-----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, Smeajgqa+HNH2/9zTH6V5Cne0roeAatyc+7nE6P1YjcKqEhMGvYHC34erlWXSo1R lo6TMjY82E/4a+jl+VAt2w== 0000931763-99-003319.txt : 19991123 0000931763-99-003319.hdr.sgml : 19991123 ACCESSION NUMBER: 0000931763-99-003319 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991003 FILED AS OF DATE: 19991122 FILER: COMPANY DATA: COMPANY CONFORMED NAME: METROTRANS CORP CENTRAL INDEX KEY: 0000920464 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK & BUS BODIES [3713] IRS NUMBER: 581393777 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23808 FILM NUMBER: 99762384 BUSINESS ADDRESS: STREET 1: 777 GREENBELT PKWY CITY: GRIFFIN STATE: GA ZIP: 30223 BUSINESS PHONE: 18007437200 MAIL ADDRESS: STREET 1: 777 GREENBELT PKWY CITY: GRIFFIN STATE: GA ZIP: 30223 10-Q 1 FORM 10-Q 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 October 3, 1999 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 0-23808 METROTRANS CORPORATION (Exact name of Registrant as specified in its charter) Georgia 58-1393777 (State of Incorporation) (I.R.S. Employer Identification No.) 777 Greenbelt Parkway, Griffin, Georgia 30223 (Address of principal executive offices, including zip code) (770) 229-5995 (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 twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date: Class Outstanding at November 22, 1999 - ---------------------------- -------------------------------- Common Stock, $.01 Par Value 4,129,737 shares METROTRANS CORPORATION Quarterly Report on Form 10-Q For the Quarter Ended October 3, 1999 Table of Contents ----------------- Item Page Number Number - ------ ------ PART I. FINANCIAL INFORMATION 1. Financial Statements: Consolidated Balance Sheets as of October 3, 1999 and December 31, 1998................................................. 2 Consolidated Statements of Income for the three and nine months ended October 3, 1999 and October 4, 1998......................... 3 Consolidated Statements of Cash Flows for the nine months ended October 3, 1999 and October 4, 1998............................... 4 Notes to Consolidated Financial Statements........................ 5 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 9 PART II. OTHER INFORMATION 1. Legal Proceedings................................................ 16 3. Default Under Senior Securities.................................. 17 5. Other Information................................................ 18 6. Exhibits and Reports on Form 8-K................................. 19 Signatures....................................................... 20 1 PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements METROTRANS CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
October 3, December 31, 1999 1998 ----------------- ---------------- (Unaudited) ASSETS CURRENT ASSETS: Cash........................................................................ $ 0 $ 0 Accounts receivable, net of allowance for doubtful accounts of $219 and $134 in 1999 and 1998, respectively............................................. 3,250 6,047 Current portion of net investment in sales-type leases...................... 71 256 Inventories................................................................. 24,081 39,628 Refundable income taxes..................................................... 214 2,229 Prepaid expenses and other.................................................. 1,941 1,192 -------- ------- Total current assets....................................................... 29,557 49,352 PROPERTY, PLANT AND EQUIPMENT, net........................................... 8,443 8,902 NET INVESTMENT IN SALES-TYPE LEASES.......................................... 115 130 INTANGIBLES.................................................................. 476 502 DEPOSITS AND OTHER........................................................... 428 415 -------- ------- $ 39,019 $59,301 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses....................................... $ 14,110 $24,587 Current portion of long-term debt........................................... 23,565 2,236 Customer deposits........................................................... 853 1,211 -------- ------- Total current liabilities.................................................. 38,528 28,034 -------- ------- LONG-TERM DEBT, net of current portion....................................... 1,514 16,076 -------- ------- OTHER NONCURRENT LIABILITIES................................................. 150 300 -------- ------- STOCKHOLDERS' EQUITY: Preferred stock, no par value; 10,000,000 shares authorized................. 0 0 Common stock, $.01 par value; 20,000,000 shares authorized, 4,129,737 and 4,098,244 shares issued and out-standing in 1999 and 1998, respectively.... 41 41 Additional paid-in capital.................................................. 10,824 10,673 Deferred compensation....................................................... (53) (105) Retained earnings (deficit)................................................. (11,985) 4,282 -------- ------- (1,173) 14,891 -------- ------- $ 39,019 $59,301 ======== =======
The accompanying notes are an integral part of these balance sheets. 2
