<PAGE> 1
Exhibit 21.01
MOTIVEPOWER INDUSTRIES
CORPORATE LEGAL ENTITIES
SUBSIDIARIES AND AFFILIATES
MotivePower Industries Inc.
MotivePower Investments Limited
Touchstone Company
Motor Coils Manufacturing Company
Motor Coils S.A. de C.V.
Microphor Company
MotivePower Foreign Sales Corporation
Boise Locomotive Company
MotivePower Industries de Mexico*
MPI Sureste, S.A. de C.V.
MPI Noreste, S.A. de C.V.
MPI Pacifo-Norte, S.A. de C.V.
MPI Commercial, S.A. de C.V.
Engine Systems Company, Inc.
Power Parts Company
Ontario Transit Ltd.
Trenes De Buenos Aires S.A.
* The Mexican operations are in the process of forming the organization
structure reflected above.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY CONSOLIDATED FINANCIAL INFORMATION EXTRACTED FROM
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,983
<SECURITIES> 0
<RECEIVABLES> 42,149
<ALLOWANCES> 407
<INVENTORY> 90,051
<CURRENT-ASSETS> 151,719
<PP&E> 107,440
<DEPRECIATION> 50,451
<TOTAL-ASSETS> 285,607
<CURRENT-LIABILITIES> 68,467
<BONDS> 44,483
0
0
<COMMON> 178
<OTHER-SE> 151,263
<TOTAL-LIABILITY-AND-EQUITY> 285,607
<SALES> 82,853
<TOTAL-REVENUES> 82,853
<CGS> 61,497
<TOTAL-COSTS> 61,497
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,213
<INCOME-PRETAX> 10,747
<INCOME-TAX> 3,627
<INCOME-CONTINUING> 7,120
<DISCONTINUED> 0
<EXTRAORDINARY> 472
<CHANGES> 0
<NET-INCOME> 6,648
<EPS-PRIMARY> .37
<EPS-DILUTED> .36
</TABLE>
