Grupo Dina Reports Third Quarter and Nine Months Financial Results
30 October 2000
Grupo Dina Reports Third Quarter and Nine Months Financial Results
MEXICO CITY, Oct. 30 Consorcio G. Grupo Dina, S.A. de C.V.
, a leading Latin American producer of trucks, today
reported consolidated financial results for its third quarter and nine months
periods ended September 30 2000. The third quarter produced a net loss of
380 million pesos.
RELEVANT INFORMATION
1. Overall Picture.
In September 1999 Grupo Dina signed a 10-year contract with Western Star
Trucks Holdings, Inc. (WST), a Canadian specialist in the design, manufacture
and sale of class 8 trucks. The contract covered the sale of class 6 and
7 units, manufactured with Dina's new HTQ technology, for distribution in the
U.S., Canadian and Australian markets.
On September 5, 2000 Dina formally asked WST to correct certain breaches
of contract within 30 days in accordance with the terms of the contract.
Notwithstanding the foregoing, on the 27th September Dina received notice from
WST wherein the latter announced its decision to unilaterally terminate the
contract. Very soon thereafter, Freightliner LLC acquired WST. For that
reason, and because the unilateral cancellation was not permitted under the
contract, Dina filed a formal claim on October 26th for arbitration
proceedings, alleging breach of contract and improper termination thereof by
WST.
The market situation for Dina, beginning with the second quarter of 2000,
underwent a major change as compared to the prior year. These changes are
explained on the basis of both external and internal factors that are
reflected in this year's third quarter financial results.
-- The South American market has undergone a major contraction,
principally as a result of the devaluation that has affected Brazil
since 1998. This situation placed Dina at a disadvantage because of
more competitive prices and aggressive export financing programs that
are offered in Brazil. These factors adversely affected Dina's
international subsidiary, located in Argentina, and caused a reduction
in exports of Dina Camiones to the rest of the South American market.
-- During the current year the domestic freight and highway truck industry
had the following total unit sales volume, for both the domestic and
export markets. As of this date it has billed 39,241 units, for an 8%
drop as compared to the same period last year. For its part, Dina
increased its unit sales by 20% (i.e. 1923 units vs. 1606.)
-- Since Dina is an export company whose products are priced in U.S.
dollars, its earnings have been affected by the change in the currency
exchange rate of the Peso against the dollar which underwent a
revaluation in the first nine months of 2000. The company's income,
therefore, declined because the units are priced in dollars. On the
other hand, fixed expenses and prices for goods and services
denominated in pesos increased due to inflation in Mexico. This effect
translated into a negative impact on Dina's operating earnings.
-- Because of the downturn in the North American market, participants in
the Mexican market opted instead to market in Mexico the units that
were originally intended for the export market (especially the United
States.) These sales efforts in the domestic market have been
supported by more active sales financing programs. Generally speaking,
financing companies with whom these companies have working
relationships provide the funds.
-- Unfortunately, prevailing conditions in the Mexican financial system
have not allowed Dina to obtain the funding that it would need to
enable it to offer financing to its customers. Consequently, it has
lost market share.
-- Because of the drop in Dina's share price that occurred on or about
September 26th, the New York Stock Exchange requires that the company
submit a plan of action with respect to the market valuation of its
shares.
2. Internal Adjustments.
Within its internal structure, Dina's financial performance also reflect a
series of measures that management decided to implement on the basis of the
current and prospective situation confronting the company.
-- Because of the WST contract and the potential benefits to near-term
company financial results, Dina reported tax-deferred assets of
approximately 270 million Pesos in 1999. However, because of the
aforementioned situation with the WST contract, it is now necessary to
be more fiscally conservative and to reduce this amount by 100 million
Pesos.
-- One aspect of Dina's new corporate strategy is to reduce operating
costs and expenses, and to find some optimum balance in the scale of
its operations. Accordingly, we met with representatives of the
auditing firm of Arthur Andersen & Company and agreed that it would be
advisable to seek the services of another firm that would be better
suited to the size of Dina's operation, without diminishing the quality
of the service. Management is currently engaged in the selection
process.
