<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended DECEMBER 31, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File No. 333-08871
MCII HOLDINGS (USA), INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 86-0830781
(State or other jurisdiction of (I.R.S. Employer Identification No.)
(incorporation or organization)
</TABLE>
10 East Golf Road, Des Plaines, Illinois 60016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 299-9900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant: None as of March 15, 1999.
The number of shares outstanding of the registrant's Common Stock: 1,000 shares
as of March 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
None
REDUCED DISCLOSURE FORMAT
The registrant meets the conditions set forth in General Instruction I (1)(a)
and (b) of Form 10-K and is therefore filing this Form with the reduced
disclosure format.
1
<PAGE> 2
On April 15, 1999, an EDGAR filing was made with the Securities and Exchange
Commission (the "Commission") of the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 (the "1998 Form 10-K") pursuant to Rule
12b-25. This filing, however, was made by the financial printer without the
Company's or its independent accountants' authorization. Because the 1998 Form
10-K that was filed with the Commission was in draft, not final form, the 1998
Form 10-K, including the auditor's report should not be relied upon.
The attached final Annual Report on Form 10-K for the year ended December 31,
1998, including the auditor's report, as filed on April 20, 1999 has been
authorized by the Company and its independent public accountant.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
ITEM 1. BUSINESS..................................................................... 3
ITEM 2. PROPERTIES................................................................... xx
ITEM 3. LEGAL PROCEEDINGS............................................................ xx
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......................... omitted
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.................................................. N/A
ITEM 6. SELECTED FINANCIAL DATA...................................................... omitted
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION................................ xx
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................. xx
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE....................................... none
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT............................................................ omitted
ITEM 11. EXECUTIVE COMPENSATION....................................................... omitted
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT........................................................ omitted
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... omitted
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND
REPORTS ON FORM 8-K.......................................................... XX
</TABLE>
Some information included in this Report on Form 10-K may constitute
forward-looking statements that involve a number of risks and uncertainties. The
Private Securities Litigation Reform Act (the "Act") provides a "Safe Harbor"
for forward looking statements to encourage companies to provide prospective
investors information, to the extent such statements are identified as forward
looking and are accompanied by meaningful cautionary statements identifying
important factors which could cause actual results to be materially different to
those discussed in the statement. MCII Holdings (USA), Inc. would like to take
advantage of this provision of the Act.
In discussing the future prospects of MCII Holdings (USA), Inc.,
management has identified factors including, but not restricted to, the
following: general economic conditions including inflation, interest rate
fluctuations, trade restrictions, and general debt levels; competitive factors
including price pressures, technological developments, and products offered by
competitors; inventory risks due to changes in market demand or business
strategies; and changes in effective tax rates. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date made. MCII Holdings (USA), Inc. undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events, or otherwise.
2
<PAGE> 4
ITEM 1. BUSINESS
GENERAL
MCII Holdings (USA), Inc. ("MCII Holdings" or the "Company") is a leading
designer, manufacturer and marketer of inter-city coaches and related
replacement parts for the North American market. The Company's Motor Coach
Industries International, Inc. ("MCII") subsidiaries began manufacturing
inter-city coaches and distributing replacement parts in Canada in 1933 and
since 1963 in the United States. Since the late 1970s, the Company has
consistently maintained a market share in excess of 50% in the United States and
Canadian coach markets. MCII's established market position and product longevity
have led to an installed base of approximately 75% of the estimated 38,000
industry-wide fleet of coaches operating in the United States and Canada. The
Company's Dina Autobuses, S.A. de C.V. ("Autobuses") subsidiary began
manufacturing inter-city coaches and distributing replacement parts in Mexico in
1951. Autobuses has an installed base of approximately 65% of the estimated
34,000 industry-wide fleet of coaches operating in Mexico. The Company's large
installed customer base creates a high level of customer loyalty leading to new
coach purchases and demand for its replacement parts.
MCII Holdings is 100% owned by Consorcio G Grupo Dina, S.A. de C.V. ("Dina"), a
Mexican manufacturer of trucks and buses listed both on Bolsa Mexican de Valores
(Mexican Stock Exchange) and the New York Stock Exchange ("NYSE"). Dina was
formed by the Mexican government in 1951 in a joint venture with Fiat and was
privatized in 1989. Grupo Empresarial G, S.A. de C.V., a holding company owned
by members of the Gomez Flores family, owns approximately 48% of the outstanding
shares of the capital stock of Dina. Collectively, the Gomez Flores family owns
an additional 3.2% of the capital stock of the Company directly.
Revenues and operating income from continuing operations for each of the
segments for the last three years are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31
----------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------
(000 omitted)
<S> <C> <C> <C>
Revenues:
United States and Canadian Operations
Coach and Support $677,661 $503,635 $499,611
Replacement Parts 172,815 190,178 161,682
Mexican Operations 81,307 45,970 5,791
-------- -------- --------
$931,783 $739,783 $667,084
======== ======== ========
Operating income:
United States and Canadan Operations
Coach and Support $70,114 $46,785 $39,865
Replacement Parts 21,497 15,754 14,788
Mexican Operations (9,740) 15,914 5,180
-------- -------- --------
$81,871 $78,453 $59,833
======== ======== ========
</TABLE>
MCII
COACH MANUFACTURING AND SUPPORT
MCII designs, manufactures, and markets inter-city coaches for sale into the
United States and Canadian markets.
3
<PAGE> 5
MARKET AND CUSTOMERS.
MCII's management believes that there is currently an industry-wide fleet of
38,000 inter-city coaches in operation in the United States and Canada,
having an average age of approximately nine years.
Activity in the new coach market has proven closely correlated to the economic
cycle, particularly to interest rates. During times of general economic weakness
and high interest rates, many coach operators postpone fleet replacement
programs and may even reduce the size of their fleets. As economic recovery
occurs, operators tend to accelerate fleet replacement and increase fleet size.
As a result of underlying economic strength and certain other factors explained
below, MCII has seen substantial improvements in its business in recent years.
While the coach operator market is characterized by a high degree of
fragmentation with a large number of operators utilizing some 38,000 units,
several large players exist. Greyhound Lines, Inc. (GLI), which operates 2,000
units, and Coach USA, Inc. (CUI), which operates 3,400 units, are leaders in the
line haul and tour and charter markets. Several state transit authorities,
including New York City Transit Authority ("NYCTA") and New Jersey Transit
Corporation ("NJTC") also have large fleets. While management estimates that in
the past three years the average order size (excluding GLI orders) for any
single operator has been approximately 2.7 units, order size has ranged from one
coach up to approximately 100 coaches. By virtue of their relative size, large
operators are able to negotiate favorable terms when acquiring new units. MCII
has long term contracts with GLI and CUI.
Coach buyers may be characterized into four general groups. While the profile of
each segment varies considerably, several purchasing criteria are common to all:
life cycle costs, reliability, availability of replacement parts and support,
passenger comfort, interior amenities and purchase price. The importance of
these and other criteria vary across each market niche.
1 LINE HAUL OPERATORS transport passengers between cities at regularly
scheduled intervals. The largest operator in this sector is GLI.
In January 1998, GLI and MCII renewed a 10-year long-term supply agreement
until 2007. The agreement guarantees GLI discounts from MCII if a minimum
order level is placed. In 1998 GLI agreed to merge with Laidlaw, a large
operator of buses in Canada and the United States. Sales to Line Haul
operators represented approximately 29%, 25%, and 16% of MCII's new unit
sales in 1998, 1997 and 1996, respectively.
2. TOUR AND CHARTER OPERATORS TYPICALLY PROVIDE TRANSPORTATION TO THE TOURIST
MARKET. This segment is the largest area of product sales representing
approximately 54%, 62%, and 81% of MCII's new unit sales in 1998, 1997 and
1996, respectively. CUI operates across the United States with a fleet of
3,400 units, the largest provider of coach charter, tour and sightseeing
services and one of the five largest non-municipal providers of commuter
and transit coach services in the United States. CUI continues to implement
a growth strategy that concentrates on the acquisition of coach operators,
internal growth and developing economies of scale. Effective June 9, 1997,
CUI signed an agreement with MCII pursuant to which CUI
4
<PAGE> 6
agreed that MCII would be the primary supplier of CUI's annual new coach
requirements through 1999.
3. GOVERNMENT AGENCIES. Government-funded public transportation agencies
utilize a variety of commuter, wheelchair-lift compatible and other
specialty coaches. Given that the majority of units in this category are
sold on a bid basis, management believes that the primary buying criterion
for such customers is initial price for a given set of design
specifications, with overall lifecycle costs as a secondary concern. The
demand from such customers varies widely from year to year as government
agencies periodically make large procurements, every three to six years on
average. Sales to government agencies were approximately 15%, 13%, and 2%
of MCII's new unit sales in 1998, 1997 and 1996 respectively.
Two government authorities, NYCTA and NJTC, proved to be large customers
in 1998, acquiring 180 and 50 units, respectively or approximately 77%
of units sales to this segment.
4. COACH CONVERTERS. The coach conversion market involves the customizing of a
coach interior for personal or corporate use. MCII sells coach shells to
coach conversion companies. With the recent introduction of the E-Series
unit (described below) MCII is optimistic of gaining market share in this
sector, estimated to account for approximately 500 units in each of the
last three years. In 1998, MCI sold 49 units to this segment
PRODUCTS.
MCII currently manufactures under the MCI trademark three integral-frame models.
A fourth is due to enter production in 1999. MCII also distributes the
Viaggio(R), a coach, which is produced in Mexico by Autobuses.
- - THE D SERIES is a 102-inch wide vehicle available in either a 40 or 45
foot length with space for up to 55 seats. The model was introduced in
1992, although the unit evolved from a basic design over 25 years old.
The unit is utilized in a broad range of applications and is MCII's
most popular unit representing approximately 61%, 69%, and 68% of
MCII's new unit sales in 1998, 1997, and 1996, respectively. The unit
retails from $240,000 to $350,000 depending on customer specification
and length.
- - THE MC-12 MODEL is a lower-priced, line-haul coach, 40-feet long and 96
inches wide, produced principally for GLI although also having
alternative applications. Sales of MC-12 units represented
approximately 4%, 12%, and 16% of MCII's new unit sales in 1998, 1997,
and 1996, respectively. The price range for this model is $240,000 to
$275,000.
- - THE E-SERIES "RENAISSANCE(R)" UNIT was introduced in 1997, the first
all-new design from MCII in more than 25 years. The model incorporates
many new design features including a spiral staircase and features 10
patented designs. The unit has been quickly accepted by its target tour
and charter markets representing approximately 26% of MCII's new unit
sales in 1998, compared with 4% in its launch year 1997. The Company
intends to utilize the design in gaining further market share in the
conversion market, an area in which it has not been an aggressive
competitor in recent years. The approximate price of the E-Series unit
is $375,000.
- - THE G-SERIES unit will be introduced into the line-haul market in 1999,
a design which will build on the experience of the E-Series unit. GLI,
the launch customer for the product, has actively assisted the Company
in the design of the unit, which will be phased into markets currently
serviced by the MC-12 and some D-Series models. It is envisaged that
the unit will be priced at approximately $260,000.
- - THE VIAGGIO(R) 1000 is a unit manufactured by Autobuses, a subsidiary
of MCII Holdings and distributed in the United States by Hausman Bus
Sales, Inc. ("HBSI"), a subsidiary of MCII. Since its introduction in
1995 the unit has proved popular in an economy niche, competing
primarily with used units. Viaggio sales represented approximately 9%,
15%, and 15% of MCII's new unit sales in 1998, 1997, and 1996,
respectively. The Viaggio(R), which is manufactured under license from
Marcopolo S.A. -- Carrocerias e Omnibus of Brazil, sells in a range of
$225,000 to $270,000.
5
<PAGE> 7
The manufacture of long-distance coaches is characterized by a high degree of
flexibility with orders generally being engineered and built to operator's
specifications. Buyers can choose from over 2000 options on each unit. The
Company offers a standard warranty period of 24 months or 30 months, depending
upon the coach model selected.
MARKETING.
In the United States and Canada, MCII relies on its direct-sales force to market
the MCI and Viaggio(R) coaches, with 18 full-time new coach sales
representatives who make regular visits to both current and potential customers
and attend major industry trade shows. Management believes that the
attentiveness and visibility of MCII's sales force among coach operators
solidify MCII's reputation and enhance its sales position. MCII uses agents to
market its coaches overseas. MCII does not use distributors in the United States
or Canada.
COMPETITION.
MCII has two principal competitors in the United States and Canadian coach
market: Prevost, a subsidiary of Volvo, which management believes to be the
largest of its competitors, and Van Hool. MCII has maintained a strong market
position in the new coach market despite aggressive price competition Management
believes customer loyalty stems from a quality product and strong after-market
parts and service capability. As well as convenience and cost efficiencies which
operators derive from managing and servicing a fleet of coaches manufactured and
supported by a single supplier. These efficiencies may exist for both larger,
multi-site operators and smaller, independent operators, which rely on MCII for
a variety of support services. The high resale value of MCII units has also
proved popular with independent operators.
FINANCING.
MCII sells coaches for cash, credit terms (generally net 30 days) to its most
creditworthy customers, and provides long-term financing as a necessary adjunct
to its coach manufacturing business. Demand for new coach financing from MCII is
primarily dependent upon the annual level of new coach sales as well as the
availability of alternative sources of financing. MCII had $45.9 million of
notes receivables at December 31, 1998.
MCII provides new and used coach financing to its inter-city coach customers
principally through an affiliated, independent financing company, MCII Financial
Services Inc. ("MCIFS"). MCIFS provides financing through its MCII Funding Inc.
Subsidiary primarily at a floating rate of interest for three to five years, in
the case of used coaches, and seven to 10 years in the case of new coaches.
MCII, through its wholly-owned leasing and financing subsidiary, BusLease, Inc.
("BLI"), also finances coaches for customers under operating leases and loans.
The leases require security deposits and usually have a duration of three to
seven years. At December 31, 1998, the book value of coaches being leased to
customers under operating leases was approximately $18.5 million.
Periodically, BLI sells notes receivables to financial institutions
and provides a limited guarantee to those institutions against losses related to
such notes with respect to debtor defaults.
USED COACHES
MCII provides used coach brokerage and dealership services through HBSI. MCII
offers used coaches in support of its new bus operations since typically 1/3 of
all customers trade-in used coaches when buying new coaches. The size of the
used coach business is dependent upon several factors, including the size of the
entire coach fleet, new coach orders which generate trade-ins and the level of
changes in the fleet composition of coach operators. Management estimates that
the existing industry-wide fleet of over 38,000 coaches changes ownership every
12 years, creating an average used coach volume of about 2,500 units per year.
6
<PAGE> 8
The used coach operations provided revenues for the years 1998, 1997, and 1996,
of approximately $86.0 million, $50.4 million, and $52.3 million respectively.
The used coach operations accounted for $72.0 million and $58.6 million of
MCII's inventories at December 31, 1998 and 1997, respectively..
Due to MCII's installed base of coaches, its maintenance and repair
capabilities, customer network and industry knowledge, HBSI is able to
repurchase and resell a substantial volume of used coaches. Management believes
that MCII's capacity to accept used coaches in support of new coach sales and
resell them through its distribution system provides MCII with a competitive
advantage. Management believes that HBSI's largest competitor in the dealership
business is ABC Bus, Inc., which also serves as Van Hool's United States sales
agent for new coaches.
REPLACEMENT PARTS
Management believes that MCII is the leading supplier of original equipment
manufacturer ("OEM") quality replacement parts for the combined inter-city
coach and transit bus aftermarkets in the United States and Canada. Through its
Universal Coach Parts, Inc. ("UCP") subsidiary, MCII offers over 160,000 items
necessary for coach and bus repair and regularly scheduled maintenance. MCII
has six strategically located distribution outlets in the United States and
Canada which allow MCII to promptly (if necessary, within 24 hours) deliver
replacement parts nationwide. In addition to the core inter-city coach and
transit bus parts business, MCII also distributes parts for school buses and
diesel engines.
The large installed base of its vehicles further enhances MCII's competitive
position in the parts business. The approximately 23,000 coaches and 47,000
transit buses in the United States and Canada originally produced by MCII
creates a core demand for MCII parts, approximately 20% of which are proprietary
to MCII and may not be purchased elsewhere. Despite the fact that MCII no longer
manufactures transit buses, MCII continues to supply replacement parts to the
Canadian transit bus market, and until November 1999, is the provider of OEM
replacement parts for the RTS line of transit buses previously manufactured in
the United States by MCII.
Universal Coach Parts Mexico, S.A. de C.V., a wholly owned subsidiary of UCP,
supplies OEM replacement parts to the inter-city coach and transit bus
aftermarkets in Mexico.
PRODUCT LINE.
The replacement parts business is segmented into high quality parts supplied by
an OEM, which may fit coaches made by other manufacturers, and non-OEM parts,
which are marketed primarily on a price basis. Management believes that MCII's
current strength is in providing OEM parts that are either manufactured by MCII
or acquired by MCII from the OEM. UCP in the United States and Motor Coach
Industries Limited ("MCIL") in Canada offer a wide selection of replacement and
repair parts to MCII's coach customers. In an effort to leverage further the
competitive strength of its replacement parts business and distribution
facilities, UCP has developed its own brand of alternate, non-OEM parts under
the COACH GUARD(R) name. More than sixty products have been introduced under
this brand name since its inception in 1993. UCP has also developed a line of
remanufactured parts and components, which were introduced during 1994.
Management believes that the availability of remanufactured products has
permitted UCP to access new markets that are currently served by local and
regional parts remanufacturers.
In 1994, UCP began marketing diesel engine parts under the name DIESEL GUARD(R)
and also began targeting the school bus parts market. As a result of its focus
on the school bus market, UCP purchased the assets of a school bus parts
distributor, Billingsley Parts and Equipment, Inc., in April 1995 for $2.9
million.
MARKETING.
For sales of replacement parts, UCP utilizes 13 full-time field
representatives, as well as telemarketing salespersons. The sales force makes
regular visits to both current and potential customers, attends major
7
<PAGE> 9
industry trade shows, responds to advertisements for bids to supply replacement
parts and uses telemarketing techniques. In addition, customer orders are
facilitated through the use, by the sales force and certain of UCP's larger
customers, of remote order entry terminals to minimize lead-time. Management
believes that UCP's efficiency and responsiveness allow customers to minimize
inventory-holding costs and to increase fleet utilization ratios.
CUSTOMERS.
Coach part customers served by UCP include both purchasers of MCII coaches as
well as purchasers of non-MCII coaches such as Dina's Viaggio(R) coach model.
Management believes that customers place considerable emphasis on the quality of
parts purchased as well as the speed and efficiency provided by their parts
suppliers. Under an agreement with GLI, which is terminable by either party upon
180 days notice, UCP supplies and manages most of GLI's inventory of replacement
parts.
Management believes that the demand for transit parts is a function of the
number of transit buses currently in operation, the average level of usage for
each bus and the average age of the bus fleet. Management believes that
purchasers of transit parts are more price-sensitive and less service sensitive
than customers in the coach aftermarket, as the opportunity cost to the transit
authority of a transit bus out of operation is less significant than the lost
revenue of a line-haul coach operator. As a result, a large percentage of
transit parts purchases are conducted on a public bid basis. Customers often
choose to make a major purchase of parts inventory upon the procurement of
additional new transit buses to ensure the availability of parts and to minimize
cost through volume purchasing.
COMPETITION.
The replacement parts business is highly fragmented and competitive. Management
believes that UCP's largest competitors are Prevost and Mohawk, for coach
replacement parts, and the major transit manufacturers - BIA and Neopart (the
parts operation of Neoplan), for transit bus replacement parts. The remaining
competitors include other coach manufacturers, diesel engine manufacturers,
niche marketers and local vendors. Management believes that the factors
influencing the choice of parts suppliers include a supplier's proximity to the
customer, the number of replacement parts offered, level of technical knowledge
and support and, to a lesser extent, price. In addition, management believes
that the installed base of vehicles manufactured by MCII, also provides UCP a
distinct competitive advantage.
Management estimates that UCP has consistently captured a significant share of
the replacement parts business in its core inter-city coach and transit bus
parts segments (excluding engines, transmissions and related parts).
AUTOBUSES
Autobuses designs, manufacturers and sells coaches in the Mexican market and
manufactures for sale in the United States which is distributed by HBSI.
In January 1997, Dina contributed 99.99% of the capital stock of Autobuses to
MCII Holdings. This change in structure made Autobuses and its two
subsidiaries, Autopartes Hidalguenses, S.A. de C.V. and Carrocera Sahagun, S.A.
de C.V., indirect subsidiaries of MCII Holdings. Autobuses subsequently
established MCII Buses (USA), Inc. as its third subsidiary.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Autobuses' Mexican inter-city coach sales 325 232 40
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total Mexican market sales............. 1,308 772 313
Autobuses' market share................ 25% 30% 13%
Autobuses' export sales................ 126 234 270
Urban buses 211 248 3
</TABLE>
MARKET AND CUSTOMERS
The use of coaches for inter-city travel in Mexico is more prevalent than in the
United States due to lower per capita disposable income and a relatively under
developed railway system. The current installed base of inter-city coaches in
Mexico is approximately 34,000 units, compared with approximately 38,000 units
in the United States, a country with nearly triple the population.