METROTRANS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Per Share Data) (Unaudited) Three Months Ended Nine Months Ended ----------------------- ------------------------- October 3, October 4, October 3, October 4, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- NET REVENUE $15,185 $20,282 $ 52,407 $59,199 COST OF SALES 15,543 18,835 53,359 51,159 ------- ------ -------- ------- Gross Profit (Loss) (358) 1,447 (952) 8,040 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 4,195 4,063 13,924 9,828 ------- ------ -------- ------- Operating Income (Loss) (4,553) 2,616 (14,876) (1,788) INTEREST EXPENSE, net 479 365 1,391 919 ------- ------ -------- ------- INCOME (LOSS) BEFORE INCOME TAXES (5,032) (2,981) (16,267) (2,707) INCOME TAX PROVISION (BENEFIT) 0 (1,170) 0 (1,063) ------- ------ -------- ------- NET INCOME (LOSS) $(5,032) $(1,811) $(16,267) $(1,644) ======= ======= ======== ======= NET INCOME (LOSS) PER COMMON SHARE BASIC $ (1.22) $ (0.44) $(3.94) $ (0.40) DILUTED $ (1.22) $ (0.44) $(3.94) $ (0.40) ======= ======= ======= ======= WEIGHTED AVERAGE COMMON SHARES BASIC 4,130 4,085 4,130 4,085 DILUTED 4,130 4,085 4,130 4,085 ======= ======= ======= =======
The accompanying notes are an integral part of these statements. 3
METROTRANS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited) Nine Months Ended ------------------------------- October 3, October 4, 1999 1998 ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) $(16,267) $ (1,644) -------- -------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 737 492 Compensation under restricted stock award 52 79 Changes in assets and liabilities: Accounts receivable 2,797 (5,307) Inventories 15,547 (10,524) Other assets 1,279 (181) Accounts payable and accrued expenses (10,477) 9,169 Customer deposits (358) 1,129 -------- -------- Total adjustments 9,577 (5,143) -------- -------- Net cash (used in) provided by operating activities (6,690) (6,787) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (278) (1,852) Net decrease (increase) in property held for lease 0 25 Net decrease in investment in sales-type leases 200 830 -------- -------- Net cash (used in) investing activities (78) (997) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) under line of credit 0 0 Net increase (decrease) in collateralized borrowings 0 (711) Net increase (decrease) in paid in capital 151 0 Net proceeds from issuance of common stock 0 9 Net borrowings (repayments) of long-term debt 6,617 8,436 Net cash provided by (used in) 6,768 7,734 financing activities -------- -------- INCREASE IN CASH 0 (50) CASH AT BEGINNING OF PERIOD 0 50 -------- CASH AT END OF PERIOD $ 0 $ 0 ======== ======== CASH PAID FOR INTEREST $ 1,391 $ 845 ======== ======== CASH PAID FOR TAXES $ 0 $ 0 ======== ========
The accompanying notes are an integral part of these statements. 4 METROTRANS CORPORATION Notes to Consolidated Financial Statements October 3, 1999 1. Basis of Presentation --------------------- The financial statements include the accounts of Metrotrans Corporation and its Subsidiary (the "Company"). The financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and, therefore, omit certain information and footnotes required by generally accepted accounting principles for complete financial statements. Accordingly, these statements should be read in conjunction with the Company's audited financial statements included in its Annual Report on Form 10-K for the year ended December 31, 1998, filed with the Securities and Exchange Commission. In the opinion of management, the financial statements contain all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The adjustments were of a normal recurring nature. Results presented for the nine months ended October 3, 1999 are not necessarily indicative of results that may be expected for the full fiscal year. 2. Inventories ----------- Inventories consist of (in thousands):
October 3, 1999 December 31, 1998 --------------- ----------------- Chassis awaiting conversion $ 2,660 $ 3,958 Raw materials 5,512 6,061 Work in process 2,451 2,937 Finished goods 10,696 19,888 Used vehicles 2,762 6,784 ------- ------- $24,081 $39,628
5 3. Commitments and Contingencies ----------------------------- The Company enters into various leasing arrangements with customers and leasing companies. Certain leases obligate the Company to indemnify the leasing company for any losses it incurs up to a specified amount on the lease in the event the lessee defaults. In addition, the Company enters into certain agreements with financial institutions whereby the Company guarantees varying amounts of customers' purchase debt obligations. The Company's obligation under these guarantees becomes effective in the case of default in payments or certain other defined conditions. The Company's aggregate potential liability under these arrangements as of October 3, 1999 and December 31, 1998 was $17 million and $15 million, respectively. During the nine months ended October 3, 1999, the Company purchased buses for an aggregate amount of approximately $90,000 related to lease defaults and litigation settlements on sales from prior periods. Purchases to date have been or are expected to be sold to third parties at or above amounts approximating the purchase price. The Company is involved in certain legal matters primarily arising in the normal course of business. In the opinion of management, the Company's liability in any of these matters will not have a material adverse effect on its financial condition or results of operations. The Company is also involved in other litigation that is discussed in Item 1 of Part II of this Quarterly Report on Form 10-Q. 4. New Accounting Pronouncements ----------------------------- The Company has no Other Comprehensive Income Items as defined by SFAS No. 130. In July 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133 "Accounting for Derivative Instruments and for Hedging Activities". The Company does not presently have any hedging operations. 