<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1999
REGISTRATION NO. 333-83917
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
------------------------------
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<S> <C> <C>
DELAWARE 3711 86-0706940
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation organization) Classification Code Number) Identification Number)
SUBSIDIARY GUARANTORS:
DELAWARE BUSLEASE, INC. 86-0713116
DELAWARE HAUSMAN BUS SALES, INC. 86-0544345
DELAWARE MOTOR COACH INDUSTRIES, INC. 45-0277789
DELAWARE TRANSIT BUS INTERNATIONAL, INC. 86-0286696
DELAWARE UNIVERSAL COACH PARTS, INC. 86-0300647
(State or other jurisdiction of (Exact name of Registrant as (I.R.S. Employer
Incorporation or Organization) specified in its charter) Identification Number)
</TABLE>
--------------------------
10 EAST GOLF ROAD
DES PLAINES, IL 60016
(847) 299-9900
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
--------------------------
JAMES P. BERNACCHI
CHIEF EXECUTIVE OFFICER
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
10 EAST GOLF ROAD
DES PLAINES, IL 60016
(847) 299-9900
(Name, address, including zip code, and telephone number, including area code of
agent for service)
--------------------------
COPY OF ALL COMMUNICATIONS TO:
R. CABELL MORRIS, JR.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, IL 60601-9703
(312) 558-5600
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
PROSPECTUS
$152,250,000
[LOGO]
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
(FORMERLY TRANSPORTATION MANUFACTURING OPERATIONS, INC.)
OFFER TO EXCHANGE
OUR 11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ANY AND ALL OF OUR OUTSTANDING
11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON NOVEMBER 8, 1999, UNLESS EXTENDED.
We are offering to exchange our 11 1/4% Senior Subordinated Notes due 2009
which have been registered under the Securities Act of 1933 for any and all of
our outstanding 11 1/4% Senior Subordinated Notes due 2009 issued on June 16,
1999.
THE EXCHANGE NOTES
- The terms of the registered exchange notes to be issued are substantially
identical to the terms of the outstanding notes that we issued on June 16,
1999, except for transfer restrictions, registration rights and liquidated
damages provisions relating to the outstanding notes which will not apply
to the exchange notes.
- Interest on the exchange notes accrues at the rate of 11 1/4% per year,
payable in cash every six months on May 1 and November 1, with the first
interest payment on November 1, 1999.
- We may redeem any of the exchange notes beginning on May 1, 2004. The
initial redemption price is 105.625% of their principal amount plus
accrued interest. In addition before May 1, 2002, we may redeem up to 35%
of the exchange notes at a redemption price of 111.25% of their principal
amount plus accrued interest using proceeds from certain equity offerings
of our capital stock.
- The exchange notes will rank equally with all of our other unsecured
senior subordinated debt and will be junior to our senior debt. The
exchange notes are guaranteed on a senior subordinated basis by our
present and future domestic restricted subsidiaries.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5:00 p.m., New York City time, on November
8, 1999, unless extended.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of exchange notes which
are registered under the Securities Act.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange offer is not subject to any minimum tender condition, but is
subject to the terms of the registration rights agreement that we entered
into on June 16, 1999 with the placement agents for the outstanding notes
and the subsidiary guarantees.
- We will not receive any proceeds from the exchange offer.
- We will pay the expenses of the exchange offer.
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 16 OF THIS
PROSPECTUS BEFORE INVESTING.
---------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE NOTES OR PASSED UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES
OFFERED IN THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL WE ACCEPT SURRENDER FOR
EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
--------------------------
The date of this prospectus is September 27, 1999
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TABLE OF CONTENTS
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Important Information About this Prospectus.......................................... i
Forward-Looking Statements........................................................... i
Where You Can Find More Information.................................................. i
Industry and Sales Data.............................................................. ii
Name Change.......................................................................... ii
Prospectus Summary................................................................... 1
Risk Factors......................................................................... 16
The Exchange Offer................................................................... 25
Capitalization....................................................................... 35
Selected Consolidated Historical Financial Data...................................... 36
Pro Forma Unaudited Condensed Consolidated Financial Information..................... 38
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 42
Business............................................................................. 50
Management........................................................................... 66
Security Ownership of Certain Beneficial Owners and Management....................... 70
Certain Transactions; Relationship with Grupo Dina................................... 72
Description of the Senior Credit Facility............................................ 76
Description of the Exchange Notes.................................................... 77
Material Federal Tax Considerations.................................................. 115
Plan of Distribution................................................................. 119
Legal Matters........................................................................ 119
Experts.............................................................................. 119
Index to Consolidated Financial Statements........................................... F-1
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<PAGE>
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
The information in this prospectus is current only as of the date on its
cover, and may change after that date. For any time after the date on the cover
of this prospectus, we do not represent that our affairs are the same as
described or that the information in this prospectus is correct--nor do we imply
those things by delivering this prospectus or selling securities to you.
We have used information that we believe comes from reliable sources, but we
do not assure you that the information in this prospectus is accurate or
complete. This prospectus contains summaries, believed to be accurate, of
certain terms of certain documents. All such summaries are qualified in their
entirety by reference to the actual documents. Copies of the actual documents
will be made available upon request to us. In making an investment decision, you
must rely upon your own examination of this prospectus and the terms of the
offering and these notes, including the merits and risks involved.
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it.
You might not be legally able to participate in the exchange offer--we are
not giving you legal, business, financial or tax advice about any matter. You
should consult with your own attorney, accountant and other advisors about those
matters.
FORWARD-LOOKING STATEMENTS
WE MAKE "FORWARD-LOOKING STATEMENTS" THROUGHOUT THIS PROSPECTUS. WHENEVER
YOU READ A STATEMENT THAT IS NOT SIMPLY A STATEMENT OF HISTORICAL FACT, SUCH AS
WHEN WE DESCRIBE WHAT WE "BELIEVE," "EXPECT" OR "ANTICIPATE" WILL OCCUR, AND
OTHER SIMILAR STATEMENTS, YOU MUST REMEMBER THAT OUR EXPECTATIONS MAY NOT BE
CORRECT, EVEN THOUGH WE BELIEVE THEY ARE REASONABLE. WE DO NOT GUARANTEE THAT
THE TRANSACTIONS AND EVENTS DESCRIBED IN THIS PROSPECTUS WILL HAPPEN AS
DESCRIBED, OR THAT THEY WILL HAPPEN AT ALL. YOU SHOULD READ THIS PROSPECTUS
COMPLETELY AND WITH THE UNDERSTANDING THAT ACTUAL FUTURE RESULTS MAY BE
MATERIALLY DIFFERENT FROM WHAT WE EXPECT. WE WILL NOT UPDATE THESE FORWARD-
LOOKING STATEMENTS, EVEN THOUGH OUR SITUATION WILL CHANGE IN THE FUTURE. MANY OF
THE FACTORS THAT WILL DETERMINE THESE RESULTS ARE BEYOND OUR ABILITY TO CONTROL
OR PREDICT. YOU ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON ANY FORWARD-LOOKING
STATEMENT.
YOU SHOULD UNDERSTAND THAT A NUMBER OF FACTORS, IN ADDITION TO THOSE
DISCUSSED HEREIN, COULD AFFECT US AND COULD CAUSE RESULTS TO DIFFER MATERIALLY
FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. AMONG THESE FACTORS
ARE: (1) INCREASED COMPETITION IN OUR MARKETS, (2) OUR SUBSTANTIAL LEVERAGE AND
UNCERTAINTIES ASSOCIATED WITH SERVICING OUR DEBT, (3) CHANGES IN LAWS OR
REGULATIONS AND APPROVALS AND DECISIONS OF COURTS, REGULATORS AND GOVERNMENTAL
BODIES, (4) UNCERTAINTIES ASSOCIATED WITH THE GENERAL ECONOMIC CONDITIONS IN OUR
MARKETS, (5) DEPENDENCE ON THE INTER-CITY COACH AND TRANSIT BUS INDUSTRIES, (6)
CHANGES IN PRODUCT DEMAND, (7) CHANGES IN CUSTOMER CONCENTRATION, (8) INTEREST
RATE FLUCTUATIONS, (9) RISKS ASSOCIATED WITH MEXICAN OPERATIONS, (10) FOREIGN
CURRENCY RISKS AND (11) DEPENDENCE ON SUPPLIERS. FURTHER, WE OPERATE IN AN
INDUSTRY SECTOR WHERE SECURITIES' VALUES MAY BE VOLATILE AND MAY BE INFLUENCED
BY ECONOMIC AND OTHER FACTORS BEYOND OUR CONTROL. WE DO NOT INTEND, AND
UNDERTAKE NO OBLIGATION, TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
WHERE YOU CAN FIND MORE INFORMATION
Motor Coach Industries International, Inc. and the subsidiary guarantors
have filed a registration statement with the SEC under the Securities Act to
register the exchange notes to be issued in this exchange offer. As allowed by
the SEC's rules, this prospectus does not contain all of the information that
you can find in the registration statement and its exhibits. You will find
additional information
i
<PAGE>
about MCII, the subsidiary guarantors and the exchange notes in the registration
statement. Any statements made in this prospectus concerning the contents of a
contract, agreement or other document are not necessarily complete. If we have
filed any contract, agreement or other document as an exhibit to the
registration statement, you should read the exhibit for a more complete
understanding of the document or matter involved.
The indenture governing the outstanding notes will also govern the exchange
notes. The outstanding notes and the exchange notes, together, are a single
series of debt securities. The indenture requires us to provide quarterly and
annual financial reports to holders of the exchange notes.
You should not assume that the information in this prospectus is accurate as
of any date other than the date of this prospectus, or the respective dates of
those documents we incorporate herein by reference, regardless of when you
received this prospectus. You should rely only on the information provided in
the registration statement. We have not authorized anyone else to provide you
with different information. The exchange offer is being made to, and we will
accept surrender for exchange from, holders of outstanding notes only in
jurisdictions where the exchange offer is permitted.
As a result of the exchange offer, MCII will become subject to the
informational requirements of the Securities Exchange Act of 1934 and will file
periodic reports, statements and other information with the SEC. We do not
expect that the subsidiary guarantors will be subject to the informational
requirements of the Exchange Act. You may inspect and copy the registration
statement, including exhibits, and, when filed, our periodic reports, statements
and other information filed with the SEC at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices located at 7
World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies may be obtained from
the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The SEC also maintains a Web site at
HTTP://WWW.SEC.GOV which will contain, when filed, our reports, statements and
other information filed with the SEC.
If we are not required to be subject to the reporting requirements of the
Exchange Act in the future, we will be required under the indenture for the
exchange notes and the outstanding notes to continue to file with the SEC and to
furnish to holders of the new notes and the outstanding notes the reports,
statements and other information specified in Sections 13 and 15(d) of the
Exchange Act, including annual reports containing audited consolidated financial
statements of MCII and quarterly reports containing unaudited condensed
consolidated financial data for the first three quarters of each fiscal year.
INDUSTRY AND SALES DATA
Unless otherwise indicated, all inter-city coach industry data and
statistics contained in the prospectus are estimates contained in or derived
from independent reports and surveys periodically issued by NATIONAL BUS TRADER
magazine and BUS BOOK PUBLISHING. Industry and sales publications generally
state that the information contained in these publications have been obtained
from sources believed to be reliable, but that the accuracy and completeness of
such information is not guaranteed. We have not independently verified this
industry and sales data.
NAME CHANGE
Concurrent with the closing of the offering of the outstanding notes, we
changed our name from Transportation Manufacturing Operations, Inc. to Motor
Coach Industries International, Inc.
ii
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THE PROSPECTUS
AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. WE
ENCOURAGE YOU TO READ THIS PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS"
SECTION AND FINANCIAL STATEMENTS. IN THIS PROSPECTUS, (1) GRUPO DINA REFERS TO
CONSORCIO G GRUPO DINA, S.A. DE C.V., A MEXICAN CORPORATION, (2) MCII HOLDINGS
REFERS TO MCII HOLDINGS (USA), INC., A DELAWARE CORPORATION, AND (3) WE, US, OUR
AND SIMILAR TERMS, AS WELL AS REFERENCES TO OUR COMPANY AND MCII REFER TO MOTOR
COACH INDUSTRIES INTERNATIONAL, INC. AND ITS SUBSIDIARIES INCLUDING DINA
AUTOBUSES, S.A. DE C.V. AND ITS SUBSIDIARIES.
