<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 1996
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: 33-93302
AM GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
----------------
DELAWARE 35-1852615
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
105 NORTH NILES AVENUE
SOUTH BEND, INDIANA 46617
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (219) 284-2907
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 12 7/8% SENIOR
NOTES DUE 2002
Indicate by check mark whether the registrant; (1) has filed all
reports 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
filing requirements for the past 90 days. Yes X No
---
Registrant company has no registered issue of equity securities.
Registrant has no registered issue of voting stock.
<PAGE>
AM General Corporation
Form 10-Q
Quarter Ended July 31, 1996
<TABLE>
<CAPTION>
<S> <C>
PART I - FINANCIAL INFORMATION 3
ITEM 1. FINANCIAL STATEMENTS 3
Consolidated Balance Sheets
as of October 31, 1995 (audited) and July 31, 1996 (unaudited) 3
Consolidated Statements of Operations
For the three and nine months ended July 31, 1995 (unaudited) and July 31, 1996 (unaudited) 4
Consolidated Statements of Cash Flows
For the nine months ended July 31, 1995 (unaudited) and the nine months ended
July 31, 1996 (unaudited) 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 7
Three Months Ended July 31, 1996 ("third quarter of 1996") compared to Three Months Ended
July 31, 1995 ("third quarter of 1995") 9
Nine Months Ended July 31, 1996 ("first nine months of 1996") compared to Nine Months Ended
July 31, 1995 ("first nine months of 1995") 12
Liquidity and Capital Resources 15
PART II - OTHER INFORMATION 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AM GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands, except share information)
<TABLE>
<CAPTION>
October 31, July 31,
Assets 1995 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Current assets: (UNAUDITED)
Cash $ 1,140 2,820
Accounts receivable, net 52,688 37,044
Inventories 123,359 117,982
Prepaid expenses 1,648 2,589
Income taxes receivable 3,360 3,651
Deferred income taxes 1,341 2,174
- ----------------------------------------------------------------------
Total current assets 183,536 166,260
Property, plant, and equipment, net 62,762 56,299
Deferred income taxes 14,327 17,774
Goodwill, net 92,157 88,942
Other assets 19,900 18,664
- ----------------------------------------------------------------------
$372,682 347,939
- ----------------------------------------------------------------------
Liabilities and Stockholder's Equity
- ----------------------------------------------------------------------
Current liabilities:
Accounts payable 58,196 36,826
Accrued expenses 27,249 35,809
- ----------------------------------------------------------------------
Total current liabilities 85,445 72,635
Long-term debt, excluding current
maturities 126,947 122,873
Postretirement benefits other than
pensions, noncurrent portion 145,483 148,839
Other liabilities, excluding current
maturities 11,240 10,708
- ----------------------------------------------------------------------
Total liabilities 369,115 355,055
Stockholder's equity (Deficit):
8% cumulative preferred stock,
$1,000 par value. Authorized
10,000 shares; issued and
outstanding 5,000 shares 5,000 5,000
Common stock, $.01 par value.