Market demand for coaches has proved sensitive to underlying economic
conditions, particularly interest rates. The Mexican new bus market is still
suffering from the consequences of the peso devaluation in late 1994
The provision of transit services is concentrated among relatively few
companies. Management estimates that four companies, operate over half of the
total long distance buses in the country. Due to the existing fleets and
purchase agreements each operator is closely identified to specific
manufacturers. The acquisition strategy of any of the four operators tends to
have a very important determinant on the market dynamics in each particular
year.
In 1993, Autobuses entered into a thirty-year contract with Grupo Estrella
Blanca, S.A. de C.V. ("Estrella Blanca"), pursuant to which Estrella Blanca
agreed to purchase coaches exclusively from Autobuses so long as Autobuses
priced its coaches competitively with the Mexican coach market. Due to the
crisis in the Mexican economy and Estrella Blanca's distressed financial
condition, Autobuses made no sales to Estrella Blanca in 1995, 1996 or 1997, but
was paid in full by FOBAPROA, a trust established by the Mexican government to
assist financially distressed vital service entities in Mexico, for the coaches
delivered to Estrella Blanca in 1994. Following the financial recovery of
Estrella Blanca, in 1997 Autobuses and Estrella Blanca agreed to extend the
contract for the sale of coaches until 2027.
9
<PAGE> 11
PRODUCT LINE
Currently Autobuses manufactures two intracity coach models and a transit bus
model in Mexico, available in five variations.
- - THE VIAGGIO(R) MODEL is manufactured by Autobuses under a license from
Marcopolo SA -- Carrocerias e Omnibus, a Brazilian bus manufacturer.
Autobuses produces two products: the two axle 850 and the three-axle 1000
unit, for different niches in the Mexican market. Autobuses also produces a
variant of the 1000 compliant with Department of Transportation ("DOT")
regulations for sale in United States markets; Such sales are handled by
MCII's HBSI subsidiary.
- - THE F-SERIES models were introduced in the first quarter of 1998 with the
launch of the F-11. This new unit has proved popular with operators,
representing over half of total Autobuses deliveries in 1998. The unit is a
basic line-haul product produced from a proprietary design, which offers
operators an attractive unit at an economic price. Autobuses launched the
F-12, a twelve-meter unit in the first quarter of 1999. Management is
considering producing a DOT unit for the US market.
- - In 1994 Autobuses introduced to the cities and urban transit bus for use in
inner-city markets.
COMPETITION.
Autobuses competes against two other major companies --Mexicana de
Autobuses (MASA), which had been operating under bankruptcy laws until it was
acquired by Volvo in 1998, and Omnibus Integrales. Each manufacturer is closely
affiliated with a specific operator. Autobuses' market share was 25% in 1998
compared with 30% and 13% in 1997 and 1996, respectively.
The bases for competition in the inter-city coach market are original sales
price, parts availability and U.S.-manufactured componentory. Autobuses believes
it enjoys a competitive advantage due to its domestic production facilities, its
U.S.-designed components, the ability to tailor bodies to customer
specifications by offering a wide array of seating options and other amenities,
the well-established Dina brand names, nationwide replacement parts availability
and the imposition of tariffs on new coach imports by companies located in
countries that are not subject to the terms of NAFTA.
DISTRIBUTION.
Except for sales in the United States by HBSI, coaches and transit buses
are currently sold by Autobuses directly to end users without the use of
distributors.
PRODUCTION.
Autobuses assembles coaches at its plant in Ciudad Sahagun, Mexico. In
addition to Marcopolo bodies, Autobuses uses several suppliers, primarily in the
United States, for materials, components and other parts. Purchases from these
suppliers provide substantially all of Autobuses' requirements for diesel
engines, transmissions, suspensions, axles, brakes, electronic components, glass
parts and most components for bodies. Autobuses operates one line at its plant
with the capacity to produce 1,800 coaches annually.
In 1998 Mexicana Manufactura Especiales ("MME") was formed as a subsidiary
of MCII Trucks, a wholly owned subsidiary of MCII Holdings. MME will establish
six facilities in the city of Guadalajara, Mexico and the surrounding Jalisco
state with the intention of manufacturing automotive parts for both subsidiaries
of Dina, including MCI and Dina Autobuses, and outside parties. In establishing
such a subsidiary management hopes to achieve considerable cost savings through
eliminating component outsourcing, as well as improve quality standards.
Initially parts production will focus on brake parts, sub-assembly, windows,
hoses, exhaust tubing, seats, electrical harnesses, steel shapes and structural
tubing; Later products will include bus bodies.
10
<PAGE> 12
OTHER CONSIDERATIONS
BUSINESS STRATEGY
In recent years MCII has benefited from the strength of the US economy.
Management is aware of the cyclical nature of the business and is pursuing the
following strategies to maximize profitability:
MAINTAIN A TECHNOLOGY ADVANTAGE OVER COMPETITORS
In the last two years, the Company has introduced two new model lines, the
E-Series "Renaissance" for use in luxury tour & charter markets, and the
F-Series a budget line haul model designed for the Mexican marketplace.
Management believes that each unit is highly competitive within each specific
market place and that customer acceptance of both units has been high in 1998.
In 1999, the Company intends to introduce the G-Series unit, which will enter
pilot production late in the year. The all-new unit, designed in conjunction
with GLI, incorporates many of the design lessons derived from the introduction
of the E-Series unit and is targeted to serve the needs of the line haul market.
SEEK NEW MARKET NICHES AND GEOGRAPHIC OPPORTUNITIES
In 1999, Management intends to build on the success of recently launched units.
In the United States Management will increase its marketing of E-Series units
into the conversion segment. The Company is also examining the possibility of
introducing the F-Series model into this niche. In Mexico, the Company will
introduce a twelve-meter version of the F-Series market to broaden the
availability of options to operators. In the longer term the Company is
considering marketing the F-Series unit internationally, with a particular focus
into Latin America.
IMPROVE THE SERVICE ASPECTS OF THE BUSINESS
Management firmly believes that a major reason behind the Company's success has
been its dedication to offer customers the best in service. This culture is one
reflected in the full-service approach to business undertaken by MCII, including
new bus sales, used bus sales, financing, leasing and parts. In 1998, the
Company opened three new facilities in Dallas, Montreal and Los Angeles while
other such facilities are planned. At UCP, the Company announced the
consolidation of facilities in a new custom-built facility in Louisville,
Kentucky. The strategic location of this facility will permit orders placed as
late as 10pm to be delivered next day to customers nationwide.
LEVERAGE LOW COST MANUFACTURING
The Company continues to seek to lower manufacturing costs particularly by
leveraging Autobuses's underutilized facilities in Ciudad Sahgun, Mexico. In a
limited manner this process commenced with the introduction of the Viaggio(R)
1000 DOT units, which have filled a niche in the United States and Canadian
markets.
RESEARCH AND DEVELOPMENT.
The Company devotes significant resources to developing new products and
proprietary technology in order to expand and enhance its product line, reduce
production costs and improve service to customers. The Company conducts
engineering, testing and design at three facilities in Winnipeg, Manitoba;
Roswell, New Mexico; and Ciudad Sahagun, Mexico. In addition, the Company
periodically engages the services of engineering, testing and design companies.
The Company spent $10.2 million, $6.7 million and $7.3 million in the fiscal
years ended December 31, 1998, 1997 and 1996, respectively on research and
development. Current research and development projects for the Company's coach
operations include the G-Series and F-Series coach models.
11
<PAGE> 13
RAW MATERIALS/COMPONENTS
The Company's manufacturing/assembling operations utilize raw material
and components supplied by diverse North American and international sources.
Major component parts, such as engines, axles, transmissions, suspension, seats
and air conditioners, are provided by original equipment manufacturers.
For certain materials and major components, the Company relies
primarily on a limited number of suppliers, namely Meritor for axles, Detroit
Diesel for engines, Allison Transmission for transmissions, Carrier for air
conditioning units and Atlas Alloys for stainless steel. Alternate suppliers
used to a lesser extent or available for use are Dana Corporation and Eaton
Corporation for axles, Cummins and Caterpillar for engines, Eaton Fuller and ZF
Friedrichshafen AGA for transmissions, Thermoking for air conditioning units and
Namasco Ltd. and others for stainless steel. Although there are additional
alternate suppliers, the Company's customers demand the component parts that are
currently assembled into its coaches. The Company also relies on component parts
and design technology provided by Marcopolo in the assembly of its Viaggio(R)
coach models.
GOVERNMENT REGULATION
The operations of, and the products manufactured by, MCII Holdings' subsidiaries
are subject to various United States federal and state and Canadian federal and
provincial laws and agency regulations. In the United States, these regulations
include the Clean Air Act and other environmental acts which regulate coach
engine emissions and plant operations; Federal Motor Vehicle Safety Standards
which establish minimum safety standards for various components of coaches; the
Americans With Disabilities Act, which specifies accessibility standards for the
physically challenged; and Buy America legislation prohibiting the use of
federal funds for coaches with less than 60% United States content. In Canada,
regulations include various environmental acts, which regulate coach plant
operations, and Canadian Motor Vehicle Safety Regulations that establish minimum
safety standards for various coach components. Although the Canadian government
has not adopted accessibility standards for the physically challenged, such
standards are currently the subject of several official studies. MCII Holdings
cannot accurately predict future expenses or liability which might be incurred
as a result of such laws and regulations.
The Americans with Disabilities Act required, among other things, that the
Department of Transportation ("DOT") promulgate handicapped accessibility
standards for coaches. On September 28, 1998, DOT issued final regulations
regarding coach accessibility requirements. The rules require that all coaches
delivered to large line haul operators beginning October 2000 must be
handicapped accessible. Further, the rules also contain certain other
requirements concerning accessible fleet percentages and providing accessible
service. The Company cannot predict whether rules, will have a material adverse
effect on an operator's business and possibly on the Company's coach business.
Sales of coaches to the public sector in the United States are
typically to local transit authorities, paid for in part by federal grants
administered by the FTA and subject to the Buy America Act. The Buy America Act
generally prohibits the use of federal funds for coach procurements unless (1)
the cost of the coach components manufactured in the United States equals or
exceeds 60% of the cost of all components and (2) final assembly of the coach
occurs in the United States. While the Company believes that its manufacturing
processes comply with the Buy America requirements for coach sales that are
subject to the act, the Company cannot predict whether any future changes made
by the Federal Transit Administration to the Buy America regulations would have
any material effect on the Company.
The operations and products of the Company are subject to Mexican
federal and state laws and regulations relating to the protection of the
environment. The fundamental environmental law in the
12
<PAGE> 14
Mexican federal system is the Ley General de Equilibrio Ecologico y Proteccion
al Ambiente (the General Law of Ecological Balance and Environmental Protection,
or the "Ecological Law"). Under the Ecological Law, rules have been promulgated
concerning water pollution, air pollution, noise pollution and hazardous
substances. Additionally, the Mexican federal government has enacted regulations
concerning the importation and exportation of hazardous materials and hazardous
wastes. The Ministry of the Environment, in conjunction with other governmental
entities, state and municipal governments and with the participation of the
social and private sectors, is the Mexican federal agency in charge of
overseeing compliance with the federal environmental laws. The Ministry of the
Environment has the authority to enforce the Mexican federal environmental laws.
As part of its enforcement powers, the Ministry of the Environment can bring
administrative and criminal proceedings against companies that violate
environmental laws, and it also has the power to close non-complying facilities.
It is possible that changes in Mexican federal and state environmental
laws, or their interpretation or enforcement, could result in material costs to
the Company. At this time, management of the Company is not aware of any pending
legislation which might, if passed, result in material costs to the Company.
All of the engines used on the Company's coaches comply with current
United States and Mexican government emissions standards.
After the implementation of NAFTA in 1994, the Mexican
Auto-Transportation Decree was replaced with a transitional system of quotas
which were to be phased out over five years. Commencing in 1999, such import
limitation is scheduled to be eliminated. NAFTA permits Mexico to maintain
quotas on parts and components for a ten-year period. Under NAFTA, Mexican
import tariffs for 1994 were 9% for components and 8% for engines. These tariffs
will be phased out over a ten-year period with respect to new United States and
Canadian coaches that satisfy NAFTA's United States, Canadian and Mexican
regional content requirements (50% regional content required to qualify for
reduced tariffs in 1994 to 1998, 55% in 1999 to 2002 and 60% thereafter). In
addition, under NAFTA, Mexican import tariffs on coach parts and components will
be phased out over a ten-year period. The present prohibition on importing used
coaches into Mexico will be maintained under NAFTA for 15 years and then will be
eliminated over a ten-year transition period, permitting the importation of used
coaches into Mexico with model ages not exceeding ten years. Dina products
imported by MCII for sale in the United States and Canada are subject to various
United States and Canadian laws and regulations.
PATENTS AND TRADEMARKS
MCII Holdings owns numerous trademarks and patents that MCII Holdings believes
give it a competitive advantage in the marketplace. United States trademark
registrations are for a term of 10 years, renewable every 10 years so long as
the trademarks are used in the regular course of trade. The trademarks owned and
used by MCII Holdings include the MCI, and FLXIBLE marks. COACH GUARD and
DEISEL GUARD marks are in use in the replacement parts operations. MCII Holdings
owns numerous patents protecting, among other things, various aspects of the MCI
coaches. Patents are granted for a term of 17 years. MCII Holdings has the right
to use the Greyhound name and the "Image of the Running Dog" for the manufacture
and sale of inter-city coaches, transit buses and replacement parts in all
countries other than the United States, Canada and Mexico.
13
<PAGE> 15
In Mexico, Dina has registered certain trademarks including DINA, DIMEX and
Citus. The Company also uses the Viaggio brand under license from Marcopolo in
Mexico, and owns the same trademark in the United States. The Company has
certain patents relating to its advanced "torsilastic" suspension system and
other components used in coaches. The Company operates under license for
numerous patents relating to its products and their manufacture held by third
parties. While many of these patents are considered important to particular
products, no particular patent or group of patents is considered by the Company
to be essential to its business as a whole.
EMPLOYEES
As of December 31, 1998, the Company had approximately 4,800 employees, with
approximately 1,400 in the United States, 2,300 employees in Canada and 1,100 in
Mexico. The hourly workers at most locations are organized and represented by
unions. Approximately 2,500 employees of the total work force are represented by
labor unions. The largest contracts are with the International Association of
Machinists and Aerospace Workers (the "IAM") in Winnipeg, Manitoba and Pembina,
North Dakota. The IAM contracts at Pembina expire September 30, 2000; those at
Winnipeg will expire in January 2000. MCII's subsidiaries have historically
enjoyed satisfactory relations with both union and non-union employees.
Approximately 800 Mexican employees are represented by the Independent Union of
Workers in the Automotive and Related Industries (the "Automotive Workers
Union".) In accordance with Mexican law, the salary provisions of these
agreements are renegotiated every year with the benefits provisions every two
years. The salary provision was renegotiated in February 1999. On February 10,
1999 the Company announced that it had reached agreement with the unions to
increase workers' salaries 18% immediately with an additional 4% in benefits.
The Company has experienced labor stoppages in early 1992, February 1994, and
most recently in February 1999 when Mexican production was halted for nearly one
week.
ITEM 2. PROPERTIES
The Company owns manufacturing and assembly plants in the United
States, Canada and Mexico. Additionally, the Company owns or leases various
replacement parts and repair facilities in the United States and Canada. The
Company also owns or leases other properties in Mexico, including a vehicle and
parts distribution center.
The following table is a summary of the approximate square footage of
the Company's facilities as of December 31, 1998:
<TABLE>
<CAPTION>
United States Canada Mexico Total
------------- ------ ------ -----
<S> <C> <C> <C> <C>
Facility Type
-------------
Manufacturing 186,000 767,000 1,359,000 2,312,000
Replacement parts 1,087,000 104,000 653,880 1,844,880
Modification or repair 134,000 0 0 134,000
--------- ---------- --------- ---------
Total square feet 1,407,000 871,000 2,012,880 4,290,880
========= ========== ========= =========
Ownership
---------
Owned property 782,000 811,000 1,359,000 2,952,000
Leased property 625,000 60,000 653,880 1,338,880
--------- ---------- --------- ---------
Total square feet 1,407,000 871,000 2,012,880 4,290,880
========= ========== ========= =========
</TABLE>
14
<PAGE> 16
ITEM 3. LEGAL PROCEEDINGS
MCII Holdings and certain of its subsidiaries are parties either as plaintiffs
or defendants to various actions, proceedings and pending claims, certain of
which involve claims for compensatory, punitive or other damages. Litigation is
subject to many uncertainties and it is possible that some of the legal actions,
proceedings or claims referred to above could be decided against MCII Holdings.
Although the ultimate amount for which MCII Holdings may be held liable with
respect to matters where MCII Holdings is a defendant is not ascertainable, MCII
Holdings believes that any resulting liability will not materially affect its
financial condition or results of operations.
The Company's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada. Authorities have proposed imputing
additional income related to transactions with a United States based subsidiary
of the Company. Revenue Canada has issued a formal reassessment on the 1985
return. The Company has filed a notice of objection for 1985. In the event of an
adverse judgment, the additional income taxes for 1982 through 1992 could amount
to $23,000,000 plus interest of approximately $47,000,000 and, in addition, the
Company may be subject to potential reassessments for the years subsequent to
1992 on the same basis, which could result in additional income taxes and
interest. These amounts are all before recoveries of United States federal
income taxes which may be available to offset a portion of any additional taxes
paid to Canada, as these years are still open for United States federal income
tax purposes. In accordance with SFAS No. 109, "Accounting for Income Taxes," a
portion of any ultimate liability owed as a result of this issue would be
treated as an adjustment of Dina's purchase price on acquiring the Company,
resulting in an increase of purchase goodwill. (If the ultimate liability were
$70,000,000, then approximately $45,000,000 would be a purchase accounting
adjustment.) Based on its review of current relevant information, including the
advice of outside counsel, the Company is of the opinion that Revenue Canada's
arguments are without merit and that any liability from this matter will not be
material to its financial condition or results of operations.
Manufacturers and sellers of defective products in Mexico may be
subject to liability for loss and injury caused by such products under Mexican
law. The Company does not carry product liability insurance for product sales in
Mexico. Although the Company has never had a product liability claim brought
against its Mexican operations and the Mexican laws providing for such liability
appear to have been seldom utilized, no assurance can be given that the Company
may not be exposed to future product liability claims in Mexico and, if such
claims are successful, that the Company will have sufficient resources to pay
such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
This item has been omitted pursuant to General Instruction I of Form 10-K, which
provides for a reduced disclosure format.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Not applicable.
15
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
This item has been omitted pursuant to General Instruction I of Form
10-K, which provides for a reduced disclosure format.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Pursuant to General Instruction I of Form 10-K, which provides for a
reduced disclosure format, the following is management's narrative analysis of
the material changes in the Statement of Consolidated Income and is in lieu of
management's discussion and analysis pursuant to Regulation S-K 303. The
following discussion should be read in conjunction with MCII Holding's
consolidated financial statements included in this Annual Report.
16
<PAGE> 18
MCII HOLDINGS OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Units:
United States and Canadian Operations
MCII New Coaches 1,670 1,279 1,245
Viaggio Coaches 159 222 226
Used Coaches 779 496 571
Mexican Operations
Intercity Coaches 325 232 40
(000 OMITTED)
Revenues:
United States and Canadian Operations
Coach and Support $ 677,661 $ 503,635 $ 499,611
Replacement Parts 172,815 190,178 161,682
Mexican Operations 81,307 45,970 5,791
--------- --------- ---------
$ 931,783 $ 739,783 $ 667,084
========= ========= =========
Operating income:
United States and Canadian Operations
Coach and Support $ 70,114 $ 46,785 $ 39,865
Replacement Parts 21,497 15,754 14,788
Mexican Operations (9,740) 15,914 5,180
-------- --------- --------
$ 81,871 $ 78,453 $ 59,833
======== ========= ========
</TABLE>
17
<PAGE> 19
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
Revenues increased 26% in 1998 to $931.8 million due to strong customer
demand and acceptance of the E-Series Coach in the United States and Canada and
improving economic conditions in Mexico. Operating income increased 4% to $81.9
million. Operating income in the United States and Canada increased $29.1
million, or 46%, to $91.6 million, due to increased sales, reduced production
costs, and recovery of business insurance claims for business interruptions
caused by flooding conditions in 1997. Operating income in Mexico decreased
$25.7 million to a loss of $9.7 million Net income from continuing operations
was $38.6 million in 1998, compared with $38.2 million in 1997.
MCII
MCII's revenues were a record $850.5 million in 1998, an increase of
$156.7 million, or 23%, over 1997. New coach deliveries were a record 1,670, up
32% from 1997. Improvements were derived from the continued high growth / low
interest rate environment of the United States economy which has heightened
demand for coach travel and facilitated lower cost financing for operators.
Growth was particularly enabled by the non-recurrence of production problems
that impacted the Company during 1997 (flooding conditions during the second
quarter and difficulties associated wit h the initial rollout of the E-Series
coach.
The increasing acceptance of the new E-Series unit has been a major
feature of the demand profile. Sales reached 482 units in 1998, compared to 67
units when introduced in 1997.
The used coach business responded well to management initiatives aimed
at increasing turnover, with sales advancing to 779, compared to 496 units in
1997. Over the course of 1998, HBSI accepted 733 units as trade-ins as part of
new unit transactions.
