SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______
Commission file number 0-23802
MOTIVEPOWER INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 82-0461010
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Reedsdale Street, Pittsburgh, PA 15233
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(412) 237-2250
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(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 May 9, 1997
----- --------------------------
Common stock, $.01 par value 17,592,168
1
MOTIVEPOWER INDUSTRIES, INC.
Quarterly Report on Form 10-Q for the
Three Months Ended March 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements PAGE
Consolidated Statements of Operations for the Three
Months Ended March 31, 1997 and 1996 3
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MOTIVEPOWER INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Thousands of dollars except share data)
(Unaudited)
Three Months Ended
March 31,
----------------------------
1997 1996
------------ ------------
Net sales ......................... $ 69,658 $ 69,655
Cost of sales ..................... (53,833) (55,869)
Gross profit ...................... 15,825 13,786
General and administrative expense (8,762) (8,224)
------------ ------------
Operating income .................. 7,063 5,562
Interest income ................... 189 582
Interest expense .................. (1,305) (3,006)
Other (expense) income ............ (39) 663
Foreign exchanges (loss) gain ..... (115) 18
------------ ------------
Income before income taxes ........ 5,793 3,819
Income tax expense ................ (2,316) (1,235)
------------ ------------
Net income ........................ $ 3,477 $ 2,584
============ ============
Weighted average shares outstanding 17,562,793 17,562,793
Earnings per share ................ $ .20 $ .15
The accompanying notes are an integral part of the financial statements.
3
MOTIVEPOWER INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
At March 31, 1997 and December 31, 1996
(Thousands of dollars except share data)
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
--------- ---------
Current Assets:
Cash and cash equivalents .................... $ 3,614 $ 5,236
Receivables from customers:
Billed, net of allowance for doubtful
accounts of $256 and $284, respectively ...... 36,481 25,754
Unbilled ..................................... 3,323 468
Inventories .................................. 76,451 78,438
Deferred income taxes ........................ 6,601 4,635
Other current assets ......................... 2,176 2,638
--------- ---------
Total current assets ......................... 128,646 117,169
Locomotive lease fleet, net .................. 1,736 2,083
Property, plant and equipment:
Land ......................................... 1,737 1,737
Buildings and improvements ................... 33,471 32,679
Machinery and equipment ...................... 53,751 53,211
--------- ---------
Property, plant and equipment - cost ......... 88,959 87,627
Less - accumulated depreciation .............. (45,080) (43,644)
--------- ---------
Property, plant and equipment - net .......... 43,879 43,983
Underbillings ................................ 20,259 19,561
Deferred income taxes ........................ 13,045 15,348
Goodwill and other intangibles ............... 24,838 24,637
Other ........................................ 11,136 11,263
--------- ---------
Total assets ................................. $ 243,539 $ 234,044
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt ............ $ 6,770 $ 11,626
Accounts payable - trade ..................... 17,128 13,470
Accrued expenses and other current liabilities 28,604 28,236
Income taxes payable ......................... 2,307 1,957
Revolving credit agreement borrowings ........ -- 22,431
Advances from customers ...................... 2,814 --
--------- ---------
Total current liabilities .................... 57,623 77,720
Long-term debt ............................... 42,075 15,535
Commitments and contingencies ................ 17,651 18,394
Other ........................................ 1,313 1,415
--------- ---------
Total liabilities ............................ 118,662 113,064
--------- ---------
Stockholders' Equity:
Common Stock, par value $.01 per share,
authorized 55,000,000 shares;
issued 17,562,793 shares ..................... 176 176
Additional paid-in capital ................... 203,247 201,661
Deficit ...................................... (72,152) (75,629)
Cumulative translation adjustments, net of tax (5,105) (5,105)
Deferred compensation ........................ (1,289) (123)
--------- ---------
Total stockholders' equity ................... 124,877 120,980
--------- ---------
Total liabilities and stockholders' equity ... $ 243,539 $ 234,044
========= =========
The accompanying notes are an integral part of the financial statements.