Authorized, issued and outstanding 900
shares - -
Paid-in capital 1,000 1,000
Minimum pension liability (82) (82)
Accumulated Deficit (2,351) (13,034)
- ----------------------------------------------------------------------
Total stockholder's equity (Deficit) 3,567 (7,116)
- ----------------------------------------------------------------------
$372,682 347,939
- ----------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
---------------------- ----------------------
1995 1996 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $75,539 $ 95,262 $313,739 $338,932
- -------------------------------------------------------------------------------
Cost and expenses:
Cost of sales 68,807 91,275 271,802 303,213
Depreciation and
amortization 3,939 4,100 12,026 14,042
Selling, general, and
administrative expenses 8,660 9,787 26,899 26,704
- -------------------------------------------------------------------------------
Income (Loss) before
interest, income taxes,
and extraordinary item (5,867) (9,900) 3,012 (5,027)
Interest Income 148 785 843 2,536
Interest Expense (3,666) (4,111) (8,382) (12,290)
- -------------------------------------------------------------------------------
Loss before income taxes
and extraordinary item (9,385) (13,226) (4,527) (14,781)
Income tax benefit (2,875) (4,476) (269) (4,097)
- -------------------------------------------------------------------------------
Loss before extraordinary
item (6,510) (8,750) (4,258) (10,684)
Extraordinary item, net of
income taxes of $1,750 - - 2,965 -
- -------------------------------------------------------------------------------
Net Loss (6,510) (8,750) (1,293) (10,684)
Obligation for put
accretion - - 156 -
- -------------------------------------------------------------------------------
Net Loss available to
common stockholders $(6,510) $ (8,750) $ (1,449) $(10,684)
- -------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Nine Months Ended
July 31,
---------------------
1995 1996
- ------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss $ (1,293) (10,684)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization of
plant and equipment 8,032 10,048
Other amortization 4,797 4,782
Increase (decrease) in allowance
for doubtful accounts 173 (236)
Increase (decrease) in inventory
reserve 583 (174)
Deferred income taxes 374 (4,280)
Debt Discount 14 43
Discount accretion of debt 1,576 -
Noncash other postretirement cost 5,622 3,355
Loss on sale of equipment - 31
Change in assets and liabilities
Accounts receivable (9,823) 15,880
Inventories (51,097) 5,469
Prepaid expenses (136) (940)
Other assets 4,206 (331)
Accounts payable (7,527) (21,371)
Due to related parties (504) -
Accrued expenses 13,270 8,559
Income taxes 1,107 (291)
Other liabilities (3,320) (529)
- ------------------------------------------------------------------
Net cash provided by (used in)
operating activities (33,946) 9,331
- ------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures, net (3,984) (3,534)
- ------------------------------------------------------------------
Net cash used in investing activities (3,984) (3,534)
- ------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) under
line-of-credit agreement 26,340 (4,117)
Proceeds from issuance of senior
note, net of expenses 69,621 -
Principal payments on closing
and adjustment notes (15,198) -
Repurchase of PUT Obligation (6,522) -
Repayment of LTV Creditor
Trust Obligation (29,657) -
Dividends paid (2,160) -
Repurchase of preferred stock (4,000) -
- ------------------------------------------------------------------
Net cash provided by (used in)
financing activities 38,424 (4,117)
- ------------------------------------------------------------------
Net change in cash 494 1,680
Cash and cash equivalents at
beginning of period 1,512 1,140
- ------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 2,006 2,820
- ------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH ITEMS
- ------------------------------------------------------------------
Interest Paid 6,052 8,995
Taxes Paid - 473
- ------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
AM GENERAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended July 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
October 31, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Registrant's Form 10-K for the year ended
October 31, 1995.
NOTE 2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 31,
OCTOBER 31, 1996
1995 (UNAUDITED)
-------------------------
<S> <C> <C>
Finished Goods $67,710 72,558
Service Parts 12,077 13,900
Extended Service Program
Production Costs of Goods currently in process 5,366 3,750
Excess of Production Cost of Delivered Units
Over the Estimated Average Cost of All Units Expected
to be Produced 4,706 0
Raw Materials, supplies and work in progress 36,999 31,100
-------- -------
126,858 121,308
Less allowance for inventory shrinkage and
obsolescence (3,499) (3,326)
-------- -------
Total $123,359 117,982
======== =======
</TABLE>
NOTE 3. RECLASSIFICATIONS
Certain reclassifications have been made to previously reported cost and
expenses to conform to the presentation contained herein.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
AM General Corporation ("the Company" or "AM General") is the largest
supplier of light tactical wheeled vehicles for the US Department of Defense
("DoD"). The Company is the original designer, and sole manufacturer of the
High Mobility Multipurpose Wheeled Vehicle ("HUMVEE" or "HUMMER(R)"). The
Company also sells HUMMERs to foreign military services through the DoD's
Foreign Military Sales ("FMS") program and on a direct sale basis. In 1993 the
Company began selling to industrial and retail users through its commercial
dealer network.
From 1990 through July 31, 1996, AM General sold 49,029 HUMMERs under its
C0998 contract with the DoD. All production under that contract was completed
by April 30, 1996 with 768 vehicles produced for a particular FMS Customer ("the
FMS Customer") remaining in the Company's finished inventory. Two Letters of
Agreement for the sale of these vehicles were executed between the US Government
and the FMS Customer as of June 30, 1996. Management had previously expected
that all 768 vehicles would be sold during the third quarter of Fiscal 1996.