Parts sales declined 9%, to $172.8 million. Traditionally, parts demand
has run in a counter-cyclical manner to the demand for new units and this trend
appears to continue.
MCII's operating income of $91.6 million represented an increase of
$29.1 million from $62.5 million in 1997. MCII's coach manufacturing operations
benefited from the increasing production efficiency of the E-Series unit as the
learning curve of the model rollout continued to improve. Other cost
improvements resulted from the settlement of flood related insurance claims in
1998 ($8.0 million) and reduced new product start-up costs ($7.3 million).
18
<PAGE> 20
Mexico
Mexican sales continued to improve in 1998, reaching $81.3 million, an
increase of $35.3 million. Deliveries of inter-city coaches increased to 325
units in 1998 from 232 units in 1997. Replacement parts sales increased $13.7
million, or 164%, to $22.0 million in 1998.
Mexican operating losses of $9.8 million were a disappointment
compared to income of $15.9 million in 1997. Earnings at Autobuses declined
$18.2 million, due to higher commissions expense of $1.1 million and increased
provision for bad debts of $3.9 million. Mexicana had start-up losses of $2.2
million, caused mainly by new product start-up costs of $1.4 million. Finally,
manufacturing profits on Viaggio units sold in the United States decline by $5.7
million.
Other Income and Expense
Other income and expenses reduced income by $12.0 million in 1997,
compared with $19.0 million. The favorable effect of $5.0 million was
essentially due to a gain on the sale of an equity investment.
On September 14 1998, a subsidiary of MCII Holdings sold its 10% stake
in Mexicana de Autobuses S.A. de C.V. (MASA) for $7 million in cash. The Company
acquired its 10% ownership interest in MASA in 1995 and had revalued the
investment to zero when MASA subsequently filed for bankruptcy. The 1998 gain on
the sale was $5.0 million before taxes, after reimbursing Dina for $2 million in
related expenses.
Net interest expense was $20.0 million in 1998, compared with $21.9
million in 1997. Dina allocated net interest income of $8.8 million to Autobuses
in 1998, compared with Dina's allocation of net interest income of $1.4 million
to Autobuses in 1997. Therefore, external interest expense increased
approximately $5.5 million, primarily due to Autobuses Pre-Export Notes.
Income Taxes
The effective income tax rate increased to 44.8% in 1998 from 35.8%
in 1997 primarily due to the decline Autobuses' Mexican income. Autobuses has
generated net loss carry-forwards in prior years as a result of economic
difficulties encountered in the early 1990s. The Company had not previously
recognized the carry-forward benefit of such losses due to the uncertainty of
the realization of such benefits. Therefore, these loss carryforwards were
recognized in 1997 to offset Autobuses 1997 income. Due to the continued
uncertainty of the realization of any net operating loss carryforwards,
Autobuses' 1998 Mexican losses were recorded without income tax benefits.
19
<PAGE> 21
1997 COMPARED WITH 1996
Results in 1997 were characterized by strong market demand for units
being negated by production problems at MCII and resulting in lower market share
and flat sales. Mexican sales indicated substantial year-on-year improvements
although the overall level of activity was still very depressed due to the after
effects of the 1994 peso crisis. Revenues for 1997 were $739.8 million, 11%
higher than those generated in 1996. Operating income increased 31% to $78.5
million. Net income from continuing operations was $38.2 million in 1997,
compared with $27.7 million in 1996 (net income for 1996 was $21.8 million,
which reflected an additional $5.0 million expense incurred for MCII's
discontinued transit manufacturing business and $0.9 million of debt issuance
costs.)
MCII
Despite very strong underlying strength in the United States coach
market, MCII was unable to take full advantage of such growth due to two
production problems: (1): The flooding of the Red River in the second quarter of
the year closed access roads to MCII's manufacturing operations in the United
States and Canada, and unfavorably affecting production; and (2): Production
difficulties encountered with the introduction of the E-Series unit over the
course of the year. As a result of these two factors, new coach sales were 1,279
in 1997, compared with 1,245 in 1996. Sales of Viaggios in the United States
declined to 222 units in 1998, compared with 226 in 1996. To compensate
customers who experienced delays as a result of the production difficulties, the
Company leased 75 used units at favorable terms. As a result of such leases,
used coach sales declined to 496 in 1997, compared with 571 in 1996. MCII's
revenues of $693.8 million in 1997 increased from 1996 by 5% as coach
manufacturing revenues increased 1% against the prior year and replacement
parts' revenues of $190.2 million in 1997 increased from 1996 by 18%, due
largely to the 1996 acquisition of certain assets of the Flxible business.
MCII's operating income of $62.5 million in 1997 was a $7.9 million
increase over MCII's operating income in 1996. Operating income from MCII's
coach manufacturing operations increased $6.9 million in 1997, due to improved
operating cost control efforts which more than offset $7.3 million in new
product start-up costs and $0.9 million of additional corporate office
relocation costs. Operating income from replacement parts increased $1.0 million
in 1997, due to higher sales volume.
Mexico
In Mexico, Autobuses continued to reposition itself in response to the
lingering problems created by the 1994 devaluation and ensuing severe economic
recession. In 1997, Autobuses' domestic sales increased to 232 units, compared
with sales of 40 units in 1996. In addition, Autobuses, in a new business
initiative, leased 440 transit bus units during 1997, including 240 units to a
related party. Mexican revenues in 1997 of $46.0 million increased by $40.2
million over 1996 revenues.
20
<PAGE> 22
Mexican operating income increased $10.7 million in 1997 due to higher
revenues in Mexico and higher manufacturing profit on units sold in the United
States.
Other Income and Expense
Other income and expenses reduced income by $19.0 million in 1997,
compared with $13.7 million. The unfavorable effect of $5.3 million was due to
higher net interest expenses.
Interest expense increased $5.8 million to $21.9 million in 1997,
reflecting higher debt levels at MCII (greater use of revolving bank credit
facilities) and Autobuses (pre-export loans and notes). Dina allocated net
interest income of $1.4 million to Autobuses in 1997, compared with Dina's
allocation of net interest expense of $1.5 million to Autobuses in 1996.
Income Taxes
The effective income tax rate declined to 35.8% in 1997 from 40.0% in
1996 primarily due to the application of net loss carry-forwards to Autobuses'
increased Mexican income. Autobuses had generated net loss carry-forwards in
prior years as a result of economic difficulties encountered in the early 1990s.
The Company had not previously recognized the carry-forward benefit of such
losses due to the uncertainty of the realization of such benefits. In 1997, the
Company was able to offset these losses against the current year's income.
Consequently, Autobuses' 1997 Mexican profits for book purposes were recorded
with no income tax.
21
<PAGE> 23
OTHER FACTORS.
FINANCIAL RESTRUCTURING
On June 3, 1996, the Company became contingently liable for payments of
principal and interest on the Senior Secured Discount Notes due 2002 ("Discount
Notes") of Dina, the parent company. It was intended that all payments with
respect to the Discount Notes would be paid by Dina, and that payments would be
made by the Company only in the event of the inability of the parent company to
service the debt. Effective December 31, 1998, the Company recognized it's
liability for interest and principal payments with regard to this debt
obligation due to substantial doubt about the parent company's ability to
service the debt. Consequently, the Company recorded $206,499,680 of additional
debt as more fully described in Note 16, accrued $2,919,000 of interest payable,
and adjusted shareholder's equity accordingly.
As at December 31, 1998, Transportation Manufacturing Operations Inc.
("TMO") a principal subsidiary of the Company, had a $170 million US revolving
credit agreement ("the Senior Credit Facility") with a nine bank syndicate to
finance working capital and other general corporate needs, as more fully
described in Note 16. This credit facility expires on October 1, 1999, and the
lenders have indicated that they are not willing to extend the maturity of this
agreement. In addition, during 1998, the Company was required to reduce existing
long-term debt obligations by $50 million, consisting of a $25 million principal
payment on TMO's Senior Term Notes, due 2002, a $12 million reduction in it's
Canadian bank credit facility, and a $13 million principal payment on the
Pre-Export Notes due 1999 (see Note 16).
As a result of the debt reductions during 1998 and the additional debt
obligations and working capital requirements for 1999, the Company does not
expect to generate sufficient cash flow from operations to fund both short term
requirements and meet the required expiration of the US credit facility.
On March 18, 1999, the Company engaged CIBC Oppenheimer Corp. and its
affiliates (" CIBC Oppenheimer") to act as the Company's lead bank agent,
financial advisor, initial purchaser, placement agent and underwriter to
undertake a financial restructuring of the debt obligations of the Company and
the parent company.
On April 19, 1999, TMO executed an agreement with CIBC Oppenheimer for
the issuance of $40 million of Senior Subordinated Increasing Rate Notes ("the
IRNs"), due December 31, 1999 (subject to extension to March 31, 2000). This
bridge financing will be used by TMO to meet short-term working capital
requirements while the financial restructuring process is underway. The IRNs
will mature on December 31, 1999 (with an option to extend the maturity to March
31, 2000) and will bear an increasing rate of interest, commencing with a rate
that will be the greater of (i)LIBOR plus 6.50% or (ii) 11.625%, and increasing
by 25 basis points (0.25%) every 30 days that the IRNs are outstanding to a
maximum rate of 18%. As a condition of the consent of the existing lenders,
interest above 15.0% must be paid in kind. The IRNs will rank senior to all
existing subordinated debt and subordinated to all existing senior debt of TMO.
The agreement provides TMO with an option to redeem the IRNs, in whole, but not
in part, at any time prior to maturity at fixed redemption prices. TMO must also
redeem the IRNs at a fixed redemption price upon a change in control of TMO or
any of its parent companies. TMO has the option to extend the maturity date of
the IRNs to March 31, 2000, at the maximum interest rate of 18.0% (with interest
above 15.0% paid in kind). However, as additional consideration for the
extension, TMO will be required to issue to the existing noteholders an
additional $4 million aggregate principal amount of IRNs (the "Extension IRNs").
The IRNs are subject to certain affirmative and negative covenants customary for
this type of financing, and are guaranteed by TMO's material domestic
subsidiaries.
On April 19, 1999, TMO and its principal subsidiaries obtained the
necessary consent and related amendments required from the existing lenders to
permit the bridge financing and remain in compliance with certain financial
covenants. In consideration for the consent of the existing lenders, TMO agreed
to certain changes in the terms of the existing debt agreements, as further
described in Note 16.
In addition to the bridge financing, the Company, in association with
CIBC Oppenheimer, has developed a financial restructuring plan to refinance all
of the material debt obligations of the parent, the Company and their respective
subsidiaries. The new financing is expected to result in gross proceeds to the
Company of approximately $715 million. The proceeds of the new financing are
expected to be used by the Company to refinance certain indebtedness of the
parent, the Company and their respective subsidiaries including, but not limited
to, the IRNs, the US and Canadian revolving credit facilities, the 9.02% Senior
Term Notes due 2002, and the Senior Secured Discount Notes due 2002. The
Company expects to complete the new financing and the refinancing prior to the
October 1, 1999 maturity of the existing US credit facilities. In the event that
the financial restructuring is not completed by September 30, 1999, and TMO has
not been able to obtain sufficient funding to retire the IRN's, the US Bank
credit facility and the Term Notes due 2002, TMO will be in default of each of
these credit agreements. This in turn would trigger cross default covenants in
substantially all of the Company's other debt agreements and provide the holders
of its debt with the right to accelerate payments of all amounts outstanding.
The existence of acceleration rights would also require the Company to classify
all long-term indebtedness as current. In light of these potentially adverse
consequences to the Company's financial position, management is diligently
pursuing the consummation of the financial restructuring.
22
<PAGE> 24
While there is no assurance that the financial restructuring plan will
be completed successfully at this time, the Company is continuing to work with
CIBC Oppenheimer to execute this plan. In the event that the financial
restructuring cannot be completed prior to the October 1, 1999 maturity, the
Company is also exploring alternatives to generate additional cash flow
including, but not limited to, selling substantial Company assets and seeking
strategic equity investors.
YEAR 2000 READINESS DISCLOSURE
In today's business environment, companies have developed a strong
technological interdependence with each other. As the Year 2000 draws near, many
businesses are increasingly concerned about how their business applications, as
well as those utilized by their business partners, will handle the century date
change. A summarized definition of the Year 2000 issue is the inability of
certain computer systems, software, and embedded-technologies to recognize or
process dates beyond December 31, 1999. This problem may cause significant
disruptions in manufacturing, administrative, and distribution processes, as
well as other computer supported activities.
The Company has developed a plan to ensure that its systems have the
ability to process transactions in the year 2000. The Company believes that it
has identified the applications that will need to be modified to properly
utilize dates beyond December 31, 1999. Both internal and external resources
will be utilized to reprogram and test software for Year 2000 compliance.
It is anticipated that the Year 2000 project will be completed no later
than September 1999. The estimated total cost of making the systems Year 2000
compliant is approximately $2.0 million. This cost will be expensed as incurred
except for the installation of new applications that are already Year 2000
compliant.
Based on present information, the Company believes that it will be able
to achieve Year 2000 compliance through a combination of modifications to some
existing systems and the purchase of other systems that are already Year 2000
compliant. The Company
23
<PAGE> 25
believes that the expenses and capital expenditures associated with achieving
Year 2000 compliance will not have a material effect on its financial results in
1999.
The Company is contacting business partners whose Year 2000
non-compliance could adversely affect the Company's operations, employees, or
customers. The Company believes the most likely worst case scenario would be the
failure of a material business partner to be Year 2000 compliant. Therefore, the
Company will continue to work with and monitor the progress of its partners and
formulate a contingency plan when the Company does not believe the business
partner will be compliant.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MCII Holdings' consolidated financial statements and Report of Independent
Accountants is set forth at pages F-1 to F-26 of this Annual Report on Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This Item has been omitted pursuant to General Instruction I of Form 10-K,
which provides for a reduced disclosure format.
24
<PAGE> 26
ITEM 11. EXECUTIVE COMPENSATION
This item has been omitted pursuant to General Instruction I of Form
10-K, which provides for a reduced disclosure format.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This item has been omitted pursuant to General Instruction I of Form 10-K,
which provides for a reduced disclosure format.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
This item has been omitted pursuant to General Instruction I of Form
10-K, which provides for a reduced disclosure format.
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)LIST OF DOCUMENTS FILED
1. FINANCIAL STATEMENTS
Report of Independent Accountants
Statement of Consolidated Income,
Years ended December 31, 1998, 1997, and 1996
Balance Sheet, December 31, 1998 and 1997
Statement of Consolidated Changes in Stockholder's Equity, Years ended
December 31, 1998 and 1997.
Statement of Consolidated Cash Flows,
Years ended December 31, 1998, 1997, and 1996
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants
Schedule I -- Condensed Financial Information of Registrant
25
<PAGE> 27
All other schedules are omitted because they are not applicable or the
required information is presented in the consolidated financial
statements or notes thereto.
3. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.2 to Dina's Registration
Statement on Form F-1/S-1, File No. 333-08843)
3.2 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.3 to Dina's
Registration Statement Form F-1/S-1, File No. 333-08843)
4.1 Credit Agreement, dated as of September 30, 1996, among
Transportation Manufacturing Operations, the Lenders named
therein and NBD Bank, as Administrative Agent (incorporated by
reference to Exhibit 4.3 to Dina's Registration Statement on
Form F-1/S-1, File No. 333-08843)
4.2 Amendment No. 1 to Credit Agreement, dated as of December 17,
1996, by and between Transportation Manufacturing Operations,
Inc. and NBD Bank, as Administrative Agent, Swing Line Bank and
Issuing Lender (incorporated by reference to Exhibit 4.2 to the
Company's Form 10-K for the fiscal year ended December 31, 1996)
4.3 Amendment No. 2 to Credit Agreement, dated as of May 23, 1997,
among Transportation Manufacturing Operations, Inc., the
Guarantors named therein, the Lenders named therein, The First
National Bank of Chicago, as Swing Line Bank and an Issuing
Lender, and as Administrative Agent, and NBD Bank, as Swing Line
Bank and an Issuing Lender, and as the resigning Administrative
Agent
4.4 Amendment No. 3 to Credit Agreement, dated as of September 25,
1997, among Transportation Manufacturing Operations, Inc., the
Lenders named therein, The First National Bank of Chicago, as
Administrative Agent, and The Bank of New York, as Co-Agent
4.5 Amendment No. 4 to Credit Agreement dated as of June 26, 1998,
among Transportation Manufacturing Operations, Inc., the
Lenders named therein, The First National Bank of Chicago, as
Administrative Agent, and The Bank of New York as Co-Agent
4.6 Amendment No. 5 to Credit Agreement, dated as of April 19, 1999,
among Transportation Manufacturing Operations, Inc., the lenders
named therein, and the First National Bank of Chicago, as
Administrative Agent for the Lenders.
4.7 Note Agreement, dated as of November 15, 1994, among
Transportation Manufacturing Operations, Inc. and the Purchasers
named therein governing the 9.02% Senior Notes due November 15,
2002 (incorporated by reference to Exhibit 3.23 to Dina's Form
20-F for the year ended December 31, 1994)
4.8 Amendment to Note Agreement, dated as of April 7, 1995, among
Transportation Manufacturing Operations, Inc. and the Purchasers
named therein (incorporated by reference to Exhibit 4.4 to
Dina's Registration Statement on Form F-1/S-1, File No.
333-08843)
4.9 Amendment to Note Agreement, dated as of September 1996, among
Transportation Manufacturing Operations, Inc. and the Holders
named therein
4.10 Amendment to Note Agreement, dated as of October 30, 1997,
among Transportation Manufacturing Operations, Inc. and the
Holders named therein
4.11 Amendment to Note Agreement, dated as of April 19, 1999, among
Transportation Manufacturing Operations, Inc., and the Holders
named therein.
4.12 Intercreditor Agreement, dated as of September 30, 1996, by and
among the Lenders under the Credit Agreement dated as of
26
<PAGE> 28
September 30, 1996, NBD Bank, and the holders of the 9.02%
Senior Notes due 2002 (incorporated by reference to Exhibit 4.6
to Dina's Registration Statement on Form F-1/S-1, File No.
333-08843)
4.13 Indenture, dated as of April 30, 1996 between Dina and IBJ
Schroder Bank & Trust Company, as Trustee, relating to the
9.02% Senior Notes due November 15, 2002, including the form of
Old Note and New Note, filed as Exhibit 2.4 to Dina's Annual
Report on Form 20-F for the year ended December 31, 1995 and
incorporated by reference herein (incorporated by reference to
Exhibit 4.6 to the Company's Form 10-K for the fiscal year
ended December 31, 1996)
4.14 Form of 9.02% Senior Note due 2002 (incorporated by reference
to Exhibit 2.4 to Dina's Annual Report on Form 20-F for the
year ended December 31, 1995)
10 Employment Agreement, dated as September 30, 1996, between
Transportation Manufacturing Operations, Inc., and James P.
Bernacchi (incorporated by reference to Exhibit 10.24 to Dina's
Registration Statement on Form F-1/S-1, File No. 333-08843)
12 Computation of ratio of earnings to fixed charges
27 EDGAR Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of the fiscal year covered by this report.
27
<PAGE> 29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: April 19, 1999 MCII HOLDINGS (USA), INC. (Registrant)
By: /s/
-----
Director, Chief Executive Officer
By: /s/
-----
Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Rafael G\mez
- ---------------------------- President and Director April 15, 1999
Rafael G\mez Flores (Principal Executive Officer )
/s/
---------- April 15, 1999
Jose Ignacio Moreno Chief Financial Officer
/s/
---------- Director April 15, 1999
Gamaliel Garcia Cortes
/s/
---------- Director April 15, 1999
Stephen P. Glennon
</TABLE>
28
<PAGE> 30
MCII HOLDINGS (USA), INC.
CONSOLIDATED
FINANCIAL STATEMENTS
AND SCHEDULES
<PAGE> 31
Report of Independent Public Accountants
To the Shareholder of MCII Holdings (USA), Inc.:
We have audited the accompanying consolidated balance sheets of MCII
Holdings (USA), Inc. and its subsidiaries (the "Company") as of December
31, 1998 and December 31, 1997 and the related consolidated statements of
income, changes in stockholder's equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of the Company as of December 31, 1998 and December 31, 1997, and
the consolidated results of its operations and cash flows for the years
then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 and 15 to
the financial statements, the Company and its principal subsidiaries have
significant debt obligations, including a US bank credit facility that
expires on October 1, 1999. The Company does not expect to generate
sufficient cash flow from operations to meet its current debt obligations
and provide for growth in working capital. While the Company plans to
refinance all of its existing material debt obligations prior to maturity,
no binding agreement currently exists to undertake the refinancing. This
matter raises substantial doubt about the Company's ability to continue as
a going concern. Management plans with regard to this matter are described
in Note 2. These financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Arthur Andersen LLP
Chicago, IL
April 20, 1999
<PAGE> 32
Report of Independent Accountants
To the Stockholder of MCII Holdings (USA), Inc.:
In our opinion, the accompanying consolidated statements of income, changes in
stockholder's equity and cash flows (as restated for acquisition of affiliate,
see Note 6) for the year ended December 31, 1996 present fairly, in all
material respects, the results of operations and cash flows of MCII Holdings
(USA), Inc. and its subsidiaries (the Company) for the year ended December 31,
1996 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of the company
for any period subsequent to December 31, 1996.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 28, 1997 (except with respect to the matter in Note 6, as to which the
date is March 23, 1998).