-- For the third quarter the company recorded an additional reserve of
25 million Pesos for bad debts. This also affected period financial
results.
-- It is essential to note that it was necessary to lay off approximately
250 loyal employees. The amount of money set aside for severance pay
for these employees also impacted third quarter results.
-- At the close of the third quarter a 90 million Pesos reserve was
created for expenses to be incurred under the company's streamlining
plan.
-- The nine-month results include a loss of 45.6 million Pesos under the
caption of "subsidiaries' earnings", which corresponds to the
investment that Dina has in MCII.
3. Financial Condition.
The earnings that Dina shows for the third quarter and the nine-months of
1999 are the same that were reported in due course and updated in accordance
with Bulletin B-15. These figures include the earnings of MCII and its
subsidiary, Dina Autobuses.
Figures in millions of Pesos
July-Sep July-Sep Jan-Sep Jan-Sep
2000 1999 2000 1999
Sales 293 537 1,101 5,666
Cost of sales 363 414 1,113 4,549
Gross earnings (74) 123 (12) 1,117
Operating expenses 189 52 466 803
Operating profit (263) 71 (478) 314
C.I.F. (35) 33 34 119
Other expenses (income) 4 141 (5) 266
Extraordinary item 0 0 0 (939)
Taxes 106 10 115 167
Investment in MCII (42) ( 13) ( 44) (20)
Majority earnings (380) (126) (666) 681
EBITDA (235) 34 (339) 528
All of the effects resulting from Dina's restructuring undertaken on June
16th, 1999, in an action whereby its investment in the capital of MCII
Holdings was reduced by 61%, have been recorded this year. Therefore, there
is no amount that has to be taken into consideration for subsequent years.
It should be noted with respect to the foregoing that in accordance with
what was published in the Accrued Earnings Report for 1999, it was announced
that the Board of Directors of MCII Holdings had agreed to increase the
company's equity capital by $81.9 million. Dina was to contribute
$31.9 million of this amount. Because of Dina's financial condition, it was
decided that Dina would not make its pro-rata contribution at that time.
Since the payment deadline was September 28th, 2000, said payment was not
made. Consequently, Dina's equity stake was reduced to 31.4% when its partner
made its own $50 million payment. For such purpose and to facilitate
comparison with the corresponding figures for the first half of the year,
shown below are the earnings figures for the third quarter of 1999,
recognizing the corresponding percentage of the profits of MCII and Dina
Autobuses under the accounting caption of "investment in MCII."
Figures in millions of Pesos
Jan-Sep Jan-Sep Change
2000 1999
Sales 1,101 1,556 (455)
Cost of sales 1,113 1,330 217
Gross earnings (12) 226 (238)
Operating expenses 466 413 ( 53)
Operating profit (478) (187) (291)
C.I.F. 34 ( 52) ( 86)
Other expenses (income) (5) 114 119
Extraordinary item 0 (939) (939)
Taxes 115 57 ( 58)
Investment in MCII (44) 13 ( 57)
Majority earnings (666) 646 (1,312)
EBITDA (399) (69) (330)
Net Sales.
-- Dina's total sales during the quarter of 2000 were 293 million Pesos,
reflecting a 45.4% decline compared to the same period last year.
Dina Camiones.
-- 1923 units were sold during the first nine months of 2000. 133 were
for the domestic market and 588 for export. These figures represent a
3.9% decline and an increase of 171% respectively as compared to the
same period last year.
-- There was a major shortfall in export activity, principally due to the
change in unit shipments under the WST contract. This is reflected in
the 609-unit backlog as of September 30th, of which amount 19 are
earmarked for export. At the same date in 1999 the backlog was
1409 units.
-- The distribution between the domestic market and the export market is
shown in the following table.
Data in units
1st 2nd qtr. 3rd qtr. Accrued 1st qtr.