However, unexpected delays, primarily in transferring funds between the two
governments, have postponed the sales until the fourth quarter. The Company
continues to receive strong assurances from the FMS Customer that these orders
will be consummated in the fourth quarter of fiscal 1996. Notwithstanding these
assurances, the necessary funds have not been transferred to the US Government
as of this filing. Management remains confident that these orders will be
successfully concluded; however, further delays may slip the sale of these units
beyond the fourth quarter which would have a material impact on this year's
profitability.
From November 1, 1993 through May 7, 1995 the Company's HUMMER production
rate was approximately 47 units per day including 35 units per day for the US
Military and its FMS customers. On May 8, 1995 the Company reduced its HUMMER
production rate to 25 units per day due to lower US and international military
demand.
The Company began producing the latest generation of military HUMMERs, the
A2 series, in August 1995 under a DoD contract for 1,201 units known as the R021
contract. On December 23, 1995, the Company entered into a new multi-year
annual requirements contract known as the X001 contract. This contract provides
a mechanism for the U. S. Army to procure at least 2,350 HUMMERs annually for
five years, but does not require the Army to purchase the vehicles as funding
for each of the respective years must be provided via the annual Defense Budget.
During the first year of the X001 contract, a total of 3,468 have been placed on
contract to date. The FY97 Defense Bill currently pending before Congress
contains the necessary funding for the US Army to purchase approximately 2,100
HUMMERs during the second year of this contract. Management expects that this
funding, in combination with expected FMS orders, and direct International and
Commercial HUMMER orders will be sufficient to support HUMMER production at the
current rate. Any reduction of the proposed funding or delay in its
implementation, could have a material adverse effect on the Company's
profitability.
7
<PAGE>
The Company's Service Parts and Logistics Operations ("SPLO") sells after-
market parts and support services for vehicles manufactured by the Company. Its
Systems Technical Support ("STS") operation performs engineering services
related to the Company's military trucks and certain other military vehicles.
In September, 1993 the Company was awarded the first multi-year contract to
teardown and remanufacture aging 2-1/2 ton military trucks under the US Army's
Extended Service Program (ESP). Approximately three old trucks are completely
disassembled - certain parts are reworked, others are scrapped and specific new
parts are added - for every two remanufactured vehicles under this contract. A
total of 2,483 remanufactured trucks are required by the base contract over a
five year period.
After completion of the required testing program by the US Army, full scale
production is underway. A total of 1,499 trucks have been remanufactured and
sold to the Government as of July 31, 1996.
Furthermore, the ESP multi-year contract provides for additional vehicles
to be added at the option of the US Army. Prices for these options are
specified in the contract and are significantly lower than the base unit prices.
Prior to fiscal 1996, 42 vehicles had been added to the contract by exercising
options. During fiscal 1996, the US Army ordered a large quantity of option
vehicles: 478 in January and 476 in June, 1996, respectively. The total optioned
vehicles now on contract is 996. When combined with the base units, the total
remanufactured vehicles on contract is 3,479.
The 1997 Defense Bill now before Congress provides the funds for an
additional 820 trucks to be optioned under the current ESP contract. This
quantity exhausts all remaining options. Management believes these options will
be exercised which will bring the total contract value to approximately $244
million.
The Company accounts for the contract on the Estimate at Completion basis
(EAC) which spreads estimated profits in the same percentage as revenues are
recognized over the term of the contract. Estimated contract costs and profits
are reviewed periodically and adjustments recorded as necessary. An adjustment
was recorded in the third quarter which recognizes the addition of all the
option vehicles described above. See discussion under "Three Months Ended July
31, 1996 Compared to Three Months Ended July 31, 1995" - "Gross Profit".
With the exception of historical information, the matters discussed in this
filing include forward-looking statements that involve risks and uncertainties.