THE COMPANY
We are the leading designer, manufacturer and marketer of inter-city coaches
and related replacement parts for the North American market. We began
manufacturing inter-city coaches and distributing replacement parts in 1933.
Since the late 1970s, we have consistently maintained a market share in excess
of 50% of the United States and Canadian inter-city coach market and estimate
that our 1998 market share was 56%. Our established market position and product
longevity have led to an installed base that, according to a BUS BOOK PUBLISHING
report, exceeds 70% of the estimated 38,000 industry-wide fleet of inter-city
coaches operating in the United States and Canada in 1998. We believe that
strong brand name recognition under the MCI-Registered Trademark- logo and a
reputation for quality products have led to our large installed customer base
and lead to new coach purchases and demand for our replacement parts. We also
believe that we are the largest distributor of replacement parts for inter-city
coaches and transit buses in the United States and Canada with an estimated 33%
of this combined market.
From 1995 to 1998, our annual revenues have grown from $527.1 million to
$931.7 million, representing a 20.9% compound annual growth rate. We attribute
our growth to the successful introduction of new coach models, the upgrading and
expansion of several of our existing product lines and strong industry
fundamentals. Over that same period, our annual EBITDA has increased from $59.1
million in 1995 to $108.6 million in 1998, representing a 22.5% compound annual
growth rate. Our revenues and Adjusted EBITDA for the twelve months ended June
30, 1999 were $934.2 million and $123.0 million, respectively.
Our principal lines of business are:
MANUFACTURING AND SELLING NEW COACHES. We design, manufacture and market
new coaches in the United States, Canada and Mexico. In the United States and
Canada, we sell our coaches under the MCI-Registered Trademark- and
VIAGGIO-REGISTERED TRADEMARK- names and in Mexico and Latin America we sell
under the DINA and VIAGGIO-Registered Trademark- names. Our broad product lines
and comprehensive option offerings target each level of the inter-city coach
market, ranging from high-end charter coaches to lower-cost line-haul coaches.
For the twelve months ended June 30, 1999, new coach sales represented 69% of
our revenues.
MANUFACTURING AND SELLING REPLACEMENT PARTS. We manufacture and/or
distribute throughout North America more than 60,000 replacement parts for
inter-city coaches, approximately 20% of which are our proprietary products.
Besides our OEM products, we also distribute non-OEM replacement parts under our
COACH GUARD-REGISTERED TRADEMARK- and DIESEL GUARD-REGISTERED TRADEMARK- brand
names. For the twelve months ended June 30, 1999, replacement parts represented
20% of our revenues.
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To support our principal business lines, we engage in the following related
activities:
USED COACH SALES AND SERVICE. Through our broad sales network, we provide
used coach brokerage and dealership services. Due to our large installed base of
coaches, our extensive maintenance and repair capabilities, longstanding
customer relationships and industry knowledge, we are able to further support
our customers by purchasing and reselling used coaches. In addition, we have one
of the largest coach service center networks, with five centers located
throughout the United States and Canada. We believe our dedicated sales, parts
and service network enhances the high residual values enjoyed by our coaches,
which in turn is a major selling point when marketing new coaches.
LEASING AND FINANCING COACHES. To further support our sales efforts, we
offer a comprehensive package of leasing and financing services to our
customers. Our leasing and financing services allow us to generate incremental
sales and provide us with an additional competitive advantage due to our ability
to assist customers in financing their coach purchases.
According to NATIONAL BUS TRADER, a leading industry publication, the growth
of the inter-city coach industry has been driven by several factors including
the overall strength of the U.S. economy, the expected increase in coach tourism
resulting from the aging U.S. population and the fleet upgrading being
undertaken by many inter-city coach operators. According to NATIONAL BUS TRADER,
the general health of the U.S economy and the resulting increase in disposable
incomes and consumer confidence has led to increased leisure travel. NATIONAL
BUS TRADER also believes that inter-city coach fleet improvement and
modernization may have been the most significant factor behind new coach unit
growth in 1998. Operators are replacing older 40-foot, manual transmission
coaches with newer 45-foot, automatic transmission models. NATIONAL BUS TRADER
believes that this fleet improvement and modernization trend will continue to
drive demand in 1999. In addition, inter-city coach sales have benefited from
the prevailing low interest rates experienced in recent years.
COMPETITIVE STRENGTHS
RECOGNIZED INDUSTRY LEADER. We have been a leading manufacturer of
inter-city coaches and replacement parts in the United States and Canada for
more than 30 years. According to the NATIONAL BUS TRADER, we had the two most
popular, and four of the top six, seated coach models delivered in the United
States and Canada in 1998. We offer our customers what we believe is the
broadest range of parts and provide our customers with prompt delivery,
generally within 24-hours.
FIRMLY ESTABLISHED RELATIONSHIP WITH GREYHOUND LINES. For over 30 years, we
have been the principal supplier of coaches to Greyhound Lines, Inc. and
Greyhound Lines of Canada, Ltd., which are both owned by Laidlaw Inc., the
largest buyer of coaches in North America. Our coaches currently represent
greater than 90% of the approximately 3,100 vehicles in Greyhound's combined
fleet. We currently have dedicated supplier agreements with Greyhound Lines and
Greyhound Canada for inter-city coaches which requires Greyhound Lines to
purchase at least 80% of its new coaches from us and Greyhound Canada to
purchase at least 75% of its new coaches from us. In addition, we are developing
our next generation line-haul coach, the G-Series, in consultation with
Greyhound Lines. We expect that we will begin pilot production of the G-Series
in late 1999.
FAVORABLE TRENDS. We expect to benefit from several favorable trends in the
coach industry, including (1) the resurgence of Greyhound as a national
line-haul operator, and the commitment to the inter-city coach business shown by
Laidlaw's acquisition of Greyhound, (2) the growth of Coach USA, Inc., the
leading tour and charter operator in the United States, adding stability in the
tour and charter segment of the industry, and (3) the acceleration of the fleet
replacement cycle for our top two customers, Greyhound and Coach USA.
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CONTINUED MANUFACTURING EFFICIENCY IMPROVEMENTS. During 1998, we decreased
per unit manufacturing costs. We have improved our manufacturing capacity while
reducing costs through improved product design and manufacturing process
improvements. For example, the new E-Series RENAISSANCE-REGISTERED TRADEMARK-
coach was introduced during 1997 and is built using approximately one-third
fewer parts than previous models. The advanced design of the E-Series coach
significantly reduces production labor hours and is intended to increase product
quality.
COMPLEMENTARY PRODUCT LINES MITIGATE CYCLICAL MARKETS. Our operations
combine the new coach manufacturing business, which performs best in a strong
general economic environment, with the replacement parts, used coach sales and
service businesses, which have historically performed more favorably during
general economic downturns. Replacement parts and service sales tend to increase
during an economic downturn as customers defer new coach purchases and extend
the useful lives of their existing fleets. The complementary nature of our
businesses tends to mitigate the impact of reduced new coach sales during
periods of economic downturns.
BARRIERS TO ENTRY. To be competitive, potential participants looking to
enter the inter-city coach manufacturing industry would need to make significant
capital investments in plant and equipment and hire from a limited pool of
experienced engineering, manufacturing and R&D personnel. We believe that
further barriers include our brand recognition and customer loyalty that result
from our leading market position and significant installed customer base. A
successful coach manufacturer must make significant capital investments to
support its customers through a large inventory of replacement parts and
nationwide service centers. Furthermore, switching coach manufacturers is
expensive and time consuming for fleet operators, as drivers and maintenance
personnel would need to be retrained and replacement parts would need to be
restocked in order to service and maintain multiple coach brands.
STATE-OF-THE-ART DESIGNS. The E-Series RENAISSANCE-Registered Trademark-,
which was introduced in 1997, has been well received by customers and the
inter-city coach industry. The E-Series was the co-winner of the 1996 Concurrent
Engineering Award for new product design given jointly by Structural Dynamics
Research Corporation and MACHINE DESIGN magazine. The E-Series was engineered to
maximize manufacturing efficiencies by requiring fewer assembly hours and parts.
We believe that the E-Series' patented spiral staircase, advanced audio systems
and larger overhead luggage racks and lavatories are innovative features that
have contributed to its success. Our G-Series coach incorporates the engineering
advances and lessons learned from the development of the E-Series.
BUSINESS STRATEGY
Our business objective is to profitably grow our position as the leading
North American manufacturer of inter-city coaches. In order to do so, we will
pursue the following strategies:
CONTINUE NEW PRODUCT INTRODUCTIONS AND REFINEMENTS. In the last two years,
we have introduced two new model lines, the E-Series
RENAISSANCE-REGISTERED TRADEMARK- coach, for use in the luxury tour and charter
markets, and the F-Series coach, a lower cost line-haul model initially designed
for the Mexican marketplace. Each unit is highly competitive within its specific
market, and customer acceptance of both units was high in 1998. In late 1999, we
intend to begin pilot production of our G-Series coach. The all-new G-Series is
being designed in consultation with Greyhound primarily to serve the needs of
the U.S. line-haul market. Going forward, we intend to refine existing and new
product lines to meet the needs of our customers.
LEVERAGE LOW COST MANUFACTURING. We continue to seek to improve our margins
by lowering our manufacturing costs. In particular, we have an opportunity to
utilize available production capacity at our ISO 9001 certified facility in
Sahagun, Mexico. This process began in a limited manner with the introduction of
the DOT certified VIAGGIO-REGISTERED TRADEMARK- 1000 model, which addresses the
lower-cost niche in the United States and Canadian markets. As part of our
long-term strategy, we plan to use our Sahagun
3
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facility to manufacture the new F- and G-Series models. We expect that this will
allow us to manufacture these vehicles at a lower unit cost than they could be
produced in our existing U.S. and Canadian facilities due to significantly lower
labor costs in Mexico.
SEEK NEW MARKET NICHES. In the near term, we intend to build on the success
of recently launched model lines. In the United States, we will increase our
marketing of E-Series coaches in shell form into the high-end motor home
conversion segment. In the longer term, we are considering marketing the
F-Series unit to select U.S. niche markets, including the motor home conversion
and airport transfer markets.
CONTINUE TO IMPROVE SERVICE OFFERINGS. We believe that our success is
largely attributable to our dedication to customer service. Our full-service
approach is applied to all segments of our business, including new coach sales,
used coach sales, replacement parts, service, financing and leasing. Since the
beginning of 1998, we opened new service facilities in Dallas, Montreal and Los
Angeles, and further service facilities are under consideration. We also
recently announced plans to consolidate our existing parts facilities into a new
single facility to be built in Louisville, Kentucky. The strategic location of
this facility will permit us to accept orders later than our current
capabilities for next day delivery. In addition to increasing customer service,
the Louisville facility is expected to significantly reduce overall operating
costs and benefit from local government tax incentives.
FURTHER RATIONALIZE OPERATIONS. We believe we can continue to reduce costs
through further process and manufacturing re-engineering. In the U.S. and
Canadian coach business, we improved our operating margin through reductions in
support personnel and the elimination of redundancies. We continue to
re-engineer our manufacturing processes and component designs in order to
increase parts standardization and reduce manufacturing costs. We believe that
parts standardization will result in faster parts delivery to our customers and
increased profitability and market penetration due to higher product quality.
------------------------
We are a Delaware corporation. Our principal executive offices are located
at 10 East Golf Road, Des Plaines, Illinois 60016 (Telephone (847) 299-9900).
THE TRANSACTIONS
The offering of the outstanding notes was part of an overall plan to
recapitalize and restructure substantially all of the indebtedness of Grupo Dina
and its subsidiaries, including MCII, through a series of dependent transactions
(the "Transactions"). The Transactions were comprised of the following
transactions, each of which occured simultaneously with the offering of the
outstanding notes.
