-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3MJg3CjRIoPiwlozaDFm9ArVLrdC7dVvgQWqQ4cxX1AC5erfuScfpPoyL9MFrMu 9HCtJFmzFms6h3O4EuAS3A== 0000950128-98-000944.txt : 19980807 0000950128-98-000944.hdr.sgml : 19980807 ACCESSION NUMBER: 0000950128-98-000944 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980806 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOTIVEPOWER INDUSTRIES INC CENTRAL INDEX KEY: 0000919563 STANDARD INDUSTRIAL CLASSIFICATION: RAILROAD EQUIPMENT [3743] IRS NUMBER: 820461010 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13225 FILM NUMBER: 98677985 BUSINESS ADDRESS: STREET 1: 1200 REEDSDALE ST CITY: PITTSBURGH STATE: PA ZIP: 15233 BUSINESS PHONE: 4122372250 MAIL ADDRESS: STREET 1: 1200 REEDSDALE STREET CITY: PITTSBURGH STATE: PA ZIP: 15233 FORMER COMPANY: FORMER CONFORMED NAME: MK RAIL CORP DATE OF NAME CHANGE: 19940228 10-Q 1 MOTIVEPOWER INDUSTRIES, INC. 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 JUNE 30, 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 July 31, 1998 - ---------------------------- ---------------------------- Common stock, $.01 par value 17,820,093 1 2 MOTIVEPOWER INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
PAGE ---- Item 1. Condensed Consolidated Financial Statements Condensed Consolidated Statements of Operations (Unaudited) for the Three 3 and Six Months Ended June 30, 1998 and 1997 Condensed Consolidated Balance Sheets at June 30, 1998 (Unaudited) 4 and December 31, 1997 Condensed Consolidated Statements of Cash Flows (unaudited) for the Three 5 and Six Months Ended June 30, 1998 and 1997 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 19 Item 2. Changes in Securities 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 20 Item 5. Other Information 20 Item 6. Exhibits and Reports on Form 8-K 20 Signature 21
2 3 PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MOTIVEPOWER INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (In thousands except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ------------------------ 1998 1997 1998 1997 -------- -------- --------- --------- Net sales $ 88,461 $ 73,813 $ 171,314 $ 143,471 Cost of sales (67,125) (54,498) (128,622) (108,331) -------- -------- --------- --------- Gross profit 21,336 19,315 42,692 35,140 Selling, general and administrative expenses (10,144) (10,039) (20,497) (18,801) -------- -------- --------- --------- Operating income 11,192 9,276 22,195 16,339 Investment income 279 114 558 303 Interest expense (1,314) (1,161) (2,527) (2,466) Other income - Argentina 1,855 835 1,945 796 Foreign exchange gain (loss) 241 (41) 829 (156) -------- -------- --------- --------- Income before income taxes and extraordinary item 12,253 9,023 23,000 14,816 Income tax expense (4,383) (3,614) (8,010) (5,930) -------- -------- --------- --------- Income before extraordinary item 7,870 5,409 14,990 8,886 Extraordinary loss on extinguishment of debt, net of income tax benefit of $265 -- -- (472) -- -------- -------- --------- --------- Net income $ 7,870 $ 5,409 $ 14,518 $ 8,886 ======== ======== ========= ========= EARNINGS PER COMMON SHARE - BASIC: Income before extraordinary item $ .44 $ .31 $ .84 $ .50 Extraordinary item -- -- (.03) -- -------- -------- --------- --------- Net income $ .44 $ .31 $ .81 $ .50 ======== ======== ========= ========= Adjusted weighted average common shares outstanding 17,834 17,644 17,820 17,634 EARNINGS PER COMMON SHARE - ASSUMING DILUTION: Income before extraordinary item $ .42 $ .30 $ .81 $ .50 Extraordinary item -- -- (.03) -- -------- -------- --------- --------- Net income $ .42 $ .30 $ .78 $ .50 ======== ======== ========= ========= Adjusted weighted average common shares outstanding 18,638 18,031 18,594 17,912
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 4 MOTIVEPOWER INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 1998 AND DECEMBER 31, 1997 (In thousands except per share data)
(UNAUDITED) JUNE 30, DECEMBER 31, ASSETS 1998 1997 ----------- ------------ Current Assets: Cash and cash equivalents $ 7,509 $ 16,897 Receivables from customers: Billed, net of allowance for doubtful accounts of $408 and $394, 36,171 34,588 respectively Unbilled 3,373 450 Inventories 93,979 81,448 Deferred income taxes 8,359 7,596 Other 4,739 3,358 --------- --------- Total current assets 154,130 144,337 Locomotive lease fleet, net 1,231 1,468 Property, plant and equipment: Land 1,427 1,408 Buildings and improvements 42,755 36,095 Machinery and equipment 71,179 64,862 --------- --------- Property, plant and equipment - at cost 115,361 102,365 Less accumulated depreciation (51,836) (49,942) --------- --------- Property, plant and equipment - net 63,525 52,423 Underbillings - MPI de Mexico 27,064 32,298 Deferred income taxes 4,403 7,724 Goodwill and intangibles - net 25,228 27,362 Other 16,273 17,490 --------- --------- Total assets $ 291,854 $ 283,102 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 