<PAGE> 33
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
(000 omitted) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Sales $925,945 $735,210 $658,823
Finance income 5,838 4,573 8,261
------------ ------------- ------------
931,783 739,783 667,084
------------ ------------- ------------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below) 728,395 546,607 506,199
Depreciation and amortization 24,819 22,035 17,618
Interest expense, finance operations 2,765 2,394 3,605
Research and development expenses 9,641 6,655 7,346
New product start-up costs 1,521 7,333 -
Business insurance recoveries (8,462) (500) -
Provision for relocation of Corporate office - 886 3,000
Selling, general and administrative expenses 91,233 75,920 69,483
------------ ------------- ------------
849,912 661,330 607,251
------------ ------------- ------------
Operating Income 81,871 78,453 59,833
------------ ------------- ------------
Other income and (expense):
Interest (expense) - net (19,980) (21,859) (16,029)
Other income (502) 2,920 2,197
Gain (loss) on equity investments 5,000 - (1,200)
Foreign currency translation gain (loss) 3,482 (85) 1,347
------------ ------------- ------------
(12,000) (19,024) (13,685)
------------ ------------- ------------
Income before income taxes 69,871 59,429 46,148
Income taxes 31,283 21,268 18,474
------------ ------------- ------------
Income from Continuing Operations 38,588 38,161 27,674
Discontinued operations:
(Loss) on disposal of transit manufacturing, net of
tax benefit of $3,130 - - (5,000)
------------ ------------- ------------
Income before extraordinary item 38,588 38,161 22,674
Extraordinary (charge) for early retirement of debt, net
of tax benefit of $550 - - (851)
------------ ------------- ------------
Net Income $ 38,588 $ 38,161 $ 21,823
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements
F-1
<PAGE> 34
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
(000 omitted) 1998 1997
Except per share info
- -----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 24,103 $ 13,997
Receivables, less allowance of $10,316 and $3,244 122,508 88,543
Receivables from affiliates (Note 3) - 16,293
Current portion of notes receivable 10,548 6,625
Inventories 226,272 257,795
Deferred income taxes 21,488 14,430
Other current assets 6,089 7,591
------------ -------------
Total Current Assets 411,008 405,274
Property, plant, and equipment, net 104,530 106,845
Notes receivable 35,400 42,465
Investments in affiliates 23,116 15,253
Intangible assets 215,589 227,367
Other assets 16,511 23,469
------------ -------------
Total Assets $806,154 $820,673
============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 82,420 $ 67,580
Accrued compensation and other benefits 13,343 12,380
Accrued warranties 13,960 10,020
Accrued income taxes 32,390 7,251
Self insurance reserves 6,365 5,610
Net liabilities of discontinued operations 4,416 2,229
Other current liabilities 31,132 25,111
Current portion of long-term debt 192,742 44,418
------------ -------------
Total Current Liabilities 376,768 174,599
Long-term debt 281,723 268,833
Pensions and other benefits 15,787 14,037
Other deferred items and self insurance reserves 19,059 24,370
Deferred income taxes 6,522 6,916
------------ -------------
Total Liabilities 699,859 488,755
------------ -------------
Commitments and contingent liabilities
Stockholder's Equity:
Common stock, $.01 par value, 1,000 shares authorized,
issued, and outstanding and additional capital 159,500 411,524
Accumulated deficit (23,945) (58,590)
Accumulated other Comprehensive Income (29,260) (21,016)
------------ -------------
Total Stockholder's Equity 106,295 331,918
------------ -------------
Total Liabilities and Stockholder's Equity $806,154 $820,673
============ =============
</TABLE>
The accompanying notes are an integral part of these statements
F-2
<PAGE> 35
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated Other
Comprehensive Income
----------------------
Common Stock Unfunded Cumulative Total
Comprehensive and Additional Accumulated Pension Translation Stockholder's
(000 omitted) Income Capital Earnings/(Deficit) Loss Adjustment Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 $ 419,176 $(76,126) $ - $ (14,572) $ 328,478
Comprehensive income -- 1996:
Net income -- 1996 $ 21,823 21,823 21,823
Other comprehensive income:
Unfunded pension loss (423) (423) (423)
Unrealized translation loss (1,061) (1,061) (1,061)
--------
Comprehensive income $ 20,339
--------
Capital contribution 1,342 1,342
Return of capital to parent company (13,030) (13,030)
Dividends on common stock (30,000) (30,000)
--------- -------- ------ --------- ---------
BALANCE, DECEMBER 31, 1996 407,488 (84,303) (423) (15,633) 307,129
Comprehensive income -- 1997:
Net income -- 1997 $ 38,161 38,161 38,161
Other comprehensive income:
Unfunded pension loss (154) (154) (154)
Unrealized translation loss (4,806) (4,806) (4,806)
--------
Comprehensive income $ 33,201
--------
Dividends on common stock (12,448) (12,448)
Capital contribution 4,036 4,036
--------- -------- ------ --------- ---------
BALANCE, DECEMBER 31, 1997 411,524 (58,590) (577) (20,439) 331,918
Comprehensive income -- 1998:
Net income -- 1998 $ 38,588 38,588 38,588
Other comprehensive income:
Unfunded pension loss 61 61 61
Unrealized translation loss (10,161) (10,161) (10,161)
--------
Comprehensive income $ 28,488 -
--------
Recognition of contingent
obligation (Note 2) (209,419) (209,419)
Net Receivable from Affliate (Note 3) (38,278) (38,278)
Adjustment (Note 5) (4,327) (443) 1,856 (2,914)
Dividends on common stock (3,500) (3,500)
--------- -------- ---------- --------- ---------
BALANCE, DECEMBER 31, 1998 $ 159,500 $(23,945) $ (516) $ (28,744) $ 106,295
========================================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE> 36
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF CONSORCIO G GRUPO DINA, S.A. DE C.V.)
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
(000 omitted) 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows Provided (Used) By Operating Activities:
Net Income $ 38,588 $ 38,161 $ 21,823
Adjustments to reconcile net income to net cash
provided (used) by operations:
Depreciation and amortization 24,819 22,035 17,618
Deferred income taxes (5,222) 1,373 (4,812)
Discontinued operations - - 5,000
Extraordinary items - - 851
Provision for relocating corporate office - 886 3,000
Gain on sale of property and notes receivable (1,188) (92) (1,664)
(Gain)/loss on equity investment (5,000) - 1,200
Other noncash items, net 8,609 2,378 5,403
Change in operating assets and liabilities 14,930 (117,326) (4,099)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 75,536 (52,585) 44,320
------------ ------------ ------------
Cash Flows Provided (Used) By Investing Activities:
Capital expenditures (13,478) (32,096) (25,609)
Investments in assets held for lease (4,279) (56,375) (54,538)
Proceeds from sale of property and assets held for lease 1,247 57,372 50,880
Notes receivable from customers (59,644) (49,580) (40,344)
Collections of notes receivable 57,656 15,696 18,844
Proceeds from sale of notes receivable 2,750 17,381 24,934
Purchase of, investment in, businesses (7,860) - (12,200)
Investment in affiliates 5,000 (25,708) -
Proceeds from sale of business - - 1,295
Discontinued operations, net changes 2,187 2,140 6,400
------------ ------------ ------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (16,421) (71,170) (30,338)
------------ ------------ ------------
Cash Flows Provided (Used) By Financing Activities:
Additional long-term borrowings - - 68,000
Payment of long-term borrowings (37,573) (149) (68,148)
Net change in bank credit facilities (7,936) 136,910 (7,000)
Termination of interest rate swap position - - 4,733
Payment of debt issuance costs - - (3,330)
Extraordinary charge for early retirement of debt - - (851)
Increasing (decreasing) capital - 4,036 1,342
Dividends paid to parent company (3,500) (12,448) (30,000)
------------ ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (49,009) 128,349 (35,254)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 10,106 4,594 (21,272)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,997 9,403 30,675
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 24,103 $ 13,997 $ 9,403
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE> 37
MCII HOLDINGS (USA), INC.
(A WHOLLY OWNED SUBSIDIARY OF
CONSORCIO G GRUPO DINA, S.A. DE C.V.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1996 HAS BEEN RESTATED TO INCLUDE AUTOBUSES - SEE NOTE 6)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of MCII Holdings (USA), Inc., and its subsidiaries ("MCII Holdings" or the
"Company"), which is wholly owned by Consorcio G Grupo Dina, S.A. de C.V.
("Dina"), a Mexican corporation. The Company is a manufacturer of motor coaches,
and a manufacturer and distributor of motor coach and transit bus replacement
parts, with manufacturing facilities in the United States, Canada, and Mexico.
Sales are made predominately to a diversified customer base, including
independent operators, national fleet operators, government agencies, and
others.
The accompanying consolidated financial statements have been prepared
in accordance with United States generally accepted accounting principles.
Intercompany accounts and transactions between MCII Holdings and its
subsidiaries have been eliminated. Certain reclassifications have been made to
the financial statements of prior periods to conform to 1998 classifications.
Described below are those accounting policies that are particularly significant
to the Company.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues,
and expenses, as well as contingent assets and liabilities disclosed in the
financial statements.
Actual results could differ from those amounts reported or disclosed.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
statements of MCII Holdings and its majority and wholly owned subsidiaries:
<TABLE>
<CAPTION>
PARTICIPATION (%)
-----------------
<S> <C>
Motor Coach Industries International, Inc. ("MCII") 100.0
Transportation Manufacturing Operations, Inc. ("TMO") 100.0
(A direct subsidiary of MCII)
Dina Autobuses, S.A. de C.V. ("Autobuses") 99.99
Mexicana de Manufacturas Especiales, S.A. de C.V. ("Mexicana") 100.0
</TABLE>
F-5
<PAGE> 38
In March 1998, the Company formed Mexicana to manufacture coach parts
in Mexico.
In January 1997, the Company acquired from Dina 99.99% of the shares of
Autobuses. This event represented a combination of entities under common control
and has been accounted for on an "as-if" pooling-of-interest basis, with the
accompanying financial statements and related footnotes restated for all periods
presented, see Note 6.
CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less, when purchased, to be cash equivalents.
FOREIGN CURRENCY TRANSACTIONS
As a means of reducing exposure to fluctuations in foreign currency
exchange rates, the Company may enter into foreign exchange forward contracts to
hedge certain firm and anticipated purchase commitments settled in foreign
currencies (principally the Canadian dollar). The Company does not engage in
foreign currency speculation. The contracts do not subject the Company to risk
due to exchange rate movements as gains and losses on the contracts offset gains
and losses on the transactions being hedged. Foreign currency transactions,
which are not hedged, are converted at the exchange rates in effect at the date
of the transaction. Any gain or loss resulting from the translation of such
transactions is included in the income statement and were not material in any
year. The Company did not enter into any such transactions during 1998.
The assets and liabilities of the Company's Canadian operations are
translated into U.S. dollars at current exchange rates, and revenues and
expenses are translated at average exchange rates for the years 1998, 1997, and
1996. Resulting translation adjustments are reflected as other comprehensive
income. This same approach has been applied to the Company's Mexican operations
for the year 1996. However, the application of Statement of Financial Accounting
Standards ("SFAS") No. 52 "Foreign Currency Translation" requires that the
Mexican economy be judged a highly inflationary economy for 1998 and 1997 and
that the Company's Mexican operations be remeasured as if the U.S. dollar was
the functional currency during 1998 and 1997. This treatment caused a resulting
translation gain for the 1998 period of $3,482,000 and a translation loss for
the 1997 period of $85,000 to be included in the income statement rather than as
other comprehensive income.
INTANGIBLES
Intangibles, which consist primarily of goodwill, are carried at cost
less accumulated amortization of $26,925,000 at December 31, 1998 and
$21,288,000 at December 31, 1997. Intangibles are amortized primarily on the
straight-line method over the periods of expected benefit, generally, but not in
excess of 40 years. The Company evaluates the carrying value of goodwill and
other long-lived assets at each reporting period for possible impairment in
accordance with the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
F-6
<PAGE> 39
INVENTORIES
Inventories are generally stated at the lower of cost or market. Cost
is generally determined on a first-in, first-out basis.
NOTES RECEIVABLE
Notes receivables are collateralized by coaches. Substantially all
notes carry market floating rates of interest based on the creditworthiness of
each individual purchaser. The allowance for uncollectible contracts is adjusted
periodically based on an evaluation of individual contract collectibility.
PENSIONS AND OTHER BENEFITS
Trusteed, noncontributory pension plans cover substantially all
employees in the United States and Canada. Benefits for the noncontributory
plans are based primarily on final average salary and years of service. Net
periodic pension cost for the Company is based on the provisions of SFAS No. 87,
"Employers' Accounting for Pensions." Funding policies provide that payments to
pension trusts shall be at least equal to the minimum funding required by
applicable regulations.
Under Mexican Labor Law, Companies are liable for severance payments
for all indemnities and seniority premiums to employees terminated under certain
circumstances. Additionally, there is a liability for voluntary retirements as
agreed in the union contract and a pension plan for the personnel. Indemnity
payments are expensed as incurred. The liability for seniority premiums,
pensions and severance payments is recorded as incurred, based on actuarial
computations determined by using the projected unit credit method.
Certain employees in the U.S. and Canada are covered under defined
benefit post retirement plans that provide medical and life insurance for
eligible retirees and dependents. The net periodic postretirement benefit cost
for the Company is based on the provisions of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost. Depreciation is
provided principally by use of the straight-line method at annual rates as
follows:
<TABLE>
<S> <C>
Buildings and leasehold improvements 3% to 25%
Assets held for lease 10% to 20%
Machinery and equipment 8% to 33%
</TABLE>
F-7
<PAGE> 40
RESEARCH AND DEVELOPMENT
Research and development expenses, net of contributions, are charged to
income as incurred.
Autobuses has a trust arrangement to earmark deductible funds for
research and development of technology. Autobuses is authorized to make use of
these funds for specific purposes and the fund may be increased by future
contributions or by fund earnings. The fund was established in 1990 and no
subsequent cash contributions were made. The balance of the fund at December 31,
1998 and 1997 was $1,543,000 and $1,723,000, respectively, and was included in
other assets.
REVENUE RECOGNITION
Sales are generally recognized on shipment of product to customers.
Price allowances are recorded at the time of sale. An allowance for losses on
receivables is maintained at an amount that management considers appropriate in
relation to the outstanding receivable portfolio. Allowances for losses on
receivables are charged to expense as appropriate. In 1997, the Company
delivered coaches with related revenues of $6,918,000 and earnings before taxes
of $1,187,000 that were omitted from revenues and income because they involved
guaranteed residual values of approximately $3,700,000. In accordance with the
Emerging Issues Task Force Issue ("EITF") 95-1, these coaches are being
accounted for on a lease basis and will be recognized in revenues and income
over periods ranging from 2 to 15 years. During 1998, the Company did not enter
into any transactions that require deferral under EITF 95-1.
START-UP COSTS
Start-up costs on major projects are charged to expense as incurred.
WARRANTY
In the United States and Canada, an accrual for warranty claims is made
at the time of sale. This accrual is based on management's estimate of future
warranty liabilities and is charged to operations. Actual warranty expenditures
are charged to the accrual as incurred. The accrual is reviewed periodically for
adequacy in light of actual experience and adjustments are recorded if
necessary.
In Mexico the suppliers of components pay most warranty costs.
Accordingly, the exposure for warranty is not material.
F-8
<PAGE> 41
2. FINANCIAL RESTRUCTURING
On June 3, 1996, the Company became contingently liable for payments of
principal and interest on the Senior Secured Discount Notes due 2002 ("Discount
Notes") of Dina, the parent company. It was intended that all payments with
respect to the Discount Notes would be paid by Dina, and that payments would be
made by the Company only in the event of the inability of the parent company to
service the debt. Effective December 31,1998 the Company recognized its
liability for interest and principal payments with regard to this debt
obligation due to substantial doubt about the parent company's ability to
service the debt. Consequently, the Company recorded $206,499,680 of accrued
additional debt as more fully described in Note 15, $2,919,000 of accrued
interest payable, and adjusted stockholder's equity accordingly.
As of December 31,1998, Transportation Manufacturing Operations, Inc.
("TMO") a principal subsidiary of the Company, had a $170 million US revolving
credit agreement (" the Senior Credit Facility") with a nine-bank syndicate to
finance working capital and other general corporate needs, as more fully
described in Note 15. This credit facility expires on October 1, 1999, and the
lenders have indicated that they are not willing to extend the maturity of this
agreement. In addition, during 1998, the Company was required to reduce existing
long-term debt obligations by $50 million, consisting of a $25 million principal
payment on TMO's Senior Term Notes due 2002, a $12 million reduction in it's
Canadian bank credit facility, and a $13 million principal payment on the
Pre-Export Notes due 1999 (see Note 15).
As a result of the debt reductions during 1998 and the additional debt
obligations and working capital requirements for 1999, the Company does not
expect to generate sufficient cash flow from operations to fund both short term
requirements and meet the required expiration of the Senior Credit Facility.
On March 18,1999, the Company engaged CIBC Oppenheimer Corp. and its
affiliates ("CIBC Oppenheimer") to act as the Company's lead bank agent,
financial advisor, initial purchaser, placement agent and underwriter to
undertake a financial restructuring of the debt obligations of the Company and
its parent company.
On April 19, 1999, TMO executed an agreement with CIBC Oppenhiemer for
the issuance of $40 million of Senior Subordinated Increasing Rate Notes ("the
IRNs"), due December 31, 1999, (subject to extension to March 31,2000). This
bridge financing will be used by TMO to meet short-term working capital
requirements while the financial restructuring process is underway. The IRNs
will mature on December 31, 1999, (with an option to extend the maturity to
March 31, 2000) and will bear an increasing rate of interest, commencing with a
rate that will be the greater of i) LIBOR plus 6.50% or ii) 11.625%, and
increasing by 25 basis points (0.25%) every 30 days that the IRNs are
outstanding to a maximum rate of 18%. As a condition of the consent of the
existing lenders, interest above 15.0% must be paid in kind. The IRNs will rank
senior to all existing subordinated debt and subordinated to all existing senior
debt of TMO. The agreement provides TMO with an option to redeem the IRNs, in
whole, but not in part, at any time prior to maturity at fixed redemption
prices. TMO must also redeem the IRNs at a fixed redemption price upon a change
in control of TMO or any of its parent companies. TMO has the option to extend
the maturity date of the IRNs to March 31, 2000, at the maximum interest rate of
18.0% (with interest above 15.0% paid in kind). However, as additional
consideration for the
F-9
<PAGE> 42
extension, the company will be required to issue to the existing noteholders, an
additional $4 million aggregate principal amount of IRNs (the "Extension IRNs).
The IRNs are subject to certain affirmative and negative covenants customary for
this type of financing, and are guaranteed by TMO's material domestic
subsidiaries.
On April 19, 1999, TMO and its principal subsidiaries obtained the
necessary consent and related amendments required from the existing lenders to
permit the bridge financing and remain in compliance with certain financial
covenants. In consideration for the consent of the existing lenders, TMO agreed
to certain changes in the terms of the existing debt agreements, as further
described in Note 15.
In addition to the bridge financing, the Company, in association with
CIBC Oppenheimer, has developed a financial restructuring plan to refinance all
of the material debt obligations of the parent, the Company and their respective
subsidiaries. The new financing is expected to result in gross proceeds to the
Company of approximately $715 million. The proceeds of the new financing are
expected to be used by the Company to refinance certain indebtedness of the
parent, the Company and their respective subsidiaries including, but not limited
to, the IRNs, the US and Canadian revolving credit facilities, the 9.02% Senior
Term Notes due 2002, and the Senior Secured Discount Notes due 2002. The Company
expects to complete the new financing and the refinancing prior to the October
1, 1999 maturity of the existing Senior Credit Facilities. In the event that the
financial restructuring is not completed by September 30, 1999, and TMO has not
been able to obtain sufficient funding to retire the IRN's, the US Bank credit
facility and the Term Notes due 2002, TMO will be in default of each of these
credit agreements. This in turn would trigger cross default covenants in
substantially all of the Company's other debt agreements and provide the holders
of its debt with the right to accelerate payments of all amounts outstanding.
The existence of acceleration rights would also require the Company to classify
all long-term indebtedness as current. In light of these potentially adverse
consequences to the Company's financial position, management is diligently
pursuing the consummation of the financial restructuring.
While there is no assurance that the financial restructuring plan will
be completed successfully at this time, the Company is continuing to work with
CIBC Oppenheimer to execute this plan. In the event that the financial
restructuring cannot be completed prior to the October 1, 1999 maturity, the
Company is also exploring alternatives to generate additional cash flow
including, but not limited to, selling substantial Company assets and seeking
strategic equity investors.
3. NET RECEIVABLE FROM AFFILIATES
During the second quarter of 1998, Dina forgave, in the Company's
favor, a receivable from Autobuses in the amount of $35,038,000. In addition,
due to the uncertainty of the financial position of its parent company, the
Company has made a provision for the uncollectabilitty of the December 31, 1998
net receivable balance from Dina in the amount of $73,316,000. These two
transactions have resulted in a $38,278,000 net charge against Additional
Capital in Stockholder's Equity.