SALE OF MAJORITY EQUITY INTEREST IN MCII HOLDINGS. On June 16, 1999, Joseph
Littlejohn & Levy Fund III L.P., an affiliate of Joseph Littlejohn & Levy, Inc.,
along with affiliates of Canadian Imperial Bank of Commerce, an affiliate of
CIBC World Markets Corp., an initial purchaser of the outstanding notes,
invested $175 million in MCII Holdings comprised of (1) a $125 million
investment in common equity and warrants to purchase common equity, and (2) a
$50 million investment in the form of MCII Holdings' senior notes. MCII
Holdings' investment in MCII took the form of an equity contribution of the
amounts received from the equity investors. As a result of this investment and
certain redemption transactions, the equity investors own in the aggregate 61%
of MCII Holdings, leaving Grupo Dina with a 39% minority interest.
THE ASSET TRANSFERS. Concurrent with the consummation of the Transactions,
Grupo Dina made certain transfers of assets and subsidiaries in order to
concentrate its core coach business assets at or under MCII. In addition, MCII
Holdings cancelled certain intercompany advances and receivables due from Grupo
Dina. The asset transfers included, among others, the following significant
transfers and inter-company cancelations:
4
<PAGE>
- MCII Holdings transferred its Dina Autobuses, S.A. de C.V. subsidiary to
us and Autobuses became our subsidiary;
- MCII Holdings transferred its Mexicana de Manufacturas Especiales, S.A. de
C.V., subsidiary to Grupo Dina;
- One of our Canadian subsidiaries entered into a sale-leaseback transaction
with Grupo Dina for tooling and equipment located at the facility at St.
Matthews Street in Winnipeg, Manitoba. The market value of the tooling and
equipment at the facility was between $2 million and $4 million and the
transfer price and lease payments were for nominal amounts;
- Autobuses transferred certain immaterial Mexican subsidiaries to Grupo
Dina;
- Autobuses exchanged certain of its unimproved property in Mexico for
unimproved property and two facilities of a Grupo Dina subsidiary;
- Autobuses transferred to Grupo Dina a group of transit buses that are
leased to a company affiliated with Grupo Dina, together with the related
lease rights;
- Autobuses canceled certain inter-company advances due from Grupo Dina that
totaled approximately $115 million; and
- MCII transferred its Universal Coach Parts Mexico, S.A. de C.V. subsidiary
to Grupo Dina and canceled $7.3 million related receivables.
For further information regarding the asset transfers, see the discussion under
the caption "Certain Transactions; Relationship with Grupo Dina" on page 72.
THE FINANCING TRANSACTIONS. As part of the Transactions:
- MCII issued $152.3 million aggregate principal amount of the outstanding
notes.
- MCII entered into a $445 million senior credit facility and made initial
borrowings of $333 million in the form of term loans, leaving an
additional $112 million in revolving credit commitments available;
- MCII repaid or redeemed (1) all amounts outstanding under our old senior
credit facility, approximately $166 million, including accrued interest,
(2) our approximately $100 million outstanding 9.02% senior notes, (3) our
approximately $40 million outstanding increasing rate notes due 1999, and
(4) approximately $14.0 million outstanding under Autobuses' existing
credit facility;
- Grupo Dina completed tender offers and consent solicitations for (1) its
$206.5 million aggregate principal amount of senior secured discount notes
due 2002, plus accrued interest, and (2) the $35 million outstanding
senior secured guaranteed notes due 2000, plus accrued interest, of Dina
Trucks (USA) L.L.C., a subsidiary of Grupo Dina. We distributed proceeds
from the outstanding notes as well as proceeds from borrowings under our
senior credit facility to Grupo Dina as a partial redemption of MCII
Holdings common stock held by Grupo Dina to finance the tender offers; and
- MCII made the $71.4 million final distribution to Grupo Dina that
represents the excess of the foregoing debt and equity proceeds over the
amount required to repurchase and repay the foregoing indebtedness and to
pay accrued interest, transaction premiums, fees and expenses. The final
distribution occurred pursuant to a partial redemption distribution for
MCII Holdings common stock owned by Grupo Dina. Motor Coach Industries
International's indenture and senior credit facility restrict any further
dividends or distributions to Grupo Dina or MCII Holdings.
5
<PAGE>
ADDITIONAL ARRANGEMENTS. MCII Holdings and Autobuses have entered into
several agreements with Grupo Dina and a subsidiary of Grupo Dina to provide
various transitional and support services. In addition, agreements were entered
into relating to licensing of trademarks and tradenames, rights of Grupo Dina to
supply parts to us, distribution rights and non-competition matters which are on
terms at least as favorable as those that could be obtained by us in comparable
transactions made on an arm's-length basis between unaffiliated parties. For
further information regarding these additional agreements, see the discussion
under the caption "Certain Transactions; Relationship with Grupo Dina" on page
72.
SOURCES AND USES OF FUNDS. The following table sets forth the sources and
uses of funds in connection with the Transactions:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
SOURCES OF FUNDS:
Cash on hand at MCII............................................................................... $ 33.1
Senior credit facility(1).......................................................................... 333.0
Outstanding notes, net of issue discount........................................................... 150.1
Equity investment from MCII Holdings............................................................... 175.0
------
Total Sources.................................................................................. $ 691.2
------
------
USES OF FUNDS:
Repayment of MCII's old senior credit facility..................................................... $ 165.5
Repayment of MCII's 9.02% senior notes............................................................. 100.0
Repayment of Autobuses' old credit facility........................................................ 14.0
Purchase of Dina Trucks' senior secured guaranteed notes(2)........................................ 35.0
Purchase of Grupo Dina's senior secured discount notes(3).......................................... 206.5
Repayment of MCII's senior subordinated increasing rate notes...................................... 40.0
Final distribution to Grupo Dina................................................................... 71.4
Accrued interest, transaction premiums, fees and expenses(4)....................................... 58.8
------
Total Uses..................................................................................... $ 691.2
------
------
</TABLE>
- ------------------------------
(1) The borrowings consisted of term loans with an additional $112 million in
revolving credit commitments available.
(2) On May 14, 1999, Grupo Dina commenced a tender offer to purchase and consent
solicitation for all of the $35.0 million principal amount outstanding
senior secured guaranteed notes of Dina Trucks. All senior secured
guaranteed notes were tendered and purchased pursuant to the tender offer
concurrent with the closing of the Transactions.
(3) On May 14, 1999, Grupo Dina commenced a tender offer to purchase and consent
solicitation for all of the $206.5 million outstanding senior secured
discount notes that were jointly issued by Grupo Dina and MCII Holdings.
Approximately 99.97% of the senior secured discount notes were tendered and
purchased pursuant to the tender offer concurrent with the closing of the
Transactions. On July 19, 1999, Grupo Dina redeemed all senior secured
discount notes not purchased in the tender offer.
(4) Accrued interest, transaction premiums, fees and expenses included (A) a
redemption premium and accrued interest on MCII's 9.02% senior notes of
approximately $5.3 million and $0.4 million, respectively, (B) $0.2 million
of accrued interest on Autobuses' existing credit facility, (C) $0.6 million
of accrued interest on Dina Trucks' senior secured guaranteed notes, (D)
$14.5 million of accrued interest on Grupo Dina's senior secured discount
notes, (E) $0.2 million of accrued interest and a $0.2 million redemption
premium on MCII's senior subordinated increasing rate notes and (F) $0.5
million of accrued interest and $0.2 million of redemption premium on the
senior credit facilities.
6
<PAGE>
THE EQUITY INVESTORS
Pursuant to the terms of the investment agreement, the equity investors
invested $175 million in debt and equity of MCII Holdings, in order to effect
the restructuring of MCII Holdings, including the repayment of the indebtedness
described under "--The Transactions" on page 4. The equity investors own in the
aggregate 61% of MCII Holdings.
JLL, the sponsoring equity investor, was founded in 1988 as a private
partnership dedicated to making strategic investments in consolidating
industries and to investing in corporate divestitures, recapitalizations and
restructurings. To date, the firm has raised $1.6 billion of capital from a
variety of institutional investors. Since its formation, JLL has made
investments in various industries, including food products, automotive parts,
healthcare, media, building products, specialty chemicals, and basic
manufacturing. In February 1998, JLL closed on its third fund, the $1.0 billion
JLL Fund III.
7
<PAGE>
THE EXCHANGE OFFER
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION REGARDING THE EXCHANGE
OFFER AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU
SHOULD READ "THE EXCHANGE OFFER" BEGINNING ON PAGE 25 FOR A MORE COMPLETE
DESCRIPTION.
<TABLE>
<S> <C>
OUTSTANDING NOTES................. 11 1/4% Senior Subordinated Notes due 2009, which were
issued on June 16, 1999.
EXCHANGE NOTES.................... 11 1/4% Senior Subordinated Notes due 2009, which have
been registered under the Securities Act. The terms of
the exchange notes are substantially identical to those
of the outstanding notes, except that the transfer
restrictions, registration rights and liquidated damages
provisions relating to the outstanding notes do not
apply to the exchange notes.
THE EXCHANGE OFFER................ Up to $152,250,000 aggregate principal amount of
exchange notes registered under the Securities Act of
1933 are being offered in exchange for the same
principal amount of the outstanding notes. The terms of
the exchange notes and the outstanding notes are
substantially identical. Outstanding notes may be
tendered for exchange in whole or in part in any
integral multiple of $1,000. We are making the exchange
offer in order to satisfy our obligations under the
registration rights agreement relating to the
outstanding notes.
EXPIRATION DATE................... 5:00 p.m., New York City time, November 8, 1999, unless
the exchange offer is extended, in which case the
expiration date will be the latest date and time to
which the exchange offer is extended.
CONDITIONS TO THE EXCHANGE
OFFER........................... The exchange offer is subject to customary conditions.
See the discussion under the caption "The Exchange
Offer-- Conditions to the Exchange Offer" beginning on
page 31 for more information regarding the conditions to
the exchange offer. The exchange offer is not
conditioned upon any minimum principal amount of
outstanding notes being tendered. We reserve the right
in our sole and absolute discretion, subject to
applicable law, at any time and from time to time:
- to delay the acceptance of the outstanding notes for
exchange;
- to terminate the exchange offer if one or more
specific conditions have not been satisfied;
- to extend the expiration date of the exchange offer
and retain all outstanding notes tendered pursuant to
the exchange offer, subject, however, to the right of
holders of outstanding notes to withdraw their
tendered outstanding notes; or
- to waive any condition or otherwise amend the terms
of the exchange offer in any respect.
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
WITHDRAWAL RIGHTS................. Tenders of outstanding notes may be withdrawn at any
time on or prior to the expiration date by delivering a
written notice of withdraw to the exchange agent in
conformity with the procedures discussed under "The
Exchange Offer-- Withdrawal of Tenders" beginning on
page 31.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES............... Unless you comply with the procedures described below
under the caption "The Exchange Offer--Guaranteed
Delivery Procedures" on page 30, you must do one of the
following on or prior to the expiration of the exchange
offer to participate in the exchange offer.
- tender your outstanding notes by sending the
certificates for your outstanding notes, in proper form
for transfer, a properly completed and duly executed
letter of transmittal, with any required signature
guarantees, and all other documents required by the
letter of transmittal, to IBJ Whitehall Bank and Trust
Company, as exchange agent, at the address listed
under the caption "The Exchange Offer-- Exchange
Agent" on page 32; or
- tender your outstanding notes by using the book-entry
transfer procedures described below and transmitting a
properly completed and duly executed letter of
transmittal, with any required signature guarantees,
or an agent's message instead of the letter of
transmittal, to the exchange agent. In order for a
book-entry transfer to constitute a valid tender of
your outstanding notes in the exchange offer the
exchange agent must receive a confirmation of book-
entry transfer of your outstanding notes into its
account at The Depository Trust Company prior to the
expiration of the exchange offer. For more information
regarding the use of book-entry transfer procedures,
including a description of the required agent's
message, see the discussion under the caption "The
Exchange Offer--Procedures for Tendering Outstanding
Notes" beginning on page 28.