6,350 $ 10,725 Accounts payable - trade 32,747 30,340 Accrued expenses and other current liabilities 33,982 36,065 Income taxes payable 1,347 -- Revolving credit borrowings -- 5,000 Advances from customers 1,325 426 --------- --------- Total current liabilities 75,751 82,556 Long-term debt 32,483 34,782 Commitments and contingencies 15,676 15,552 Other 8,435 5,664 --------- --------- Total liabilities 132,345 138,554 --------- --------- Stockholders' Equity: Common Stock, par value $.01 per share, authorized 55,000,000 shares; issued and outstanding 17,812,843 shares at June 30, 1998 and 17,774,093 shares at December 31, 1997 178 178 Additional paid-in capital 205,881 205,609 Deficit (40,835) (55,353) Cumulative translation adjustments, net of tax (5,105) (5,105) Deferred compensation (610) (781) --------- --------- Total stockholders' equity 159,509 144,548 --------- --------- Total liabilities and stockholders' equity $ 291,854 $ 283,102 ========= =========
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 5 MOTIVEPOWER INDUSTRIES, INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (In thousands)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- ----------------------------- 1998 1997 1998 1997 ------------ ------------ ----------- ------------ Operating Activities Net income $ 7,870 $ 5,409 $ 14,518 $ 8,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,961 1,915 3,614 3,366 Amortization 757 816 1,583 1,637 Extraordinary loss on extinguishment of debt, net of tax -- -- 472 -- Receivables from customers 3,696 2,211 (4,506) (11,371) Inventories (3,928) (1,423) (12,336) 564 Underbillings - MPI de Mexico 658 (3,462) 5,234 (4,160) Accounts payable and accrued expenses 7,682 7,147 324 10,589 Advances from customers 461 -- 899 2,814 Other, net (201) (178) 3,884 1,763 -------- -------- -------- -------- Net cash provided by operating activities 18,956 12,435 13,686 14,088 -------- -------- -------- -------- Investing Activities Additions to property, plant and equipment (8,549) (2,776) (14,722) (4,126) Other, net 2,997 394 3,035 238 -------- -------- -------- -------- Net cash used in investing activities (5,552) (2,382) (11,687) (3,888) -------- -------- -------- -------- Financing Activities Increase in intangibles -- (341) -- (1,363) Net repayments under domestic credit facility (9,000) (6,028) (8,499) (9,812) Net (repayments) borrowings under Mexican credit (3,000) 3,718 (3,175) 6,755 facility Proceeds from exercise of stock options including tax-related benefit 122 -- 287 -- -------- -------- -------- -------- Net cash used in financing activities (11,878) (2,651) (11,387) (4,420) -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 1,526 7,402 (9,388) 5,780 Cash and cash equivalents at beginning of period 5,983 3,614 16,897 5,236 -------- -------- -------- -------- Cash and cash equivalents at end of period $ 7,509 $ 11,016 $ 7,509 $ 11,016 ======== ======== ======== ======== Supplemental Disclosures of Cash Flow Information Interest paid $ 1,490 $ 1,031 $ 1,866 $ 1,134 Income taxes paid, net 4,083 1,189 3,424 2,934
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 6 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 June 30, 1998 and the results of their operations and their cash flows for the three and six months ended June 30, 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 and six months ended June 30, 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 and freight car fleet maintenance; overhauls and remanufactures locomotives, freight cars and diesel engines; 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. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES: In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activity" ("SFAS 133"), was issued. SFAS 133 is effective for financial statements for fiscal years beginning after June 15, 1999. The Company has not yet determined the effect of this standard. 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 does not believe the adoption of the standard will have a material impact on the Company's financial position or results of operations. START-UP ACTIVITIES: In April 1998, Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"), was issued. SOP 98-5 is effective for financial statements for fiscal years beginning after December 15, 1998. 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. 6 7 2. INVENTORIES Inventories consisted of the following:
(UNAUDITED) JUNE 30, DECEMBER 31, 1998 1997 ----------- ------------ (In thousands) Cores $ 7,769 $ 7,477 Raw materials 44,098 35,421 Work in progress 19,916 21,396 Finished goods 22,196 17,154 ------- ------- $93,979 $81,448 ======= =======
