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 July 5, 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 0-23808 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 August 10, 1998 - -------------------------------- ------------------------------ Common Stock, $.01 Par Value 4,084,294 shares Page 1 of 12 METROTRANS CORPORATION Quarterly Report on Form 10-Q FOR THE QUARTER ENDED JULY 5, 1998 Table of Contents ----------------- ITEM PAGE NUMBER NUMBER - ------ ------ PART I. FINANCIAL INFORMATION 1 Fnancial Statements: Consolidated Balance Sheets as of July 5, 1998 and December 31, 1997 3 Consolidated Statements of Income for the three and six months ended July 5, 1998 and June 29, 1997 4 Consolidated Statements of Cash Flows for the six months ended July 5, 1998 and June 29, 1997 5 Notes to Consolidated Financial Statements 6 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION 1 Legal Proceedings 11 6 Exhibits and Reports on Form 8-K 11 Signature 12 2 PART I. FINANCIAL INFORMATION - ------------------------------ ITEM 1. FINANCIAL STATEMENTS METROTRANS CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data) JULY 5, DECEMBER 31, 1998 1997 ----------------- ---------------- (UNAUDITED) ASSETS CURRENT ASSETS: CASH........................................................................ $ 50 $ 50 Accounts receivable, net of allowance for doubtful accounts of $92 and $77 in 1998 and 1997, respectively..................... 13,291 9,151 Current portion of net investment in sales-type leases...................... 738 877 Inventories................................................................. 26,710 20,932 Prepaid expenses and other.................................................. 1,373 1,333 ----------------- ---------------- Total current assets....................................................... 42,162 32,343 PROPERTY, PLANT AND EQUIPMENT, Net........................................... 7,304 6,922 NET INVESTMENT IN SALES-TYPE LEASES.......................................... 195 405 INTANGIBLES.................................................................. 519 536 DEPOSITS AND OTHER........................................................... 353 302 ----------------- ---------------- $50,533 $40,508 ================= ================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses....................................... $12,220 $ 7,726 Current portion of long-term debt........................................... 1,442 1,087 Customer deposits........................................................... 1,122 238 ----------------- ---------------- Total current liabilities.................................................. 14,784 9,051 ----------------- ---------------- LONG-TERM DEBT, net of current portion....................................... 16,018 11,945 ----------------- ---------------- OTHER NONCURRENT LIABILITIES................................................. 300 300 ----------------- ---------------- DEFERRED INCOME TAXES........................................................ 183 183 ----------------- ---------------- STOCKHOLDERS' EQUITY: Preferred stock, no par value; 10,000,000 shares authorized................. 0 0 Common stock, $.01 par value; 20,000,000 shares authorized, 4,084,294 shares issued and outstanding in 1998 and 1997............................................... 41 41 Additional paid-in capital.................................................. 10,577 10,577 Deferred compensation....................................................... (158) (210) Retained earnings........................................................... 8,788 8,621 ----------------- ---------------- 19,248 19,029 ----------------- ---------------- $50,533 $40,508 ================= ================ The accompanying notes are an integral part of these balance sheets. 3 METROTRANS CORPORATION CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Three Months Ended Six Months Ended ----------------------------------- ------------------------------------- July 5, June 29, July 5, June 29, 1998 1997 1998 1997 -------------- -------------- -------------- ---------------- NET REVENUE $22,899 $21,969 $38,917 $36,985 COST OF SALES 18,528 17,541 32,324 30,869 -------------- -------------- -------------- ---------------- Gross Profit 4,371 4,428 6,593 6,116 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 2,857 2,849 5,765 4,730 -------------- -------------- -------------- ---------------- Operating Income 1,514 1,579 828 1,386 INTEREST EXPENSE, net 275 370 554 792 -------------- -------------- -------------- ---------------- INCOME BEFORE INCOME TAXES 1,239 1,209 274 594 INCOME TAX PROVISION 486 474 107 233 -------------- -------------- -------------- ---------------- NET INCOME $ 753 $ 735 $ 167 $ 361 ============== ============== ============== ================ NET INCOME PER COMMON SHARE BASIC $ 0.18 $ 0.18 $ 0.04 $ 0.09 ============== ============== ============== ================ DILUTED $ 0.18 $ 0.18 $ 0.04 $ 0.09 ============== ============== ============== ================ WEIGHTED AVERAGE COMMON SHARES BASIC 4,084 4,081 4,084 4,081 ============== ============== ============== ================ DILUTED 4,121 4,109 4,121 4,107 ============== ============== ============== ================ The accompanying notes are an integral part of these statements. 