Among the risks and uncertainties to which the Company is subject are risks
inherent in the Company's substantial indebtedness, including restrictions
imposed by the terms of the indebtedness, its dependence on government
contracts, the Company's entry into the Commercial truck market and the
remanufacturing business, dependence upon key vendors and exposure to
fluctuations in the cost of purchased materials. As a result, the actual
results realized by the Company could differ materially from the statements made
herein.
8
<PAGE>
THREE MONTHS ENDED JULY 31, 1996 ("THIRD QUARTER OF 1996") COMPARED TO THREE
MONTHS ENDED JULY 31, 1995 ("THIRD QUARTER OF 1995")
AM GENERAL CORPORATION AND SUBSIDIARY
TABLE OF NET REVENUES AND HUMMER UNIT SALES INFORMATION
(IN MILLIONS, EXCEPT UNIT INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended
July 31,
------------------ %
1995 1996 Change Change
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales
HUMMERs
US Military $ 3.2 40.4 37.2 1,162.5%
International (1) 27.4 6.7 (20.7) (75.6)
Commercial 15.8 18.4 2.6 16.7
------- ------ -------
Total HUMMERs 46.4 65.5 19.1 41.3
ESP 10.0 15.5 5.5 55.0
SPLO 12.9 9.6 (3.3) (25.8)
STS 6.3 4.7 (1.6) (26.0)
------- ------ -------
Total net sales $ 75.6 95.3 19.7 26.1
======= ====== =======
HUMMER Unit Sales
US Military 42 807 765 1,821.4
International (1) 587 106 (481) (81.9)
Commercial 311 340 29 9.3
------- ------ -------
Total HUMMERs 940 1,253 313 33.3
======= ====== =======
HUMMERs Average Unit Selling Prices
US Military $76,190 50,057 (26,133) (34.3)
International (1) 46,641 63,104 16,463 35.3
Commercial 50,804 54,218 3,414 6.7
------- ------ -------
All HUMMERs $49,338 52,290 2,952 6.0
======= ====== =======
(1) Includes FMS and Direct International Sales
</TABLE>
NET SALES
The increase in net sales was due primarily to the increase in US Military
HUMMER, ESP and Commercial HUMMER sales partially offset by decreases in
International HUMMER, SPLO and STS sales. The increase in US Military HUMMER
sales is attributed to the high level of sales pursuant to the Company's X001
contract during the third quarter of 1996 as compared with the low level of
sales pursuant to the Company's C998 contract in the third quarter of 1995.
With the exception of the 768 units for the FMS Customer discussed above, the
Company had substantially completed shipments under the C998 contract in May of
1995. The increase in ESP sales is attributed to the continued development of
the remanufacturing program. The increase in Commercial HUMMER sales is
attributed to a 9.3% increase in volume and a 6.7% increase in
9
<PAGE>
the average selling price. The reduction in International HUMMER sales is
primarily attributed to the present low level of demand by foreign countries.
The reduction in SPLO sales was primarily attributed to lower international
sales associated with the lower international demand for HUMMERs.
AVERAGE HUMMER UNIT SELLING PRICES
The average unit selling price for all HUMMERs increased 6.0% from the
third quarter of 1995 primarily due to a significant increase in the average
selling price for International units. Average HUMMER unit selling prices for
international sales increased 35.3% primarily due to a higher priced model mix
which included highly modified vehicles for one direct international customer.
Average HUMMER unit selling prices for the US Military decreased 34.3% over the
third quarter of 1995 due primarily to a sales adjustment recorded in the third
quarter of 1995 which pertained to previously delivered units. Notwithstanding
this adjustment, the average HUMMER unit selling prices for the US Military
increased 26.9% over the third quarter of 1995 due primarily to higher
negotiated selling prices for the R021 and X001 contracts. The higher average
unit selling prices are attributed to directed changes for the A2 model along
with higher fixed overhead costs due to the reduction in unit production.
Additionally, sales during the third quarter of 1996 included the higher priced
Expanded Capacity Vehicle (ECV) HUMMER variants. Furthermore, sales during the
third quarter of 1996 included Commercial HUMMER average unit selling prices
which increased 6.7% due to the availability of additional options such as the
turbo-charged diesel engine and a 2.5% increase in selling prices late in the
1995 model year followed by 2.5% and 2.3% increases for the 1996 model year.