Approximately $38.7 million and $30.7 million of total inventories at June 30, 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 million and $1.2 million at June 30, 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 two revolving credit facilities with ABN AMRO Bank, N.V. and Mellon Bank N.A. totaling $200 million. ABN AMRO and Mellon Bank subsequently sold participations in these facilities to a syndicate of 10 additional banks. The facilities 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 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 June 30, 1998, the Company had $13.5 million drawn under its LIBOR option at an effective annual rate of 5.7%. On the same day, the Company had $1 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 June 30, 1998, the Company's gross availability under domestic credit facilities was approximately $132 million. After deducting outstanding debt and other reserves, the Company calculates its net available domestic borrowing capacity on June 30, 1998 as $113 million. 7 8 Mexican facilities: The Company has two U.S. 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"). In June 1998, the Company amended the terms and conditions of its $30 million facility which reduced interest rates by 1.25% per annum and reduced reserve fund balance requirements on average by 55% commencing in November 1998 (forecasted to be a $3.9 million decrease at December 31, 1998). At June 30, 1998, the Company had $21.1 million outstanding under this non-recourse facility at an effective annual rate of 8.2%. The second facility is a $3.5 million five-year term loan. At June 30, 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 June 30, 1998, using a discount rate of 6.5%, was $2.1 million based on the Permit's Corrective Action Plan, and $1.95 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 June 30, 1998. Legal Proceedings: 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 cannot be predicted with certainty, management believes that such legal proceedings are adequately provided for in the condensed 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 Group and Components Group. The reportable segments are comprised of strategic business units which offer different products and services. The Locomotive Group provides locomotive and freight car fleet maintenance, overhauling and remanufacturing locomotives, freight cars and diesel engines, 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 8 9 aftermarket, or replacement, new and remanufactured components, parts and inventory management services 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 excluding 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 unaudited condensed segment financial information for the three months ended June 30, 1998 and 1997:
(JUNE 30, 1998) (JUNE 30, 1997) ----------------------------------------------- ----------------------------------------------- Locomotive Components Total Locomotive Components Total -------------- ------------- ------------- ------------- ------------- ------------- (In thousands) Gross sales $44,213 $53,270 $97,483 $36,847 $44,004 $80,851 Intercompany sales 2,104 6,918 9,022 1,513 5,525 7,038 Operating income 7,333 6,631 13,964 6,061 7,205 13,266
Following is unaudited condensed segment financial information for the six months ended June 30, 1998 and 1997:
(JUNE 30, 1998) (JUNE 30, 1997) ----------------------------------------------- ----------------------------------------------- Locomotive Components Total Locomotive Components Total -------------- ------------- ------------- ------------- ------------- ------------- (In thousands) Gross sales $ 83,207 $105,279 $188,486 $ 67,243 $ 90,253 $157,496 Intercompany sales 3,878 13,294 17,172 4,028 9,997 14,025 Operating income 13,955 14,249 28,204 9,312 14,850 24,162 Assets 134,711 148,322 283,033 110,417 114,365 224,782
9 10 The following reconciles segment information presented above to the unaudited condensed consolidated financial statements.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ -------------------------- 1998 1997 1998 1997 -------- -------- --------- --------- (In thousands) NET SALES: Gross sales from segments $ 97,483 $ 80,851 $ 188,486 $ 157,496 Elimination of intercompany sales (9,022) (7,038) (17,172) (14,025) -------- -------- --------- --------- Net sales $ 88,461 $ 73,813 $ 171,314 $ 143,471 ======== ======== ========= ========= OPERATING INCOME: Segment operating income $ 13,964 $ 13,266 $ 28,204 $ 24,162 Unallocated corporate expenses (2,772) (3,990) (6,009) (7,823) -------- -------- --------- --------- Operating income $ 11,192 $ 9,276 $ 22,195 $ 16,339 ======== ======== ========= ========= ASSETS: Segment assets $283,033 $224,782 Corporate assets, including domestic deferred income taxes 8,821 28,106 -------- -------- Total assets $291,854 $252,888 ======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION GENERAL MotivePower Industries' business strategy is to grow and continue to strengthen its core businesses, including manufacturing and distributing engineered locomotive components and parts; providing locomotive and freight car fleet maintenance; overhauling and remanufacturing locomotives, freight cars and diesel engines; 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; and manufacturing components for the power, marine and industrial markets. 