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 September 28, 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 0-23808
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 11, 1997
-------------------------------------- -------------------------------
Common Stock, $.01 Par Value 4,077,419 shares
METROTRANS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 28, 1997
Table of Contents
-----------------
ITEM PAGE
NUMBER NUMBER
- ------ ------
PART I. FINANCIAL INFORMATION
1 Financial Statements:
Consolidated Balance Sheets as of September 28, 1997 and
December 31, 1996.............................................. 3
Consolidated Statements of Income for the three and nine months
ended September 28, 1997 and September 29, 1996................ 4
Consolidated Statements of Cash Flows for the nine months ended
September 28, 1997 and September 29, 1996...................... 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.............................................. 12
6 Exhibits and Reports on Form 8-K............................... 12
Signature...................................................... 13
2
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS
METROTRANS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 28, DECEMBER 31,
1997 1996
----------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash........................................................................ $ 654 $ 22
Accounts receivable, net of allowance for doubtful
ACCOUNTS OF $153 AND $282 IN 1997 AND 1996, respectively................... 11,443 10,109
Current portion of net investment in sales-type leases...................... 842 810
Inventories................................................................. 20,296 17,903
Prepaid expenses and other.................................................. 764 784
----------------- ----------------
Total current assets....................................................... 33,999 29,628
PROPERTY, PLANT AND EQUIPMENT, NET........................................... 6,360 5,447
NET INVESTMENT IN SALES-TYPE LEASES.......................................... 513 1,098
DEPOSITS AND OTHER........................................................... 235 391
----------------- ----------------
$41,107 $36,564
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................................... $ 8,582 $ 7,139
Borrowings under line of credit............................................. - 7,297
Current portion of long-term debt........................................... 1,132 1,132
Customer deposits........................................................... 508 552
----------------- ----------------
Total current liabilities.................................................. 10,222 16,120
----------------- ----------------
LONG-TERM DEBT, net of current portion....................................... 11,769 2,719
----------------- ----------------
DEFERRED INCOME TAXES........................................................ 629 629
----------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000 shares authorized................. - -
Common stock, $.01 par value; 20,000,000 shares
authorized, 4,077,419 and 4,076,275 shares issued and out-
standing in 1997 AND 1996, respectively.................................... 41 41
Additional paid-in capital.................................................. 10,466 10,466
Deferred compensation....................................................... (236) (315)
Retained earnings........................................................... 8,216 6,904
----------------- ----------------
18,487 17,096
----------------- ----------------
$41,107 $36,564
================= ================
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 Nine Months Ended
------------------------------------------ ----------------------------------------
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
----------------- ------------------ ----------------- -----------------
NET REVENUE $21,731 $19,881 $58,716 $57,695
COST OF SALES 17,482 15,482 48,351 46,089
----------------- ------------------ ----------------- -----------------
Gross Profit 4,249 4,399 10,365 11,606
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 2,426 2,440 7,156 6,458
----------------- ------------------ ----------------- -----------------
Operating Income 1,823 1,959 3,209 5,148
INTEREST EXPENSE, net 256 140 1,048 512
----------------- ------------------ ----------------- -----------------
INCOME BEFORE INCOME TAXES 1,567 1,819 2,161 4,636
INCOME TAX PROVISION 615 703 848 1,794
----------------- ------------------ ----------------- -----------------
NET INCOME $ 952 $ 1,116 $ 1,313 $ 2,842
================= ================== ================= =================
NET INCOME PER COMMON AND
COMMON EQUIVALENT
SHARE $0.23 $0.27 $0.32 $0.69
================= ================== ================= =================
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES 4,109 4,115 4,111 4,102
================= ================== ================= =================
The accompanying notes are an integral part of these statements.