GROSS PROFIT
Gross Profit was $4.0 million for the third quarter of 1996, a decrease of
$2.7 million from gross profit of $6.7 million for the third quarter of 1995.
The decrease was primarily due to a $7.6 million adjustment to the EAC profit
margin ("EAC Adjustment") anticipated in the ESP contract. This reduction in
anticipated margin is primarily due to three factors: the exercise of lower
priced option vehicles, higher than projected manufacturing costs and the impact
of these first two changes on internal cost allocations. The Company allocates
certain overhead costs to contracts based on, among other things, direct labor.
This has resulted in higher than anticipated allocations to the ESP contract due
to the higher manufacturing costs required to produce the vehicles now included
in the EAC and accordingly lower allocation of these overhead costs to other
Company programs such as Military and Commercial HUMMER.
The EAC adjustment recorded reflects the cumulative costs to date and the
estimate of future costs including those relating to the option vehicles. The
gross profit margin on the Hummer programs increased primarily as a result of
selling price increases and also due to lower allocation of overhead costs, as
discussed above.
10
<PAGE>
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $4.1 million for the third
quarter of 1996, an increase of $.2 million or 4.1% over depreciation and
amortization expense of $3.9 million for the third quarter of 1995. The increase
was primarily due to depreciation associated with planned capital expenditures
for machinery and equipment.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expense was $9.7 million for the
third quarter of 1996, an increase of $1.0 million or 11.5% from SG&A expense of
$8.7 million for the third quarter of 1995. The increase was primarily due to
the timing of SG&A expense and increased independent research & development
expenses.
OPERATING LOSS
The Company's operating loss for the third quarter of 1996 was $9.9
million, compared to the operating loss of $5.9 million for the third quarter of
1995. The change is primarily attributed to the EAC adjustment discussed
earlier.
INTEREST INCOME AND EXPENSE
Net interest expense for the third quarter of 1996 was $3.3 million, a
decrease of $.2 million or 5.7% from net interest expense of $3.5 million for
the third quarter of 1995. Average debt outstanding during the third quarter of
1995 was $109.2 million at a weighted average interest rate of 12.2%. Average
debt outstanding during the third quarter of 1996 was $129.1 million at a
weighted average interest rate of 11.7%. The increase of $.4 million in interest
expense was primarily due to higher average debt outstanding which was primarily
due to the increase in inventory in connection with the finished goods inventory
for the FMS Customer. (see "Liquidity and Capital Resources"). Interest income
increased by $.6 million primarily due to the acceptance by the DoD and the FMS
Customer of interest expense associated with the 768 units held in inventory.
INCOME TAX BENEFIT
Income tax benefit was recorded at the statutory rate adjusted for
permanent differences primarily resulting from the amortization of goodwill.
Income tax benefit was a credit of $4.5 million for the third quarter of 1996,
an increase of $1.6 million from income tax benefit of $2.9 million for the
third quarter of 1995. The increase in income tax benefit was primarily due to
the reduction of taxable income.
NET LOSS
As discussed above, the higher net loss in the third quarter of 1996 was
primarily due to the EAC adjustment.