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 International markets, such as Latin America, China, the Middle East and the Pacific Rim; 4. Expand sales of similar components into new, non-rail markets and develop new products for its existing rail markets; 10 11 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 product line or core businesses; 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. SIGNIFICANT EVENTS During the quarter ended June 30, 1998, and subsequently, the Company announced the following contracts through its subsidiaries: - On May 7, 1998, Boise Locomotive Company was awarded a $9 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 July 6, 1998, Boise Locomotive Company was awarded a $2 million contract to manufacture two, 2000 horsepower locomotives for the New Orleans Public Belt Railroad. - On July 8, 1998, Power Parts Company received $6 million of international orders to supply locomotive components. The order includes a $4.8 million contract with the Egyptian National Railway. - On July 9, 1998, MPI de Mexico was awarded a $5 million contract to overhaul 12 G.E. model locomotives for Ferromex, the joint venture that operates the Pacific North Region of the Mexican Railroad System. During the quarter ended June 30, 1998, and subsequently, the Company has been party to the following transactions and events: - On May 12, 1998, the Company announced that it has signed stocking distributor and supply agreements in Brazil and China as part of its strategy to increase international sales and procure lower-cost materials abroad. - On July 2, 1998, the Company announced that it has signed an agreement dated June 26, 1998 to sell its remaining investment in a non-core Argentina business for $9.2 million in total consideration. - On July 17, 1998, MPI de Mexico announced that it has signed new labor agreements with its hourly employees, represented by the Union of Railroad Workers of Mexico. - On August 1, 1998, Motor Coils Manufacturing announced that it has agreed with the union representing 290 hourly employees at its Braddock, Pennsylvania plant to extend the current labor agreement day-by-day during negotiations for a new contract. The current contract expired on July 31, 1998. 11 12 RESULTS OF OPERATIONS The following table sets forth the percentage of net sales represented by certain items in the Company's Unaudited Condensed Consolidated Statement of Operations:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- --------------------- 1998 1997 1998 1997 ------- ------- ------- ------ Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales (75.9) (73.8) (75.1) (75.5) ----- ----- ----- ----- Gross profit 24.1 26.2 24.9 24.5 Selling, general and administrative expenses (11.5) (13.6) (12.0) (13.1) ----- ----- ----- ----- Operating income 12.6 12.6 12.9 11.4 Investment income .3 .2 .3 .2 Interest expense (1.4) (1.6) (1.4) (1.8) Other income - Argentina 2.1 1.1 1.1 .6 Foreign exchange gain (loss) .3 (.1) .5 (.1) ----- ----- ----- ----- Income before income taxes and extraordinary item 13.9 12.2 13.4 10.3 Income tax expense (5.0) (4.9) (4.6) (4.1) ----- ----- ----- ----- Income before extraordinary item 8.9 7.3 8.8 6.2 Extraordinary item -- -- (.3) -- ----- ----- ----- ----- Net income 8.9% 7.3% 8.5% 6.2% ===== ===== ===== =====
CONSOLIDATED UNAUDITED OPERATIONS Three Months Ended June 30
1998 1997 % CHANGE -------- ------- -------- (In thousands) Net sales $ 88,461 $73,813 20% Gross profit 21,336 19,315 11% Selling, general and administrative expenses (10,144) (10,039) 1% Operating income 11,192 9,276 21% Net income 7,870 5,409 45%
Net sales for the second quarter of 1998 were $88.5 million, compared to $73.8 million for the second quarter of 1997, an increase of 20%. The increase in sales is primarily attributed to increased sales in the Locomotive Group for locomotive and freight car projects in both the U.S. and Mexico. In addition, the sales increase in the Components Group is primarily the result of sales from the December 1997 acquired subsidiaries, which totaled $4.3 million for the quarter. 