Qtr. 1999 1999 1999 2000
1999
Cargo, Domestic 228 296 416 940 296
% share 6.6 6.7 7.4 6.7 5.6
Highway,
Domestic 169 128 152 449 229
% share 18.0 12.2 10.1 14.9 9.5
Total, Domestic 397 424 568 1,389 525
% share 9.1 7.8 7.0 8.0 6.8
Exports 92 99 26 217 478
Grand Total 489 523 594 1,606 1,003
Pending Orders 1,042 1,151 1,409 1,409 2,776
2nd 3rd Accrued Unit %
Qtr. Qtr. 2000 change change
2000 2000
Cargo, Domestic 236 109 641 (299) (32)
% share 3.9 1.7 3.6 (3.1) --
Highway,
Domestic 146 319 694 245 55
% share 6.7 15.5 10.5 (4.4) --
Total, Domestic 382 428 1,335 (54) (4)
% share 4.7 5.1 5.5 (2.5) --
Exports 74 36 588 371 171
Grand Total 456 464 1,923 317 20
Pending Orders 1,312 609 609 (800) (57)
-- The sales of Dina Camiones this year amounted to 635 million Pesos for
the nine months, which was 224 million Pesos lower than in the same
period last year. Despite an increase in unit volume there was very
little incremental financial benefit. One of the factors influencing
this situation were the units sold under the WST contract, since only
the chassis and cab were billed in these shipments. The remainder of
the units' components, such as the power train and suspension, were
shipped by WST for assembly at Dina's plant. As a consequence, the
average price of a unit billed to WST was only about 40% of the price
of a unit manufactured with components sourced 100% by Dina.
Dina International.
-- During the first nine months of the year Dina International sold
171 units in Argentina, which was 161 less than last year when
332 units were sold during the matching period. Sales amounted to
72 million Pesos this year, for a 48% drop against last year.
Mexicana de Manufacturas (MME).
-- Sales of this business unit, which opened during 1999, amounted to
86.9 million Pesos for the first nine months. This exceeded the total
sales for the entire year in 1999. However, the plant located in
Zapopan, Jalisco, was unable to reach the level of sales originally
projected for the year due to the conditions that now confront Dina.
Additionally, the sharp decline in the entire North American market is
significantly affecting the sale of buses, and has caused MCII to
substantially reduce its orders to MME.
Operating Profit.
-- A saving was recorded with regard to administrative expenses since the
balance of the amortizable business loan was transferred to the results
of the renegotiations completed in June 1999 under the caption of
"extraordinary item". Accordingly, there is no entry for the year
2000.
-- It should be noted that notwithstanding Dina's difficult sales
situation, the company has been able to count upon the support of the
Automotive and Allied Industries Workers Union in undertaking a
technical shutdown as one of the measures planned to protect the health
of Dina Camiones. (i.e. modifying the previously mentioned labor and
production arrangements.)
-- The technical shutdown began on June 12th and meant that the plant
would operate exclusively to meet orders on hand, and that it would be
in readiness to handle any new orders received during the balance of
the year.
-- During this period of partial suspension of work, all laid-off workers
received 62% of their current wages and an amount in benefits
corresponding to 4 workdays per month. If during this period Dina
Camiones received new orders, then the company knew that it could count
upon the commitment and availability of its workers to produce the
vehicles.
Liquidity.
-- As previously mentioned, there were a series of factors this year that
caused a downturn in Dina's operations, substantially reducing its
level of sales and affecting its financial situation. In particular,
the company's liquidity suffered because of the need to invest in both
fixed assets and working capital during the January-September period
based upon earlier commitments and projections for the year 2000.
-- The funds obtained from Dina's financial restructuring in June 1999
were used for the purpose of preparing the company to meet the demand
for units to which it had committed itself, and to meet scheduled
interest payments in July 1999 and January 2000 on its convertible
subordinated debentures maturing in 2004. Furthermore, some of the
proceeds were used to satisfy outstanding obligations to suppliers and
others when the restructuring was completed.
-- Dina is currently conducting negotiations to finalize the sale of some
of its assets so that it restores its liquidity sufficiently to support
operations and to meet its obligations. Management can report that
during this latest quarter machinery and equipment, together with
inventories at Autopartes Hidalguenses, a corporate subsidiary, were
sold to raise cash.