4
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
--------------------------------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,313 $ 2,842
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 499 449
Compensation under restricted stock award 78 79
Changes in assets and liabilities:
Accounts receivable (1,334) (835)
Inventories (2,393) (2,928)
Other assets 176 78
Accounts payable and accrued expenses 1,443 1,205
Customer deposits (44) (5)
------------- -------------
Total adjustments (1,575) (1,957)
------------- -------------
Net cash (used in) provided by (262) 885
operating activities
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,476) (1,120)
Net decrease (increase) in property held for lease 64 (312)
Net decrease in investment in sales-type leases 553 928
------------- -------------
Net cash (used in) investing activities (859) (504)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) under line of credit (7,297) 629
Net (decrease) in collateralized borrowings - (12)
Proceeds from (payments of) long-term debt 9,050 (993)
Net proceeds, from exercise of stock options - 7
------------- -------------
Net cash provided by (used in)
financing activities 1753 (369)
------------- -------------
INCREASE IN CASH 632 12
CASH AT BEGINNING OF PERIOD 22 23
------------- -------------
CASH AT END OF PERIOD $ 654 $ 35
============= =============
CASH PAID FOR INTEREST $ 1,032 $ 463
============= =============
CASH PAID FOR TAXES $ 88 $ 1,054
============= =============
The accompanying notes are an integral part of these statements.
5
METROTRANS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(UNAUDITED)
1. Basis of Presentation
---------------------
The financial statements include the accounts of Metrotrans Corporation
and Subsidiaries (the "Company"). During the quarter ended March 31, 1996 all
wholly owned subsidiaries of the Company, including Spalding Molded Products,
Inc., Metrotrans Overseas, Inc., and Eurotrans Corp. were merged with and into
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, 1996 filed with the
Securities and Exchange Commission.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings per Share." SFAS 128 supersedes APB 15, "Earnings per Share"
and promulgates new accounting standards for the computation and manner of
presentation of the Company's earnings per share. The Company is required to
adopt the provisions of SFAS 128 for the year ending December 31, 1997. Earlier
application is not permitted; however, upon adoption the Company will be
required to restate previously reported annual and interim earnings per share in
accordance with the provisions of SFAS 128. The Company does not believe that
the adoption of SFAS 128 will have a material impact on the computation or
manner of presentation of its earnings per share as currently or previously
presented under APB 15.
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 1996 income statement
captions have been made to conform with the 1997 presentation. Results presented
for the three-month and nine-month periods ended September 28, 1997 are not
necessarily indicative of results that may be expected for the full fiscal year.
6
2. Inventories
-----------
Inventories consist of (in thousands):
September 28, 1997 December 31, 1996
------------------ -----------------
Chassis awaiting conversion.. $ 3,963 $ 3,044
Raw materials................ 4,389 4,482
Work in process.............. 2,275 2,328
Finished goods............... 4,419 2,758
Used vehicles................ 5,250 5,291
------- -------
$20,296 $17,903
======= =======
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 September 28, 1997 and December 31,
1996 was $9.6 million and $8.9 million, respectively. However, there has been no
significant financial effect to the Company under these arrangements as of
September 28, 1997.
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 under any of these matters would not have a material adverse effect on
its financial condition or results of operations.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in 1982 and introduced its second product,
the Classic(R), in 1986. During the intervening period, 1982 to 1986, the
Company focused its efforts on marketing buses manufactured by other companies.
Since the introduction of the Classic, the Company has experienced continuous
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
and the Legacy LJ(TM) in 1996. During the third quarter of 1996, the Company
introduced two additional product offerings. The Anthem(TM) is a 35-foot, two
axle motor coach manufactured at the Company's manufacturing facility in
Griffin, Georgia. The Irizar Century is a full-size coach of either 40-foot or
45-foot length and is built in Spain on a U.S. manufactured chasiss.
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 Nine Months Ended
----------------------- ---------------------
Sept 28, Sept 29, Sept 28, Sept 30,
1997 1996 1997 1996
------ ------ ------ ------
Net revenue................. 100.0% 100.0% 100.0% 100.0%
Cost of sales............... 80.4 77.9 82.3 79.9
----- ----- ----- -----
Gross profit................ 19.6 22.1 17.7 20.1
Selling, general and
administrative expenses.. 11.2 12.3 12.2 11.2
---- ---- ---- ----
Operating income............ 8.4 9.8 5.5 8.9
Interest expense............ 1.2 .7 1.8 .9
----- ----- ----- -----
Income before income
taxes.................... 7.2 9.1 3.7 8.0
Income tax provision........ 2.8 3.5 1.4 3.1
----- ----- ----- -----
Net income.................. 4.4% 5.6% 2.3% 4.9%
===== ===== ===== =====
8
NET REVENUE. Net revenue increased 9.3% to $21.7 million for the three
months ended September 28, 1997 from $19.9 million for the comparable prior year
quarter while net revenue of $58.7 million for the first nine months of 1997
rose 1.8% over the same period in 1996 of $57.7 million. The third quarter
revenue growth primarily resulted from sales of the Legacy LJ(TM) in 1997. The
increase in Legacy LJ(TM) sales has been partially offset by reduced sales of
Classic and Eurotrans unit volume and average revenue per unit. The increase in
revenue for the nine months ended September 28, 1997 compared with the same
prior year period was primarily the result of a combination of increased Legacy
LJ(TM) unit sales offset by a decreased number of Classic units produced
and sold in the first quarter of 1997.