12 13 Gross profit for the second quarter of 1998 was $21.3 million or 24.1% of net sales compared to $19.3 million or 26.2% of net sales for the second quarter of 1997. The increase in gross profit is attributed to both the sales volume and sales mix for the quarter. Gross profit in the second quarter of 1998 was reduced by $1.7 million of expenses for the relocation and start-up of certain production facilities in the Components Group. The new facilities are expected to reduce costs, improve productivity and efficiency, and increase throughput. Excluding these expenses, the Company's gross margin was 26.1%, essentially the same as the prior-year quarter. Selling, general and administrative expenses for the second quarter of 1998 were $10.1 million, compared to $10 million for the second quarter of 1997. Increases in selling, general and administrative expenses of companies acquired in December 1997 were substantially offset by reductions in legal expenses, allowing total costs to remain relatively constant for the quarter. Selling, general and administrative expenses declined significantly as a percentage of net sales due to the Company's continuing focus on cost controls and its ability to leverage existing relationships. Investment income for the second quarter of 1998 was $279,000 compared to $114,000 for the second quarter of 1997. The increase is primarily attributed to increased earnings on funds invested in Mexico. Interest expense for the second quarter of 1998 was $1.3 million compared to $1.2 million for the second quarter of 1997. The increase is attributed to increased domestic debt outstanding during the quarter, which was paid down in the later part of June 1998. Offsetting the interest on increased borrowings was a reduction in the interest rate on both the domestic and the Mexican credit facilities. Other income - Argentina for the second quarter of 1998 was $1.9 million compared to $835,000 for the second quarter of 1997. For both periods the amounts represent funds received from the Company's investment in Argentina. The Company has signed an agreement to sell its remaining investment in Argentina for $9.2 million in total consideration. As part of the agreement, the Company recorded $1.5 million from cash proceeds received in the second quarter of 1998, which accounts for the increase in income compared to the second quarter of 1997. The Company anticipates receiving a letter of credit to secure a $4.5 million note receivable in the third or fourth quarter of 1998, and a final cash payment of $3.2 million upon closing in December 1998, accounting for the balance of the total consideration. The Company will recognize income in subsequent periods only when security for the note and funds due are actually received which is consistent with its accounting treatment since the investment was restructured in 1994. The Company realized a foreign exchange gain of $241,000 in the second quarter of 1998, compared to a foreign exchange loss of $41,000 in the second quarter of 1997. Both the gain and the loss are the results of fluctuations in the valuation of the Mexican peso, and its effect on the Company's net peso position during the period. Income tax expense for the second quarter of 1998 was $4.4 million, or 36% of pre-tax income, compared to $3.6 million or 40% of pre-tax income for the second quarter of 1997. The decrease in income tax expense as a percentage of pre-tax income is primarily attributed to a reduced income tax rate in Mexico resulting from tax planning opportunities associated with the signing of the new maintenance contract, and the utilization of a Foreign Sales Corporation. 13 14 Six Months Ended June 30
1998 1997 % CHANGE -------------- ------------- -------------- (In thousands) Net Sales $ 171,314 $ 143,471 19% Gross profit 42,692 35,140 21% Selling, general and administrative expenses (20,497) (18,801) 9% Operating income 22,195 16,339 36% Net income 14,518 8,886 63%
Net sales for the first half of 1998 were $171.3 million, compared to $143.5 million for the first half of 1997, an increase of 19%. The increase in sales is primarily attributed to increased sales in the Locomotive Group for locomotive overhaul work for third party lessors, freight car repair, and the sale of switcher locomotives. In addition, the sales increase in the Components Group is primarily the result of sales from the December 1997 acquired subsidiaries. Gross profit for the first half of 1998 was $42.7 million or 24.9% of net sales compared to $35.1 million or 24.5% of net sales for the first half of 1997. The increase is primarily attributed to the increased sales volume, the product mix and the Company's continuing efforts to reduce production costs. Gross profit for the first half of 1998 was also favorably affected by a gain of $1.2 million related to a 1994 contract contingency that expired in the first quarter of 1998. In addition, gross profit in the first half of 1998 was reduced by $2.3 million of expenses for the relocation of certain production facilities in the Components Group which are expected to reduce costs, improve productivity and efficiency, and increase throughput. Selling, general and administrative expenses for the first half of 1998 were $20.5 million, compared to $18.8 million for the first half of 1997. The increase in selling, general and administrative expenses is primarily attributed to expenses from subsidiaries acquired in December 1997. Investment income for the first half of 1998 was $558,000 compared to $303,000 for the first