GUARANTEED DELIVERY PROCEDURES.... If you are a registered holder of the outstanding notes
and wish to tender your outstanding notes in the
exchange offer, but
- the outstanding notes are not immediately available,
- time will not permit your outstanding notes or other
required documents to reach the exchange agent before
the expiration of the exchange offer, or
- the procedure for book-entry transfer cannot be
completed prior to the expiration of the exchange offer,
you may tender outstanding notes by following the
procedures described below under the caption "The
Exchange Offer-- Guaranteed Delivery Procedures"
beginning on page 30.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
ACCEPTANCE OF OUTSTANDING NOTES
AND DELIVERY OF EXCHANGE
NOTES........................... Upon consummation of the exchange offer, we will accept
any and all outstanding notes that are properly tendered
in the exchange offer and not withdrawn prior to 5:00
p.m., New York City time, on the expiration date. The
exchange notes issued pursuant to the exchange offer
will be delivered promptly after acceptance of the
outstanding notes.
RESALES OF EXCHANGE NOTES......... We believe that you will be able to offer for resale,
resell or otherwise transfer exchange notes issued in
the exchange offer without compliance with the
registration and prospectus delivery provisions of the
federal securities laws, provided that:
- you are not a broker-dealer;
- you are not participating in a distribution of the
exchange notes; and
- you are not an "affiliate" of Motor Coach Industries
International, Inc., as the term is defined in Rule
144A under the Securities Act.
Our belief is based on interpretations by the staff of
the SEC, as set forth in no-action letters issued to
third parties unrelated to us. The staff has not
considered this exchange offer in the context of a
no-action letter, and we cannot assure you that the
staff would make a similar determination with respect to
this exchange offer.
If our belief is not accurate and you transfer an
exchange note without delivering a prospectus meeting
the requirements of the federal securities laws or
without an exemption from these laws, you may incur
liability under the federal securities laws. We do not
and will not assume, or indemnify you against, this
liability.
Each broker-dealer that receives exchange notes for its
own account in exchange for outstanding notes which were
acquired by the broker-dealer as a result of
market-making or other trading activities must agree to
deliver a prospectus meeting the requirements of the
federal securities laws in connection with any resale of
the exchange notes.
EXCHANGE AGENT.................... The exchange agent with respect to the exchange offer is
IBJ Whitehall Bank & Trust Company.
USE OF PROCEEDS................... We will not receive any cash proceeds from the issuance
of the exchange notes offered hereby.
MATERIAL FEDERAL TAX
CONSIDERATIONS.................. The exchange of outstanding notes for exchange notes in
the exchange offer will not be a taxable transaction for
United States federal income tax purposes. You should
review the information set forth under "Material Federal
Tax Considerations" beginning on page 115 prior to
tendering outstanding notes in the exchange offer.
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
CONSEQUENCES OF NOT EXCHANGING
OUTSTANDING NOTES............... If you do not exchange your outstanding notes in the
exchange offer, your outstanding notes will continue to
be subject to the restrictions on transfer described in
the legend on the certificate for your outstanding
notes. In general, you may offer or sell your
outstanding notes only:
- if they are registered under the Securities Act and
applicable state securities laws;
- if they are offered or sold under an exemption from
registration under the Securities Act and applicable
state securities laws; or
- if they are offered or sold in a transaction not
subject to the Securities Act and applicable state
securities laws.
We do not currently intend to register the outstanding
notes under the Securities Act. For more information
regarding the consequences of not tendering your
outstanding notes, see "The Exchange Offer--Consequences
of Failure to Exchange" on page 33.
</TABLE>
TERMS OF THE EXCHANGE NOTES
The exchange offer applies to an aggregate principal amount of $152,250,000
of the outstanding notes. The form and terms of the exchange notes will be
identical in all material respects to the form and terms of the outstanding
notes except:
- the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer;
- holders of exchange notes will not be entitled to any liquidated damages
under the registration rights agreement relating to the outstanding notes;
and
- holders of the exchange notes will not be, and upon consummation of the
exchange offer, holders of the outstanding notes will no longer be,
entitled to specific rights under the registration rights agreement for
the outstanding notes intended for the holders of unregistered securities.
The exchange notes will be our obligations entitled to the benefits of the
indenture. See "Description of the Exchange Notes" beginning on page 77.
<TABLE>
<S> <C>
EXCHANGE NOTES OFFERED............ $152,250,000 aggregate principal amount of 11 1/4%
Senior Subordinated Notes.
MATURITY DATE..................... May 1, 2009.
INTEREST.......................... Interest on the exchange notes is payable semi-annually
in cash on May 1 and November 1, commencing on November
1, 1999.
SUBSIDIARY GUARANTEES............. Our present and future domestic restricted subsidiaries
will guarantee the exchange notes. If MCII cannot make
payments on the exchange notes when they are due, the
subsidiary guarantors must make the payments instead.
RANKING........................... The exchange notes and subsidiary guarantees are
unsecured senior subordinated obligations of MCII and
the subsidiary guarantors, respectively. The exchange
notes will rank junior to
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
all of the senior indebtedness of MCII, including
borrowings under the credit facility and the subsidiary
guarantees will rank junior to the senior indebtedness
of the subsidiary guarantors.
OPTIONAL REDEMPTION............... We may redeem any of the exchange notes beginning on May
1, 2004, initially at 105.625% of their principal
amount, plus accrued interest. The redemption price will
decline each year after 2004 and will be 100% of the
principal amount, plus accrued and unpaid interest
beginning on May 1, 2007.
Before May 1, 2002, we may redeem up to 35% of the
exchange notes with the proceeds from some equity
offerings at a redemption price of 111.25% of their
principal amount, plus accrued interest. However, we may
only make such redemptions if at least 65% of the
principal amount of exchange notes remains outstanding
after each redemption, excluding exchange notes held by
us or the subsidiary guarantors, and such redemption
occurs within 90 days of the date of the closing of the
equity offering.
MANDATORY OFFER TO REPURCHASE..... If we experience specific kinds of changes of control,
or under certain circumstances, if we sell assets, we
must offer to repurchase the exchange notes at the
prices listed in "Description of the Exchange Notes" on
page 77.
BASIC COVENANTS OF THE The terms of the outstanding notes do, and of the
INDENTURE....................... exchange notes will, restrict our ability to, among
other things:
- borrow money;
- pay dividends on our capital stock;
- redeem or repurchase our capital stock;
- make investments;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer or sell our assets.
These covenants are subject to important exceptions and
qualifications which are described in "Description of
the Exchange Notes--Certain Covenants" beginning on page
80.
</TABLE>
RISK FACTORS
You should carefully consider all the information contained in this
prospectus before deciding to tender your outstanding notes in the exchange
offer. In particular, you should carefully review the specific factors described
below under the caption "Risk Factors" beginning on page 16, which contain
important information about us and the risks that may affect our business.
12
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary consolidated financial data for the three years ended December
31, 1998 are derived from our consolidated financial statements and should be
read in conjunction with those statements, which are included in this
prospectus.
The summary consolidated financial data as of and for the six months ended
June 30, 1998 and 1999 are derived from our unaudited consolidated financial
statements included in this prospectus. The unaudited consolidated financial
statements, in our opinion, have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments necessary for a
fair presentation of our financial condition and results of operations for such
periods. The results of operations as of and for the six and twelve month
periods ended June 30, 1999 are not necessarily indicative of results of
operations for the full year ending December 31, 1999.
The summary pro forma financial data are derived from the historical data
modified, as described in the notes to the summary below, to reflect the
Transactions, which include (1) the equity investment, (2) the asset transfers
and (3) the financing transactions. The summary pro forma financial data include
certain estimates made by us based upon currently available information and are
subject to change.
The following summary consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes included in this prospectus.
13
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS
YEAR ENDED DECEMBER 31, JUNE 30, ENDED
------------------------------------------ -------------------- JUNE 30,
1996 1997 1998 1998 1999 1999
------------ ------------ ------------ --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
INCOME STATEMENT DATA:
Total revenues..................... $ 667,084 $ 739,783 $931,727 $ 484,751 $ 487,262 $ 934,238
Cost of sales (1).................. 509,804 549,001 730,954 386,379 387,565 732,140
Depreciation and amortization...... 17,618 22,035 24,815 11,909 12,334 25,240
Research and development
expenses......................... 7,346 6,655 8,741 5,239 4,633 8,135
Other operating expenses(2)........ 72,483 83,639 83,413 41,322 50,516 92,607
Operating income................... 59,833 78,453 83,804 39,902 32,214 76,116
Interest expense, net(3)........... 35,579 43,494 45,179 20,237 27,947 52,889
Other expense (income)............. (2,344) (2,835) (7,814) (5,198) 2,399 (217)
Income from continuing
operations....................... 8,124 16,526 14,649 9,466 (5,775) (592)
OTHER DATA (UNAUDITED):
New inter-city coach
deliveries(4).................... 1,511 1,732 2,173 1,131 1,055 2,097
EBITDA (5)......................... $ 77,451 $ 100,488 $108,619 $ 51,811 $ 65,548 $ 122,356
Capital expenditures............... 25,609 32,096 11,740 5,122 16,843 23,461
EBITDA margin...................... 11.6% 13.6% 11.7% 10.7% 13.5% 13.1%
Net cash provided by (used in):
Operating activities............. $ 44,320 $ (52,585) $ 73,732 $ 50,455 $ 11,607 $ 34,884
Investing activities............. (30,338) (71,170) (14,683) (9,252) (26,940) 32,371
Financing activities............. (35,254) 128,349 (49,008) (28,260) 32,173 11,425
PRO FORMA FINANCIAL DATA
(UNAUDITED)(6):
Adjusted EBITDA(7)................. $112,283 $ 67,548 $ 122,978
Total interest expense(8).......... 48,723 24,372 48,723
Ratio of Adjusted EBITDA to
interest expense, net............ 2.3x 2.8x 2.5x
Ratio of total debt to Adjusted
EBITDA(9)........................ 4.3x 4.0x
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................................ $ 40,878
Working capital(10).................................................................................. 211,171
Total assets......................................................................................... 835,823
Total debt........................................................................................... 494,134
Stockholder's equity................................................................................. 130,749
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
14
<PAGE>
NOTES TO SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(1) Cost of sales for the six months ended June 30, 1999 included a non-cash
charge of $21 million related to inventory valuations.
(2) Other operating expenses are comprised of selling, general and
administrative expenses and other miscellaneous operating expenses. In
1998, other operating expenses were offset by $8.5 million for business
insurance recoveries.
(3) As proceeds from the Transactions were used to repay the $206.5 million of
Grupo Dina's senior secured discount notes, our consolidated financial
statements have been adjusted to include the "push down" of the senior
secured discount notes, and the related interest expense, in order to
comply with applicable Securities and Exchange Commission accounting
policies.
(4) 1998 deliveries include 31 units under demonstration lease agreements.
(5) EBITDA represents income before the 1999 second quarter non-cash inventory
charge, interest expense, income taxes, discontinued operations,
extraordinary items, depreciation and amortization and other non-operating
income and expenses, each of which can significantly affect our results of
operations and liquidity and should be considered in evaluating our
financial performance. EBITDA is included because we understand that such
information is considered to be an additional basis on which to evaluate
our ability to pay interest, repay debt and make capital expenditures.
EBITDA is not intended to represent and should not be considered more
meaningful than, or as an alternative to, measures of performance,
profitability or liquidity determined in accordance with generally accepted
accounting principles. However, management believes that EBITDA is a
meaningful measure of performance but understands that it is not
necessarily comparable to similarly titled amounts of other companies.
(6) Adjusted to give effect to the Transactions as if the Transactions had
occurred on January 1, 1998. See "Use of Proceeds", "Capitalization" and
"Prospectus Summary--The Transactions."