4. BUSINESS INTERRUPTION INSURANCE RECOVERIES
During 1997, flooding along the Red River caused significant operating
disruptions at the Company's Pembina, North Dakota and Winnipeg, Manitoba
facilities. As a result, the Company filed insurance claims seeking recovery of
various out-of -pocket costs and business interruption losses. Partial
recoveries of $500,000 and $500,000 were received in 1998 and 1997,
respectively. In early 1999, the Company reached a settlement of its claim for
business interruption for a total of $8,962,000.
F-10
<PAGE> 43
5. EQUITY CONSOLIDATION ADJUSTMENT
During the year, the company made a $2,914,000 Stockholder's Equity
adjustment that corrected an immaterial prior period accounting error occurring
in a consolidation adjustment of a subsidiary company.
6. TRANSFER OF ENTITIES UNDER COMMON CONTROL
In January 1997, MCII Holdings acquired from its parent company, Dina,
99.99% of the shares of Autobuses. This change in structure was accomplished by
Dina contributing 99.99% of the capital stock of Autobuses ($30,363,000 in net
assets as of December 31, 1996) to MCII Holdings, thereby making Autobuses and
its two subsidiaries, Autopartes Hidalguense, S.A. de C.V. and Carrocera
Sahagun, S.A. de C.V., subsidiaries of MCII Holdings.
The transaction was a transfer of entities under common control, which
requires the acquisition to be accounted for as a pooling of interests.
Accordingly, the financial statements for all periods reflect the results of
operations, financial condition, cash flows, and changes in stockholder's equity
of MCII Holdings and Autobuses as if the companies had been consolidated for all
periods presented.
A reconciliation of a condensed income statement between amounts
previously reported for 1996 and as restated is as follows:
<TABLE>
<CAPTION>
PREVIOUSLY
REPORTED AUTOBUSES ELIMINATIONS TOTAL
-------- --------- ------------ -----
1996
(000 omitted)
<S> <C> <C> <C> <C>
Revenues $ 661,293 $ 64,148 $ (58,357) $ 667,084
--------- -------- ---------- ---------
Income from Continuing Operations 22,784 7,757 (2,867) 27,674
Discontinued Operations (5,000) - - (5,000)
Extraordinary Item (851) - - (851)
---------- -------- --------- ----------
Net Income $ 16,933 $ 7,757 $ (2,867) $ 21,823
======== ======= ======== ========
</TABLE>
7. GAIN ON EQUITY INVESTMENT
In 1993, the Company purchased a 10% ownership interest in Mexicana de
Autobuses, S.A. de C.V. ("MASA"), a Mexican coach manufacturing company, for
$6,000,000. In December 1994, the Company distributed the MASA shares to Dina as
a dividend. In December 1995, the Company repurchased the MASA shares directly
from Dina for $1,200,000. In 1996, the Company evaluated the realizability of
its investment in MASA, and, due to the continuing operating losses of MASA and
prolonged weakness in the Mexican economy, wrote off the investment, resulting
in a pre-tax loss of $1,200,000.
F-11
<PAGE> 44
In 1998, the Company sold its interest in MASA for $7,000,000 less
reimbursement of fees and expenses of $2,000,000 paid to Dina.
8. DISCONTINUED OPERATIONS
In 1993, the Board of Directors approved a plan of disposition for the
transit bus-manufacturing segment of the Company. This decision was based on
management's review of market activities, business prospects, competitive
bidding, evaluation of backlogs, economic value analysis, and opportunities for
cost reduction, which indicated that the transit bus manufacturing business
might not achieve acceptable profitability in the foreseeable future. As a
result of this decision, a charge to discontinued operations of $53,629,000
($87,202,000 before taxes) was recorded in 1993 to reflect the estimated loss on
disposal of the transit-manufacturing segment.
In November 1994, the Company sold the fixed assets and certain of the
inventory of the transit bus manufacturing business, as well as the right to
manufacture, remanufacture, and distribute transit buses previously made by the
Company, for aggregate consideration of $14,947,000, of which $4,877,000 was in
the form of a note receivable and the remainder was in cash. Additionally, the
purchaser, for a period of five years from the sale date, has agreed not to
distribute parts to transit buses previously made by the Company. The Company
retained all other assets and all of the remaining liabilities of the transit
manufacturing business.
Based on further analysis of the estimated loss to be incurred on the
disposal, additional provisions were made in 1994 and 1996 of $3,500,000
($5,385,000 before taxes) and $5,000,000 ($8,130,000 before taxes),
respectively.
The summarized balance sheet of the discontinued transit bus
manufacturing segment at December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
Assets:
<S> <C> <C>
Notes receivable $ 1,496 $ 3,953
Other current assets 79 82
Deferred taxes and other assets 2,063 2,314
------- -------
3,638 6,349
------- -------
Liabilities:
Other current liabilities 7,150 7,582
Other liabilities 904 996
------- -------
8,054 8,578
------- -------
Net Liabilities $ 4,416 $ 2,229
======= =======
</TABLE>
F-12
<PAGE> 45
9. PROVISION FOR THE RELOCATION OF CORPORATE HEADQUARTERS
In December 1996, the Company provided $3,000,000 for the costs
associated with the decision to relocate the Company's corporate headquarters
from Phoenix, Arizona to Des Plaines, Illinois. An additional $886,000 was
provided in 1997 based on a revised estimate of the likelihood that the Phoenix
office would be subleased. At December 31, 1998, the remaining $2,063,000 of
reserves are included in the Consolidated Balance Sheet under the captions,
"other current liabilities" ($644,000) and "other deferred items and insurance
reserves" ($1,419,000). Substantially all of the severance and other relocation
costs were paid in 1997 and the lease costs will be paid through 2003.
10. ACQUISITION
In October 1996, the Company purchased certain assets of The Flxible
Corporation ("Flxible") that were being sold through bankruptcy proceedings.
Flxible was a manufacturer of transit buses and a distributor of related
replacement parts. The purpose of the purchase was to utilize the assets to
become the OEM parts distributor for the existing fleet of Flxible transit
buses. The transaction was accounted for as a purchase of assets. The total
purchase price was $ 12,200,000.
11. CASH FLOW EFFECT OF CHANGES IN OPERATING ASSETS AND LIABILITIES
Change in operating assets and liabilities consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Decrease (Increase) in operating assets:
Receivables $ (44,663) $ (25,839) $ (21,894)
Inventories 27,856 (69,006) (4,414)
Other operating assets 9,101 (2,854) 3,525
--------- ---------- ---------
(7,706) (97,699) (22,783)
--------- ---------- ---------
Increase (Decrease) in operating liabilities:
Accounts payable 14,349 26,525 12,724
Accrued income taxes 25,315 2,916 (4,549)
Other operating liabilities (17,028) (49,068) 10,509
--------- ---------- ---------
22,636 (19,627) 18,684
--------- ---------- ---------
Net Cash Flow Effect $ 14,930 $ (117,326) $ (4,099)
========= ========== =========
</TABLE>
F-13
<PAGE> 46
12. INVENTORIES
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
<S> <C> <C>
Raw materials $ 38,506 $ 48,938
Work in process 42,515 61,230
Finished goods 171,661 170,879
-------- --------
252,682 281,047
Excess quantity and obsolescence reserve (26,410) (23,252)
-------- --------
$ 226,272 $ 257,795
========= =========
</TABLE>
13. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31 consisted of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
<S> <C> <C>
Land $ 5,183 $ 5,309
Buildings and leasehold improvements 45,831 43,261
Assets held for lease 31,132 28,386
Machinery and equipment 62,395 58,218
-------- --------
144,541 135,174
Less accumulated depreciation and amortization (40,011) (28,329)
-------- --------
$ 104,530 $ 106,845
========= =========
</TABLE>
Depreciation and amortization expense for property, plant, and
equipment was $17,005,000, $14,072,000 and $9,964,000, respectively, for the
years ended December 31, 1998, 1997, and 1996.
14. NOTES RECEIVABLE
Notes receivable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
<S> <C> <C>
Notes receivable, at contract amount $ 47,693 $ 50,359
Less allowance for uncollectible contracts (1,745) (1,269)
-------- --------
Notes receivable, net 45,948 49,090
Less current portion (10,548) (6,625)
-------- --------
</TABLE>
F-14
<PAGE> 47
<TABLE>
<S> <C> <C>
Long-term notes receivable $ 35,400 $ 42,465
======== ========
</TABLE>
Scheduled annual maturities of note receivables at December 31, 1998,
were:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
$10,548,000 $4,618,000 $4,541,000 $4,238,000 $4,061,000 $19,687,000
</TABLE>
15. LONG-TERM DEBT
Long-term debt at December 31 was follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
<S> <C> <C>
United States bank credit facility $ 137,000 $ 135,000
Canadian bank credit facility - 12,033
Bancomext export loan facility 8,594 6,496
Pre-Export Notes, due to 1999 22,000 34,203
9.02% of Senior Notes, due 2002 100,000 125,000
Senior Secured Discount Notes, due 2002 206,500 -
Note payable at 7%, due 2001 371 519
-------- ---------
474,465 313,251
Less current portion (192,742) (44,418)
--------- ---------
Long-term debt $ 281,723 $ 268,833
========= =========
</TABLE>
The United States bank credit facility was increased in September 1997
to provide up to $170,000,000 for borrowing purposes, of which up to $35,000,000
is available for issuance of standby letters of credit. The facility previously
provided $125,000,000 for borrowing purposes. Borrowings are available under the
bank credit facility on a revolving basis through October 1, 1999. This facility
replaced a former bank credit facility in October 1996 in a refinancing which
resulted in an extraordinary charge for the write off of related debt issuance
costs of $851,000 ($1,401,000 before taxes). At December 31, 1998, the Company
was contingently liable under standby letters of credit in the amount of
$10,980,000. The interest rates applicable to borrowings under this agreement
are, at the Company's option, indexed to the bank prime rate or the 30-day
London Interbank Offered Rate ("LIBOR"), plus appropriate spreads over such
indices during the period of each borrowing agreement. The average 30-day LIBOR
rate was 6.3% for 1998 and 6.2% at December 31, 1998. The average base rate
applicable to borrowings of less than 30 days was 8.25% for 1998 and was 7.75%
at December 31, 1998. The agreements also provide for commitment fees. Such
spreads and fees can change based on changes in the Company's financial ratios.
Interest rate prime rate only. As a result of amendments to this facility,
effective, April 15, 1999, the Company will no longer have the option of
indexing interest rates based on LIBOR.
F-15
<PAGE> 48
The Canadian bank credit facility was increased in July 1997 to provide
up to Cdn$30,000,000 (equivalent to $19,605,000 at December 31, 1998 exchange
rates) for borrowing purposes, of which Cdn$4,000,000 is reserved for certain
specific purposes. Borrowings are available under the bank credit facility on a
revolving basis through October 1, 1999. The interest rates applicable to
borrowings under this agreement are, at the Company's option, indexed to the
bank prime rate or the 30-day London Interbank Offered Rate ("LIBOR"), plus
appropriate spreads over such indices during the period of each borrowing
agreement. The average interest rate was 6.6% for 1998 and 6.75% at December 31,
1998. The agreements also provide for commitment fees. Such spreads and fees can
change based on changes in the Company's financial ratios.
On December 4, 1997, an indirect subsidiary of the Company completed
the placement of $35,000,000 of Guaranteed Pre-Export Notes with international
investors. The securities were issued in two Series: Series 1 Notes, of which
$13,000,000 were issued, carry a 10.0% coupon and had a maturity date of
December 3, 1998; and Series 2 Notes, of which $22,000,000 were issued, carry a
10.5% coupon and have a maturity date of March 31, 1999. This note was fully
paid on March 31, 1999.
The Company has $125,000,000 of term notes payable which are due in
annual installments of $25,000,000 beginning in November 1998 and extending
through November 2002. Interest on the notes is at a fixed rate of 9.02%.
However, the Company entered into an interest rate swap agreement in November
1994, which effectively changed the interest rate on the notes to LIBOR plus
1.14%. The Company terminated $62,500,00 of the swap in 1995 and the remainder
of the swap in 1996 in exchange for an aggregate cash consideration of
$9,683,000 which is being amortized as a reduction of interest expense over the
remaining life of the notes. As a result, the effective interest rate on the
$125,000,000 borrowing is at a fixed rate of 7.3% for 1997 and 1998. For the
future years, 1999-2002, the estimated effective interest rate ranges from 7.5%
to 7.99%. As a result of amendments to the term notes payable agreement,
effective April 15, 1999, interest on the Notes will become payable monthly.
Additionally, these amendments, contain changes to certain financial covenants
for which the Company would be in violation had they not been changed. The
amendment also added a covenant that causes the Company to be in default if
the refinancing (as defined) is not consummated by September 30, 1999.
In September 1996, The National Bank Foreign Trade S.N.C. ("Bancomext")
provided a $20,000,000 credit facility to Autobuses for the purpose of financing
export sales. This agreement terminated on March 29, 1998. A new one year
agreement, effective May 25, 1998, was entered into which provides a $30,000,000
credit facility at the Mexican Interbank rate.
As discussed in Note 2, The Company became contingently liable for
payments of interest and principal on the Senior Secured Discount Notes due
2002. The Company's obligation under the Discount Notes is secured by a pledge
of the common stock of its wholly owned subsidiary, MCII. The Discount Notes
bear interest at an annual rate of 12% through maturity on a zero coupon basis
through November 15, 1998 and, thereafter payable in cash. If, however, the
Discount Notes do not achieve minimum debt ratings by November 15, 1999, the
interest rate increases to 15% from such date through maturity. No interest
expense was recorded during 1998 in regards to these notes.
The Company's long-term debt agreements include various restrictive
covenants, including financial covenants; the most restrictive of which is
negative covenants regarding transactions with affiliates and current ratio
test. The Company is in compliance with these covenants, or has received waivers
and amendments for any violations. At December 31, 1998, $17,791,000
of stockholders' equity was available for the payment of dividends by TMO.
Annual maturities of long-term debt in the next five years will
approximate:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
$192,742,000 $25,148,000 $25,075,000 $231,500,000 - -
</TABLE>
F-16
<PAGE> 49
Interest paid in the years ended December 31, 1998, 1997, and 1996 was
$24,858,000, $26,067,000, and $21,362,000, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments have been determined by the Company using available market
information and valuation methodologies described below. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein may not be indicative of
the amounts that the Company could realize in a current market exchange. The use
of different market assumptions or valuation methodology may have a material
affect on the estimated fair value amounts.
The carrying values of cash and cash equivalents, receivables, and
accounts payable approximate fair values due to the short-term maturities of
these instruments. The carrying value of the Notes Receivable approximates fair
value because a significant portion of the notes receivable are variable rate
notes rather than fixed rate notes. The carrying amounts and estimated fair
values of the Company's other financial instruments at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----- ----- ------ -----
(000 OMITTED)
<S> <C> <C> <C> <C>
Debt (474,465) (445,284) (313,251) (317,054)
Foreign exchange forward contracts - - - (306)
</TABLE>
The methods and assumptions used to estimate the fair values of the
financial instrument are summarized as follows:
Debt - Estimated by discounting the future cash flows using rates
currently available for debt of similar terms and maturity.
Foreign exchange forward contracts (used for hedging purposes) -
Estimated using quoted exchange rates.
17. INCOME TAXES
The U.S. operations of MCII are included in the consolidated and other
applicable U.S. income tax returns of the Company. Tax returns for the Company's
Canadian and Mexican subsidiaries are filed separately in Canada and Mexico.
F-17
<PAGE> 50
United States, Canadian, and Mexican income before income taxes was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
United States $ 33,163 $ 21,753 $ 21,874
Canada 41,145 23,671 19,477
Mexico (4,437) 14,005 4,797
-------- -------- --------
$ 69,871 $ 59,429 $ 46,148
======== ======== ========
</TABLE>
Income tax expense (benefit) for the years ended December 31 was
comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Current:
United States:
Federal $ 14,661 $ 8,435 $ 11,098
State 3,665 1,806 1,685
Foreign 18,288 9,654 10,503
-------- -------- --------
36,614 19,895 23,286
-------- -------- --------
Deferred:
United States:
Federal (3,812) (351) (2,812)
State (706) (195) (236)
Foreign (813) 1,919 (1,764)
-------- -------- --------
(5,331) 1,373 (4,812)
-------- -------- --------
Total income tax expense $ 31,283 $ 21,268 $ 18,474
======== ======== ========
</TABLE>
A reconciliation of the provision for income taxes and the amount that
would be computed using statutory federal income tax rates on income before
income taxes is set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Computed income tax provision at
Statutory rate of 35% $ 24,455 $ 20,800 $ 16,152
State income taxes 1,923 1,057 942
Canadian tax differences 2,601 1,126 1,258
Mexican tax differences 690 (3,970) (1,772)
Foreign dividend received - 1,160 -
Intangible amortization 1,778 1,425 1,367
Other, net (164) (330) 527
-------- -------- --------
Total income tax expense $ 31,283 $ 21,268 $ 18,474
======== ======== ========
</TABLE>
F-18
<PAGE> 51
Deferred income tax assets and liabilities included in the Consolidated
Balance Sheet at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
<S> <C> <C>
Deferred tax assets:
Property , plant, and equipment $ 6,767 $ 8,315
Pension and other benefits 7,650 6,228
Allowances and reserves for losses 21,500 13,920
Net operating loss carryforward 15,040 15,554
Alternative minimum tax carryforward 7,901 8,065
Deferred state income taxes 1,876 1,431
Inventories 4,062 929
Other 4,938 3,295
------- -------
Total gross deferred tax assets 69,734 57,737
Valuation allowance (37,711) (33,707)
------- -------
Total gross deferred tax assets 32,023 24,030
------- -------
Deferred tax liabilities:
Property , plant, and equipment (6,996) (8,615)
Intangibles (5,964) (4,608)
Installment sales (309) (489)
Other (3,788) (2,804)
------- -------
Total gross deferred tax liabilities (17,057) (16,516)
------- -------
Net deferred tax asset $ 14,966 $ 7,514
======== =======
</TABLE>
SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or the entire deferred tax asset will not be realized. A valuation
reserve was established against the deferred tax assets in Mexico, primarily
loss carryforwards, that might not be realized. The Mexican net operating losses
expire between 1999 and 2007.
Income taxes paid in the years ended December 31, 1998, 1997, and 1996
were $12,907,000 $10,814,000 and $13,093,000, respectively.
F-19
<PAGE> 52
The Company's Canadian income tax returns for 1982 through 1992 are
currently under review by Revenue Canada. Authorities have proposed imputing
additional income related to transactions with a U.S. based subsidiary of the
Company. Revenue Canada has issued a formal reassessment on the 1985 return. The
Company has filed a notice of objection for 1985. In the event of an adverse
judgment, the additional income taxes for 1982 through 1992 could amount to
$23,000,000 plus interest of approximately $47,000,000 and, in addition, the
Company may be subject to potential reassessments for the years subsequent to
1992 on the same basis which could result in additional income taxes and
interest. These amounts are all before recoveries of U.S. federal income taxes
which may be available to offset a portion of any additional taxes paid to
Canada as these years are still open for U.S. federal income tax purposes. In
accordance with SFAS No. 109, "Accounting for Income Taxes," a portion of any
ultimate liability owed as a result of this issue would be treated as an
adjustment of Dina's purchase price on acquiring the Company, resulting in an
increase of purchase goodwill. (If the ultimate liability were $70,000,000, then
approximately $45,000,000 would be a purchase accounting adjustment.) Based on
its review of current relevant information, including the advice of outside
counsel, the Company is of the opinion that Revenue Canada's arguments are
without merit and that any liability from this matter will not be material to
its financial condition or results of operations.
The Company has not provided for U.S. federal income taxes and foreign
withholding taxes on the undistributed earnings of non-U.S. subsidiaries. The
undistributed earnings are intended to be reinvested indefinitely and were
approximately $81,000,000. If these earnings were distributed, foreign
withholding taxes would be imposed; however, foreign tax credits would become
available to substantially reduce any resulting U.S.
income tax liability.
F-20
<PAGE> 53
18. PENSION BENEFITS
The Company sponsors various retirement plans for most full-time
employees. Benefits of the plans are generally based on years of service and
employees' compensation during the final years of employment. In 1998, the
Financial Accounting Standards Board issued SFAS 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which the Company adopted as
of December 31, 1998.