6 5. Long-Term Debt --------------- Effective April 12, 1999, the Company entered into an amended secured revolving credit facility (the "Amended Facility"). Under the Amended Facility, the Company obtained a waiver of all defaults which existed under the unsecured credit facility. The Amended Facility provides a commitment of up to $23 million, an increase of $3 million. Interest under the Amended Facility is at prime. In connection with the Amended Facility, the Company has pledged a security interest in substantially all of its assets. The $23 million commitment is subject to certain automatic reductions, including reductions related to decreases in the Company's level of inventory and an automatic reduction on December 31, 1999 to $20 million. Under the Amended Facility, the Company is subject to certain financial covenants, including a restriction on total capital expenditures of $500,000 in any calendar year, a prohibition on the payment of any cash dividends, as well as restrictions on maximum inventory levels and other covenants related to net income and tangible net worth. As a result of the second quarter loss, as of July 4, 1999, the Company was not in compliance with certain financial covenants contained in the Amended Facility, including financial covenants related to the maintenance of specified levels of tangible net worth and net income. The company has entered into certain forbearance agreements dated August 23, 1999, September 30, 1999 and October 21, 1999, with the lender (the "Forbearance Agreements"), under which the lender has agreed to forbear until December 31, 1999 from exercising its rights and remedies under the amended facility with respect to the non- compliance. Upon the expiration of the Forbearance Agreements, unless the Company obtains a waiver of the noncompliance, or is able to negotiate amended terms to the Amended Facility, the lender will be entitled to exercise its rights and remedies under the Amended Facility which include ceasing additional advances under the Amended Facility and/or demanding payment in full of the outstanding borrowings under the Amended Facility. If the lender were to take any of these actions, the Company's operations and financial condition would be materially and adversely affected unless it were able to secure either new third party financing under terms and conditions reasonably satisfactory to the Company or new equity. Additionally, pursuant to the terms of the Amended Facility, in August 1999, the total commitment under the Amended Facility was automatically reduced by approximately $670,000. The Company has entered into a Fifth Amendment to the Company's credit facility (the "Fifth Amendment") which contains a technical correction to the method used to determine the amount of the August 1999 commitment reduction. Also, subsequent to that and in concurrence with the October 21, 1999 forbearance agreement which contains certain payment requirements towards the reduction of the loan commitment, loan reductions were made in the amounts of $1,080,000 and $500,000 respectively on November 3, 1999 and November 18, 1999. This principal pay down was accomplished with net sale proceeds from the sale of certain non-essential assets as required by the October 21, 1999 forbearance agreement. As of November 19, 1999, these reductions have reduced the existing credit facility to approximately $20,750,000. 7 The foregoing is not a complete description of the terms of the Forbearance Agreements or the Fifth Amendment or the transactions contemplated thereby and is subject to and qualified in its entirety by reference to the Forbearance Agreements and the Fifth Amendment, which were previously filed as Exhibits with the Company's Second Quarter 1999 Form 10-Q and Current Reports on Form 8-K. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Statements In addition to historical information, this Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act"), as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in this report, the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar expressions or statements regarding future periods are intended to identify forward-looking statements. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events, which by their nature involve substantial risks and uncertainties beyond Metrotrans Corporation's control. Among other things, these risks and uncertainties include: the availability of third party lending on terms favorable to the Company; changes in price and demand for the Company's products; the ability of the Company to attract and retain qualified management, manufacturing and sales personnel; the ability to control manufacturing costs, overhead and Selling, General and Administrative expenses; the effects of competition; changes in accounting policies and practices; the ability of the Company, its vendors, suppliers and customers to be Year 2000 compliant; the ability to complete the implementation of a manufacturing cost accounting system; the ability to obtain chassis and other materials on a timely basis on terms acceptable to the Company; and the ability to satisfactorily resolve litigation and vendor claims. Forward-looking statements may also be made in Metrotrans Corporation's other reports filed under the Exchange Act, press