4
MOTIVEPOWER INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(Thousands of dollars)
(Unaudited)
Three Months Ended
March 31,
---------------------------
1997 1996
-------- --------
Operating Activities
- --------------------
Net income ......................................... $ 3,477 $ 2,584
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ....................................... 1,451 939
Amortization ....................................... 821 880
Receivables from customers ......................... (13,582) (6,540)
Inventories ........................................ 1,987 4,271
Underbillings ...................................... (698) 2,255
Accounts payable and accrued expenses .............. 3,442 (6,952)
Advances from customers ............................ 2,814 7,360
Other, net ......................................... 1,941 2,570
-------- --------
Net cash provided by operating activities .......... 1,653 7,367
-------- --------
Investing Activities
- --------------------
Additions to property, plant and equipment ......... (1,350) (954)
Proceeds from locomotive lease fleet, net .......... -- 139
Other, net ......................................... (156) 508
-------- --------
Net cash used in investing activities .............. (1,506) (307)
-------- --------
Financing Activities
- --------------------
Increase in intangibles ............................ (1,022) (138)
Payments of long-term debt ......................... (27) (25)
Net repayments under credit agreements ............. (720) (6,037)
-------- --------
Net cash used in financing activities .............. (1,769) (6,200)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,622) 860
Cash and cash equivalents at beginning of period ... 5,236 5,696
-------- --------
Cash and cash equivalents at end of period ......... $ 3,614 $ 6,556
======== ========
Supplemental Disclosures of Cash Flow Information
Interest paid ...................................... $ 103 $ 96
Income taxes paid, net ............................. 1,745 (4)
The accompanying notes are an integral part of the financial statements.
5
MOTIVEPOWER INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Financial Statements
The financial statements included herein are unaudited. In the opinion of
management, these statements include all adjustments consisting of only normal,
recurring adjustments necessary for a fair presentation of the financial
position of MotivePower Industries, Inc. and subsidiaries (the "Company") at
March 31, 1997 and the results of their operations and their cash flows for the
three month periods ended March 31, 1997 and 1996. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1996 included on
Form 10-K. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to the 1996 financial statements
to conform to the 1997 presentation.
In February 1997 Statement of Financial Accounts Standards No. 128
"Earnings Per Share" ("SFAS 128") was issued. SFAS 128 is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods; earlier adoption is not permitted. The adoption of
SFAS 128 is not expected to materially effect the Company's calculations of
earnings per share, and will have no impact on the Company's financial position
or results of operations.
2. Inventories
Inventories consist of the following:
(Unaudited)
March 31, December 31,
1997 1996
---------- ------------
(In thousands)
Raw materials ............. $ 42,455 $ 50,699
Work in progress........... 18,461 13,912
Finished goods............. 15,535 13,827
-------- --------
$ 76,451 $ 78,438
======== ========
Approximately $31 million and $34 million of total inventories at March
31, 1997 and December 31, 1996, respectively, were valued on the LIFO cost
method. The excess current replacement cost of these inventories over the stated
LIFO value was $947,000 and $902,000 at March 31, 1997 and December 31, l996,
respectively. Two of the Company's domestic subsidiaries value inventory on the
LIFO basis.
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3. Indebtedness
On February 27, 1997, the Company and a syndicate of lenders led by Bank
of America NT and SA entered into a Second Amended and Restated Credit Agreement
to replace the Company's Restated Agreement with Bank America Business Credit.
The facility consists of a $20 million amortizing term loan and a $55 million
revolving credit line including a $15 million letter of credit sub-facility. The
entire $75 million facility is for a term of four years and is collateralized by
substantially all of the domestic assets of the Company. Interest rate spreads
charged under the new facility will reset at the end of each quarter based on
the ratio of the Company's quarter-ending debt to trailing 12-month cash flow.
Both base rate and LIBOR borrowings are available, at the Company's discretion.