half of 1997. The increase is primarily attributed to increased earnings on funds invested in Mexico. Interest expense for the first half of 1998 was $2.5 million compared to $2.5 million for the first half of 1997. Increased interest on outstanding borrowings during the quarter was offset by interest rate reductions on both the domestic and Mexican credit facilities allowing for interest expense to remain constant between the periods. Other income - Argentina for the first half of 1998 was $1.9 million compared to $796,000 for the first half of 1997. For both periods the amounts represent funds received from the Company's investment in Argentina. The increase between periods is due to the Company's sale of its investment in Argentina which is discussed in the operating results for the three months ended June 30, 1998. The Company realized a foreign exchange gain of $829,000 in the first half of 1998, compared to a foreign exchange loss of $156,000 in the first half of 1997. Both the gain and loss are the results of fluctuations in the valuation of the Mexican peso, and its effect on the Company's net peso position during the period. 14 15 Income tax expense for the first half of 1998 was $8 million, or 35% of pre-tax income, compared to $5.9 million or 40% of pre-tax income for the first half of 1997. The decrease in income tax expense as a percentage of pre-tax income is primarily attributed to a reduced income tax rate in Mexico resulting from tax planning opportunities associated with the signing of a new maintenance contract 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. Locomotive Group
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, % CHANGE JUNE 30, % CHANGE --------------------------- --------------- ---------------------------- --------------- 1998 1997 1998 1997 ----------- ------------ ------------ ------------ (In thousands) (In thousands) Net sales $ 42,109 $ 35,334 19% $ 79,329 $ 63,215 25% Operating income 7,333 6,061 21% 13,955 9,312 50%
The increase in net sales for the second quarter of 1998 compared to the second quarter of 1997 is the result of increased overhaul work for third party lessors and an increase in freight car repair. The increase in operating income for the second quarter of 1998 compared to the second quarter of 1997 is the result of the increased sales volume and mix favoring higher-margin product lines. The increase in net sales for the first half of 1998 compared to the first half of 1997 is primarily the result of increased overhaul work for third party lessors, an increase in freight car repair, and the sale of switcher locomotives. The increase in operating income for the first half of 1998 compared to the first half of 1997 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 a 1994 contract contingency. Components Group
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, % CHANGE JUNE 30, % CHANGE --------------------------- --------------- ---------------------------- --------------- 1998 1997 1998 1997 ----------- ------------ ------------ ------------ (In thousands) (In thousands) Net sales $ 46,352 $ 38,479 21% $ 91,985 $ 80,256 15% Operating income 6,631 7,205 (8%) 14,249 14,850 (4%)
The increase in net sales for the second quarter of 1998 compared to the second quarter of 1997 is the result of net sales from the two companies acquired in late 1997 which totaled $4.3 million, and unit sales increases of turbochargers and cooling systems at Engine Systems and Touchstone, respectively. Operating income decreased in the second quarter of 1998 compared to the second quarter of 1997 primarily as a result of costs incurred with the relocation and start-up of certain production 15 16 facilities, which totaled $1.7 million during the period. Excluding these expenses, operating income increased 16% for the quarter. The increase in net sales for the first half of 1998 compared to the first half of 1997 is the result of net sales from the two companies acquired in late 1997 which totaled $8.5 million, unit sales increases of turbochargers and cooling systems at Engine Systems and Touchstone, respectively, and increased export sales at Power Parts. Operating income decreased in the first half of 1998 compared to the first half of 1997 primarily as a result of costs incurred with the relocation and start-up of certain production facilities, which totaled $2.3 million during the period. Excluding these expenses, operating income increased 11% for the first half of 1998. FINANCIAL CONDITION AND LIQUIDITY On January 27, 1998 the Company closed two new revolving credit facilities with ABN AMRO Bank N.V. and Mellon Bank NA totaling $200 million. The facilities 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 Company anticipates that capital spending in 1998 will approximate $28 million. Listed below are the 1998 anticipated project costs and the actual expenditures incurred through June 30, 1998.