-- A series of investments of an operating nature were made, both in fixed
assets and for working capital.
* When the WST contract to supply class 7 units was signed Dina was
required to deposit $2.2 million to guarantee delivery of units under
the contract. Dina initiated discussions with Bancomext to establish a
line of financing for exporting units; but the changes in unit
deliveries made by WST precluded the finalizing of this financing.
* Because of the WST contract Dina had to invest in inventories of
specific materials needed to assemble the units, and to have sufficient
spare parts, and to develop its engineering capabilities in order to
meet its commitments in a timely manner.
* The MME unit, which began operations in 1999, also needed to make
investments this year in its production facilities. These amounted to
23 million Pesos and were made while the company was preparing to meet
its delivery commitments to WST.
* For the purpose of continuing its manufacturing program, the truck
division established a payment and guarantee trust for its suppliers.
With this measure it was expected that the company would protect and
guarantee the rights of its suppliers who had been supportive of the
company's present situation.
The aforementioned factors contributed to the company's cash flow
pressures, and led to the announcement on July 14th that Dina would utilize
the 30-day grace period to search for alternatives that would enable it meet
the semi-annual interest payment on its convertible subordinated debentures.
Finally, on August 14th Dina announced that it made the $6.5 million payment.
Relevant Events During the Third Quarter of 2000.
-- As part of its restructuring and streamlining program, Dina gave
official notice to its shareholders, the financial community, and the
business and financial press, that it was undertaking major structural
changes. Through these changes the company would make more efficient
use of its human and financial resources to meet the challenges
confronting the company.
-- The plastic parts supply contract that its subsidiary, Plasticos
Automotrices de Sahagun, had with Chrysler de Mexico ended on June
30th. However, it is continuing to sell components to the spare parts
market. Furthermore, the promotional effort that was made with General
Motors helped it to obtain orders to supply SMC plastic parts.
Deliveries began in the third quarter and have amounted to about
$300,000.
-- In order to mitigate the damage caused by the cancellation of the WST
contract, talks were held with the Independent Union of Workers of the
Automotive and Allied Industries about laying off 300 union workers.
Such an action could help the company to implement its program to
streamline its operations.
-- The combination of all the factors identified in this quarterly report
show that both the scope of operations and the prevailing conditions
within Dina have changed drastically from what was projected for
calendar year 2000. This has caused the company's directors to
undertake a complete restructuring of the company's operations
commensurate with market conditions. The intention is to realign the
company and to strengthen it to meet its immediate and short-term
objectives.
-- At the present time the company is paring its costs and expenses to
bring it more into line with the new conditions that the company is
facing, in terms of market share and past commitments and obligations.
Thus, it can seek out alternative opportunities that will exploit its
competitive advantages and restore its future earning power.
Dina's operations have indeed been scaled down, and with this smaller
framework its seeks to become more financially sound with a larger share of
strategic markets and a complete line of its own products and technology. As
it obtains funds for financing the end-user, its sales would be more likely to
increase.
Despite the situation described above, Dina will not cease in its efforts
to find new paths for the export of its HTQ technology to international
markets. Management is confident that the action it is taking is highly
likely to bring financial stability and overall health to the company.
Eleventh Hour Events.
-- On October 13th Dina announced that it reached an agreement with the
Independent Union of Workers of the Automotive and Allied Industries to
resolve the strike that was called on October 6th at its Sahagun S.A.
de C.V plant.
-- Dina formally commenced legal proceedings before the International
Arbitration Court of the International Chamber of Commerce (ICC) with
respect to its complaint against WST for unilateral breach of contract.
The suit includes a claim for $110 million for damages and losses.
-- On October 16th the auditing firm of Arthur Andersen & Company, as well
as Luis Javier Fernandez B., CPA, Dina's supervising auditor, resigned
their positions in accordance with their previously announced
intentions.
The automotive products manufactured by Dina have, without any doubt, been
meeting all appropriate quality standards. Management is aware that it is a
fact of modern business life that there are all sorts of uncertainties that
can affect the development of a company. At Dina its Directors and executive
management are striving to handle these uncertainties effectively in a
responsible manner. The intention is to minimize the negative effects and to
emerge stronger from these experiences.