Interest rates range from LIBOR plus 0.50% to LIBOR plus 2.0%, and base rate to
base rate plus 1.0%. For the first six months of the facility, interest rates
may not go below LIBOR plus 1.0% for LIBOR-based borrowings, and the base rate
for base rate borrowings.
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 locomotive
components.
Environmental: The Company is subject to a RCRA Part B Closure Permit (the
"Permit") issued by the Environmental Protection Agency and the Idaho Department
of Health and Welfare, Division of Environmental Quality relating to the
monitoring and treatment of groundwater contamination on, and adjacent to, the
Company's Boise Locomotive facility. In compliance with the Permit, the Company
has drilled wells onsite to retrieve and treat contaminated groundwater, and
onsite and offsite to monitor the amount of hazardous constituents. The Company
has estimated the expected aggregate undiscounted costs to be incurred over the
next 24 years, adjusted for inflation at 3% per annum, to be $4.8 million, based
on the Permit's Corrective Action Plan, and $4.4 million for contingent
additional Permit compliance requirements related to off-site groundwater
contamination. The discounted liability at March 31, 1997, using a discount rate
of 6.5%, was $2.1 million based on the Permit's Corrective Action Plan, and $2
million for contingent additional Permit compliance requirements related to
offsite groundwater contamination. The estimated outlays for each of the five
succeeding years from 1997 to 2001 are: $253,000, $260,000, $268,000, $317,000,
and $284,000. The Company was in compliance with the Permit at December 31, 1996
and March 31, 1997.
Legal Proceedings: In December 1995, Morrison Knudsen, the Company and certain
of Morrison Knudsen's directors and officers were named as defendants in a
complaint (the "Pilarczyk Lawsuit") filed in the United States District Court
for the Northern District of New York by plaintiffs who were principals in
and/or held substantial stock in TMS, Inc. ("TMS"), a New York corporation
acquired by Morrison Knudsen on December 30, 1992. The complaint alleges, among
other things, violations of Section 10(b), Rule 10b-5 and Section 20(a) of the
Securities Exchange Act of 1934, breach of contract, unjust enrichment,
negligent misrepresentation and common law fraud during Morrison Knudsen's
acquisition of TMS in 1992. Plaintiffs assert that the Company, which was not
formed by Morrison Knudsen until 1993, is fully responsible for the acts of
Morrison Knudsen. However, the actions complained of occurred before the Company
was formed and the Company did not assume such liabilities of Morrison Knudsen.
A motion to dismiss, filed in April 1996 on behalf of all defendants to the
Pilarczyk Lawsuit, is still pending. Counsel to the Company believes the causes
of action in the Pilarczyk Lawsuit relating to the Company are without merit and
the Company expects that it will be successful on this motion, even if the suit
is not dismissed as to all defendants. If the Company is successful, the Company
intends to make appropriate requests to the court to seek to require the
plaintiff to pay the Company's legal fees and costs.
7
In June 1995, the Company was named as defendant in a complaint filed
with the Idaho Human Rights Commission (the "Idaho Commission") and the Equal
Employment Opportunity Commission by a female employee on behalf of herself and
other women employed by the Company alleging discrimination based on sex, which
complaint was amended in December 1995 to include allegations of retaliatory
discharge. In 1996, the Idaho Commission announced that it found no probable
cause to believe either discrimination or retaliatory discharge had occurred as
alleged in the complaint and, accordingly, the proceeding was dismissed.
The Company is engaged in a commercial dispute with a former supplier,
Samyoung Machinery Industrial Co and Samyoung (America), Inc. (collectively,
"Samyoung"). The Company filed suit on April 16, 1996 alleging delivery of
defective product and seeking damages in excess of $1 million. Samyoung denies
that the product was defective and countersued to recover $300,000 under the
contract, and $10 million for trade libel and interference with prospective
economic relationships as a result of the Company allegedly making false
disparaging statements concerning the diesel engine assembly liners to
customers. The Company believes that Samyoung's claims are without merit, and,
to date, no evidence supporting Samyoung's counterclaims has come to light
through the discovery being conducted by the parties. The Company intends to
vigorously prosecute its own claims and defend against Samyoung's counterclaims.