1998 PLANNED JUNE 30, 1998 PROJECT COSTS YTD ACTUAL -------------- -------------- (In thousands) Expansion of Production Facilities $15,600 $ 9,716 Equipment Upgrades 4,800 1,087 Information Systems 2,100 784 Maintenance 5,500 3,135 ======= ======= Total $28,000 $14,722 ======= =======
In addition to the planned capital expenditures in 1998, the Company has incurred, and will continue to incur, costs to relocate equipment from Motors Coils to MPI de Mexico in order to produce certain qualified locomotive components. In addition, the Company incurred costs at Touchstone to move equipment from the existing facility to the new manufacturing facility. As of June 30, 1998 the costs expensed to date for these projects totaled approximately $2.3 million. The Company's ability to complete the remaining open projects in a timely and efficient manner could have an impact on the Company's results of operations for the balance of the year. 16 17 The table below highlights the debt and cash position of the Company at the dates noted.
JUNE 30, 1998 DECEMBER 31, 1997 ------------- ----------------- (In thousands) Domestic revolver $ 14,500 $ 5,000 Domestic term loans -- 17,999 MPI de Mexico credit facility 24,333 27,508 -------- -------- Total debt 38,833 50,507 Cash and cash equivalents (7,509) (16,897) -------- -------- Net debt $ 31,324 $ 33,610 ======== ========
With the Company's 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, capital spending and contemplated acquisitions. 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:
SIX MONTHS ENDED JUNE 30, 1998 1997 -------------- -------------- (In thousands) Net cash provided by (used in): Operating activities $ 13,686 $ 14,088 Investing activities (11,687) (3,888) Financing activities (11,387) (4,420) -------- -------- Net (decrease) increase in cash and cash equivalents $ (9,388) $ 5,780 ======== ======== Cash and cash equivalents at end of period $ 7,509 $ 11,016 ======== ========
Net cash provided by operating activities totaled $13.7 million for the first half of 1998, compared to $14.1 million for the first half of 1997. During the first half of 1998, accounts receivable increased $4.5 million primarily the result of increased sales at Boise Locomotive. Inventories increased $12.3 million in the first half 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 during their respective facility relocations and production interruptions. Offsetting these uses of cash were the Company's net income of $14.5 million, a reduction in underbillings of $5.2 million as a result of the Mexico contract change for overhaul billings, depreciation and amortization of $5.2 million and 17 18 other net changes of $3.9 million which is primarily changes in the Company's income taxes payable and deferred income taxes. Net cash used in investing activities totaled $11.7 million for the first half of 1998, compared to $3.9 million for the first half of 1997, with capital expenditures of $14.7 million and $4.1 million for the first half of 1998 and 1997, respectively. Offsetting the capital expenditures for the first half of 1998, was a reduction in restricted cash supporting the Mexican credit facility of $2.4 million resulting from the revisions to the terms of the credit facility. Net cash used in financing activities totaled $11.4 million for the first half of 1998 compared to $4.4 million for the first half of 1997. Net repayments under the domestic and Mexican credit facilities totaled $8.5 million and $3.2 million, respectively, in the first half of 1998. 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 binding commitments, the Company does not include these amounts in backlog calculations. At June 30, 1998, these anticipated purchases totaled $55 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 June 30, 1998 and December 31, 1997 and the expected year of recognition is as follows:
JUNE 30, 1998 (In thousands) ORDER 1998 1999 OTHER YEARS BACKLOG -------- ------- ----------- --------- Components $ 29,369 $ 782 $ -- $ 30,151 Locomotive 86,080 79,408 560,357 725,845 ========= ======== ======== ========= Total $115,449 $80,190 $560,357 $755,996 ========= ======== ======== =========