(7) Adjusted EBITDA represents EBITDA that has been adjusted for the following:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS SIX MONTHS TWELVE MONTHS
DECEMBER 31, ENDED JUNE 30, ENDED JUNE 30, ENDED JUNE 30,
1998 1998 1999 1999
------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
EBITDA................................ $ 108,619 $ 51,811 $ 65,548 $ 122,356
Pro forma adjustments(a).............. (1,876) (943) (1,028) (1,961)
Non-recurring executive
compensation(b)..................... 1,550 -- 997 2,547
Non-recurring royalty expense(c)...... 3,990 5,985 2,031 36
------------- ------- ------- ---------------
Adjusted EBITDA....................... $ 112,283 $ 56,853 $ 67,548 $ 122,978
------------- ------- ------- ---------------
------------- ------- ------- ---------------
</TABLE>
(a) See Pro Forma Unaudited Condensed Consolidated Financial Information
beginning on page 38.
(b) Adjusted to exclude the effect of the discontinuance of certain
discretionary compensation to an executive officer. Upon consummation of
the Transactions, we entered into a new employment agreement with Mr.
Rafael Gomez Flores. See "Management--Employment Agreement" and
"Management--Executive Compensation."
(c) Adjusted to exclude the effect of the discontinuance of royalty
payments to Grupo Dina as part of the equity investment.
(8) Represents estimated interest expenses on the new senior credit facility
and the notes.
(9) The ratio of total debt to Adjusted EBITDA for the year ended December 31,
1998 represents the ratio of pro forma long-term debt (including current
maturities) as of December 31, 1998 to Adjusted EBITDA for the year ended
December 31, 1998. The ratio of total debt to Adjusted EBITDA for the
twelve months ended June 30, 1999 represents the ratio of long-term debt
(including current maturities) as of June 30, 1999 to Adjusted EBITDA for
the twelve month period ended June 30, 1999.
(10) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding short-term debt and
current portion of long-term debt).
15
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO TENDER YOUR OUTSTANDING NOTES IN THE EXCHANGE
OFFER. THE RISK FACTORS DESCRIBED BELOW--OTHER THAN "CONSEQUENCES OF NOT
EXCHANGING OUTSTANDING NOTES INCLUDE RESTRICTIONS ON TRANSFER AND THE
TERMINATION OF REGISTRATION RIGHTS"--ARE GENERALLY APPLICABLE TO THE OUTSTANDING
NOTES AS WELL AS THE EXCHANGE NOTES.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THESE NOTES.
We have a substantial amount of indebtedness. The following chart shows
certain important credit statistics and reflects the completion of the
Transactions as of the dates or at the beginning of the periods specified below
and applied the proceeds as intended:
<TABLE>
<CAPTION>
AS OF JUNE 30,
1999
------------------
(DOLLARS IN
MILLIONS)
<S> <C>
Total debt.................................................................................... $ 494.1
Stockholder's equity.......................................................................... 130.7
Debt to equity ratio.......................................................................... 3.8x
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
DECEMBER 31, 1998
-----------------------
ACTUAL PRO FORMA
---------- -----------
<S> <C> <C>
Ratio of earnings to fixed charges........................................................... 1.9x 1.8x
</TABLE>
Our indenture allows us to borrow a significant amount of additional money.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to perform our obligations with respect to
these notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing amounts
available for working capital, capital expenditures and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit our ability to borrow additional funds.
In addition, a portion of our debt, including debt under our senior credit
facility, bears interest at variable rates. An increase in the interest rates on
our debt will reduce the funds available to repay the notes and our other debt
and for operations and future business opportunities and will intensify the
consequences of our leveraged capital structure.
OUR ABILITY TO INCUR SUBSTANTIALLY MORE DEBT COULD FURTHER INCREASE THE
RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future
pursuant to our indenture for working capital and general corporate purposes.
Following the consummation of the Transactions, our senior credit facility
permitted additional borrowing of approximately $112 million. All of the
borrowings under our senior credit facility are or will be senior to these
notes. If new debt is added to our current debt levels, the related risks that
we now face could intensify.
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TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH,
THE AVAILABILITY OF WHICH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including
these notes and our senior credit facility, will depend on our ability to
generate cash in the future. Our ability to generate cash is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control.
We cannot assure you that our business will generate sufficient cash flow or
that future borrowings will be available to us in an amount sufficient to enable
us to pay our indebtedness, including these notes, or to fund our other
liquidity needs including new product and other future developments. We may need
to refinance all or a portion of our indebtedness, including these notes and our
senior credit facility, on or before maturity. We cannot assure you that we will
be able to refinance any of our indebtedness, including these notes, on
commercially reasonable terms or at all.
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES WILL BE JUNIOR TO OUR SENIOR
DEBT AND BE EFFECTIVELY JUNIOR TO ALL THE DEBT OF OUR SUBSIDIARIES' THAT ARE NOT
GUARANTORS.
These notes and the subsidiary guarantees of these notes will be junior to
all of our and our subsidiaries existing and future indebtedness, other than
trade payables and any future indebtedness that expressly provides that it ranks
equal with or junior to the notes or the subsidiary guarantees. As of June 30,
1999 our debt totaled $494.1 million, of which $344.0 million ranked senior in
right of payment to these notes. As a result, upon any distribution to our
creditors in a bankruptcy, liquidation or reorganization or similar proceeding,
the holders of our senior indebtedness or the guarantors' senior indebtedness
will be entitled to be paid in full before any payment may be made on these
notes. In addition, following the consummation of the Transactions,
approximately $112.0 million was available for borrowing as additional senior
debt under our senior credit facility. We also are permitted to incur
substantial additional indebtedness, including senior debt, in the future under
the terms of our indenture.
Our foreign restricted subsidiaries are not guarantors of these notes. We
may designate other subsidiaries to be non-guarantors in the future, if we meet
the requirements of our indenture. In the event of a bankruptcy, liquidation or
reorganization of any non-guarantor subsidiary in the future, holders of their
debt will generally be entitled to payment of their claims from the assets of
that subsidiary before any assets are made available for distribution to us. As
of June 30, 1999 our non-guarantor subsidiaries had no outstanding indebtedness,
other than trade payables.
Substantially all of our assets consist of the capital stock of our
subsidiaries. We refer you to note 14 to our unaudited consolidated financial
statements as of and for the six months ended June 30, 1998 and 1999 and note 27
to our audited consolidated financial statements as of and for the three years
ended December 31, 1998, which contain certain consolidating condensed financial
data concerning us and our subsidiaries.
In addition, all payments on these notes will be blocked in the event of a
payment default under our senior credit facility and may be blocked for up to
179 consecutive days in any given year in the event of non-payment defaults on
senior debt. In the event of a default on these notes and any resulting
acceleration of these notes, the holders of senior indebtedness then outstanding
will be entitled to payment in full in cash of all obligations in respect of
such senior indebtedness before any payment or distribution may be made with
respect to the notes.
In a bankruptcy, liquidation or reorganization or similar proceeding
relating to us, holders of these notes will participate with trade creditors and
all other holders of subordinated indebtedness in the assets remaining after we
have paid all of the senior debt. However, because our indenture requires that
amounts otherwise payable to holders of these notes in a bankruptcy or similar
proceeding be paid to holders of senior debt instead, holders of these notes may
receive proportionately less than holders
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of trade payables in any such proceeding. In any of these cases, we cannot
assure you that sufficient assets will remain to make any payments on these
notes.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE
CHANGE OF CONTROL OFFER REQUIRED BY OUR INDENTURE.
If we undergo a change of control under our indenture, we may need to
refinance large amounts of our debt, including these notes and our senior credit
facility. If a change of control occurs, we must offer to buy back your notes
for a price equal to 101% of the principal amount, plus interest that has
accrued but has not been paid as of the repurchase date. We cannot assure you
that we will have sufficient funds available to make the required repurchases of
these notes in that event, or that we will have sufficient funds to pay our
other debts. In addition, our senior credit facility prohibits us from
repurchasing these notes after a change of control until we have repaid in full
our debt under our senior credit facility. If we fail to repurchase these notes
upon a change of control, we will be in default under both these notes and our
senior credit facility. Any future debt that we incur may also contain
restrictions on repurchases in the event of a change of control or similar
event. These purchase requirements may delay or make it harder for others to
obtain control of our company.
OUR SENIOR CREDIT FACILITY AND INDENTURE RESTRICT OUR OPERATIONS.
Our indenture and our senior credit facility include restrictive covenants
that, among other things, restrict our ability to:
- borrow money;
- pay dividends on our capital stock;
- redeem or repurchase our capital stock;
- make investments;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer or sell substantially all of our assets.
We are also required by our senior credit facility to maintain certain
financial ratios, including maximum debt to EBITDA ratios and minimum fixed
charge coverage ratios. All of these restrictive covenants may restrict our
ability to expand or to pursue our business strategies. Our ability to comply
with these and other provisions of our indenture and our senior credit facility
may be affected by changes in our business condition or results of operations,
adverse regulatory developments or other events beyond our control. The breach
of any of these covenants would result in a default under our indebtedness. If
we default, we could be prohibited from making payments with respect to these
notes until the default is cured or all indebtedness under our senior credit
facility or other senior debt is paid in full. This default could allow our
creditors to accelerate the related debt, as well as any other debt to which a
cross-acceleration or cross-default provision applies. If our indebtedness were
to be accelerated, there can be no assurance that we would be able to repay it.
In addition, a default could give the lenders the right to terminate any
commitments they had made to provide us with further funds.
WE MAY BE ADVERSELY AFFECTED BY FRAUDULENT CONVEYANCE LAWS TO WHICH WE ARE
SUBJECT.
If a bankruptcy case or lawsuit is initiated by our unpaid creditors, the
debt represented by these notes and the subsidiary guarantees may be reviewed
under the federal bankruptcy laws and comparable provisions of state fraudulent
transfer laws. Under these laws, the debt could be voided, or claims in respect
of these notes and the subsidiary guarantees could be subordinated to all of our
other
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debts or the guarantors if, among other things, the court found that, at the
time we incurred the debt represented by these notes and the subsidiary
guarantors executed the guarantees, we or any guarantor:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such debt; and
- were insolvent or rendered insolvent by reason of such incurrence; or
- were engaged in a business or transaction for which the remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that we, or a guarantor, would incur, debts
beyond the ability to pay such debts as they matured; or
- intended to hinder, delay or defraud creditors.
The measure of insolvency for purposes of fraudulent transfer laws varies
depending on the law applied. Generally, however, a debtor would be considered
insolvent if:
- the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or
- the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
We believe that we will receive fair value for these notes and that the
subsidiary guarantors will receive fair value for their guarantees. On the basis
of historical financial information, recent operating history and other factors,
we believe that after giving effect to the exchange offer, neither we nor any
subsidiary guarantor are insolvent, have unreasonably small capital for the
business in which such entity is engaged, or have incurred debts beyond such
entity's ability to pay such debts as they mature. We can give no assurance,
however, what standard a court will apply in making such determinations or that
a court would agree with our conclusions in this regard.
OUR INDEPENDENT PUBLIC ACCOUNTANTS HAVE NOTED SIGNIFICANT DEFICIENCIES IN
OUR INTERNAL CONTROLS.
A number of significant deficiencies in the design or operation of our
internal control environment were noted to management and the Grupo Dina board
of directors by our predecessor independent accountants as a result of their
review of the third quarter of 1997 and by our current independent accountants
as a result of their audits of our 1997 and 1998 financial statements.
Specifically, our accountants noted a lack of senior level accounting
leadership, deficiencies in the preparation of consolidated financial statements
for Autobuses and inadequacies in the design and operating effectiveness of our
accounting operations required for a complex public corporation. We have been
implementing changes that we believe will address the significant deficiencies,
including the hiring of a Chief Financial Officer and Chief Accounting Officer.
Implementing the recommended changes continues to be a priority, however, we
cannot assure you that we will achieve the desired improvements to our internal
controls.
WE OPERATE IN A HIGHLY CYCLICAL INDUSTRY, WHICH COULD AFFECT OUR ABILITY TO
SERVICE THESE NOTES.
The inter-city coach industries in the U.S., Canada and Mexico are all
highly dependent on economic and tourism conditions. Slowdowns in tourism and
economic recessions have negatively impacted our business in the past. For
example, we delivered 1,367 units during 1989, but delivered only 602 units
during the tourism and economic slowdown in 1991. Similar reductions in
deliveries could occur in the future, as we cannot assure you that favorable
economic and tourism conditions will
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continue. We cannot predict the scope of any future tourism slowdown or economic
recession, or the total impact it would have on us.