In the ordinary course of its business, the Company is involved in legal
proceedings incident to the normal conduct of its business, including contract
claims and employee matters.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company manufactures and distributes engineered locomotive components
and parts; provides locomotive fleet maintenance and overhauls and
remanufactures locomotives; and manufactures environmentally friendly switcher,
commuter and mid-range DC traction, diesel electric and liquefied natural gas
locomotives up to 4000 horsepower.
The Company recorded net income of $3.5 million, or 20 cents per share,
on sales of $70 million in the first quarter of 1997 compared to net income of
$2.6 million, or 15 cents per share, on sales of $70 million in the first
quarter of 1996. The increase in profits is attributed to higher margins in the
operating groups due to continuing cost reductions and productivity
improvements, a favorable product mix, and substantially lower corporate
interest expense due to significant debt reduction and lower financing costs.
RESULTS OF OPERATIONS
Consolidated Operations
Net sales for the first quarter of 1997 were $70 million, the same as the
first quarter of 1996. Excluding sales from divested operations, sales increased
9% in the first quarter of 1997. The increase in net sales, exclusive of
divested operations, is the result of an increase in locomotive overhauls at
Boise Locomotive, and an increase in international sales in the Components
Group.
Cost of sales as a percentage of sales was 77% for the first quarter of
1997 compared to 80% for the first quarter of 1996, resulting in gross profit
margins of 23% and 20%, respectively. The increase in gross profit margin is the
result of continuing cost reductions and productivity improvements in the
operating groups, and a favorable product mix.
General and administrative expenses for the first quarter of 1997
increased 7% to $8.8 million from $8.2 million in the first quarter of 1996. The
increase is primarily attributed to $1.2 million of expenses related to stock
appreciation rights and the repricing of certain stock options during the
quarter. This increase was partially offset by overhead reductions at both the
corporate and operating levels. Future costs related to capped stock
appreciation rights and stock options will approximate $500,000 per quarter in
1997.
Interest income for the first quarter of 1997 decreased $393,000 to
$189,000 compared to the first quarter of 1996. The decrease is attributed to a
decrease in funds invested by MK Gain.
Interest expense for the first quarter of 1997 decreased $1.7 million to
$1.3 million compared to the first quarter of 1996. The decrease is attributed
to the buy back of the Morrison Knudsen debt, a decrease in debt outstanding
under the Company's domestic credit facility, and a decrease in the interest
rate charged on domestic borrowings. The Company entered into a new credit
facility in February 1997 which allowed for decreases in effective borrowing
rates, and additional availability of funds.
Other expense for the first quarter of 1997 was $39,000, compared to
other income of $663,000 in the first quarter of 1996. The expense in 1997
related to miscellaneous expenses associated with investments in Argentina. The
income in 1996 related to funds received from the restructuring of the Company's
investments in Argentina.
9
A foreign exchange loss of $115,000 was realized in the first quarter of
1997 compared to a foreign exchange gain of $18,000 in the first quarter of 1996
as a result of fluctuations in the valuation of the Mexican peso.
Income tax expense for the first quarter of 1997 was $2.3 million
compared to $1.2 million for the first quarter of 1996. The increase in the
expense between periods is a result of the increase in pre-tax income.
Components Group
For the first quarter of 1997, the Components Group's net sales were $42
million, the same as the first quarter of 1996. Exclusive of sales from divested
operations, net sales increased $3 million, or 7%, in the the first quarter of
1997 compared to the same quarter in 1996. This increase is primarily attributed
to an increase in international sales, with the largest increase coming from
Motor Coils.
For the first quarter of 1997, the Components Group's operating income
increased 22% to $7.6 million compared to the first quarter of 1996. The
increase is the result of gross profit improvements at all entities resulting
from a favorable product mix, cost reductions and productivity improvements.