releases, and other documents; as well as by management in oral statements. Metrotrans Corporation undertakes no obligation to update or revise any forward-looking statements for events or circumstances after the date on which such statement is made. New factors emerge from time to time, and it is not possible for Metrotrans Corporation to predict all of such factors. Further, Metrotrans Corporation cannot assess the impact of each such factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Overview The Company was incorporated in 1982 for the purpose of designing, manufacturing and marketing shuttle and mid-size buses. After the introduction of the Classic(R) in 1986, the Company experienced significant growth in unit sales and revenues but total unit sales have decreased over the past three years, primarily due to a decrease in sales of Classic models for transit use offset somewhat by the introduction of new products. The Company's product development strategy is to design and introduce new products after clearly identifying a market need based, in large part, on suggestions made by existing and potential customers. This approach resulted in the introduction of the Eurotrans(R) in 1990, the Eurotrans XLT(R) and the Classic II(R) in 1992, the Classic Commuter(R) in 1993, the Legacy LJ by Metrotrans(TM) in 1996, the Anthem(TM) in 1997, and the Classic XLT(TM) in 1998. The Anthem(TM) product line is still under development and no sales have been made. Metrotrans began exclusive marketing of the Irizar Century for North America in 1997 with the first deliveries occurring in the third quarter of 1998. 9 Results of Operations The Company's results for the first quarter and first nine months of operations were adversely affected by a number of factors, including a change in management personnel involving The Mayflower Corporation plc ("Mayflower") representatives who occupied key management positions in the Company from November 1998 to February 1999 and the medical leave of D. Michael Walden, Chairman and CEO. Mayflower also was obligated under its loan agreement with the Company to lend it up to $15 million. As of December 31, 1998, the Company had borrowed $1.9 million under this agreement and in January 1999 requested additional advances under the agreement. Mayflower refused to make advances as required under the loan agreement and their personnel, who occupied key management positions, left the Company. These two occurrences caused significant problems for the Company, including liquidity problems. The liquidity problems caused concern to customers, vendors and the financing institutions, which provide financing for the Company's new bus sales. In some cases, vendors slowed or stopped deliveries of parts and customers deferred or cancelled orders. Accordingly, production schedules could not be met, buses could not be delivered as planned, and production levels had to be curtailed. As a result, the Company's margins and net income have decreased significantly. The Company entered into an amended secured revolving credit arrangement with its primary lender on April 12, 1999. In addition, due to the illness of the Chairman of the Board and Chief Executive Officer, as well as the departure of the Mayflower management team, it was necessary for the Company to employ an interim Chief Executive Officer in March 1999. The Company named a new permanent Chief Executive Officer in July 1999. During the second and third quarters of 1999, plans for significant reductions in ongoing costs (manufacturing overhead, selling, general and administrative costs) were implemented. In addition, further reductions in direct labor personnel were accomplished and reorganization of the manufacturing process initiated in second quarter was completed in the third quarter. The total number of employees at October 3, 1999 was 256 as compared to 332 at July 4, 1999 and 374 at December 31, 1998. A review of cash, inventory and accounts payable management has taken place during the third quarter and inventories and accounts payable have been reduced significantly since 1998 year end ($15.5 million and $10 million respectively). The changes referred to above were necessary and were facilitated by additional borrowings of $3.0 million in April, 1999 and required the use of outside consultants as well as legal advisors during the nine months of 1999 to deal with the numerous legal (including Mayflower) and other operational matters which required immediate and significant attention. See "Part II, Item I - Legal Proceedings" for further information regarding litigation. A review of the sales and internal organization was completed in late July 1999 and a corporate-wide internal reorganization of Senior Management was implemented at that time. During the third quarter, additional organizational changes were made to improve and streamline operations in the administrative and financial departments, including further training of employees in the use of existing financial software. 