Total unit sales and average revenue per unit for the three and nine
month periods ended September 28, 1997 and September 29, 1996, respectively,
were:
Period Ended Period Ended
September 28, 1997 September 29, 1996
------------------ ------------------
Average Average
Revenue Revenue
Units Per Unit Units Per Unit
------- --------- ------- ---------
Three month period:
Eurotrans 13 $140,000 17 $175,000
Legacy LJ 40 $ 82,000 5 $ 84,000
Classic 282 $ 49,000 293 $ 50,000
--- ---
Total 335 315
=== ===
Nine month period:
Eurotrans 54 $142,000 47 $156,000
Legacy LJ 61 $ 83,000 5 $ 84,000
Classic 763 $ 49,000 933 $ 48,000
--- ---
Total 878 985
=== ===
Production backlog at September 28, 1997 was approximately $16 million
compared with $24 million at the end of the third quarter of 1996. Sales of used
buses by the Company's wholly-owned subsidiary, BUS PRO, Inc., acquired from
trade-ins and lease maturities, in 1997's third quarter of $2.0 million were
78.5% above sales for the prior year's third quarter of $1.1 million. Used bus
sales for the nine months ended September 28, 1997 were $5.7 million, an
increase of 42.1% over sales of $4.0 million for the same period in the prior
year. The increase in BUS PRO's sales for the quarter and the year to date
primarily is the 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 3.4% to
$4.3 million in the third quarter of 1997 from $4.4 million in the third quarter
of 1996. For the first nine months of 1997, gross profit was down 10.7% to $10.4
million from $11.6 million for the same period in 1996. Gross profit as a
percent
9
of net revenue declined to 19.6% during this year's third quarter from 22.1% in
the prior year quarter. The gross profit as a percent of revenue in the third
quarter of 1996 was higher than normal due to the mix of high-margin unit sales.
The gross profit percentage in 1997's third quarter is more in line with
historical margin levels. Gross profit as a percent of net revenue for the nine
months ended September 28, 1997 was 17.7%, down from 20.1% during the same
period a year ago. The lower level of the amount of the current nine month gross
profit and as a percent of net revenue was primarily attributable to the
significantly lower level of gross profit in the first quarter of 1997. The
lower gross profit resulted from the decline in net revenues at a higher rate
than the rate of reduction in manufacturing costs and from increase operating
inefficiencies. The decline in net revenues was primarily caused by a
significant first quarter reduction in Classic production volume and lower-than-
average revenue per unit experienced on Eurotrans sales during the quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES AND OPERATING INCOME.
Operating income declined 6.9% in the third quarter of 1997 from the same period
in 1996 and 37.7% in the nine month period of 1997 from 1996. Operating income,
as a percent of net revenue, of 8.4% in the third quarter of 1997 was below that
of 9.8% in the same prior year period. For the nine month periods of 1997 versus
1996, operating income, as a percent of net revenue, fell to 5.5% from 8.9%.
Selling, general and administrative expenses ("SG&A") for the quarter declined,
as a percent of net revenue, to 11.2% from 12.3% in 1996's second quarter. The
third quarter of 1997 SG&A of $2.4 million was approximately the same as SG&A of
a year ago. SG&A for the first nine months of 1997 increased 10.8% to $7.2
million, in part, from expenses incurred in connection with the recruitment,
relocation and compensation of four senior management positions and several key
subordinate positions and with the costs of development of new products and
product modifications.