Locomotive Group
For the first quarter of 1997, the Locomotive Group's net sales increased
1% to $28 million compared to the first quarter of 1996. Exclusive of sales from
divested operations, net sales increased $3 million, or 12%, in the first
quarter of 1997 compared to the same quarter in 1996. This increase is primarily
attributed to increase sales at Boise Locomotive resulting from an increase in
locomotive overhauls.
For the first quarter of 1997, the Locomotive Group's operating income
increased 41% to $3.3 million compared to the first quarter of 1996. The
increase is primarily attributed to improved operating results at Boise
Locomotive, resulting from cost reductions and productivity improvements.
FINANCIAL CONDITION
In February 1997, the Company entered into a restated domestic credit
agreement which provides $20 million of term loan borrowings and a $55 million
revolving credit line. In addition to providing increased borrowing capacity,
the credit agreement also provides for a reduction in interest rates as compared
to the Company's previous domestic credit facility.
With the revised domestic credit agreement and the Company's profitable
operating results, management believes that its financing is adequate to support
its normal operations and capital spending requirements. This is a forward
looking statement, 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.
10
The following table summarizes the net changes in cash flows:
Three Months Ended
March 31,
1997 1996
---- ----
(In thousands)
Net cash provided by (used in):
Operating activities................. $ 1,653 $ 7,367
Investing activities ................ (1,506) (307)
Financing activities ................ (1,769) (6,200)
----------- -----------
Net (decrease) increase in
cash and cash equivalents................... $ (1,622) $ 860
=========== ==========
Cash and cash equivalents at end of period.. $ 3,614 $ 6,556
=========== ==========
Net cash provided by operating activities totaled $1.7 million for the
first quarter of 1997 compared to $7.4 million for the first quarter of 1996.
The net cash provided by operations was primarily the result of the Company's
net income of $3.5 million, an increase in accounts payable and accrued expenses
of $3.4 million, an increase in advances from customers of $2.8 million, and a
decrease in inventories of $2 million. Offsetting these amounts was an increase
in accounts receivable of $13.6 million of which approximately $6 million was
collected shortly after the close of the quarter. In addition, accounts
receivable at Motor Coils increased $3 million primarily as a result of its
increased sales volume. Depreciation and amortization totaled $2.3 million for
the first quarter of 1997.
Net cash used in investing activities totaled $1.5 million for the first
quarter of 1997 compared to $307,000 for the first quarter of 1996. The majority
of the investing activity relates to additions to property, plant and equipment.
The Company expects additions to property, plant and equipment in 1997 to be
significantly greater than in 1996 as a result of the construction of a new
facility at Touchstone, and contractual obligations for fixed asset additions at
MK Gain. Actual capital expenditures could vary based on availability of
capital, interest rate increases, site availability and changes in market
conditions.
Net cash used in financing activities totaled $1.8 million for the first
quarter of 1997 compared to $6.2 million for the first quarter of 1996. The 1997
financing activities include a $1 million increase in intangible assets,
principally bank fees paid in connection with the closing of the new domestic
credit facility, and $747,000 of net repayments of debt.
11
PRO-FORMA INFORMATION
The following table highlights certain operating line items exclusive of
Alert Manufacturing and Supply Co. and Power Parts Sign Co. which were sold in
July 1996 and October 1996, respectively, and the portion of the Locomotive
Lease Fleet sold in 1996.
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- ---------------------------------
As As As
Reported Reported Adjustments Adjusted
Net Sales ................. $69,658 $69,655 ($5,720) $63,935
Gross Profit .............. $15,825 $13,786 ($1,517) $12,269
Operating Income .......... $ 7,063 $ 5,562 ($1,127) $ 4,435
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no reportable legal proceedings initiated in the quarter ended
March 31, 1997 and there were no material developments to any previously
reported legal proceedings.
.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
None.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
13
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:________________________
William D. Grab
Vice President, Controller and
Principal Accounting Officer
Date: May 9, 1997
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