A FEW CUSTOMERS REPRESENT A SIGNIFICANT PORTION OF OUR SALES.
We have historically sold a significant percentage of new coaches each year
to a limited number of large United States and Canadian coach fleet operators,
including the following operators which we account for our consolidated revenue
for the years ended December 31, 1996, 1997 and 1998 as follows:
- Greyhound Lines and Greyhound Canada, which combined accounted for 11.1%,
9.5%, and 8.0%, respectively; and
- Coach USA, which accounted for 1.8%, 8.6%, and 9.2%, respectively.
Our contract with Greyhound Lines can be terminated at the end of any
calendar year upon 180 days prior notice, and the contract with Coach USA
expires in 1999. Coach USA was recently acquired by Stagecoach Holdings Plc,
Great Britain's largest independent bus and railroad operator. We are not able
to predict what effect, if any, this acquisition will have on negotiations to
renew Coach USA's contract with us, or on their status as a customer generally.
We cannot assure you that we will be able to enter into new contracts with any
customer. The loss of any one of these customers could have a material adverse
effect on us. Furthermore, demand from government agencies, such as the New
Jersey Transit Authority and New York City Transit Authority, varies widely from
year to year. Governmental agencies periodically make large purchases every
three to six years on average and in any given year may represent over 10% of
our total coach sales. We cannot assure you that the New Jersey Transit
Authority, New York City Transit Authority or any other government agency will
order new coaches or if any such order is placed that we will be awarded the
contract.
WE OPERATE IN HIGHLY COMPETITIVE MARKETS AND COMPETE AGAINST A NUMBER OF
LARGE NATIONAL AND REGIONAL BRANDS.
Our principal competitors in the United States and Canadian coach markets
include (1) Prevost Car, a subsidiary of Volvo Bus Corporation, which is the
leading supplier of coaches to the custom conversion market, (2) Van Hool, which
is one of the leading European coach manufacturers, and (3) Setra, which is
another leading European coach manufacturer. Our principal competitors in the
replacement parts market include both OEMs, including Prevost, and parts
distributors, including ABC Bus, Inc., the representative for Van Hool. In
November 1999, Novabus, a transit bus maker that is restricted from competing
with us in the transit bus replacement parts market, will be free to enter the
replacement parts market. We cannot predict the impact of Novabus' potential
entry into the replacement parts market. As a result of a five-year
non-competition agreement entered into in connection with the June 1996 sale of
our custom coach subsidiary, we participate in the custom conversion market
solely through the sale of shell coaches to third party coach converters. Should
we determine to enter into the custom conversion market in June 2001, we will
face competition from numerous existing participants. Many of our competitors
have greater financial, research and development, manufacturing and marketing
resources than us. There can be no assurance that we will be able to compete
successfully against such competition.
WE DEPEND ON SUPPLIERS FOR PRINCIPAL RAW MATERIALS, COMPONENT PARTS AND
DESIGN TECHNOLOGY.
Our coach manufacturing operations consist primarily of manufacturing
components and sub-components from raw materials and assembling these
manufactured components with component parts provided by third party sources. We
rely primarily on these suppliers for major components:
- Meritor Automotive, formerly known as Rockwell International Corporation,
for axles;
- Detroit Diesel for engines;
- Allison Transmission for transmissions; and
- Carrier for air conditioning units.
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Although we use additional alternate suppliers, our customers demand the
component parts which are currently assembled into their coaches. An
interruption in the supply of or a significant increase in the price of any raw
material, component part or the termination of any design technology agreement
could adversely affect our profitability or our ability to obtain and fulfill
orders.
OUR SUCCESS DEPENDS ON THE IMPLEMENTATION OF NEW PRODUCT INTRODUCTIONS,
WHICH WILL REQUIRE SUBSTANTIAL EXPENDITURES.
We will be launching new products besides the
RENAISSANCE-REGISTERED TRADEMARK- coach, such as the G-Series model, in the near
future and these significant development efforts may increase our capital
expenditures over the next few years. We estimate that our capital expenditures
for development of this new family of coach models will be $5.8 million in 1999
and $6.3 million in 2000. As is common with major new product launches, we may
experience manufacturing problems or delays, which could be material. We cannot
predict the extent of manufacturing problems or duration of delays that may
occur.
Introducing new products could result in a decrease in revenues from our
existing products or otherwise adversely affect our business, financial
condition or results of operations. You should read the discussion under the
heading "Business--Products--Inter-city Coaches" beginning on page 55 for a more
detailed discussion regarding our new and existing products.
Consistent with our strategy of offering new products and product
refinements, we expect to continue to use a substantial amount of capital for
further product development and refinement. We may need more working capital for
product development and refinement than is available to us, which could
adversely affect our business, financial condition or results of operations.
OUR BUSINESS DEPENDS UPON ORGANIZED LABOR.
Our previous labor agreements with the International Association of
Machinists and Aerospace Workers, covering substantially all of our Canadian and
United States employees at our Winnipeg, Manitoba and Pembina, North Dakota
facilities, expired on September 30, 1997. We negotiated new labor agreements
for those facilities which run through September 2000. We previously had labor
agreements in Mexico with the independent union of workers in the automotive and
related industries. Generally, labor agreements in Mexico have economic terms
and non-economic terms for one-year and two-years, respectively. We negotiated
both economic and non-economic terms in February 1998 and economic terms in
February 1999. If after negotiations we experience higher labor costs or other
work condition changes, our business could be materially and adversely effected.
We experienced a one day labor strike in Sahagun, Mexico in February 1994 which
resulted in a loss of one day's production. During 1999, we also experienced a
four day strike at our Sahagun, Mexico manufacturing plant. Work stoppages could
occur again in the future in connection with labor agreement negotiations and we
cannot predict the financial impact of such a stoppage. A work stoppage or
strike could have a material adverse effect on us and our results of operations.
OUR HISTORICAL SEASONALITY COULD IMPAIR OUR ABILITY TO MAKE INTEREST
PAYMENTS ON THESE NOTES.
Our sales and earnings are seasonal. Historically, we have realized a
majority of our annual sales and profits during the second and fourth quarters
of our fiscal year. If for any reason demand for our products during any second
and fourth quarters is insufficient, our total sales and profits could be
materially reduced for such period and for the fiscal year in general. Further,
we are required to establish inventory levels in anticipating projected seasonal
demand. To the extent that we underestimate such demand, we could lose sales and
profits. To the extent that we establish inventories in excess of actual demand,
we may be required to sell inventory at reduced prices or write-off the excess
inventory as unsaleable. You should read "Management's Discussion and Analysis
of Financial Condition and Results of Operations" beginning on page 42 for more
information regarding the seasonality of our profits.
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FLOODING COULD INTERRUPT OUR BUSINESS OPERATIONS.
Our manufacturing and distributing facilities located near the Red River in
North Dakota and Canada are subject to periodic flooding that has caused us to
experience business interruption and increased operating expenses. Any flood or
other severe weather condition could result in damage to our assets and lead to
the loss of use of our manufacturing and distributing facilities in those
locations for an extended period. In addition, although our properties are
currently covered by flood insurance, we cannot give assurance that flood
insurance will be available in the future at reasonable rates or at all. The
loss or interruption of business as a result could have a material adverse
effect on our financial results. See "Business--Manufacturing and Distribution"
beginning on page 61 for a complete description of our material properties.
WE MAY BE ADVERSELY AFFECTED BY GOVERNMENTAL REGULATIONS TO WHICH WE ARE
SUBJECT.
As a manufacturer of coaches and replacement parts, our facilities,
operations and products are subject to many laws and regulations applicable in
the United States, Canada and other countries, including those relating to the
environment, employee health and safety, motor vehicle safety, access for the
disabled, and local content.
Our failure to comply with one or more laws or regulations could result in
the imposition of sanctions. Such sanctions could include the closing of all or
a portion of our facilities for an indeterminate period of time or the recall of
products that were manufactured improperly, either of which could have a
material adverse effect on our business, financial condition and results of
operations. Likewise, we cannot predict for you with any degree of certainty the
cost of compliance or other liability related to such laws and regulations in
the future and such future costs could significantly affect our business,
financial condition and results of operations.
The nature of our current and former operations, and those of our
predecessors in interest, expose us to the risk of claims with respect to
environmental matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims. Based upon our
experience to date, we believe that the future cost of compliance with existing
environmental laws and regulations, and liability for known environmental claims
pursuant to such laws and regulations, will not have a material adverse effect
on our business, financial condition or results of operation. However, future
events, such as new information, changes in existing environmental laws and
regulations or their interpretation, and more vigorous enforcement policies of
regulatory agencies, may give rise to additional expenditures or liabilities
that could be material. You should read "Business--Government
Regulation--Environmental Matters" beginning on page 64 for further information
about regulations within our various operations.
WE MAY BE ADVERSELY AFFECTED BY HANDICAPPED ACCESSIBILITY STANDARDS TO WHICH
WE ARE SUBJECT.
We are subject to the Americans With Disabilities Act's handicapped
accessibility standards for coaches, as promulgated by the U.S. Department of
Transportation. On September 28, 1998, the DOT issued final regulations
regarding coach accessibility requirements. The rules require, among other
things, that all new 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 final regulations will be effective for operators with
larger fleets in October 2000 and for operators with smaller fleets in October
2001. We cannot predict the effect these regulations may have on our business,
financial condition and results of operations with any degree of certainty.
THE MCI CANADIAN TAX REVIEW COULD RESULT IN A SUBSTANTIAL ADDITIONAL INCOME
TAX LIABILITY.
The Canadian income tax returns of our subsidiary, Motor Coach Industries
Limited, for the years 1982 through 1992 are currently under review by Revenue
Canada, the Canadian tax authority, which is
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reviewing the profit allocation procedures between MCI Canada and Motor Coach
Industries, Inc., a wholly owned U.S. subsidiary of Motor Coach Industries
International, Inc. Revenue Canada's position is that, under such procedures,
insufficient income was allocated to MCI Canada, the Canadian taxpaying entity,
and that, as a result, Canadian income taxes were underpaid. A formal
reassessment has been issued by Revenue Canada with respect to the 1985 return.
We have filed a notice of objection for 1985. In the event of an adverse
judgment, as of June 30, 1999 the additional income taxes for 1982 through 1992
could amount up to US$24 million plus interest of approximately US$51 million
and, in addition, we may be subject to potential reassessments for years
subsequent to 1992 on the same basis which could result in additional income
taxes and interest, all before recoveries of U.S. Federal income taxes which may
be available to offset a portion of any additional taxes paid to Canada. We have
submitted an advance transfer pricing agreement to Revenue Canada and the
Internal Revenue Service which may apply to the years 1995 through 2000.
Although we are still in the process of obtaining additional information, we are
currently negotiating to resolve these claims and expect that the resolution
will not be material to our financial condition or results of operations. We
cannot, however, assure you that this matter will be resolved in our favor.
WE MAY BE EXPOSED TO SIGNIFICANT PRODUCT LIABILITY CLAIMS BY CONSUMERS.
We are subject to various product liability lawsuits in the United States
and Canada for personal injuries and property damage allegedly relating to the
use of products manufactured or sold by us. We consider litigation of this
nature to be in the ordinary course of our business. We cannot presently
determine the ultimate outcome of these lawsuits, or potential future lawsuits.
We maintain product liability insurance in customary amounts, but we cannot
assure you that such insurance will be available in the future or on terms
acceptable to us.
WE HAVE BEEN INFORMED THAT THE MANUFACTURER'S AND DEALER'S LICENSES OF OUR
DALLAS, TEXAS COACH DEALERSHIP MAY BE INVALID.
The validity of our manufacturing and dealer licenses associated with our
Dallas, Texas dealership facility have recently come into question by the Texas
Department of Transportation, Motor Vehicle Division pursuant to a statute that
prohibits a manufacturer from also operating as a dealer. Although we believe
the Texas law was not intended to be applied to bus dealerships, we cannot
assure you that our Texas licenses will be renewed. In such event we may be
required to close our Dallas dealership or face civil penalties. We are working
with appropriate state officials to resolve this matter and believe there are
numerous solutions available to us and the ultimate outcome is unlikely to have
a material adverse effect on our business. Our Dallas dealership serves a
regional market and we believe we could operate effectively from a nearby state
that does not have such restrictions, however, such a move would cause a
temporary interruption to the business of our Texas dealership.