The components of net periodic pension costs are summarized in the
following table:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------- ------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Service cost benefits earned
During the period $ 1,214 $ 1,028 $ 996 $ 485 $ 475 $ 452
Interest cost on projected
Benefit obligation 1,494 1,262 1,072 427 435 415
Expected return on plan assets (1,289) (1,154) (1,002) (621) (597) (559)
Amortization of prior service cost 510 510 512 3 4 3
Amortization of transition obligation (9) (9) (9) (2) (2) (2)
Recognized net actuarial (gain)/loss 100 26 30 - 17 2
FAS 88 settlement - - (165) - - -
------- ------- ------- ------- ------- -------
Net pension cost $ 2,020 $ 1,663 $ 1,434 $ 292 $ 332 $ 311
======= ======= ======= ======= ======= =======
</TABLE>
The following tables summarize pension benefit obligations, plan assets
and funded status as of December 31:
<TABLE>
<CAPTION>
CHANGE IN PENSION BENEFIT UNITED STATES CANADA
------------- ------
OBLIGATION: 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation as of January 1 $ 19,559 $ 15,943 $ 12,329 $ 6,407 $ 6,361 $ 5,607
Service cost 1,214 1,028 996 485 475 452
Interest cost 1,494 1,262 1,072 427 435 415
Plan participants' contributions - - - - - -
Amendments - - - - - -
Actuarial (gain)/loss 1,933 1,646 1,959 495 35 478
Benefits paid (360) (320) (413) (280) (623) (563)
Foreign currency rate change - - - (453) (276) (28)
-------- -------- -------- ------- ------ -------
Benefit obligation as of December 31 $ 23,840 $ 19,559 $ 15,943 $ 7,081 $ 6,407 $ 6,361
======== ======== ======== ======= ======= =======
</TABLE>
F-21
<PAGE> 54
<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS: UNITED STATES CANADA
------------- ------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Fair value of plan assets at
beginning of year $ 15,412 $ 12,863 $ 11,790 $ 7,205 $ 6,713 $ 5,835
Actual return on plan assets 3,938 2,820 1,416 831 969 1,060
Employer contribution 241 49 70 510 451 411
Plan participants' contributions - - - - - -
Benefits paid (360) (320) (413) (280) (623) (563)
Foreign currency rate change - - - (503) (305) (30)
-------- -------- -------- ------- ------- -------
Fair value of plan assets at end of year $ 19,231 $ 15,412 $ 12,863 $ 7,763 $ 7,205 $ 6,713
======== ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
FUNDED STATUS: UNITED STATES CANADA
------------- ------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Funded status at end of year $ (4,609) $ (4,147) $ (3,220) $ 682 $ 798 $ 352
Unrecognized transition obligation (36) (45) (54) 9 8 7
Unrecognized net actuarial (gain)/loss (812) 4 (67) 256 (31) 327
Unrecognized prior service cost 691 1,201 1,711 32 38 43
-------- -------- -------- ----- ----- -----
Prepaid (accrued) benefit cost $ (4,766) $ (2,987) $(1,630) $ 979 $ 813 $ 729
========= ======== ======== ===== ===== =====
</TABLE>
The Company has one pension plan for which the employer must recognize
an additional minimum liability in accordance with the provisions of paragraph
36 of Statement 87.
<TABLE>
<CAPTION>
AMOUNTS RECOGNIZED IN THE UNITED STATES CANADA
STATEMENT OF FINANCIAL POSITION ------------- ------
CONSIST OF: 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Prepaid benefit cost $ 38 $ 9 $ - N/A N/A N/A
Accrued benefit liability (6,290) (5,044) (3,997) N/A N/A N/A
Intangible asset 691 1,203 1,716 N/A N/A N/A
Accumulated other comprehensive
income (pretax) 794 845 651 N/A N/A N/A
-------- -------- -------- --- --- ---
Net amount recognized $ (4,767) $ (2,987) $ (1,630) N/A N/A N/A
========= ========= ========= === === ===
</TABLE>
F-22
<PAGE> 55
Weighted average assumptions used were:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------- ------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate for obligation 6.8% 7.0% 7.5% 6.8% 7.0% 7.5%
Rate of increase in compensation 4.0% 4.0% 5.0% 4.0% 4.0% 4.5%
Long-term rate of return on assets 9.5% 9.5% 9.5% 9.5% 9.5% 9.5%
</TABLE>
The Company also has defined contribution plans for certain employees.
Company contributions in the years ended December 31, 1998, 1997 and 1996 were
$1,307,000, $623,000, and $783,000 in the U.S. and $1,147,000, $950,000 and
$846,000 in Canada, respectively.
19. MEXICAN EMPLOYEE BENEFITS
Net periodic pension cost for the three years ended December 31
included the following components:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Service cost benefits earned
During the period $ 57 $ 96 $ 123
Interest cost on projected
Benefit obligation 456 574 474
Expected return on plan assets (666) (808) (644)
Net amortization and deferral (51) (66) 1
------ ------ -----
Net pension cost $ (204) $ (204) $ (46)
======= ======= ------
</TABLE>
The following tables summarize pension benefit obligations, plan assets
and funded status as of December 31:
<TABLE>
<CAPTION>
CHANGE IN PENSION BENEFIT 1998 1997 1996
OBLIGATION: ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Benefit obligation as of January 1 $ 2,845 $ 2,264 $ 1,809
Service cost 57 96 123
Interest cost 456 574 474
Plan participants' contributions - -
Amendments - -
Actuarial (gain)/loss (612) - (94)
Benefits paid (17) (22)
Foreign currency rate change (517) (67) (47)
------- ------- -----
Benefit obligation as of December 31 $ 2,212 $ 2,845 $ 2,265
======= ======= -------
</TABLE>
F-23
<PAGE> 56
<TABLE>
<CAPTION>
CHANGE IN PLAN ASSETS: 1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Fair value of plan assets at
Beginning of year $ 3,700 $ 3,001 $ 1,878
Actuarial (gain)/loss in rate (668) - 551
Actual return on plan assets 666 809 644
Employer contribution - -
Plan participants' contributions - -
Benefits paid (17) (22)
Foreign currency rate change (682) (88) (72)
------- ------- -------
Fair value of plan assets at end of year $ 2,999 $ 3,700 $ 3,001
======= ======= -------
<CAPTION>
<S> <C> <C> <C>
Funded status: 1998 1997 1996
---- ---- ----
(000 OMITTED)
Funded status at end of year $ 787 $ 855 $ 85
Unrecognized transition obligation - -
Unrecognized net actuarial (gain)/loss (802) (1,041) 203
Unrecognized prior service cost 52 - (635)
----- ------ ------
Prepaid (accrued) benefit cost $ 37 $ (186) $ (347)
Weighted average assumptions used were:
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount rate for obligation 24.0% 25.4% 24.0%
Rate of increase in compensation 18.6% 20.0% 21.0%
Long-term rate of return on assets 25.7% 27.2% 32.0%
</TABLE>
F-24
<PAGE> 57
20. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has defined benefit postretirement plans that provide
medical and life insurance benefits for eligible retirees and dependents. In
1998, the Financial Accounting Standards Board issued SFAS 132, "Employers'
Disclosures about Pensions and other Postretirement Benefits," which the company
adopted as of December 31, 1998.
The net periodic postretirement benefit cost for the years ended
December 31 included the following components:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------- ------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 563 $ 531 $ 494 $ 21 $ 24 $ 21
Interest cost 475 453 425 18 25 24
Expected return on plan assets - - - - - -
Amortization of prior service cost (3) (3) (3) - - -
Amortization of transition obligation - - - - - -
Recognized net actuarial (gain)/loss (69) (5) - 2 2
(68)
Curtailment (gain)/loss - - (665) - - -
----- ----- ----- ---- ---- ----
Net periodic benefit cost $ 966 $ 976 $ 183 $ 39 $ 51 $ 47
===== ===== ===== ==== ==== ====
</TABLE>
The following tables summarize postretirement benefit obligations and
funded status as of December 31:
<TABLE>
<CAPTION>
CHANGE IN POSTRETIREMENT BENEFIT UNITED STATES CANADA _
OBLIGATION: ------------- ---- --------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Benefit obligation as of January 1 $ 7,574 $ 6,066 $ 6,042 $ 278 $ 289 $ 264
Service cost 563 531 494 21 24 21
Interest cost 475 453 425 18 25 24
Plan participants' contributions - - - - - -
Amendments (3) (3) (665) - - -
Actuarial (gain)/loss (457) 583 (441) - (37) 2
Benefits paid (69) (56) 211 (25) (11) (21)
Foreign currency rate change - - - (18) (12) (1)
------- -------- ------- ----- ----- -----
Benefit obligation as of December 31 $ 8,083 $ 7,574 $ 6,066 $ 274 $ 278 $ 289
======= ======= ======= ===== ===== =====
</TABLE>
F-25
<PAGE> 58
<TABLE>
<CAPTION>
FUNDED STATUS: UNITED STATES CANADA
------------- ------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
(000 OMITTED)
<S> <C> <C> <C> <C> <C> <C>
Funded status at end of year $ (8,083) $ (7,574) $ (6,066) $ (274) $ (278) $ (289)
Unrecognized transition obligation - - - - - -
Unrecognized net actuarial (gain)/loss (368) 23 (505) (21) (25) -
Unrecognized prior service cost (15) (18) (21) - - -
--------- --------- --------- -------- ------- -------
Prepaid (accrued) benefit cost $ (8,466) $ (7,569) $ (6,592) $ (295) $ (303) $ (289)
========= ========= ========= ======= ======= =======
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation ("APBO") for the Company's U.S.
operations was 9.0% as of December 1998, declining by 1.0% per year to 5.0% by
the year 2002 and remaining at that level thereafter for retirees below the age
65, and 6.5% as of December 31, 1998, declining by 0.5% per year to 5.0% by the
year 2002 and remaining at that level thereafter for retirees above age 65. A
one percentage-point change in the assumed health-care-cost trend rate would
have the following effects:
<TABLE>
<CAPTION>
ONE PERCENTAGE ONE PERCENTAGE
(THOUSANDS) POINT INCREASE POINT DECREASE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components 261 (199)
Effect on postretirement benefit obligation 1,945 (1,530)
- --------------------------------------------------------------------------------------------------------
</TABLE>
The postretirement benefit obligation of the Company's Canadian
operations does not contain health care component.
21. LEASE OBLIGATIONS
Certain warehouses, offices, and equipment are leased under leases
expiring through the year 2014 with some of the leases providing for renewal
options. Leases, which expire, are generally renewed or replaced by similar
leases.
At December 31, 1998, future minimum rental payments with respect to
noncancellable operating leases with terms in excess of one year were as
follows:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C>
$2,551,686 $2,340,937 $1,809,653 $1,451,543 $1,303,316 $5,439,363
</TABLE>
Total rental expenses for the years ended December 31, 1998, 1997,
and 1996 were $4,068,000 , $3,384,000 and $3,440,000, respectively.
F-26
<PAGE> 59
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company enters into foreign exchange forward contracts to hedge
certain firm and anticipated purchase commitments which are settled in Canadian
dollars. These contracts are purchased to reduce the impact of Canadian dollar
currency fluctuations on operating results. The Company does not engage in
Canadian dollar currency speculation. The contracts do not subject the Company
to risk due to exchange rate movements because gains and losses on the contract
are offset by gains and losses on the materials being purchased. At December 31,
1998 the Company had no Canadian dollar exchange forward contract outstanding.
At December 31, 1997, the Company had approximately $7,558,000 of Canadian
dollar exchange forward contracts outstanding. The Company's theoretical risk in
these transactions is the cost of replacing, at current rates, these contracts
in the event of default by the other party to the contract. Management believes
the risk of incurring such losses is remote because the contracts are entered
into with major financial institutions.
As an adjunct to its coach business, the Company has entered into
repurchase and first loss agreements with certain companies which provide
financing for coaches sold by the Company, pursuant to which the Company agrees
to either repurchase coaches from such companies or guarantee the payment of
certain obligations of coach owners or operators. The amounts of such repurchase
agreements as of December 31, 1998 and 1997 were approximately $21,000,000 and
$23,000,000, respectively. Additionally, as a result of certain sales of notes
receivable and leases, the Company is obligated to reimburse the purchaser of
such notes and leases for any losses as a result of defaults up to $6,700,000
and $6,600,000 as of December 31, 1998 and 1997, respectively. The Company has
experienced no material losses in respect to such obligations and losses under
existing agreements are not expected to have a material affect on the Company's
financial statements.
22. LITIGATION
Certain entities of the Company are plaintiffs or defendants to various
actions, proceedings and pending claims. Some of the foregoing involve or may
involve claims for compensatory, punitive, or other damages in material amounts.
Litigation is subject to many uncertainties and it is possible that some of
these legal actions, proceedings and pending claims could be decided against the
Company. Although the amount of liability at December 31, 1998 with respect to
these matters is not ascertainable, the Company believes that any resulting
liability would not materially affect the Company's financial condition or
results of operations.
23. COMMITMENTS AND CONTINGENCIES
As a part of the Company's marketing strategy for the 1997 introduction
of the new EL model intercity coach, the "Renaissance", it has entered into
trade-in agreements, in 1996, whereby certain customers may trade-in, at
predetermined values, their recently purchased D or DL model coaches when
purchasing a new EL model. Under the terms of the agreements, the Company has
committed to trade-in values ranging from 73% to 82% of the original invoice
price for a 36-month-old coach; such trade-in values being estimated by
management to approximate fair market value for such coaches at the time of the
trade-in. At December 31, 1998 the Company's commitment under this program was
$14,525,000. The Company has reserved $600,000 for the estimated net cost to the
Company.
F-27
<PAGE> 60
During 1996, the Company completed a research and development project
in connection with the development of the E coach, which had been undertaken,
with the cooperation of the Government of Canada and the Province of Manitoba.
Agreements entered into between the parties for this project provided for
payment of matching contributions and specified that the contributions may be
repayable if, during the first five years following project completion, the
ratio of Canadian employees to total employees of the Company falls below 40%.
As of December 31, 1998, the total amount of such contributions was $6,891,000
and the Company had met the employee ratio commitment ($1,479,000 was recorded
as income in the 1996 Statement of Consolidated Income).
24. NONCONSOLIDATED AFFILIATE
In 1997 a new company was formed, MCII Financial Services, Inc.
("MFS"). The Company acquired 250,000 shares, or 25%, of voting common stock of
MFS and 15,000,000 shares of non-voting preferred stock of MFS for $250,000 and
$15,000,000 respectively. The remaining 750,000 shares, or 75%, of the voting
common stock were acquired by the indirect controlling shareholders of the
Company. In 1998, the Company increased its investment by $7,650,000. The
Company also recognized its share of equity income of $210,000 for 1998. MFS
will operate independently from the Company and will provide conditional sales
contracts and operating leases to the Company's customers. MFS is expected to
have better access to funding on competitive terms.
MFS's initial transaction was the purchase of $19,406,000 of loans and
$12,742,000 of leases from certain subsidiaries of the Company. The Company has
guaranteed the full and prompt collection of the loans sold to MFS. The Company
received a fairness opinion from an independent third party as to the basis for
the selling price of these assets. No gain was recognized on the transaction.
MFS will in the future engage in loan and leasing activities involving the
Company and others in the motor coach and other industries. During 1998, MFS
purchased additional loans of $35,519,000 and leases of $3,216,000 from the
Company.
25. RELATED PARTY TRANSACTIONS
Related party transactions for the years ended December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Purchases from affiliated companies:
Goods $ 3,253 $ 15,044 $ 4,815
Services 7,150 21,587 8,229
Allocated interest expense 3,234 6,978 3,172
------- -------- --------
$ 13,637 $ 43,609 $ 16,216
======== ======== ========
Sales to affiliated companies:
Goods $ -- $ 2,973 $ 968
Services 2,640 7,384 4,443
Allocated interest income 11,989 8,376 1,720
------- -------- --------
$ 14,629 $ 18,733 $ 7,131
======== ======== =======
Charges for MFS Management Services $ 931 N/A N/A
======== ======== =======
</TABLE>
F-28
<PAGE> 61
<TABLE>
<S> <C> <C> <C>
Charges for Dina management services $ 1,000 $ 1,000 $ 1,000
======= ======= =======
--------------------------
Related party balances included in the December 31 balance sheet
were:
<CAPTION>
1998 1997
---- ----
(000 OMITTED)
<S> <C> <C>
Affiliated companies receivables (payables) - net $ 0 $ 16,293
=== ========
</TABLE>
Dina's interest income and expense is allocated to its subsidiaries
based on relative monthly intercompany balances.
During 1997, Autobuses put 240 transit bus units, with a sales value of
$9,340,000, out on lease to Transportes y Services Terrestres G S.A. de C.V.
("TSTG"). TSTG is controlled by members of the group consisting of the indirect
controlling shareholders of the Company.
26. BUSINESS SEGMENT AND GEOGRAPHIC DATA
BUSINESS SEGMENT DATA
The Company has three reporting segments, US and Canadian
Coach and Support, US and Canadian Replacements Parts, and Mexican Operations.
The Coach and Support Segment manufactures Motor Coaches and buys and sells used
Motor Coaches. The replacement parts segment distributes replacement parts for
Motor Coaches, transit buses and school buses. The Mexican segment manufactures
Motor Coaches and Motor Coach components, and distributes replacement parts. The
reportable segments are managed separately because each business has differing
customer or manufacturing requirements. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies. Intangible assets are included in each segment's reportable assets,
and the corresponding amortization of these intangible assets is included in the
determination of a segment's operating profit or loss. The Company evaluates
performance based on profit or loss from operations before income taxes,
interest, and other non-operating income (expenses).
F-29
<PAGE> 62
Data for these three segments of the years ending December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Revenues:
United States and Canadian Operations
Coach and Support $ 677,661 $ 503,635 $ 499,611
Replacement Parts 172,815 190,178 161,682
Mexican Operations 81,307 45,970 5,791
--------- --------- ---------
$ 931,783 $ 739,783 $ 667,084
========= ========= =========
Operating income:
United States and Canadian Operations
Coach and Support $ 70,114 $ 46,785 $ 39,865
Replacement Parts 21,497 15,754 14,788
Mexican Operations (9,740) 15,914 5,180
--------- -------- --------
$ 81,871 $ 78,453 $ 59,833
========= ======== ========
Depreciation and amortization:
United States and Canadian Operations
Coach and Support $ 15,037 $ 13,944 $ 12,644
Replacement Parts 4,021 4,739 4,014
Mexican Operations 5,761 3,352 960
-------- -------- --------
$ 24,819 $ 22,035 $ 17,618
======== ======== ========
Capital expenditures:
United States and Canadian Operations
Coach and Support $ 8,384 $ 12,361 $ 11,749
Replacement Parts 2,832 1,423 1,229
Mexican Operations 2,262 18,312 12,631
-------- -------- --------
$ 13,478 $ 32,096 $ 25,609
======== ======== ========
Assets:
United States and Canadian Operations
Coach and Support $560,978 $522,817
Replacement Parts 174,455 178,788
Mexican Operations $ 70,721 $119,068
-------- --------
$806,154 $820,673
======== ========
</TABLE>
There are no material intersegment transactions.
F-30
<PAGE> 63
Major customers are generally defined as those which individually
account for more that 10% of the Company's revenue. For the years ended 1998,
1997, and 1996, Greyhound Lines, Inc. ("GLI"), accounted for 8.0%, 9.5%, and
11.1%, respectively, of the Company's consolidated revenues. In January 1998,
GLI and MCII signed a 10-year long-term supply agreement until the year 2007.
For the years-ended 1998, 1997 and 1996, sales to Coach USA, Inc. accounted for
8.0%, 7.6% and 0.9%, respectively, of the Company's consolidated revenues.
Effective June 9th, 1997, CUI and MCII signed an agreement pursuant to which CUI
agreed that MCII would be the primary supplier of CUI's annual new coach
requirements through 1999.
The company also has a long-term agreement to purchase Coach part
"kits" from Marcopolo for its Viaggio coaches manufactured in Mexico. The
agreement requires the company to pay a royalty fee based on the value of
certain "kit" parts and components purchased from suppliers other than
Marcopolo. The royalty fee ranges from 2.7% to 3.5% of the "kit" value. Royalty
fees paid in 1998 and 1997 were $291,000 and $1,114,000 respectively.
GEOGRAPHICAL DATA
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(000 OMITTED)
<S> <C> <C> <C>
Revenues:
United States $ 770,351 $ 610,915 $ 579,136
Canada 80,125 82,898 82,157
Mexico 81,307 45,970 5,791
--------- --------- ---------
$ 931,783 $ 739,783 $ 667,084
========= ========= =========
Long-Lived Assets:
United States $ 229,758 $ 222,501
Canada 101,669 110,965
Mexico 28,319 39,468
--------- ---------
$ 359,746 $ 372,934
========= =========
</TABLE>
F-31
<PAGE> 64
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
------------ -----------
3.1* Restated Certificate of Incorporation of MCII Holdings
3.2* Bylaws of MCII Holdings
4.1* $125,000,000 Credit Agreement, dated as of September 30, 1996,
among Transportation Manufacturing Operations, Inc. as the
Borrower, the Lenders Parties thereto and NBD Bank as
Administrative Agent.
4.2 Amendment No. 1 dated December 17, 1996 to $125,000,000 Credit
Agreement dated as of September 30, 1996.
4.3** $125,000,000 9.02% Senior Notes Due November 15, 2002 Note
Agreement, as amended by letter agreement, dated April 1995.
4.4* Form of Amendment to $125,000,000 9.02% Senior Notes Due
November 15, 2002 Note Agreement as executed by the requisite
holders of the Notes.
4.5 Intercreditor Agreement, dated as of September 30, 1996, by and
among the Lenders under the $125,000,000 Credit Agreement dated
as of September 30, 1996, NBD Bank, and the holders of the 9.02%
Senior Notes due 2002 issued by Transportation Manufacturing
Operations, Inc.
4.6 Indenture, dated as of April 30, 1996, between Grupo Dina and
IBJ Schroder Bank & Trust Company, as Trustee, relating to the
Notes, including the form of Old Note and New Note, filed as
Exhibit 2.4 to Grupo Dina's Annual Report on Form 20-F for the
year ended December 31, 1995.