4 METROTRANS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) SIX MONTHS ENDED -------------------------------------- JULY 5, JUNE 29, 1998 1997 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 167 $ 361 ------------- ------------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 351 309 Compensation under restricted stock award 52 52 Changes in assets and liabilities: Accounts receivable (4,140) (771) Inventories (5,778) (1,029) Other assets (91) (175) Accounts payable and accrued expenses 4,494 3,054 Customer deposits 884 88 ------------- ------------- Total adjustments (4,228) 1,528 ------------- ------------- Net cash (used in) provided by operating activities (4,061) 1,889 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (930) (615) Net decrease (increase) in property held for lease 214 (73) Net decrease in investment in sales-type leases 349 350 ------------- ------------- Net cash (used in) investing activities (367) (338) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments) under line of credit 0 (979) Net increase (decrease) in collateralized borrowings 355 (259) Net borrowing (repayments) of long-term debt 4,073 (294) ------------- ------------- Net cash provided by (used in) financing activities 4,428 (1,532) ------------- ------------- INCREASE IN CASH 0 19 CASH AT BEGINNING OF PERIOD 50 22 ------------- ------------- CASH AT END OF PERIOD $ 50 $ 41 ============= ============= CASH PAID FOR INTEREST $ 551 $ 745 ============= ============= CASH PAID FOR TAXES $ 122 $ 0 ============= ============= The accompanying notes are an integral part of these statements. 5 METROTRANS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JULY 5, 1998 (UNAUDITED) 1. Basis of Presentation --------------------- The financial statements include the accounts of Metrotrans Corporation and Subsidiaries (the "Company"). In February, 1997, the Company formed a wholly owned subsidiary, BUS PRO, Inc., to conduct refurbishment and sale of used coaches. 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, 1997 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. Certain reclassifications of 1997 income statement captions have been made to conform with the 1998 presentation. Results presented for the six months ended July 5, 1998 are not necessarily indicative of results that may be expected for the full fiscal year. 6 2. Inventories ----------- Inventories consist of (in thousands): July 5, 1998 December 31, 1997 ------------ ----------------- Chassis awaiting conversion.. $ 2,832 $ 3,437 Raw materials................ 4,751 4,549 Work in process.............. 2,808 1,524 Finished goods............... 8,771 6,287 Used vehicles................ 7,548 5,135 ------- ------- $26,710 $20,932 ======= ======= 3. Commitments and Contingencies ----------------------------- The Company enters into various leasing arrangements with customers and leasing companies. Certain leases contingently 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 July 5, 1998 and December 31, 1997 was $12.1 million and $12.0 million, respectively. During the six months ended July 5, 1998, the Company purchased buses totaling approximately $2.0 million related to 1997 lease defaults and litigation settlements. 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. 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 issued SFAS No. 133 "Accounting for Derivative Instruments and for Hedging Activities. The Company must adopt the provisions of Statement 133 January 1, 2000. The Company has not yet determined the impact of the adoption of Statement 133. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company was incorporated in 1982 for the purpose of designing, manufacturing and marketing shuttle and mid-size buses. Since the introduction of the Classic in 1986, the Company has experienced significant growth in unit sales and revenues. 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 in 1996 and the Anthem(TM) and Irizar Century in 1997. RESULTS OF OPERATIONS The following table sets forth, as a percentage of total revenue, the relationship of selected items included in the Company's income statement for the periods indicated. Three Months Ended Six Months Ended ------------------ ---------------- July 5, June 29, July 5, June 29, 1998 1997 1998 1997 ------ ------ ------ ------ Net revenue.................. 100.0% 100.0% 100.0% 100.0% Cost of sales................ 80.9 79.8 83.1 83.5 ----- ----- ----- ----- Gross profit................. 19.1 20.2 16.9 16.5 Selling, general and administrative expenses.... 12.5 13.0 14.8 12.8 ----- ----- ----- ----- Operating Income............. 6.6 7.2 2.1 3.7 Interest Expense............. 1.2 1.7 1.4 2.1 ----- ----- ----- ----- Income before income taxes... 5.4 5.5 0.7 1.6 Income tax provision......... 2.1 2.2 0.3 0.6 ----- ----- ----- ----- Net Income................... 3.3% 3.3% 0.4% 1.0% ===== ===== ===== ===== 8 NET REVENUE. Net Revenue increased 4.2% to $22.9 million for the three months ended July 5, 1998 from $22.0 million for the comparable prior year period and increased 5.2% during the first six months of 1998 over the same six-month period in 1997 to $38.9 million from $37.0 million. The current quarter growth over the prior year second quarter resulted primarily from the net effect of sales of the newly-introduced full-size Irizar Century motorcoach offset by both a reduction in the unit volume of cutaway and other rear-engine models and by an increase during the current year second quarter in the mix of smaller and lesser-priced models versus the prior year second quarter. Sales of cutaway models during the current quarter were 261 units totaling $12.4 million compared with 287 units totaling $14.4 million in the same prior year period. Both sales and production of cutaway models were affected by reduced levels of order backlog in the last half of 1997 that continued into the early part of the first quarter of 1998. Sales of rear-engine models during the current year second