11
<PAGE>
NINE MONTHS JULY 31, 1996 ("FIRST NINE MONTHS OF 1996") COMPARED TO NINE MONTHS
ENDED JULY 31, 1995 ("FIRST NINE MONTHS OF 1995")
AM GENERAL CORPORATION AND SUBSIDIARY
TABLE OF NET REVENUES AND HUMMER UNIT SALES INFORMATION
(IN MILLIONS, EXCEPT UNIT INFORMATION)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended
July 31,
----------------- %
1995 1996 Change Change
--------- ------ ------- --------
<S> <C> <C> <C> <C>
Net sales
HUMMERs
US Military $ 115.6 133.6 17.9 15.5%
International (1) 80.0 56.8 (23.2) (29.0)
Commercial 44.2 54.0 9.8 22.2
--------- ------ -------
Total HUMMERs 239.8 244.4 4.5 1.9
ESP 17.7 52.5 34.8 196.5
SPLO 37.9 26.6 (11.3) (29.8)
STS 18.3 15.5 (2.8) (15.5)
--------- ------ -------
Total net sales $ 313.7 338.9 25.2 8.0
========= ====== =======
HUMMER Unit Sales
US Military 3,491 2,515 (976) (28.0)
International (1) 1,949 847 (1,102) (56.5)
Commercial 861 998 137 15.9
--------- ------ -------
Total HUMMERs 6,301 4,360 (1,941) (30.8)
========= ====== =======
HUMMERs Average Unit Selling Prices
US Military $ 33,123 53,107 19,984 60.3
International (1) 41,064 67,090 26,026 63.4
Commercial 51,307 54,087 2,780 5.4
--------- ------ -------
All HUMMERs $ 38,064 56,048 17,984 47.2
========= ====== =======
(1) Includes FMS and Direct International Sales
</TABLE>
NET SALES
The increase in net sales was due primarily to the increase in ESP, US
Military and Commercial HUMMER sales which were partially offset by lower direct
International HUMMER sales, SPLO sales and STS sales. The increase in ESP sales
is attributed to the increased level of production and sales during the first
nine months of fiscal 1996 as compared to the first nine months of fiscal 1995
when the program was in a start up mode. The increase in US Military HUMMER
sales is primarily attributed to the higher unit selling prices for A2 HUMMERs
which the Company began selling in the fourth quarter of 1995. The increase in
Commercial HUMMER sales is attributed to the Company's continued marketing
efforts, the development of its commercial dealer network, increased purchases
of options available on 1996 models and selling price increases.
12
<PAGE>
The reduction in direct International HUMMER military sales is primarily
attributed to the present low level of demand by foreign countries. The
reduction in SPLO sales is directly attributed to a large international delivery
in the first nine months of fiscal 1995 and the present low level of direct
International HUMMER sales. Direct International vehicle contracts generally
contain concurrent provisions for spare parts. The decline in STS is primarily
attributed to higher than normal sales during the first nine months of fiscal
1995.
AVERAGE HUMMER UNIT SELLING PRICES
Average HUMMER unit selling prices for all HUMMERs increased 47.2% from the
first nine months of 1995 primarily due to a significant increase in the average
selling price for US Military and International units. Average HUMMER unit
selling prices for the US Military increased 60.3% over the first nine months of
1995 due primarily to higher negotiated selling prices for the R021 and X001
contracts. The higher average unit selling prices are attributed to directed
changes for the A2 model along with higher fixed overhead costs due to the
reduction in unit production. Additionally, sales during the first nine months
of 1996 included the higher priced ECV HUMMER variants. Average HUMMER unit
selling prices for international sales increased 63.4% primarily due to a higher
priced model mix which included highly modified vehicles for one direct
international customer. Commercial HUMMER average unit selling prices increased
5.4% primarily due to the availability of additional options and a 2.5% increase
in selling prices late in the 1995 model year followed by a 2.5% increase for
the 1996 model year. Both 1995 and 1996 models were sold during the first nine
months of 1996.
GROSS PROFIT
Gross profit was $35.7 million for the first nine months of 1996, a
decrease of $6.2 million from gross profit of $41.9 million for the first nine
months of 1995. The decrease was primarily due to the EAC adjustment recorded in
the third quarter and described above.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $14.0 million for the first nine
months of 1996, an increase of $2.0 million or 16.8% over depreciation and
amortization expense of $12.0 million for the first nine months of 1995. The
increase was primarily due to new US Military tooling amortization for the ECV
HUMMERs and the new A2 series model in connection with the R021 and X001
contracts.
13
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative (SG&A) expense was $26.7 million for
the first nine months of 1996, a decrease of $.2 million or .7% from SG&A
expense of $26.9 million for the first nine months of 1995. The reduction was
primarily due to lower travel and engineering expenses partially offset by the
timing of expense during the third quarter as described above.
OPERATING INCOME/LOSS
The Company's operating loss for the first nine months of 1996 was $5.0
million, a decrease of $8.0 million from operating income of $3.0 million for
the first nine months of 1995. The decrease in operating income is primarily
attributed to the EAC adjustment recorded in the third quarter.