INTEREST EXPENSE. Interest expense of $256,000 in the third quarter of
1997 increased 82.9% over $140,000 for the prior year's comparable quarter. For
the nine month period in 1997, interest expense was up 104.9% to $1.0 million
from 1996's first nine months of $512,000. The increase for the quarter and
year-to-date period primarily resulted from an increase in the average
borrowings outstanding under the Company's credit facility. The amount of
interest paid to Ford Motor Credit Corporation ("FMCC") for chassis held under
its consignment pool agreement in excess of an initial noninterest-bearing
period during the first two quarters of 1997 exceeded that interest cost for the
same period in 1996. Management has implemented procedures to increase the
control of this chassis inventory level and reduce interest costs. These
interest costs during the third quarters of 1997 and 1996 were comparable.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the third quarter of 1997
totaled $2.2 million compared to $1.9 million in the comparable 1996 period. A
$1.4 million increase in inventory and a $1.6 million decrease in accounts
payable were primarily responsible for the cash used for operating activities
during the quarter. The increase in inventory resulted primarily from an
increase in chassis inventory from two suppliers with whom the Company has no
consignment pool agreement, and was necessitated primarily by the increased
demand for the Company's rear-engine products and the introduction of a new
chassis supplier for the Classic product line. The level of chassis on hand in
connection with the FMCC consignment pool have decreased. The decrease in
accounts payable resulted primarily from the timing of payments for inventory
and such variance from quarter to quarter is not deemed to be unusual.
10
For the nine months ended September 28, 1997, cash used in operating
activities of $262,000 resulted primarily from increases in the level of
accounts receivable and inventory that were only partially offset by an increase
in accounts payable and checks outstanding. In addition to additional chassis,
inventory has increased from the third quarter of 1996 primarily as a result of
increases in raw materials, work in process and finished goods as the Legacy
LJ(TM) production line has been established and demonstrator units have been
supplied to support the field sales effort.
During the third quarter of 1997, net cash of $521,000 was used in
investing activities through capital expenditures in excess of the decrease in
operating and sales-type leases. Cash provided by financing activities of $3.3
million resulted from borrowings under the long-term revolving credit facility
in excess of the amount of repayment of the Company's short-term line credit.
During the third quarter of 1997, the Company entered into a new
revolving credit facility with its primary bank. The $16 million, three-year
unsecured credit facility provides interest rate pricing at reduced spreads over
LIBOR that vary based on leverage. Anticipated capital expenditures and
increases in working capital are expected to be financed primarily through
internally generated funds and through the Company's revolving credit facility.
At September 28, 1997, the Company had approximately $9.7 million of borrowings
remaining available under the revolving credit facility.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company, from time to time is a party to legal proceedings
arising out of and incidental to the operations of the Company. On November 22,
1995 Triangle Transit Authority ("Triangle") filed a Complaint against the
Company in the United States District Court for the Middle District of North
Carolina, Greensboro Division. Research Triangle Regional Public Transportation
Authority (dba Triangle Transit Authority) v. Metrotrans Corporation, Civil
Action No. 1:95CV00903 alleged that Triangle purchased twenty Classic model
buses from the Company in 1993 and alleged that those buses are defective. The
Plaintiff also alleged that the Company committed an unfair trade practice by
failing to cure the alleged defects in a timely fashion. While Triangle has
continuously used the buses in its transit system for almost four years, it
claimed the right to recover virtually the entire purchase price of the twenty
buses or $1.2 million as well as treble damages based upon its claim of unfair
trade practice. Subsequent to the quarter ended September 28, 1997, the Company
and Triangle entered into a settlement agreement in connection with which the
Company has agreed to repurchase the remaining nineteen used buses at a
specified price, subject to adjustments provided in the agreement. Delivery of
the buses is expected in April 1998. Based on the Company's knowledge of the
used coach market, the Company believes it will remarket these buses with no
adverse financial effect on the Company.
The Company is a party to certain other legal proceedings
primarily arising in the normal course of business. In the opinion of 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) The following exhibit is filed with this report.
Exhibit
Number Loan Agreement between Metrotrans Corporation
------- and NationsBank, N.A. dated September 5, 1997.
10.9
(b) No Current Reports on Form 8-K were filed by Company during the
quarter ended September 28, 1997.
12
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: November 11, 1997 /s/ Richard M. Bruno
--------------------
Richard M. Bruno
Chief Financial and Accounting Officer
Duly Authorized Officer
13