DECEMBER 31, 1997 (In thousands) ORDER 1998 OTHER YEARS BACKLOG -------- ----------- -------- Components $ 36,135 $ -- $ 36,135 Locomotive 136,772 364,948 501,720 ======== ======== ======== Total $172,907 $364,948 $537,855 ======== ======== ========
18 19 INFORMATION TECHNOLOGY The Company is currently engaged in a $7.2 million multi-year Information Technology upgrade and business improvement project. The project, which encompasses all of the Company's subsidiaries, includes a thorough review of manufacturing, material flow, and administrative business processes. Where appropriate, hardware and software upgrades are being applied. To manage the improved processes and systems moving forward, additional training, implementation support, and hiring of staff are being provided. 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 is addressing the Year 2000 compliance issue. The Company is making concerted efforts to find, evaluate and bring into compliance any affected systems. The majority of the business applications have already been upgraded to Year 2000 release levels with software that the Company has been advised by its vendors is Year 2000 compliant. The remaining systems will be upgraded or replaced with software that the Company has purchased and has been advised by the vendor is Year 2000 compliant. The Company is also coordinating with its business associates, customers, and suppliers throughout NAFTA to obtain their assurance that they are or will be Year 2000 compliant in the next year. The Company does not expect the future costs associated with Year 2000 compliance to be significant at June 30, 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 to implement related productivity improvement plans; and the Company's ability to maintain current favorable relations with its labor 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 June 30, 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. 19 20 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 29, 1998, the annual meeting of the shareholders of the Company was held, at which the shareholders voted on and approved the following matters: 1. The election of Lee B. Foster II and James P. Miscoll to the Board of Directors for a term of three years. A summary of the voting results is as follows: Lee B. Foster II James P. Miscoll ---------------- ---------------- For 14,619,619 14,622,122 Abstain 21,377 18,874 John C. Pope and Nicholas J. Stanley continue as directors with terms expiring in 1999. Gilbert E. Carmichael, Ernesto Fernandez Hurtado and Michael A. Wolf continue as directors with terms expiring in 2000. 2. The appointment of Deloitte & Touche LLP as the Company's independent auditors. A summary of the voting results is as follows: For 14,551,113 Against 5,414 Abstain 84,469 3. The amendment to the Company's Stock Incentive Plan to increase the number of shares which may be awarded by one million shares and to conform the plan to recent amendments to Federal Securities Regulations. For 10,302,937 Against 3,042,144 Abstain 136,351 Broker Non-Votes 1,159,564 ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K EXHIBITS: 27.01 Article 5 Financial Data Schedule as of and for the six months ended June 30, 1998. 27.02 Restated Article 5 Financial Data Schedule as of and for the six months ended June 30, 1997. REPORTS ON FORM 8-K None. 20 21 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: August 6, 1998 21 EX-27.1 2 MOTIVEPOWER INDUSTRIES, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 7,509 0 36,579 408 93,979 154,130 115,361 (51,836) 291,854 75,751 32,483 0 0 178 159,331 291,854 171,314 171,314 128,622 128,622 0 0 2,527 23,000 8,010 14,990 0 472 0 14,518 0.81 0.78
EX-27.2 3 MOTIVEPOWER INDUSTRIES, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 11,016 0 37,858 265 77,874 134,306 91,809 47,066 252,888 68,966 36,931 0 0 176 130,376 252,888 143,471 143,471 108,331 108,331 0 0 2,466 14,816 5,930 8,886 0 0 0 8,886 0.50 0.50
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