10 Irizar sales in the first nine months were less than originally planned, and sales for the fourth quarter are also expected to be below the prior year because of the Company's cash constraints and the continuation of corrective actions on various mechanical problems which have occurred on certain Irizar buses previously sold. Management anticipates additional discussions during the fourth quarter with Irizar regarding future production and whether or not the existing sales and distribution agreement between Irizar and the Company will be continued. Ford Motor Company (the Company's primary supplier for chassis) notified the Company on May 21, 1999 that they were reviewing their payment terms with the Company. The Company has satisfactorily concluded those discussions and continues to receive all chassis ordered (with some delays resulting from Ford's production schedules), paying Ford dealers as agreed upon for current as well as prior chassis deliveries. Negotiations between the Company and Ford Motor Credit Corp. regarding a new credit facility expected to result in more favorable repayment terms than were previously granted to the Company, were halted by Ford Motor Credit Corp. pending the outcome of discussions between the Company and its primary lender regarding the issues reflected in the current forbearance agreement. During September, 1999, the Company, in response to requests from its primary lender for a more definitive strategic plan related to outstanding loan balance repayment, instituted a three part action plan as follows: a.) Identification of "non-strategic" assets which could be sold without an adverse effect on the Company's market position or continuing operations. b.) Operation of the "continuing enterprise" using existing accounts receivable collections as the primary source of working capital, protecting the lender's collateral position. c.) Engagement of an investment banking firm to identify potential replacement lenders or equity investors to replace the lender's loan position. As part of the Company's "non-essential" assets sales, efforts were continued to reduce the existing inventory of used buses (341 units at October 3, 1999 compared with 406 units at December 31, 1998). In recognition of the need to more quickly reduce used bus inventory, and in recognition of increased used bus market competition, the Company implemented a new marketing plan for used buses. Select used bus inventory was moved out of the Bus Pro location in McDonough, Georgia during third quarter to various sales office locations throughout the United States for direct selling from these regional offices. Inventory carrying values were reduced to facilitate faster inventory turnover of the used and demonstrator buses, particularly in response to the Company's major lender's requests for liquidation of these non-essential assets. 11 The following table sets forth, as a percentage of net revenue, the relationship of selected items included in the Company's income statement for the periods indicated.
Three Months Ended Nine Months Ended ----------------------- ---------------------- October 3, October 4, October 3, October 4, 1999 1998 1999 1998 --------- ---------- ---------- ---------- Net revenue........... 100.0% 100.0% 100.0% 100.0% Cost of sales......... 102.4 92.9 101.8 86.4 ------ ------ ------ ------ Gross profit (loss)... (2.4) 7.1 (1.8) 13.6 Selling, general and administrative expenses 27.6 20.0 26.6 16.6 ------ ------ ------ ------ Operating Income (Loss) (30.0) (12.9) (28.4) (3.0) Interest expense...... 3.2 1.8 2.7 1.6 ------ ------ ------ ------ Income (Loss) before income taxes. (33.1) (14.7) (31.0) (4.6) Income tax provision.. 0 (5.8) 0 (1.8) ------ ------ ------ ------ Net Income (33.1)% (8.9)% (31.0)% (2.8)% ====== ====== ====== ======
Net Revenue. Net revenue decreased 25.1% to $15.2 million for the quarter ended October 3, 1999 from $20.3 million for the comparable prior year period and decreased 11.5% to $52.4 million during the first nine months of 1999 from $59.2 million over the same nine-month period in 1998. The decrease in revenue in the third quarter of 1999 is primarily due to inadequate cash flow and working capital. In the third quarter of 1998 (when the Irizar coach was first introduced), 8 units were sold for $2.8 million, while none were sold in the third quarter of 1999. Unit sales in the third quarter of 1999 were 207 Classics, 3 Eurotrans and 5 Legacy LJ by Metrotrans buses. Irizar sales for the third quarter and the first nine months decreased partially as a result of financing issues caused by Mayflower's refusal to fund it's commitments which began during the last quarter of 1998 and continued through the current quarter, and partially as a result of the continuation of corrective actions on various mechanical problems with certain of the Irizar buses previously sold. As a result, the sales backlog for Irizars existing as of December 31, 1998 was dissipated and sales efforts during the first nine months of 1999 have been very limited. Used bus sales decreased in the third quarter from $1.7 million in 1998 to $1.5 million in 1999 or a decrease of 11.8% and for the first nine months decreased from $7.5 million to $4.9 million or 34.7%. The sales results of 1999 were lower in the three quarters of 1999 because of more competitive used bus markets in 1999 versus the same time periods in 1998. 