quarter were 39 units totaling $6.3 million compared with 34 units totaling $4.1 million during 1997's second quarter and included $3.6 million from the sale of the first 11 units of the full-size Irizar Century motorcoach. Production backlog at the end of July, 1998 was approximately $43 million, including approximately $13 million in orders for the new Irizar Century full-size coach, compared with $20 million at the end of the second quarter of 1997. Sales of used buses by the Company's wholly-owned subsidiary, Bus Pro, in 1998's second quarter of $2.9 million were 15.6% above sales for the prior year's second quarter of $2.5 million due to the growth in sales activity during that time and were $5.8 million for the six months ended July 5, 1998, up 58.8% over comparable period year-to-date dales in 1997 of $3.7 million. The increase in year-to-date Bus Pro sales is, in part, a result of the greater capacity and operating efficiency brought about by the business unit's move into its newly-constructed sales, refurbishment and service facility in the first quarter of 1997. COST OF SALES AND GROSS PROFIT. Gross profit declined 1.3% in the second quarter of 1998 from $4.4 million in the second quarter of 1997. For the first six months of 1998, gross profit was up 7.8% to $6.6 million from $6.1 million for the same period in 1997. Gross profit as a percent of net revenue was 19.1% during this year's second quarter versus 20.2% in the comparable prior year quarter. Gross profit as a percent of net revenue for the six months ended July 5, 1998 was 16.9%, up from 16.5% during the same period a year ago. 9 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND OPERATING INCOME. Operating income in the second quarter of 1998 of $1.5 million was approximately the same as that of the same period in 1997. As a percent of net revenue, operating income of 6.6% in the second quarter of 1998 was below that of 7.2% in the same prior year period. Selling, general and administrative expenses ("SG&A") of $2.9 million for the quarter were approximately the same as that in 1997's second quarter. For the six month periods of 1998 versus 1997, operating income, as a percent of net revenue, fell to 2.1% from 3.8%. The year-to-date increase in SG&A, as a percent of net revenue, primarily resulted from an increase in the overall level of SG&A spending since the first quarter of 1997 and reflects the costs of compensation, recruitment and relocation for senior and key subordinate management positions, expenses toward the development and marketing of new product lines in advance of revenues, and improvements to the store location sales and sales administration processes. INTEREST EXPENSE. Interest expense of $275,000 in the second quarter of 1998 declined 25.7% from $370,000 for the prior year's comparable quarter. The decrease for the quarter primarily was the net result of a reduction in the amount of interest paid to Ford Motor Credit Corporation ("FMCC") for chassis held under its consignment pool agreement in excess of an initial 90-day noninterest-bearing period in connection with the institution of procedures to better control chassis inventory levels, a reduction in the overall rate of interest paid on borrowings under terms of the revised revolving credit facility established in the third quarter of 1997, and an increase in the average balance outstanding under the facility during the quarter. LIQUIDITY AND CAPITAL RESOURCES Net cash used in operating activities during the six months ended July 5, 1998 totaled $4.1 million compared with cash provided by operating activities of $1.9 million in the comparable 1997 period. Increases in accounts receivable and inventory of $4.1 million and $5.8 million, respectively, offset in part by a $4.5 million increase in accounts payable, were primarily responsible for the cash used in operating activities during the period. The increase in inventory resulted primarily from an increase in used vehicles during the first quarter from the purchase of approximately $2.0 million of vehicles related to 1997 lease defaults and litigation settlements and from an increase in the number of Legacy LJ units in the demonstrator vehicle fleet. Anticipated capital expenditures and increases in working capital are expected to be financed primarily through internally generated funds and through the Company's $20.0 million revolving credit facility. The three-year unsecured credit facility provides interest rate pricing at spreads over LIBOR that vary based on leverage. At July 5, 1998, the Company had approximately $14.8 million of borrowings outstanding under the revolving credit facility. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FOREIGN CURRENCY RISK MANAGEMENT A third party foreign vendor constructs the Company's newly-introduced full-size Irizar Century motorcoach. Fluctuations in the value of the Spanish Pesedo creates exposure which can adversely affect cost of the bus. The Company attempts to manage its foreign exchange exposure by entering into forward exchange contracts to hedge firm purchase commitments denominated in Pesedos. The Company does not enter into foreign currency forward contracts for spectulative trading purposes. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) No exhibits are filed with this report. (b) No Current Reports on Form 8-K were filed by Company during the quarter ended July 5, 1998. 11 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. METROTRANS CORPORATION (Registrant) Date: August 19, 1998 /s/ Richard M. Bruno ------------------------------------- Richard M. Bruno Chief Financial and Accounting Officer Duly Authorized Officer 12