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Income for Nine Months 2000 and 1999
Expressed in terms of the purchasing power of theMexican Pesos as of
September 30,2000
(Thousands of Mexican pesos except per share and share amounts)
(Unaudited figures under Mexican GAAP)
(Figures in millions of Pesos)
Table 1
Nine Months Ended September 30
CY 2000 CY 1999 CY 2000
Pesos Pesos US $
Net sales 1,101,277 5,666,492 116,588
Absorption cost
of goods sold 1,113,666 4,549,847 117,899
Marginal utility(loss) (12,389) 1,116,644 (1,312)
Special items 0 0 0
Gross profit(loss) (12,389) 1,116,644 (1,312)
Operating expenses 465,792 802,368 49,312
Special items 0 0 0
Operating income(loss) (478,181) 314,276 (50,623)
Integral cost of financing
Interest expenses, net 63,879 519,405 6,763
Exchange rate (Gain) loss (10,386) (114,248) (1,100)
(Gain) loss on
monetary position (19,575) (285,992) (2,072)
Total integral cost
(benefit) of financing 33,918 119,166 3,591
Cost of idle plant 14,762 31,794 1,563
Other (income) expenses, net (20,171) (704,961) (2,135)
Income before the
following provisions: (506,690) 868,278 (53,641)
Income tax 106,307 135,937 11,254
Asset tax 8,266 31,170 875
Employees' profit sharing 0 0 0
Extraordinary items 0 0 0
Total provisions 114,573 167,107 12,129
Interest in subsidiaries (45,637) (23,397) (4,831)
Net income (loss) (666,900) 677,775 (70,602)
Net income (loss) of
majority interest (665,946) 680,564 (70,501)
Net income (loss) of
minority interest (954) (2,789) (101)
EARNINGS PER SHARE
Net income (loss)
per ordinary share (2.5846) 2.6268 (0.2736)
Net income (loss)
per share of
majority interest (2.5809) 2.6376 (0.2732)
Net income (loss)
per share of
minority interest (0.0037) (0.0108) (0.0004)
Weighted ave. shares
outstanding (mm) (1) 258,026,136 258,026,136 258,026,136
(1) Four extraordinary shares are equivalent to one ADS
TABLE 2
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Condensed Statements of Income for Three Months 2000 and 1999
Expressed in terms of the purchasing power of the Mexican Peso as of
September 30,2000
(Thousands of Mexican pesos except per share and share amounts)
(Unaudited figures under Mexican GAAP)
Three Months Ended September 30
CY 2000 CY 1999 CY 2000
Pesos Pesos US $
Net sales 293,326 537,493 31,053
Absorption cost
of goods sold 366,778 414,994 38,829
Marginal utility(loss) (73,451) 122,500 (7,776)
Special Items 0 0 0
Gross profit(loss) (73,451) 122,500 (7,776)
Operating expenses 189,904 52,480 20,104
Special items 0 0 0
Operating income(loss) (263,355) 70,019 (27,880)
Integral cost of financing
Interest expenses, net 22,036 (635) 2,333
Exchange rate (Gain) loss (52,047) 7,928 (5,510)
(Gain) loss on
monetary position (5,191) 25,979 (550)
Total integral cost
(benefit) of financing (35,201) 33,273 (3,727)
Cost of idle plant 4,813 22,387 510
Other (income) expenses, net (401) 118,913 (42)
Income(loss) before
the following provisions: (232,566) (104,554) (24,621)
Income tax 106,307 459 11,254
Asset tax (150) 10,012 (16)
Employees' profit sharing 0 0 0
Extraordinary items 0 0 0
Total provisions 106,157 10,470 11,238
Interest in subsidiaries (41,671) (11,378) (4,412)
Net income (loss) (380,394) (126,402) (40,271)
Net income (loss) of
majority interest (379,661) (126,298) (40,193)
Net income (loss) of
minority interest (733) (104) (78)
EARNINGS PER SHARE
Net income (loss)
per ordinary share (1.4742) (0.4899) (0.1561)
Net income (loss)
per share of
majority interest (1.4714) (0.4895) (0.1558)
Net income (loss)
per share of
minority interest (0.0028) (0.0004) (0.0003)
Weighted ave. shares
outstanding (mm) (1) 258,026,136 258,026,136 258,026,136