INTEREST INCOME AND EXPENSE
Interest expense for the first nine months of 1996 was $12.3 million, an
increase of $3.9 million or 46.6% from interest expense of $8.4 million for the
first nine months of 1995. Average debt outstanding during the first nine months
of fiscal 1995 was $85.0 million at a weighted average interest rate of 11.5%.
Average debt outstanding during the first nine months of fiscal 1996 was $128.5
million at a weighted average interest rate of 11.8%. The increase in average
debt outstanding is primarily due to the increase in inventory in connection
with the finished goods inventory for the FMS Customer and inventory held for an
extended time period before delivery to a direct international customer. (see
"Liquidity and Capital Resources"). Interest income increased by $1.7 million
primarily due to the acceptance by the DoD and the FMS Customer of interest
expense associated with the 768 units held in inventory.
INCOME TAX BENEFIT
Income tax benefit was recorded at the statutory rate adjusted for
permanent differences primarily resulting from the amortization of goodwill.
Income tax benefit was a credit of $4.1 million for the first nine months of
1996, an increase of $3.8 million from an income tax benefit of $.3 million for
the first nine months of 1995. The increase in income tax benefit was due to the
reduction of taxable income.
NET LOSS BEFORE EXTRAORDINARY ITEM
As discussed above, the increase in the net loss before extraordinary item
in the first nine months of 1996 compared to the first nine months of 1995 was
primarily due to the EAC adjustment, increased depreciation and amortization
expense and higher net interest expense. These were partially offset by the
higher income tax benefit.
EXTRAORDINARY ITEM
The Company recorded a $3.0 million extraordinary gain during the month of
April 1995 in connection with the early retirement of debt with the proceeds
from the 12-7/8% Senior Notes offering. The gain is net of all related expenses
including Federal and State income taxes. There was no extraordinary item during
the first nine months of 1996.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the first nine months of
fiscal 1996 was $9.3 million compared to $33.9 million of cash used in operating
activities during the first nine months of 1995. Cash provided from operations
in the first nine months of fiscal 1996 was primarily due to non cash charges to
operations including depreciation, amortization, other post employment benefits
and reduction in the level of accounts receivable, partially offset by cash used
to reduce accounts payable.
Finished inventories rose $4.8 million during the first nine months
primarily due to increases in US Military and Commercial HUMMERs offset by a
decrease in direct International HUMMER and ESP units. At the end of the first
nine months, the Company's finished inventory continued to include the 768
HUMMERs built for the FMS Customer which management expects will be sold by the
end of the fourth quarter of fiscal 1996. ESP finished goods inventory decreased
slightly during the first nine months due to a slightly higher acceptance and
delivery rate. Work-in-process inventories decreased by $4.1 million primarily
due to management initiatives with respect to reducing inventory.
The accounts receivable balance at July 31, 1996 represents a normal level.
Unusually high sales in the latter part of October 1995 resulted in higher than
normal receivables at October 31, 1995.
Capital expenditures during the first nine months of 1996 were $3.6
million, compared to capital expenditures of $4.0 million for the first nine
months of 1995. The 1996 expenditures were primarily for tooling required for
the production of Commercial and military HUMMERs and the ESP program. The
Company does not anticipate any significant increase in capital expenditures.
The Company's primary source of liquidity for operations during the first
nine months of 1996 was net cash provided from operating activities. During
fiscal 1995, the Company increased its borrowings under the revolving credit
facility primarily to finance the increase in inventories. During the first nine
months of fiscal 1996, the Company's net cash from operations was sufficient to
provide operating cash flow, fund capital expenditures and reduce the revolving
credit facility by a total of $4.1 million. Despite this improvement in
liquidity, inventory levels remain significantly higher than those considered
acceptable. At July 31, 1996 the Company had in its finished goods inventory a
total of 931 units, including the 768 units discussed above, which could have
been sold but were not due to timing delays in the execution of certain contract
amendments. When these particular units are sold, management estimates a
favorable impact on liquidity in the amount of approximately $43.7 million. At
July 31, 1996 borrowings under the revolving credit facility were $47.7 million.
The high level of inventory discussed above will require the Company to
continue to borrow up to the maximum amounts available under the revolving
credit facility until the inventory described above is sold.