ADVERSE FOREIGN ECONOMIC CONDITIONS AND GOVERNMENT POLICIES MAY AFFECT OUR
BUSINESS OPERATIONS.
Social instability or other adverse social, political or economic
developments in or affecting Latin America could adversely affect our business,
financial condition, results of operations, ability to obtain financing and
prospects. In addition, the Mexican government has exercised, and continues to
exercise, significant influence over the Mexican economy. Accordingly, Mexican
governmental actions could have a significant effect on us and on market
conditions.
The values of the peso and the Canadian dollar have been subject to
significant fluctuations with respect to the U.S. dollar in the past and may be
subject to significant fluctuations in the future. The Mexican economy has
suffered balance of payment deficits and shortages in foreign exchange reserves.
While the Mexican government does not currently restrict the ability of Mexican
or foreign persons or entities to convert pesos to U.S. dollars, no assurance
can be given that the Mexican government will not institute a restrictive
exchange control policy in the future. Any such restrictive exchange control
policy could adversely affect our ability to meet our U.S. dollar obligations,
including payments on
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these notes, and could have a material adverse effect on our business, financial
condition and results of operations.
THERE IS NO PUBLIC TRADING MARKET FOR THE EXCHANGE NOTES.
To the extent that outstanding notes are tendered and accepted in the
exchange offer, the trading market for the remaining untendered or tendered but
not accepted outstanding notes could be adversely affected. Because we
anticipate that most holders of the outstanding notes will elect to exchange the
outstanding notes for these notes due to the absence of restrictions on the
resale of these notes under the Securities Act, we anticipate that the liquidity
of the market for any outstanding notes remaining after the consummation of the
exchange offer may be substantially limited.
These notes are a new issue of securities for which there is currently no
active trading market. If these notes are traded after their initial issuance,
they may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, our financial
condition and other factors beyond our control, including general economic
conditions. We do not intend to apply for a listing or quotation of these notes.
No assurance can be given as to the development or liquidity of any trading
market for these notes to sell their notes or the prices at which such holders
may be able to sell their notes.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for these notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on holders of these notes.
CONSEQUENCES OF NOT EXCHANGING OUTSTANDING NOTES INCLUDE RESTRICTIONS ON
TRANSFER AND THE TERMINATION OF REGISTRATION RIGHTS.
Notes that are not tendered or are tendered but not accepted will, following
the completion of the exchange offer, continue to be subject to existing
restrictions on transfer, and, upon completion of the exchange offer,
registration rights with respect to the outstanding notes will terminate. In
addition, any outstanding note holder who tenders in the exchange offer for the
purpose of participating in a distribution of the registered notes may be deemed
to have received restricted securities, and if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. To the extent that outstanding notes
are tendered and accepted in the exchange offer, the trading market for
untendered and tendered but unaccepted outstanding notes could be adversely
affected.
OUR FAILURE, OR THE FAILURE OF OUR THIRD PARTY SUPPLIERS OR CUSTOMERS, TO
ADDRESS INFORMATION TECHNOLOGY ISSUES RELATED TO THE YEAR 2000 COULD ADVERSELY
AFFECT OUR OPERATIONS.
Although we believe that we have identified our systems applications that
will need to be modified and developed a plan to ensure Year 2000 compliance, we
cannot assure you that these efforts will be successful. We will utilize both
internal and external resources to reprogram and test software for Year 2000
compliance at an estimated total cost of approximately $2 million. We are also
in the process of evaluating whether significant suppliers and customers are
Year 2000 compliant. If we are unable to achieve Year 2000 compliance in a
timely manner or the cost of such compliance significantly exceeds our current
estimates, such events could have a material effect on our 1999 business,
financial condition and results of operations.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On June 16, 1999 we sold $152.25 million in principal amount at maturity of
the outstanding notes in a private placement through CIBC World Markets Corp.
(formerly CIBC Oppenheimer Corp.) and Merrill Lynch, Pierce, Fenner & Smith
Incorporated to a limited number of "Qualified Institutional Buyers," as defined
under the Securities Act. In connection with the sale of the outstanding notes,
we and CIBC entered into a registration rights agreement, dated as of June 16,
1999. Under that agreement, we must, among other things, use our best efforts to
file with the SEC a registration statement under the Securities Act covering the
exchange offer and to cause that registration statement to become effective
under the Securities Act. Upon the effectiveness of that registration statement,
we must also offer each holder of the outstanding notes the opportunity to
exchange its securities for an equal principal amount of exchange notes. You are
a holder with respect to the exchange offer if you are a person in whose name
any outstanding notes are registered on our books or any other person who has
obtained a properly completed assignment of outstanding notes from the
registered holder.
We are making the exchange offer to comply with our obligations under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to Motor
Coach Industries International, among other things, that:
- you are not a broker-dealer;
- you are not participating in a distribution of the exchange notes; and
- you are not an "affiliate" of Motor Coach Industries International, as the
term is defined in Rule 144 under the Securities Act.
RESALE OF THE EXCHANGE NOTES
Based on previous interpretations by the staff of the SEC set forth in
no-action letters issued to third parties, we believe that the exchange notes
issued in the exchange offer may be offered for resale, resold and otherwise
transferred by you, except if you are our affiliate, without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the representations set forth in "Purpose and Effect of the Exchange Offer"
above apply to you.
If you tender in the exchange offer with the intention of participating in a
distribution of the exchange notes, you cannot rely on the interpretation by the
staff of the SEC as set forth in the no-action letters and you must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. In the event that our belief
regarding resale is inaccurate, those who transfer exchange notes in violation
of the prospectus delivery provisions of the Securities Act and without an
exemption from registration under the federal securities laws may incur
liability under these laws. We do not assume, nor will we indemnify you against,
this liability.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of the particular jurisdiction. Each broker-dealer
that receives exchange notes for its own account in exchange for outstanding
notes, where the outstanding notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of the exchange
notes. In order to facilitate the disposition of exchange notes by
broker-dealers participating in the exchange offer, we have agreed, subject to
specific conditions, to make this
25
<PAGE>
prospectus, as it may be amended or supplemented from time to time, available
for delivery by those broker-dealers to satisfy their delivery obligations under
the Securities Act.
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions in this prospectus, and in the accompanying
letter of transmittal, we will accept all outstanding notes validly tendered
prior to 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 in principal amount of exchange notes in exchange for an equal principal
amount of outstanding notes tendered and accepted in the exchange offer. You may
tender some or all of your outstanding notes in the exchange offer in any
denomination of $1,000 or in integral multiples thereof.
In addition, in connection with any resales of exchange notes, any
broker-dealers who acquired outstanding notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
the exchange notes. The SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements for the
exchange notes other than a resale of an unsold allotment from the original
sales of outstanding notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement we are required
to allow participating broker-dealers, and other persons, if any, subject to
similar prospectus delivery requirements, to use the prospectus contained in the
exchange offer registration statement in connection with the resale of exchange
notes. However, we are not required to amend or supplement this prospectus for a
period exceeding 90 days after the date of the last expiration date. "Expiration
Date" means 5:00 p.m. New York City time, on November 8, 1999 unless we, in our
sole discretion, extended the exchange offer. If we do, the "expiration date"
will be 5:00 p.m. New York City time on the latest date to which the exchange
offer is extended. The expiration date will be at least 30 business days from
the date that this prospectus is mailed to the holders of the outstanding notes.
We have also agreed that in the event that we do not consummate the exchange
offer or a shelf registration statement is not declared effective prior to
December 13, 1999, or, if we are required to file a shelf registration
statement, we do not keep it effective until June 16, 2001 (each a "registration
default") the annual interest rate on the notes will increase by 0.50%. The
annual interest rate on the notes will increase by an additional 0.25% for each
subsequent 90 day period during which the registration default continues, up to
a maximum additional interest rate of 2.00% per year over of the outstanding
notes.
If we consummate the exchange offer on or before December 13, 1999, we will
not be required to file a shelf registration statement to register any
outstanding notes, and the interest rate on any outstanding notes will remain at
the initial level of 11 1/4% per annum. The exchange offer will be deemed to
have been consummated upon our having exchanged, pursuant to the exchange offer,
exchange notes for all outstanding notes that have been properly tendered and
not withdrawn by the expiration date. In this event, holders of outstanding
notes not participating in the exchange offer who are seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes except that the exchange notes will not bear
legends restricting the transfer thereof. The exchange notes will be issued
under and entitled to the benefits of the indenture.
As of the date of this prospectus, $152,250,000 aggregate principal amount
of the outstanding notes are outstanding and there is one registered holder
thereof. In connection with the issuance of the outstanding notes, we arranged
for the outstanding notes to be eligible for trading in the Private Offering,
Resale and Trading through Automated Linkages Market. The PORTAL market is the
National Association of Securities Dealers' screen based, automated market for
trading of securities
26
<PAGE>
eligible for resale under Rule 144A. The exchange notes will be issuable and
transferable in book-entry form through DTC but will not be eligible for trading
in the PORTAL market.
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice of acceptance to the exchange
agent. See "--Exchange Agent" on page 32. The exchange agent will act as agent
for the tendering holders of outstanding notes for the purposes of receiving
exchange notes from us and delivering exchange notes to the holders.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender or the occurrence of certain other events described in this
prospectus, certificates for the unaccepted outstanding notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Holders of outstanding notes who tender in the exchange offer will not be
required to pay:
- brokerage commissions or fees; or
- transfer taxes with respect to the exchange of outstanding notes pursuant
to the exchange offer, subject to the instructions in the accompanying
letter of transmittal.
We will pay all charges and expenses, other than specified taxes, in
connection with the exchange offer as further described under the caption
"--Fees and Expenses" beginning on page 32.
Holders of outstanding notes do not have any appraisal or dissenters' rights
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act and the rules and regulations of
the SEC interpreting the Securities Act. Outstanding notes that are not tendered
for exchange in the exchange offer will remain outstanding and be entitled and
continue to accrue interest, but will not be entitled to any rights or benefits
under the registration rights agreement.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m. New York City time, on November
8, 1999 unless we, in our sole discretion, extend the exchange offer. If we do,
the "expiration date" will be 5:00 p.m. New York City time on the latest date to
which the exchange offer is extended.
If we extend the expiration date, we will:
- notify the exchange agent of any extension by oral or written notice; and
- mail an announcement of the extension to the record holders of outstanding
notes prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
Any announcement may state that we are extending the exchange offer for a
specified period of time.
If any of the conditions listed under "Conditions to the Exchange Offer"
occur and are not waived by us, by giving oral or written notice to the exchange
agent, we reserve the right:
- to delay acceptance of any outstanding notes;
- to extend the exchange offer;
- to terminate the exchange offer;
- to refuse to accept outstanding notes not previously accepted, and
- to amend the terms of the exchange offer in any manner we deem to be
advantageous to the holders of the outstanding notes.
27
<PAGE>
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as possible by oral or written notice to the exchange
agent. If the exchange offer is amended in a manner we determine constitutes a
material change, we will promptly disclose the amendment in a way reasonably
calculated to inform you of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise, or otherwise
communicate any public announcement, other than by making a timely release to
the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest at a rate of 11 1/4% per annum.
Interest on the exchange notes will be payable semi-annually, in arrears, on
each May 1 and November 1 following the consummation of the exchange offer.
Untendered outstanding notes that are not exchanged for exchange notes pursuant
to the exchange offer will bear interest at a rate of 11 1/4% per annum after
the expiration date.