10.1** Bus Purchase Requirements Agreement by and among GLI Operating
Company, Greyhound Lines, Inc., Transportation Manufacturing
Corporation and Motor Coach Industries, Inc., as amended by: a
letter agreement dated June 15, 1987 from GLI Holding Company to
The Greyhound Corporation; Amendment to Bus Purchase
Requirements Agreement; entered into as of June 30, 1988 by and
among GLI Operating Company, Transportation Leasing Co.,
Transportation Manufacturing Corporation and Motor Coach
Industries, Inc.; Term Sheet/Agreement in Principle dated July
13, 1988 among GLI Holding Company and The Greyhound
Corporation; Claims Treatment Agreement made and entered into as
of August, 1991 among Greyhound Lines, Inc., the other Debtors
signatory thereto and The Greyhound Corporation; and Amendment
Number 2 to Bus Purchase Requirements Agreement executed as of
December 21, 1994 by Greyhound Lines, Inc., Transportation
Leasing Co., Motor Coach Industries, Inc. and Transportation
Manufacturing Corporation.
10.2* In Re: The Flxible Corporation, United State Bankruptcy Court,
Southern District of Ohio, Eastern Division, Order Authorizing
and Approving Sale of Debtor's Assets Pursuant to Sections 363
and 365 of the Bankruptcy Code.
10.3** Parts Purchase and Supply Agreement entered into as of May 1,
1994 by and between Greyhound Lines, Inc. and Universal Coach
Parts, Inc., as amended by Amendment No. 1 entered into as of
May 1, 1994.
<PAGE> 65
10.4** Limited Recourse Chattel Paper Purchase Agreement dated as of
March 31, 1994 between MCI Acceptance Corp. and The CIT
Group/Equipment Financing, Inc. and related Guaranty dated as of
March 31, 1994; and Amendment No. 1 dated May 15, 1995 and
related Guaranty dated as of May 15, 1995.
2
<PAGE> 66
10.5*** Registration Agreement, dated June 3, 1996, among Grupo Dina,
MCII Holdings and Salomon Brothers, Inc., Alliance Capital
Management Corporation and John Hancock Mutual Life Insurance
Company.
10.6* Coach Purchase Agreement, dated August 1, 1995, between Dina
Autobuses, S.A. de C.V. and Hausman Bus Sales, Inc.
10.7* Employment Agreement, dated as of September 30, 1996, between
Universal Coach Parts, Inc. and Jerry W Bost.
10.8* Employment Agreement, dated as of September 30, 1996, between
Transportation Manufacturing Operations, Inc. and James P.
Bernacchi.
12 Computation of ratio of earnings to fixed charges.
21 List of Subsidiaries of MCII Holdings.
27 EDGAR Financial Data Schedule.
* Previously filed on Form F-1/S-1, Registration No. 333-08843, and
incorporated herein by reference.
** Previously filed on Form 20F for the year ended December 31, 1994 and
incorporated herein by reference.
*** Previously filed on Form 20F for the year ended December 31, 1995
and incorporated herein by reference.
<PAGE> 1
EX 4.2
EXECUTION COPY
TRANSPORTATION MANUFACTURING OPERATIONS, INC.
AMENDMENT NO. 1
TO
CREDIT AGREEMENT
DATED AS OF SEPTEMBER 30, 1996
This Amendment No. 1 (this "Amendment") is dated as of December 17, 1996
and entered into by and between TRANSPORTATION MANUFACTURING OPERATIONS, INC.
(the "Borrower") and NBD BANK (the "Bank") and is made with reference to the
Credit Agreement dated as of September 30, 1996, by and between the Borrower and
the Bank (the "Credit Agreement"); the Bank has entered into the Credit
Agreement and this Amendment in its capacities as Administrative Agent, Swing
Line Bank, Issuing Lender and sole Lender thereunder. Capitalized terms used
herein without definition shall have the meanings ascribed thereto in the Credit
Agreement.
RECITALS: The Borrower and the Bank desire to amend the Credit Agreement to
facilitate the primary syndication of the Credit Agreement, which will benefit
both the Borrower and the Bank;
ACCORDINGLY, in consideration of the premises and the agreements and
provisions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrower and the
Bank agree as follows:
Section 1. AMENDMENT TO CREDIT AGREEMENT.
1.1 Section 1.01 of the Credit Agreement is amended by amending and
restating the definition of "Majority Lenders" in its entirety as follows:
"Majority Lenders" means at any time the Lenders having at
least 66-2/3% of the Commitments, or, if the Commitments shall then
have been terminated, Lenders holding at least 66-2/3% of the then
aggregate unpaid principal amount of the Advances held by Lenders
(provided that, for purposes hereof, neither the Borrower, nor any of
its Affiliates, if a Lender, shall be included in (i) the Lenders
holding such amount of the Advances or having such amount of the
Commitments or (ii) determining the aggregate unpaid principal amount
of the Advances or the total Commitments; and provided, further, no
Lender which shall have failed to fund its pro rata share of any
Advance requested by the Borrower or any Swing Line Loan as requested
by the Administrative Agent which such Lender is obligated to fund
under the terms of this Agreement shall be included in (i) the Lenders
<PAGE> 2
holding such amount of the Advances or having such amount of the
Commitments or (ii) determining the aggregate unpaid principal amount
of the Advances or the total Commitments for so long as such failure
has not been cured).
1.2 Section 2.03(a) of the Credit Agreement is amended by adding thereto
following clause (b) thereof and before the word "exceed" the phrase "plus (c)
the amount of the Swing Line Bank's then outstanding Letter of Credit Exposure",
1.3 Section 2.07 of the Credit Agreement is amended by deleting the
references to "Section 8.04(b)" in subsections (b) and (c) thereof and
substituting therefor in each case a reference to "Section 8.04(D)",
1.4 Section 5.02(i) of the Credit Agreement is amended by amending and
restating clause (i) thereof in its entirety as follows:
(i) the Borrower may make the Dina Distribution, provided that
(a) any portion of the Dina Distribution not paid on the Effective Date
shall be paid in one or more payments on or before March 31, 1997, (b)
on the date of each such payment, no Event of Default or Potential
Event of Default shall have occurred or be continuing, or would result
therefrom, and (c) prior to the date of each such payment after the
Effective Date, the Borrower shall deliver to the Administrative Agent
a financial condition certificate signed by the chief financial officer
or treasurer of the Borrower certifying that the Borrower is Solvent
after giving effect to such payment and attaching thereto financial
projections and a pro forma "fair value" balance sheet of the Borrower
and its Subsidiaries supporting such certification, which certificate
and attachments shall be in form and substance satisfactory to each of
the Lenders; and
1.5 Section 5.02(l) of the Credit Agreement is amended by deleting from
clause (g) thereof the words "and other operating arrangements".
1.6 Section 6.01 of the Credit Agreement is amended by adding in clause
(ii) of the remedial provisions thereof after the words "Administrative Agent"
and before the word "may" the phrase "with the consent of Majority Lenders".
1.7 Section 7.12 of the Credit Agreement is amended by deleting the words
"Loan Documents" from the first and third sentences thereof and substituting
therefor in each case the word "Guaranties" and by deleting the words "Loan
Document" from the second sentence thereof and substituting therefor the word
"Guaranty".
1.8 Section 8.04 of the Credit Agreement is amended by redesignating
subsection (D) thereof as subsection (E) and by adding a new subsection (D)
thereto to read as follows:
-2-
<PAGE> 3
(D) Funding Indemnification. If any payment of a Eurodollar Rate
Advance occurs on a date which is not the last day of the applicable
Interest Period, whether because of acceleration, prepayment, or
otherwise, or a Eurodollar Rate Advance is not made on the date
specified by the Borrower for any reason other than default by the
Lenders, the Borrower shall indemnify each Lender for any loss,
cost or expense incurred by it resulting therefrom, including, without
limitation, any loss, cost or expense in liquidating or employing
deposits acquired to fund or maintain the Eurodollar Rate Advance.
Section 2. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective as of the date hereof when, and only
when, the Bank shall have received a counterpart of this Amendment executed by
the Borrower and shall have delivered to the Borrower a counterpart of this
Amendment executed by the Bank and the Bank shall have received a counterpart
of the Consent attached hereto executed by the Subsidiary Guarantors.
Section 3. REPRESENTATIONS AND WARRANTIES OR BORROWER.
To induce the Bank to enter into this Amendment, to amend the Credit
Agreement as provided herein and to effect the primary syndication contemplated
by the Credit Agreement, the Borrower hereby represents and warrants that:
(a) The Borrower has full power, authority and legal right to execute and
deliver this Amendment and to perform the Credit Agreement as amended hereby,
and each of the Subsidiary Guarantors has full power, authority and legal right
to execute and deliver the Consent attached hereto (the "Consent"). The Borrower
has duly executed and delivered this Amendment, and each of the Subsidiary
Guarantors has duly executed and delivered the Consent.
(b) This Amendment and the Credit Agreement as amended hereby are the
legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, and the Consent is the
legal, valid and binding obligation of each of the Subsidiary Guarantors,
enforceable against each such Subsidiary Guarantor in accordance with its terms,
in each case as enforceability may be subject to the effect of applicable
bankruptcy, insolvency, arrangement, moratorium and other similar laws affecting
creditors' rights generally and to the application of general principles of
equity.
(c) No event has occurred and is continuing or will result from the
execution and delivery of this Amendment that constitutes an Event of Default or
Potential Event of Default.
-3-
<PAGE> 4
Section 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof, each reference in the Credit Agreement to "this Credit Agreement,"
"hereunder," "hereof" "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to the "Credit
Agreement," "thereunder," "thereof" or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.
(b) The Credit Agreement, as amended hereby, and all other documents,
instruments and agreements executed and/or delivered in connection therewith,
shall remain in full force and effect, and are hereby ratified and confirmed.
(c) Except as expressly provided herein, the execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of the Administrative Agent, the Lenders or any Issuing Lender,
nor constitute a waiver of any provision of the Credit Agreement or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
Section 5. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the internal laws (as opposed to the conflict of
law provisions) of the State of Illinois.
Section 6. HEADINGS. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose.
Section 7. COUNTERPARTS. This Amendment may be executed by one or more of
the parties to the Amendment on any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the same
instrument. Signature pages may be detached from multiple separate counterparts
and attached to a single counterpart so that all signature pages are physically
attached to the same documents.
IN WITNESS WHEREOF, this Amendment has duly executed and delivered on the
date first above written.
TRANSPORTATION MANUFACTURING
OPERATIONS, INC.
By: /s/ Albert J. Abram
-----------------------------
Name: Albert J. Abram
Title: Treasurer
-4-
<PAGE> 5
NBD BANK, as Administrative Agent,
Swing Line Bank, Issuing Lender
and Lender
By: /s/ James B. Junior
------------------------------
Name: James B. Junior
Title: Vice President
-5-
<PAGE> 6
CONSENT
Dated as of December 17, 1996
Each of the undersigned, as Guarantor under the Subsidiary Guaranty dated
as of September 30, 1996 (the "Guaranty") in favor of the Administrative Agent
for the benefit of the Lenders parties to the Credit Agreement referred to in
the foregoing Amendment, hereby consents to the Amendment and hereby confirms
and agrees that the Guaranty is, and shall continue to be, in full force and
effect and is hereby ratified and confirmed in all respects except that, upon
the effectiveness of, and on and after the date of, the Amendment, each
reference in the Guaranty to the "Credit Agreement," "thereunder," "thereof" or
words of like import shall mean and be a reference to the Credit Agreement as
amended by the Amendment.
BUSLEASE, INC.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
HAUSMAN BUS SALES, INC.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
MCI ACCEPTANCE CORP.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
MOTOR COACH INDUSTRIES, INC.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
-6-
<PAGE> 7
MOTOR COACH INDUSTRIES-CHINA, INC.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
TRANSIT BUS INTERNATIONAL, INC.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
CUSTOM ASSETS CORP.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
TRANSPORT TECHNOLOGY CORPORATION
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
UNIVERSAL COACH PARTS, INC.
By: /s/ Albert J. Abram
----------------------------
Name: Albert J. Abram
Title: Treasurer
-7-
<PAGE> 1
EXHIBIT 4.5
TRANSPORTATION MANUFACTURING OPERATIONS, INC.
AMENDMENT NO. 4
to
CREDIT AGREEMENT
Dated as of June 26, 1998
This Amendment No. 4 to Credit Agreement (this
"Amendment") is dated as of June 26,1998 and entered into by and among
TRANSPORTATION MANUFACTURING OPERATIONS, INC., a Delaware corporation
(the "Borrower"), the banks set forth on the signature pages hereof
(collectively, the "Lenders" and individually, a "Lender"), and THE
FIRST NATIONAL BANK OF CHICAGO, as Administrative Agent for the Lenders,
RECITALS:
A. The Borrower, certain Subsidiaries of the Borrower,
as guarantors (the "Guarantors"), the Lenders and the Administrative
Agent are parties to that certain Credit Agreement dated as of September
30, 1996, as amended (the "Credit Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings
attributed to such terms in the Credit Agreement.
B. The parties hereto have agreed to amend the Credit
Agreement on the terms and conditions set forth herein.
ACCORDINGLY, in consideration of the premises and the
agreements and provisions contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. AMENDMENT TO CREDIT AGREEMENT.
Effective as of the Amendment Effective Date (as
defined below) and subject to the satisfaction of the conditions
precedent set forth in Section 3 below, the Credit Agreement is hereby
amended as follows:
(a) Section 5.01(a)(iii) of the Credit Agreement is
hereby amended by adding after the words "subdivisions (i) and
(ii) above," the words "and within 30 days after the last day of
each month that is not also the last day of a fiscal quarter,"
and by deleting therefrom the reference to "Sections (a)(ii),
(a)(vii), c(iv), and (d)(vi) of Section 5.02" and substituting
therefor a reference to "Sections (a)(ii),(a)(vii),(c)(iv),
(d)(vi), (j)(ii) and (l) of Section 5.02".
<PAGE> 2
(b) Section 5.01 (a)(iv) of the Credit Agreement is
hereby amended by adding thereto, after the words "subdivision
(ii) above," the words "and, in the case of clause (c) below,
pursuant to subdivision (i) above," and by amending clause (c)
thereof in its entirety to read as follows:
and (c) stating that based on their audit examination
nothing has come to their attention that causes them to
believe that the matters set forth in the Compliance
Certificate delivered pursuant to subdivision (iii)
above for the applicable fiscal year are not stated in
accordance with the terms of this Agreement and
providing an agreed upon procedure report on the
matters set forth in the Compliance Certificate
delivered pursuant to subdivision (iii) above for the
applicable fiscal quarter;
(c) Section 5.01(a) of the Credit Agreement is
further amended hereby by redesignating clause (xv) thereof as
clause (xvi) and adding a new clause (xv) thereto to read as
follows:
(xv) promptly upon receipt thereof, copies of
all management letters received by the Borrower, Dina
or any other consolidated Subsidiary of Dina from its
independent certified public accountants; and
(d) Section 5.02(l) of the Credit Agreement is hereby
amended by adding at the end of the last sentence thereof the
following:
, which amount may be in addition to the $20,000,000 of
inventory permitted by clause (i) above.
The parties understand and agree that the amendment set forth
in this Section 1(d) is a clarification of Section 5.02(l) and
not a substantive change thereto.
(e) Exhibit G of the Credit Agreement is hereby amended
by adding at the end of Schedule 1 thereof the following:
9. Contingent Obligations, Section 5.02(d)(i)
<TABLE>
<S> <C>
a. Aggregate outstanding amount of performance
and warranty bonds (other than in connection
with municipal transit authorities)..........$___________
b. Maximum amount of such bonds permitted ......$ 25,000,000
C. Aggregate outstanding amount of performance
and warranty bonds in connection with
municipal transit authorities................$___________
d. Maximum amount of such bonds permitted ......$180,000,000
</TABLE>
-2-
<PAGE> 3
<TABLE>
<S> <C>
10. Restricted Junior Payments, Section 5.02(j)
a. Cumulative dividends and distributions (other than
the Dina Distribution) since September 30, 1996 ................. $__________
b. 50% of cumulative Consolidated Net Income
since December 31, 1996 ......................................... $__________
11. Transaction with Affiliates, Section 5.02(l)
a. Aggregate balance held in cash management
accounts ........................................................ $__________
b. Maximum balance permitted ....................................... $ 5,000,000
c. Management fees paid to Dina during most recent
calendar year ................................................... $__________
d. Maximum management fees permitted ............................... $ 500,000
e. Reimbursement of Dina expenses during most
recent calendar year............................................. $__________
f. Maximum reimbursements permitted................................. $ 500,000
g. Inventory purchased from Dina and its Affiliates ................ $__________
h. Maximum amount of such inventory permitted ...................... $20,000,000
i Advance payments and letters of credit for
purchase of inventory from Dina and its Affiliates .............. $__________
j. Maximum amount of such advance payments
and letters of credit permitted ................................. $ 7,500,000
</TABLE>
Section 2. WAIVER.
Effective as of the Amendment Effective Date and subject to the
satisfaction of the conditions precedent set forth in Section 3 below, the
Lenders hereby waive any Event of Default or Potential Event of Default that may
have occurred prior to the effectiveness of this Amendment as a result of the
Borrower's failure to comply with the $7,500,000 limitation contained in the
last sentence of Section 5.02(1) of the Credit Agreement in connection with
certain transactions that have been disclosed to the Lenders in writing,
provided that such waiver shall be effective only until August 31, 1998.
-3-
<PAGE> 4
Section 3. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective as of the date
hereof (the"Amendment Effective Date") upon the satisfaction of each of
the following conditions:
(a) The Administrative Agent shall have received
counterparts of this Amendment duly executed by the Borrower and the
Majority Lenders and of the Consent attached hereto duly executed by the
Guarantors.
(b) The Administrative Agent and the Arranger shall
have received a fee letter satisfactory to them and duly executed by the
Borrower, and the Borrower shall have paid to the Arranger the fee
specified therein in immediately available funds.
(c) The Administrative Agent shall have received from
the Borrower in immediately available funds, for the account of each
Lender that shall have executed this Amendment prior to 5:00 p.m. on
June 26, 1998, a fee in an amount equal to 0.125% of such Lender's
Commitment in effect on the date hereof.
(d) At the time of the effectiveness of this Amendment,
and after giving effect thereto, no Event of Default or Potential Event
of Default shall have occurred and be continuing.
Section 4. REPRESENTATIONS AND WARRANTIES OF BORROWER.
To induce the Lenders to enter into this Amendment and
to amend the Credit Agreement as provided herein, the Borrower hereby
represents and warrants that:
(a) The Borrower has full power, authority and legal
right to execute, deliver and perform this Amendment and the Credit
Agreement as amended hereby and has duly executed and delivered this
Amendment.
(b) This Amendment and the Credit Agreement as amended
hereby are the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their respective
terms, in each case as enforceability may be subject to the effect of
applicable bankruptcy, insolvency, arrangement, moratorium and other
similar laws affecting creditors' rights generally and to the
application of general principles of equity.
(c) The execution, delivery and performance by the
Borrower of this Amendment and the Credit Agreement as amended hereby
do not require any governmental registrations or filings or approvals
and do not and will not violate or contravene any law or any order of
any court or governmental agency or any indenture, agreement or other
instrument, including, without limitation, with respect to the Senior
Notes, to which the Borrower or any of the Guarantors is party or by
which any of them or any of their respective properties may be bound.
-4-
<PAGE> 5
(d) At the time of effectiveness of this Amendment, and
after giving effect thereto, no Event of Default or Potential Event of
Default has occurred and is continuing.
Section 5. REFERENCE TO AND EFFECT ON THE CREDIT
AGREEMENT AND OTHER LOAN DOCUMENTS.
(a) From and after the Amendment Effective Date, each
reference in any Loan Document to the Credit Agreement shall mean and be
a reference to the Credit Agreement as amended hereby.
(b) The Credit Agreement, as amended hereby, and all
other Loan Documents shall remain in full force and effect, and are
hereby ratified and confirmed,
(c) Except as expressly provided herein, the execution,
delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of the Administrative Agent, the
Lenders, the Swing Line Bank or any Issuing Lender, nor constitute a
waiver of any provision of the Credit Agreement or any other Loan
Document.
Section 6. GOVERNING LAW. This Amendment shall be
governed by and construed in accordance with the internal laws (as
opposed to the conflict of law provisions) of the State of Illinois.
Section 7. HEADINGS. Section headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
Section 8. COUNTERPARTS. This Amendment may be executed
by one or more of the parties to the Amendment on any number of separate
counterparts and all of said counterparts taken together shall be deemed
to constitute one and the same instrument. Signature pages may be
detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the
same document,
IN WITNESS WHEREOF, this Amendment has been duly
executed and delivered on the date first above written.
TRANSPORTATION MANUFACTURING
OPERATIONS, INC.