15
<PAGE>
Because of the net loss experienced by the Company, it was necessary to
request a waiver of a violation of a revolving credit facility financial
covenant. The lender waived the violation and discussions are taking place to
amend future covenants. The Company feels confident the amendments will be
completed in the next 60 days.
The Company expects to receive new orders sufficient to continue HUMMER
production at the rate of approximately twenty-five units per day . Failure to
receive sufficient orders would have a material adverse impact on the Company's
liquidity.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 2, 1996, the Company made an Excess Cash Flow Offer to the
holders of its 12-7/8% Senior Notes due 2002 to purchase up to
$3,442,000 principal amount of such notes at 101% of the principal
amount plus accrued interest. This offer expired on August 29, 1996.
$1,000,000 of principal amount of Notes were tendered, accepted and
paid for.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No. Description
----------- -----------
10.1 Amendment 9 dated June 26, 1996 to Loan and
Security Agreement dated as of April 30, 1992
between Congress Financial Corporation and
AM General Corporation
27 Financial Data Schedule
(b) Reports on Form 8-K . Registrant did not file any reports on Form
8-K during the quarter for which this report is filed.
17
<PAGE>
SIGNATURES
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.
Date: September 16, 1996 AM GENERAL CORPORATION
Registrant
By
-----------------------
Paul R. Schuchman
Executive Vice President
and Chief Financial Officer
Duly authorized officer and
principal financial officer
18
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 9 TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
June 26, 1996
AM General Corporation
105 North Niles Avenue
South Bend, Indiana 46634-7725
Attn: Mr. Paul Schuchman
Gentlemen:
Congress Financial Corporation ("Lender") and AM General Corporation
("Borrower") have entered into financing arrangements pursuant to the Loan and
Security Agreement, dated April 30, 1992 between Lender and Borrower (as this
same has or may from time to time be amended or supplemented, the "Loan
Agreement"). All capitalized terms used in this Amendment have the meaning
assigned to them in the Loan Agreement.
Amendment No. 2 to Loan and Security Agreement, dated October 27, 1992,
between Lender and Borrower added a new Section 6.5(f) to the Loan Agreement to
permit the repurchase by Borrower from a Floorplan Lender of Hummers repossessed
by the Floorplan Lender and the Indebtedness of Dealers to such Floorplan Lender
relating thereto.
Pursuant to the request of Borrower, Borrower and Lender hereby agree that
Section 6.5(f)(i) of the Loan Agreement is deleted in its entirety and the
following substituted therefor:
"(i) the aggregate amount of the total liability of Borrower and AMGSC
to all Floorplan Lenders for the purchase of Hummers and, if applicable,
such Indebtedness (whether contingent or otherwise) outstanding at one time
shall not exceed $8,500,000; provided, that, subject to the written consent
of Lender in each instance, the liability of Borrower and AMGSC to a
Floorplan Lender in connection with any fleet sales may be excluded from
such limit,"
Except as modified pursuant hereto, no other changes or modifications to
the Financing Agreements are intended or implied and in all other respects the
Financing Agreements are hereby specifically ratified, restated and confirmed by
all parties hereto as of the date hereof.
Upon receipt by Lender of an executed original of this Amendment duly
authorized, executed and delivered by Borrower and
<PAGE>
its affiliates, this Amendment shall be effective as of the date set forth
above.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
/s/ Janet S. Last, V.P.
Janet S. Last
Vice President
ACKNOWLEDGED AND AGREED:
AM GENERAL CORPORATION
By: /s/ P. R. Schuchman
------------------------
Title: CFO
---------------------
AM GENERAL SALES CORPORATION
By: /s/ P. R. Schuchman
------------------------
Title: Vice President
---------------------
-2-
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NINE MONTHS
ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 2,820
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<RECEIVABLES> 37,394
<ALLOWANCES> (350)
<INVENTORY> 117,982
<CURRENT-ASSETS> 166,260
<PP&E> 103,181
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<TOTAL-ASSETS> 347,939
<CURRENT-LIABILITIES> 72,635
<BONDS> 122,873
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5,000
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<TOTAL-LIABILITY-AND-EQUITY> 347,939
<SALES> 338,932
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<CGS> 303,213
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