(1) Four extraordinary shares are equivalent to one ADS
TABLE 3
CONSORCIO G GRUPO DINA, S.A. DE C.V. AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30, 2000 and 1999
Expressed in terms of the purchasing power of theMexican Pesos as of
September 30,2000
(Thousands of Mexican pesos)
(Unaudited figures under Mexican GAAP)
Sep/30/2000 Sep/30/1999 Sep/30/2000
Pesos Pesos US $
ASSETS
Current assets:
Cash and cash equivalents 54,971 345,357 5,820
Note receivable account
Trade receivables 238,084 401,895 25,205
Notes and accounts
receivable 80,233 144,857 8,494
318,317 546,751 33,699
Inventories
Finished goods 93,902 158,385 9,941
Goods in transit 9,912 82,188 1,049
Work in process 33,246 154,233 3,520
Raw materials in process 313,804 226,086 33,221
Inventory restatement 35,484 40,748 3,757
Obsolescence Reserve (52,477) (61,418) (5,556)
433,871 600,221 45,932
Prepaid expenses 232,086 69,062 24,570
Total current assets: 1,039,245 1,561,391 110,021
Investment in
financial entities 579,123 12,225 61,309
Long term note
receivable account 225,171 0 23,838
Temporary investment AF Dina 0 110,527 0
Property, plant and equipment 887,772 1,038,760 93,985
Other assets 744,722 1,182,453 78,841
Total assets 3,476,033 3,905,356 367,994
TABLE 4
Sep/30/2000 Sep/30/1999 Sep/30/2000
Pesos Pesos US $
LIABILITIES
Short term liabilities:
Notes and interest payable 39,527 2,000 4,185
Suppliers 203,190 228,279 21,511
Payable account Sutaur 0 0 0
Other payables and
accrued expenses 418,384 167,614 44,293
661,101 397,892 69,988
Long term liabilities:
Notes and accounts payable 1,561,022 1,742,645 165,259
Accrual for seniority premiums 68,283 75,626 7,229
Other notes payable 63,288 24,767 6,700
1,692,593 1,843,039 179,188
Total liabilities 2,353,694 2,240,931 249,176
STOCKHOLDERS' EQUITY
Majority interest
Capital stock 160,791 160,791 17,022
Legal reserve 21,166 21,166 2,241
Reserve for repurchase
of shares 65,000 65,000 6,881
Premium on sale
of capital stock 870,561 870,561 92,163
Accumulated earnings(loss) (305,585) (824,268) (32,351)
Current net income(loss) (665,946) 680,563 (70,501)
Restated equity 971,790 653,950 102,880
1,117,777 1,627,763 118,335
Minority interest 4,562 36,662 483
Total stockholders' equity 1,122,339 1,664,425 118,818
Total liabilities
and stockholders' equity 3,476,033 3,905,356 367,994
The company released a comprehensive news release on October 27th regarding
its lawsuit against Western Star for breach of contract
The Private Securities Litigation Reform Act ("The Act") provides a "Safe
Harbor" for forward-looking statements to encourage companies to provide
prospective investors with information, to the extent that such statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors which could cause results to be
materially different from those discussed in the statement.
In discussing the future prospects of the Company, management has
identified factors including, but not restricted to the following:
-- Economic and industry conditions, and most importantly interest rates
and inflation.
-- Conditions in Mexico and Argentina, among the Company's primary
markets, which have experienced significant volatility in recent years,
including devaluation of the peso.
-- The successful implementation of the Company's restructuring program.
-- Competitive and overall industry conditions in its major markets.
-- Order flow for its products from major customers.
-- Harmonious relationships with its workers and labor unions that
represent them.
-- The outcome of the lawsuit mentioned herein. There is no assurance
that the eventual outcome will be beneficial to the company.