BY: /s/ Rafael Gomez Flores
-----------------------------
Name: Rafael Gomez Flores
Title: Chairman of the Board and President
-5-
<PAGE> 6
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender and as Administrative Agent
By: /s/ Cristiana Freeman
--------------------------------
Name: CRISTIANA FREEMAN
Title: CORPORATE BANKING OFFICER
THE BANK OF NEW YORK, as a Co-Agent and
as a Lender
By:
--------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By:
--------------------------------
Name:
Title:
COMERICA BANK, as a Lender
By:
--------------------------------
Name:
Title:
HUNTINGTON NATIONAL BANK,
as a Lender
By:
--------------------------------
Name:
Title:
BANK OF HAWAII, as a Lender
By:
--------------------------------
Name:
Title:
-6-
<PAGE> 7
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender and as Administrative Agent
By:
--------------------------------
Name:
Title:
THE BANK OF NEW YORK, as a Co-Agent and
as a Lender
By: /s/ Steven Watson
----------------------------------
Name: Steven Watson
Title: Assistant Vice President
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By:
--------------------------------
Name:
Title:
COMERICA BANK, as a Lender
By:
--------------------------------
Name:
Title:
HUNTINGTON NATIONAL BANK,
as a Lender
By:
--------------------------------
Name:
Title:
BANK OF HAWAII, as a Lender
By:
--------------------------------
Name:
Title:
-6-
<PAGE> 8
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender and as Administrative Agent
By:
--------------------------------
Name:
Title:
THE BANK OF NEW YORK, as a Co-Agent and
as a Lender
By:
--------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By: /s/ Marianne T. Meil
--------------------------------
Name: Marianne T. Meil
Title: Vice President
COMERICA BANK, as a Lender
By:
--------------------------------
Name:
Title:
HUNTINGTON NATIONAL BANK,
as a Lender
By:
--------------------------------
Name:
Title:
BANK OF HAWAII, as a Lender
By:
--------------------------------
Name:
Title:
-6-
<PAGE> 9
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender and as Administrative Agent
By:
--------------------------------
Name:
Title:
THE BANK OF NEW YORK, as a Co-Agent and
as a Lender
By:
--------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By:
--------------------------------
Name:
Title:
COMERICA BANK, as a Lender
By:
--------------------------------
Name:
Title:
HUNTINGTON NATIONAL BANK,
as a Lender
By: /s/ Thomas Myers
--------------------------------
Name: Thomas Myers
Title: Vice President
BANK OF HAWAII, as a Lender
By:
--------------------------------
Name:
Title:
-6-
<PAGE> 10
THE FIRST NATIONAL BANK OF CHICAGO,
as a Lender and as Administrative Agent
By:
-----------------------------------
Name:
Title:
THE BANK OF NEW YORK, as a Co-Agent and
as a Lender
By:
-----------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By:
-----------------------------------
Name:
Title:
COMERICA BANK, as a Lender
By:
-----------------------------------
Name:
Title:
HUNTINGTON NATIONAL BANK,
as a Lender
By:
-----------------------------------
Name:
Title:
BANK OF HAWAII, as a Lender
By: /s/ Donna R. Parker
-----------------------------------
Name: DONNA R. PARKER
Title: Vice President
-6-
<PAGE> 11
NATIONSBANK, N.A., as a Lender
By: /s/ VALERIE C. MILLS
---------------------------
Name: VALERIE C. MILLS
Title: SR. VICE PRESIDENT
THE SUMITOMO BANK, LIMITED,
as a Lender
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
ALLIED IRISH BANK, P.L.C., CAYMAN ISLANDS
BRANCH, as a Lender
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
-7-
<PAGE> 12
NATIONSBANK, N.A., as a Lender
By:
---------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/ J. H. Broadley
---------------------------
Name: J. H. Broadley
Title: Vice President
N.Y. Office
By: /s/ Brian Smith
---------------------------
Name: Brian Smith
Title: SVP
ALLIED IRISH BANK, P.L.C., CAYMAN ISLANDS
BRANCH, as a Lender
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
-7-
<PAGE> 13
NATIONSBANK, N.A., as a Lender
By:
---------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
as a Lender
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
ALLIED IRISH BANK, P.L.C., CAYMAN ISLANDS
BRANCH, as a Lender
By: /s/ William J. Strickland
----------------------------
Name: William J. Strickland
Title: Senior Vice President
By: /s/ Marcia Meeker
----------------------------
Name: Marcia Meeker
Title: Vice President
-7-
<PAGE> 14
CONSENT
Each of the undersigned, as a Guarantor under the
Subsidiary Guaranty dated as of October 1, 1996 (the "Guaranty") in
favor of the Agent for the benefit of the Lenders parties to the Credit
Agreement referred to in the foregoing Amendment, hereby consents to
said Amendment and hereby confirms and agrees that notwithstanding the
effectiveness of said Amendment, the Guaranty is, and shall continue to
be, in full force and effect and is hereby confirmed and ratified in
all respects.
Dated: June 26, 1998 BUSLEASE, INC.
HAUSMAN BUS SALES, INC.
MOTOR COACH INDUSTRIES, INC.
MOTOR COACH INDUSTRIES-CHINA, INC.
TRANSIT BUS INTERNATIONAL, INC.
CUSTOM ASSETS CORP.
TRANSPORT TECHNOLOGY CORPORATION
UNIVERSAL COACH PARTS, INC.
By: /s/ Rafael Gomez Flores
--------------------------------
Name: Rafael Gomez Flores
Title: Chairman of the Board and
President
-8-
<PAGE> 1
EXHIBIT 4.7
September __, 1996
Transportation Manufacturing Operations, Inc.
Dial Tower
1850 North Central Avenue
Phoenix, Arizona 85004
Re: 9.02% Senior Notes due 2002
Gentlemen:
Reference is made to the Note Agreement (the "Agreement"), dated as
of November 15, 1994, among Transportation Manufacturing Operations, Inc. (the
"Company"), the undersigned and the other persons named on Schedule A thereto
(together with the undersigned, the "Purchasers"), pursuant to which the Company
issued and sold, and the Purchasers purchased, the Company's 9.02% Senior Notes
due November 15, 2002 in the original principal amount of $125,000,000. Unless
otherwise defined herein, capitalized terms used herein which are defined in the
Agreement shall have the meanings as given in the Agreement.
Pursuant to paragraph 11C of the Agreement and the request of the
Company, and subject to the satisfaction of the conditions set forth in Section
4 below, the undersigned and the Company agree as follows:
1. CONSENT. Notwithstanding paragraph 6C(9)(ii) of the Agreement,
the undersigned consent to the payment by the Company of a dividend in cash of
up to $30,000,000 to MCII, provided, that (a) the payment of such dividend is
permitted by clauses (i) and (iii) of paragraph 6C(9) of the Agreement, (b) such
dividend is paid on or before March 31, 1997 and (c) immediately upon receipt
of such payment, MCII pays a dividend to Grupo Dina in the same amount as the
dividend payment made by the Company to MCII.
2. AMENDMENTS TO AGREEMENT.
2.1. Paragraph 5A is amended by adding the following as new clauses
(iii) and (iv) and by renumbering the existing clauses (iii), (iv), (v) and (vi)
as (v), (vi), (vii) and (viii), respectively:
<PAGE> 2
(iii) as soon as available and in any event within 60
days after the end of each fiscal quarter (beginning with the fiscal
quarter ending September 30, 1996), the consolidated balance sheet
for Grupo Dina and its consolidated subsidiaries as at the end of
such fiscal quarter and the related consolidated statements of income
and cash flows of Grupo Dina and its consolidated Subsidiaries for
such fiscal quarter and for the period from the beginning of the then
current fiscal year to the end of such fiscal quarter, setting forth
in comparative form the corresponding figures for the corresponding
periods of the previous fiscal year, all in reasonable detail,
provided, that so long as Grupo Dina is a foreign private issuer
complying with reporting requirements under the Exchange Act, the
foregoing requirement shall be satisfied by delivery of Grupo Dina's
quarterly report for such fiscal quarter on Form 6K thereunder;
(iv) as soon as available and in any event within 120 days
after the end of each fiscal year, the consolidated balance sheet of
Grupo Dina and its consolidated Subsidiaries as at the end of such
fiscal year and the related consolidated statements of income,
stockholders, equity and cash flows of Grupo Dina and its
consolidated Subsidiaries for such fiscal year, setting forth in
comparative form the corresponding figures for the previous fiscal
year, all in reasonable detail, provided, that so long as Grupo Dina
is a foreign private issuer complying with reporting requirements
under the Exchange Act, the foregoing requirement shall be satisfied
by delivery of Grupo Dina's annual report for such fiscal year on
Form 20F thereunder, and in the case of such consolidated financial
statements of Grupo Dina, reports thereon of Arthur Anderson LLP or
other independent auditors of recognized national standing selected
by Grupo Dina, which reports shall be unqualified and shall not
include any reference to doubts about the ability of Grupo Dina and
its Subsidiaries to continue as a going concern;
2.2. Clause (ii) of paragraph 6C(4) of the Agreement is amended and
restated in its entirety as follows:
(ii) The aggregate amount of all Contingent Liabilities (excluding
performance bonds not to exceed $180,000,000 relating to an order
which may be made by The New Jersey Transit Authority but including
the aggregate amount of coach repurchase contracts described in
clause (i)) to exceed 100% of Consolidated Net Worth, provided, that
the aggregate amount of Contingent Liabilities consisting of (a)
Surety Bonds and outstanding undrawn letters of credit for the
account of the Company or any Restricted Subsidiary shall not exceed
50% of Consolidated Net Worth and (b) Residual Value Guarantees and
the aggregate amount of coach repurchase contracts described in
clause (i) hereof shall not exceed 50% of Consolidated Net
2
<PAGE> 3
Worth, in each case determined as of the end of the most recently
completed fiscal quarter.
2.3. Clause (iii) of paragraph 6C(5) of the Agreement is amended and
restated in its entirety as follows:
(iii) Investments in addition to those set forth in clauses (i) and
(ii) (other than Investments in any Person controlling, controlled by
or under common control with the Company (other than Restricted
Subsidiaries and Investments in Grupo Dina by the Company to the extent
such Investments consist of purchases of motor coaches from Grupo Dina
for resale in the United States or Canada ("Permitted Grupo Dina
Investments"))), so long as (a) the aggregate original cost of such
Investments, including, without limitation, Permitted Grupo Dina
Investments, does not, at any time, exceed 5% of Consolidated Net
Worth and (b) the aggregate original cost of such Permitted Grupo Dina
Investments does not, at any time, exceed 2.5% of Consolidated Net
Worth and all such Permitted Grupo Dina Investments are otherwise
permitted by paragraph 6C(7) and
2.4. Clause (iv) of paragraph 6C(5) of the Agreement is amended by
adding immediately after the phrase "Restricted Subsidiary" and before the
parenthetical the phrase "and Permitted Grupo Dina Investments."
2.5. The following is added as a new paragraph 6D:
6D. ADDITIONAL GUARANTORS. The Company covenants not to permit
any Subsidiary to become a guarantor of any of the obligations of the
Company under the Bank Credit Facility or any other agreement, document
or instrument now or hereafter executed or delivered in connection
therewith unless concurrently therewith such Subsidiary provides to the
holders of the Notes a guarantee of the obligations of the Company
under this Agreement and the Notes pursuant to a written agreement in
form and substance satisfactory to the Required Holders.
2.6. Paragraph 7A of the Agreement is amended by adding the following
immediately after clause (13) as a new clause (14):
(14) any Guarantor shall fail to perform or observe any
agreement, term or condition contained in, or otherwise be in default
(beyond any applicable grace period) under, any guarantee agreement in
favor of the holders of the Notes; or any representation or warranty
made by any Guarantor in any such guarantee shall be false in any
material respect as of the date when made; or any such guarantee shall
fail to be in full force and effect or otherwise shall not be
enforceable in accordance with its terms; or any Guarantor shall
contest or
3
<PAGE> 4
deny the validity or enforceability of, or deny that it
has any liability or obligations under, any such guarantee
to which it is a party;
The last sentence of paragraph 7A is also amended
by deleting the phrase "(12) to (13)" and inserting in lieu thereof
the phrase "(12) to (14)".
2.7. Paragraph 10B of the Agreement is amended as follows:
(a) The following definition is added immediately after the
definition of "Guarantee":
"Guarantor" shall mean any Subsidiary that is a
party to any guarantee agreement in favor of the holders of
the Notes with respect to the Company's obligations under
this Agreement and the Notes, including, without limitation,
any Subsidiary that becomes a guarantor pursuant to paragraph
6D.
(b) The definition of "Priority Debt" in paragraph 10B of
the Agreement is amended by adding immediately after "Intercompany
Indebtedness" the phrase "and Guarantees of Indebtedness under this
Agreement and the Notes and Guarantees of Indebtedness under the Bank
Credit Facility".
(c) The following definition is added immediately after the
definition of "Required Holders":
"Residual Value Guaranties" means any agreement
entered into by the Company or any of its Subsidiaries to
promote the sales of any bus or coach pursuant to which
the Company of any of its Subsidiaries is guaranteeing at
some future time any minimum value (which may be determined
by a formula) of a bus or coach as specified in such
agreement, the terms and provisions of which agreement are
consistent with the past practices and policies of the
Company and its Subsidiaries prior to September _, 1996.
(c) The definition of "Significant Subsidiary" in paragraph
10B of the Agreement is amended by adding immediately after the phrase
"fiscal year" the phrase ", provided, that for clauses (7) through
(12), inclusive, of paragraph 7A the term "Significant Subsidiary"
shall also mean any Guarantor."
3. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants as follows: (a) it has all necessary power and authority to
execute and deliver this letter; (b) the execution, delivery and
performance of this letter have been duly authorized by it; (c) this
letter and the Agreement, as amended hereby, constitute the legal,
valid and binding obligations of the Company and are enforceable
against it in accordance with their terms; (d) the approval,
execution, delivery and performance of the terms
4
<PAGE> 5
hereof do not violate any contractual provision to which it is a party or by
which it is or its properties are bound or any law applicable to it; (e) all
consents, notices, waivers and other actions by or of the Company or any other
Person that are necessary in connection with the subject matter of the
foregoing consents and amendments have been obtained or taken; and (f) no
Default or Event of Default has occurred and is continuing.
4. CONDITIONS TO EFFECTIVENESS. The effectiveness of the consents and
amendments herein is subject to satisfaction of the following conditions (the
date upon which such conditions are satisfied being called the "Effective
Date"):
4.1. The undersigned shall have received counterparts to this letter
executed by the Company;
4.2. The undersigned shall have received a Guarantee Agreement (the
"Guarantee") in favor of the holders of the Notes, in form and substance
satisfactory to the undersigned, duly executed by each Subsidiary that is
executing a guarantee pursuant to the Credit Agreement referred to below
(collectively, the "Guarantors"), and the Guarantee shall be in full force and
effect;
4.3. The undersigned shall have received a favorable opinion of Latham
& Watkins, special counsel to the Guarantors, in form and substance
satisfactory to the undersigned, as to the Guarantee;
4.4. The undersigned shall have received a copy of the Credit
Agreement among the Company, the First National Bank of Chicago, NBD Bank,
N.A. and the other parties thereto (the "Credit Agreement"), in form and
substance satisfactory to the undersigned, duly executed by each party
thereto, and the Credit Agreement shall be in full force and effect;
4.5. The holders of the Notes and the lenders that are parties to the
Credit Agreement shall have entered into an Intercreditor Agreement, in form
and substance satisfactory to the undersigned, and such Intercreditor
Agreement shall be in full force and effect;
4.6. The undersigned shall have received copies of duly executed
agreements, in substance identical to this letter agreement, from holders of
the Notes that together with the undersigned would constitute the Required
Holders, and all conditions to the effectiveness of such agreements shall have
been satisfied.
4.7. The representations and warranties of the Company contained in
Section 3 hereof and of the Guarantors in the Guarantee shall be true on and
as of the Effective Date, after giving effect to the amendments and other
transactions contemplated by this Agreement; and after giving effect to such
amendments and
5
<PAGE> 6
other transactions there shall exist no Default or Event of Default.
4.8. The Company shall have paid to the undersigned a $17,143
amendment fee.
4. 9. The Company shall have paid such fees and expenses of special
counsel to the holders of the Notes in connection with the transactions
contemplated hereby as holders of the Notes shall have requested be paid on or
prior to the Effective Date.
4.10. The transactions contemplated by this letter shall not violate
any applicable law or governmental regulation and shall not subject the
undersigned to any tax, penalty, liability or other onerous condition under or
pursuant to any applicable law or governmental regulation, and the undersigned
shall have received such certificates or other evidence as may be requested to
establish compliance with this condition.
4.11. All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this letter shall
be reasonably satisfactory in form and substance to undersigned and its counsel,
and the undersigned shall have received all information and copies of all
documents and papers, including records of corporate and governmental
proceedings, which the undersigned may reasonably have requested in connection
therewith, such documents and papers when appropriate to be certified by proper
corporate or governmental authorities.
5. MISCELLANEOUS.
5.1. Upon the Effective Date, each reference in the Agreement to
"this Agreement," "hereunder," "hereof," "herein" or words of like import shall
mean and be a reference to the Agreement as amended hereby and each reference
to the Agreement in the Notes shall mean and be a reference to the Agreement,
as amended hereby.
5.2. This letter shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the internal law of the
State of New York.
5.3. Except as specifically amended above, the Agreement and the
Notes shall remain in full force and effect and are hereby ratified and
confirmed. The execution, delivery and effectiveness of this letter shall not,
except as expressly provided herein, operate as an amendment to any provision of
the Agreement nor a waiver of any right, power or remedy of any holder of a
Note, nor constitute a waiver of, or consent to any departure from, any
provision of the Agreement or any Note.
5.4. This letter may be executed by one or more of the parties to
this letter on any number of separate counterparts and all of
6
<PAGE> 7
said counterparts taken together shall be deemed to constitute one and the same
instrument.
(signature pages to follow)
7
<PAGE> 8
Please acknowledge the foregoing and your agreement thereto by signing
this letter agreement where indicated below.
Very truly yours,
THE TRAVELERS INSURANCE COMPANY
By:
-----------------------------------
Title:
--------------------------------
Accepted and Agreed to
as of the date written above:
TRANSPORTATION MANUFACTURING OPERATIONS, INC.
By: /s/ illegible
-------------------------------
Title: Senior Vice President
<PAGE> 1
EXHIBIT 12
MCII HOLDINGS (USA) INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
-------------- ------------- ------------- ------------- --------------
1994 1995 1996 1997 1998
-------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Income from continuing operations before #
provision for income taxes $ -7041 $ 25460 $ 46148 $ 59429 $ 69871
Add:
Interest expense, including amortization 8,824 12855 12857 14881 16816
Allocated interest 15587 # 22099 3172 6978 3164
Finance interest 984 2658 3605 2394 2765
-------------- ------------- ------------- ------------- --------------
Earnings, as adjusted $ 18,354 $ 63072 $ 65782 $ 83682 $ 92616
============== ============= ============= ============= ==============
Fixed charges:
Interest expense, including amortization 8824 12855 12857 14881 16816
Allocated interest 15587 22099 3172 6978 3164
Finance interest 984 2658 3605 2394 2765
-------------- ------------- ------------- ------------- --------------
Fixed charges $ 25,395 $ 37612 $ 19634 $ 24253 $ 22745
============== ============= ============= ============= ==============
*
Ratio of earnings to fixed charges .7 1.7 3.4 3.5 4.1
============== ============= ============= ============= ==============
</TABLE>
* Earnings were inadequate to cover fixed charges
Coverage deficiency was $7,041
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF MCII HOLDINGS (USA), INC.
Each subsidiary is 100% owned by its respective parent Company except as noted.
Motor Coach Industries International, Inc. (Delaware)
Transportation Manufacturing Operations, Inc. (Delaware)
BusLease, Inc. (Delaware)
Hausman Bus Sales, Inc. (Delaware)
MCI Acceptance Corp. (Delaware)
MCIL Holdings, Ltd. (Canada)
Motor Coach Industries Limited (Canada)
Frank Fair Industries Ltd. (Manitoba)
Motor Coach Industries, Inc. (Delaware)
Motor Coach Industries-China, Inc. (Delaware)
Nanjing Starley Transportation Company Limited (China) (70%)
TMO Holdings of Canada, Ltd. (Canada)
Transit Bus International, Inc. (Delaware)
Custom Assets Corp. (California)
Greyhound Overseas Services, Inc. (Virgin Islands)
Transport Technology Corporation (Arizona)
Universal Coach Parts, Inc. (Delaware)
Universal Coach Parts Mexico, S.A. de C.V. (Mexico) (98%)
*Dina Autobuses, S.A. de C.V. (Mexico) (99.99%)
Autopartes Hidalguenses, S.A. de C.V. (Mexico) (99.99%)
Carrocera Sahagun, S.A. de C.V. (Mexico) (98%)
**MCII Buses (USA), Inc. (Delaware)
*Became a subsidiary on January 31, 1997.
**Incorporated as a subsidiary on April 17, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 13,997 24,103
<SECURITIES> 0 0
<RECEIVABLES> 91,787 1,129,324
<ALLOWANCES> (3,244) (10,316)
<INVENTORY> 257,795 229,772
<CURRENT-ASSETS> 405,274 411,008
<PP&E> 135,174 144,541
<DEPRECIATION> (28,329) (40,011)
<TOTAL-ASSETS> 820,673 806,154
<CURRENT-LIABILITIES> 174,599 376,768
<BONDS> 268,833 281,723
411,524 159,500
0 0
<COMMON> 0 0
<OTHER-SE> (79,606) (53,205)
<TOTAL-LIABILITY-AND-EQUITY> 820,673 806,154
<SALES> 735,210 925,945
<TOTAL-REVENUES> 739,210 931,783
<CGS> 546,107 728,395
<TOTAL-COSTS> 661,330 849,912
<OTHER-EXPENSES> (2,835) (7,980)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 21,859 19,980
<INCOME-PRETAX> 59,429 69,871
<INCOME-TAX> 21,268 31,283
<INCOME-CONTINUING> 38,161 38,588
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 38,161 38,588
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