12 Production backlog at the end of the third quarter of 1999 was approximately $22.9 million for buses to be manufactured in the U.S. This compares with a backlog of approximately $26 million at the end of the third quarter of 1998, exclusive of Irizar backlog at October 4, 1998 of $12 million. There is no current firm backlog for Irizar buses but the Company is meeting with certain key customers regarding future orders, pending their evaluation of the corrective actions to various mechanical problems described earlier in this summary. Cost of Sales and Gross Profit. Gross profit loss was $358 thousand in the third quarter of 1999 compared to a gross profit of $1.447 million in the third quarter of 1998. For the first nine months of 1999, gross profit loss was $952 thousand compared to a profit of $8.040 million for the same period in 1998. The decrease in gross profit in the third quarter was due to a number of factors including $1.8 million write down of Bus Pro used bus inventory, reduction in new bus sales of $5.1 million (a 25.1% decrease), a $250 thousand reserve for a project involving the sale of demonstration units and a $100 thousand reserve for a joint venture project in Mexico initiated in 1998. While sales were significantly lower in period comparison, other cost of goods sold categories such as direct labor cost and overheads remained relatively constant as a percent of sales. Third quarter efforts to reduce manufacturing costs, including direct labor and overhead and improving production throughput were offset by the net effect of extraordinary items resulting in a gross profit loss of 2.4% for the quarter and a 1.8% loss on the gross margin for the nine months ended October 3, 1999 as compared to a profit for the nine months ended October 4, 1998 of 13.6%. The decrease between years was caused by factors mentioned above and a 23.1% decrease in sales from the previous quarter as well as manufacturing issues previously discussed under "Results of Operations." 13 Selling, General and Administrative Expenses and Operating Income. Selling, general and administrative expenses for the third quarter of 1999 were approximately $4.2 million versus $4.1 million for the corresponding quarter in 1998. Included in the third quarter 1999 were $986,000 of expenses for professional fees for legal counsel and lender-requested "management turnaround" consultants which have been incurred during second and third quarters, 1999. When compared to the same quarter for the prior year, the third quarter net of these extraordinary expenses reflects a 21.0% decrease in selling, general and administrative expense from the prior year. Additionally, excluding the same comparable extraordinary expenses of $1.2 million from second quarter 1999 and the $986,000 from third quarter 1999, reflects a $628,000 decrease in all other selling, general and administrative expenses from second quarter to third quarter of 1999. Selling, general and administrative expenses for the first nine months of 1999 were approximately $13.9 million or an increase of $4.1 million over the prior year for the reasons described above. For the nine months ended October 3, 1999, total adjustments to carrying values of assets and provisions for losses were $5.3 million, and professional fees totaled $2.6 million. Interest Expense. Interest expense of $479,000 in the third quarter of 1999 increased 31.2% from $365,000 for the prior year's comparable quarter and increased from $919,000 to $1,391,000 through the nine months ending October 3, 1999 as compared to the same time period in 1998. The increase for the quarter primarily was the net result of an increase in the overall rate of interest paid on borrowings under terms of the revised revolving credit facility and an increase in the average balance outstanding under the facility during the quarter, partially offset by a reduction in the amount of interest paid to Ford Motor Credit Corporation for chassis held under its consignment pool agreement in excess of an initial 90-day non-interest bearing period. Liquidity and Capital Resources Net cash used in operating activities during the nine months ended October 3, 1999 totaled $6.7 million compared with cash used in operating activities of $6.8 million in the comparable 1998 period. Decreases in accounts receivable and inventory of $2.8 million and $15.5 million, respectively, and a reduction by $10.5 million in accounts payable, were primarily responsible for the cash used in operating activities during the period. The decrease in inventory resulted primarily from the sales of finished goods inventory, a reduction of raw materials and work in process inventory and net reductions in the used bus and demonstrator inventory. Under the Amended Facility, the Company is limited in Capital Expenditures and will be required to use substantially all cash flow to fund future operations and reduce outstanding debt. Please see Item 3 of Part II hereof for a description of the Amended Facility. The Company does not anticipate receiving any additional funding under the Mayflower Agreement nor does the Company intend to repay the existing $1.9 million advance made under the Mayflower Loan Agreement pending resolution of the pending litigation between the parties. 14 Year 2000 Issues. Like many other companies, the year 2000 computer issue creates risks for the Company. If internal systems do not correctly recognize and process date information beyond the year 1999, there could be an adverse impact on the Company's operations. There are two other related issues, which could also lead to incorrect calculations or failures; (i) some systems' programming assigns special meaning to certain dates, such as 9/9/99, and (ii) the fact that the year 2000 is a leap year. The Company's manufacturing and distribution operations are not critically dependent on any mainframe, mini- computer or personal computer-based systems or software applications. The Company is implementing a plan to modify its information technology for the year 2000. During the past two years, the Company has implemented a program designed to update its information systems. Although the implementation of the program primarily is intended to provide better operating systems and accounting, inventory and production controls, the Company has been aware of the year 2000 issues in its selection of hardware and software. The third party vendors that have supplied new hardware and software have informed the Company that the new systems and software are year 2000 compliant. The Company has experienced some delays in the implementation and integration of the new systems; although the Company has completed and tested substantially all of the major systems which have been made Y2K compliant and anticipates that the balance of existing systems will made Y2K compliant and be operational prior to December 31, 1999. The cost to complete this process is expected to be less than $25,000. As of October 3, 1999, the Company has incurred approximately $27,000 in year 2000 expenses. The amount may increase as additional information is obtained to complete the replacement and conversion process. The Company is also assessing the impact of the year 2000 issue on its major vendors and suppliers to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own year 2000 issues. Based on information presently available, the Company does not anticipate any material impact on its financial condition or results of operations from the effect of the year 2000 issue or the Company's internal systems or those of its major suppliers and customers. However, there can be no guarantee that the systems of other companies on which the Company's system rely will be brought to compliance, or that a failure to convert by another company would not have a material adverse impact on the Company. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings - ---------------------------- Michael Stucchio, on behalf of himself and all others similarly situated, ------------------------------------------------------------------------- and derivatively on behalf of the Nominal Defendant v. D. Michael Walden, M. - ------------------------------------------------------------------------------ Earl Meck, Randolph B. Stanley, Terri B. Hobbs, Patrick L. Flinn, William C. - ------------------------------------------------------------------------------ Pitt, III, George B. Mathews, Jr., and Metrotrans Corporation, United States - ------------------------------------------------------------------------------ District Court for the Northern District of Georgia, Atlanta Division, Case No. 1:99-CV-2157-WBH. On August 23, 1999, Plaintiff filed his Complaint in the above-referenced action. Plaintiff's Complaint asserted the following claims against the individual defendants derivatively, individually, as a class representative: intentional breach of fiduciary duty, negligent breach of fiduciary duty, unjust enrichment and usurpation of corporate opportunities. Plaintiff filed his Complaint less than thirty (30) days after making a demand on the Company under O.C.G.A. (S)14-2-742 that the Company file suit against the individual defendants on the same claims set forth in Plaintiff's Complaint. In response to Plaintiff's demand, the Company constituted a special litigation committee to investigate and analyze Plaintiff's claims. The Company is required to answer or otherwise respond to Plaintiff's Complaint on or before November 29, 1999. The Company from time to time is a party to other legal proceedings arising out of and incidental to the operations of the Company. However, management does not anticipate that any of such other proceedings will have a material adverse effect on its financial condition or results of operations. The Company may be subject to product liability claims arising from the use of its products. The Company maintains product liability insurance which it currently considers adequate. 16 Item. 3. Default Upon Senior Securities Effective April 12, 1999, the Company entered into an amended secured revolving credit facility (the "Amended Facility"). Under the Amended Facility, the Company obtained a waiver of all defaults which existed under the unsecured credit facility. The Amended Facility provides a commitment of up to $23 million, an increase of $3 million. Interest under the Amended Facility is at prime. In connection with the Amended Facility, the Company has pledged a security interest in substantially all of its assets. The $23 million commitment is subject to certain automatic reductions, including reductions related to decreases in the Company's level of inventory and an automatic reduction on December 31, 1999 to $20 million. Under the Amended Facility, the Company is subject to certain financial covenants, including a restriction on total capital expenditures of $500,000 in any calendar year, a prohibition on the payment of any cash dividends, as well as restrictions on maximum inventory levels and other covenants related to net income and tangible net worth. As a result of the second quarter loss, as of July 4, 1999, the Company was not in compliance with certain financial covenants contained in the Amended Facility, including financial covenants related to the maintenance of specified levels of tangible net worth and net income. The company has entered into certain forbearance agreements dated August 23, 1999, September 30, 1999 and October 21, 1999, with the lender (the "Forbearance Agreements"), under which the lender has agreed to forbear until December 31, 1999 from exercising its rights and remedies under the amended facility with respect to the non- compliance. Upon the expiration of the Forbearance Agreements, unless the Company obtains a waiver of the noncompliance, or is able to negotiate amended terms to the Amended Facility, the lender will be entitled to exercise its rights and remedies under the Amended Facility which include ceasing additional advances under the Amended Facility and/or demanding payment in full of the outstanding borrowings under the Amended Facility. If the lender were to take any of these actions, the Company's operations and financial condition would be materially and adversely affected unless it were able to secure either new third party financing under terms and conditions reasonably satisfactory to the Company or new equity. Additionally, pursuant to the terms of the Amended Facility, in August 1999, the total commitment under the Amended Facility was automatically reduced by approximately $670,000. The Company has entered into a Fifth Amendment to the Company's credit facility (the "Fifth Amendment") which contains a technical correction to the method used to determine the amount of the August 1999 commitment reduction. Also, subsequent to that and in concurrence with the October 21, 1999 forbearance agreement which contains certain payment requirements towards the reduction of the loan commitment, loan reductions were made in the amounts of $1,080,000 and $500,000 respectively on November 3, 1999 and November 18, 1999. This principal pay down was accomplished with net sale proceeds from the sale of certain non-essential assets as required by the October 21, 1999 forbearance agreement. As of November 19, 1999, these reductions have reduced the existing credit facility to approximately $20,750,000. 17 Item 5. Other Information Recent Events Delisting of the Company's Stock on NASDAQ. On May 14, 1999, the Company was notified by the administrative staff of NASDAQ AMEX that the Company's Common Stock had failed to maintain the minimum market value of public float in accordance with NASDAQ Marketplace Rule 4450(a)(2). The Company was afforded 90 calendar days (up to August 16, 1999) in which to regain compliance with Marketplace Rule 4450(a)(2). Subsequently, the Company was also notified that it was no longer in compliance with the net tangible assets/market capitalization/total assets & total revenue requirement, as set forth in NASDAQ Marketplace Rules 4450 (a)(3) and 4450(b)(1) respectively. The Company requested a hearing with NASDAQ representatives to review the Company's continued listing which was scheduled for September 16, 1999, although not participated in by Company representatives as there was no additional information regarding the noted deficiencies which could be presented at this hearing. Consequently, the Company's stock was delisted from the NASDAQ National Market effective with the close of business on October 11, 1999 and price quotes for the Company's common stock are now available on the OTC Bulletin Board. Bus Pro, Inc. In an effort to redirect all available working capital to the production of new vehicles under current customer orders, operations at this subsidiary were curtailed at the beginning of October except for several sales and administrative personnel whose efforts are necessary for the continued disposition of used bus inventory. South East Pennsylvania Transit Authority ("SEPTA") Contract. The Company has been unable to provide sufficient resources for the production of vehicles related to this contract. The Company's lender has restricted the use of additional working capital for this program. Discussions regarding this matter are on-going with the contract administrators of SEPTA as well as with representatives of the company bonding the work required by this contract. Management is seeking additional working capital in order to purchase from vendors the chassis and materials necessary to continue production on this contract. If the Company is unable to meet its obligations under this contract with SEPTA, a default notice may be issued against the Company by SEPTA which could have a material effect on the Company's financial condition and results of operations. 18 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. - ----------- 27 Financial Data Schedule (b) Reports on Form 8-K Current Report on Form 8-K dated October 4, 1999 relating to the Forbearance Agreement dated September 30, 1999 between the Registrant and Bank of America, N.A. Current Report on Form 8-K dated October 11, 1999 relating to the delisting of the Registrant's common stock from the Nasdaq National Market. Current Report on Form 8-K dated October 22, 1999 relating to the Forbearance Agreement dated October 21, 1999 between the Registrant and Bank of America, N.A. 19 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. METROTRANS CORPORATION (Registrant) Date: November 22, 1999 By: /s/ John G. Wallace --------------------------------- John G. Wallace President and Chief Executive Officer (Principal Executive Officer) By: /s/ David E. Brewer --------------------------------- David E. Brewer Vice-President/Finance & Administration Chief Financial Officer (Principal Financial and Accounting Officer) 20 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1999 JAN-01-1999 OCT-03-1999 0 0 3,469 219 24,081 29,557 11,103 2,660 39,019 38,528 0 0 0 41 (1,214) 39,019 15,185 15,185 15,543 15,543 4,195 0 479 (5,032) 0 (5,032) 0 0 0 (5,032) (1.22) (1.22)
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