The exchange notes will bear interest from the last interest payment date on
which interest was paid on the outstanding notes. If interest has not yet been
paid, the exchange notes will bear interest from June 16, 1999. Interest will be
paid with the first interest payment on the exchange notes. Interest on the
outstanding notes accepted for exchange will cease to accrue upon issuance of
the exchange notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
To tender in the exchange offer, you must do the following:
- complete, sign and date the letter of transmittal, or a facsimile of it;
- have the signatures guaranteed, if required by the letter of transmittal;
and
- mail or deliver the letter of transmittal, or the facsimile, together with
the outstanding notes and any other required documents, to the exchange
agent.
The exchange agent must receive these documents by 5:00 p.m., New York City
time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the outstanding notes by causing
DTC to transfer the outstanding notes into the exchange agent's account via the
ATOP system in accordance with DTC's transfer procedure. Although delivery of
outstanding notes may be effected through book-entry transfer into the exchange
agent's account at DTC, the letter of transmittal, or its facsimile, with any
required signature guarantees, or an agent's message instead of the letter of
transmittal, and documents, must, in any case, be transmitted to and received or
confirmed by the exchange agent at its addresses in the prospectus prior to 5:00
p.m., New York City time, on the expiration date. The term agent's message means
a message, transmitted by The Depository Trust Company and received by the
exchange agent and forming a part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from you that you have received
and have agreed to be bound by the letter of transmittal. If you use this
procedure, we may enforce the letter of transmittal against you. DELIVERY OF
DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY
TO THE EXCHANGE AGENT.
Your tender of outstanding notes will constitute an agreement between you
and us in accordance with the terms and subject to the conditions in this
prospectus and in the letter of transmittal.
28
<PAGE>
Delivery of all documents must be made to the exchange agent at its address
listed in this prospectus. Holders may also request that their respective
brokers, dealers, commercial banks, trust
companies or nominees effect tender for them.
The method of delivery of outstanding notes, the letter of transmittal and
the agent's message and all other required documents to the exchange agent is up
to you. However, you also bear the risks of non-delivery. Instead of delivery by
mail, we recommend that you use an overnight or hand delivery service. In all
cases, you should allow sufficient time to assure timely delivery. No letter of
transmittal should be sent to us.
Only a holder of outstanding notes may tender outstanding notes in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name outstanding notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose outstanding notes are held of record by DTC who
desires to deliver the outstanding notes by book-entry transfer at DTC.
Any beneficial holder whose outstanding notes are registered in the name of
the holder's broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
the registered holder to tender on the holder's behalf. If the beneficial holder
wishes to tender on the holder's own behalf, the beneficial holder must, prior
to completing and executing the letter of transmittal and delivering the
outstanding notes, either make appropriate arrangements to register ownership of
the outstanding notes in the holder's name or obtain a properly completed bond
power from the registered holder. The transfer of record ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible institution" unless the outstanding
notes tendered are:
- tendered by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- tendered for the account of an "eligible institution."
An eligible institution is:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act; or
- an "eligible institution" that is a participant in a recognized medallion
signature guarantee program.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed therein, the outstanding notes tendered
must be endorsed or accompanied by appropriate bond powers which authorize that
person to tender the outstanding notes on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
the outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, the person should indicate this when signing, and unless waived by us,
submit evidence satisfactory to us of that person's authority to so act with the
letter of transmittal.
29
<PAGE>
We will determine, in our sole discretion, all questions as to the validity,
form, and eligibility, including time of receipt, acceptance and withdrawal of
the tendered outstanding notes. Our determination will be final and binding. We
reserve the absolute right to reject any and all outstanding notes not properly
tendered or any outstanding notes of which our acceptance would, in the opinion
of our counsel, be unlawful. We also reserve the absolute right to waive any
irregularities or conditions of tender as to particular outstanding notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of outstanding notes must be cured within the time as we determine. Neither we,
the exchange agent nor any other person is under any duty to give notification
of defects or irregularities with respect to tenders of outstanding notes.
Additionally, none of them will incur any liability for failure to give this
notification. Tenders of outstanding notes will not be deemed to have been made
until these irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that have defects or irregularities not cured or
waived by us will be returned to you without cost by the exchange agent, unless
otherwise provided in the letter of transmittal as soon as practicable after the
expiration date.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any outstanding notes that remain outstanding
subsequent to the expiration date;
- terminate the exchange offer according to the terms in "--Conditions to
the Exchange Offer"; and
- to the extent permitted by applicable law, purchase outstanding notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers may differ from the terms of
the exchange offer.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes and either your outstanding
notes are not immediately available, or you cannot deliver your outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent prior to the expiration date, or if you cannot complete the procedure for
book-entry transfer on a timely basis, you may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from an eligible
institution a properly completed and duly executed notice of guaranteed
delivery, by facsimile transmission, mail or hand delivery, stating the
name and address of the holder of the outstanding notes, the certificate
number or numbers of such outstanding notes and the principal amount of
outstanding notes tendered, stating the tender is being made, and
guaranteeing that, within three business days after the expiration date,
the letter of transmittal, or facsimile thereof, together with the
certificate(s) representing the outstanding notes, unless the book-entry
transfer procedures are to be used, to be tendered in proper form for
transfer and any other documents required by the letter of transmittal,
will be deposited by the eligible institution with the exchange agent; and
- the properly completed and executed letter of transmittal, or facsimile
thereof, together with the certificates representing all tendered
outstanding notes in proper form for transfer, or confirmation of a
book-entry transfer in to the exchange agent's account at DTC of
outstanding notes delivered electronically, and a properly completed
letter of transmittal, or an agent's message instead of a letter of
transmittal and all other documents required by the letter of
30
<PAGE>
transmittal are received by the exchange agent within three New York Stock
Exchange trading days after the expiration date.
If you wish to tender your outstanding notes according to the guaranteed
delivery procedures, make your request to the exchange agent and a notice of
guaranteed delivery will be sent to you.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at the address given in the prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of the outstanding notes;
- be signed by the depositor in the same manner as the original signature on
the letter of transmittal, including any required signature guarantees, or
be accompanied by documents of transfer sufficient to permit the trustee
of the outstanding notes to register the transfer of the outstanding notes
into the name of the depositor withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of any withdrawal notices will be determined by us, and will be final
and binding on all parties. Any outstanding notes so withdrawn will be deemed
not to have been validly tendered for purposes of the exchange offer, and no
exchange notes will be issued unless the outstanding notes previously withdrawn
are validly retendered. Any outstanding notes that have been tendered but which
are not accepted for exchange will be returned to the holder without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described above under "Procedures
for Tendering Outstanding Notes" at any time prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Regardless of any other term of the exchange offer, we are not required to
accept for exchange or to exchange any outstanding notes that are not accepted
for exchange according to the terms of the exchange offer. Additionally, we may
terminate or amend the exchange offer as provided in this prospectus before
accepting the outstanding notes if:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the exchange offer, which,
in our judgment, might materially impair our ability to proceed with the
exchange offer, or
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff
of the SEC in a manner, which, in our judgment, might materially impair
our ability to proceed with the exchange offer.
These conditions are for our sole benefit. We may assert them in whole or in
part at any time and from time to time, in our sole discretion. Our failure at
any time to exercise any of the foregoing rights
31
<PAGE>
shall not be deemed a waiver of any right and the right shall be deemed an
ongoing right which may be asserted at any time and from time to time.
In addition, we will not accept for exchange any outstanding notes tendered,
and no exchange notes will be issued in exchange for any outstanding notes, if
at the time of tender:
- a stop order is threatened by the SEC or is in effect for the registration
statement that this prospectus is a part of, or
- a stop order is threatened or in effect regarding qualification of the
indenture under the Trust Indenture Act of 1939, as amended.
If we determine that we may terminate or amend the exchange offer, we may:
- refuse to accept any outstanding notes and return any tendered outstanding
notes to the holder;
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject to the rights of the
holders of tendered outstanding notes to withdraw their tendered
outstanding notes;
- waive the termination event with respect to the exchange offer and accept
all properly tendered outstanding notes that have not been withdrawn; or
- amend the exchange offer at any time prior to 5:00 p.m. New York City time
on the expiration date.
If the waiver or amendment constitutes a material change in the exchange
offer, we will disclose the change by means of a supplement to this prospectus
that will be distributed to each registered holder of outstanding notes, and we
will extend the exchange offer for a period of five to ten business days, if the
exchange offer would otherwise expire during that period, depending on the
significance of the waiver or amendment and the manner of disclosure to the
registered holders of the outstanding notes.
The exchange offer is not conditioned on any minimum principal amount of
outstanding notes being tendered for exchange.
EXCHANGE AGENT
IBJ Whitehall Bank & Trust Company has been appointed as exchange agent for
the exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent addressed as follows:
BY MAIL, OVERNIGHT COURIER OR HAND DELIVERY:
IBJ Whitehall Bank & Trust Company
One State Street
New York, NY 10004
Telephone number: (212) 858-2000
Facsimile transmission: (212) 425-0542
FEES AND EXPENSES
We will bear the expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation for tenders pursuant to the exchange offer is
being made by mail.
Additional solicitations may be made by our officers and regular employees
and our affiliates in person, by telegraph or by telephone.
32
<PAGE>
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection with this exchange
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses they incur in forwarding
copies of this prospectus, letter of transmittal and related documents to the
beneficial owners of the outstanding notes and in handling or forwarding tenders
for exchange.
We will pay the fees and expenses incurred in connection with the exchange
offer, for the following:
- the exchange agent;
- the trustee;
- accounting; and
- legal services.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes pursuant to the exchange offer. The amount of these transfer
taxes, whether imposed on the registration holder or any other persons, will be
payable by the tendering holder if:
- certificates representing exchange notes or outstanding notes not tendered
or accepted for exchange are to be delivered to, or are to be registered
or issued in the name of, any person other than the registered holder of
the outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes pursuant to the exchange offer.
If satisfactory evidence of payment of, or exemption from, these taxes is
not submitted with the letter of transmittal, the amount of these transfer taxes
will be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value net of issue discount, as reflected in
our accounting records on the date of the exchange. Accordingly, no gain or loss
for accounting purposes will be recognized by us upon the consummation of the
exchange offer. The expenses of the exchange offer will be amortized by us over
the term of the exchange notes under generally accepted accounting principles.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. You are urged to consult
with your financial and tax advisors in making your decision on what action to
take.
The outstanding notes which are not exchanged for the exchange notes
pursuant to the exchange offer will remain restricted securities. Accordingly,
such outstanding notes may be resold only:
- to a person whom the seller reasonably believes is a qualified
institutional buyer, as defined in Rule 144A under the Securities Act, in
a transaction meeting the requirements of Rule 144A;
- in a transaction meeting the requirements of Rule 144 under the Securities
Act;
- outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act;
33
<PAGE>
- in accordance with another exemption from the registration requirements of
the Securities Act, and based upon an opinion of counsel, if we so
request, to us; or
- pursuant to an effective registration statement.
and, in each case, in accordance with any applicable securities laws of any
state of the United States or any other applicable jurisdiction. We do not
currently anticipate that we will register the outstanding notes under the
Securities Act.
As a result of the making of, and upon acceptance for exchange of all
validly tendered outstanding notes pursuant to the terms of, this exchange
offer, we will have fulfilled a covenant contained in the registration rights
agreement. Holders of outstanding notes who do not tender their outstanding
notes in the exchange offer will continue to hold such outstanding notes and
will be entitled to all the rights and limitations applicable thereto under the
indenture, except for any such rights under the registration rights agreement
that by their terms terminate or cease to have further effectiveness as a result
of the making of this exchange offer. All untendered outstanding notes will
continue to be subject to the restrictions on transfer set forth in the
indenture. To the extent that outstanding notes are tendered and accepted in the
exchange offer, the trading market for untendered outstanding notes could be
adversely affected.
34
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999. This
table should be read in conjunction with "Prospectus Summary--The Transactions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, including the notes
thereto, which appear elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1999
-------------
(DOLLARS IN
MILLIONS)
<S> <C>
Long-term debt:
Senior credit facility....................................................... $ 333.0
Revolving credit agreement(1)................................................ 10.0
Senior subordinated notes offered hereby, net of issue discount.............. 150.1
Other debt................................................................... 1.0
------
Total long-term debt....................................................... 494.1
------
Total stockholder's equity..................................................... 130.7
------
Total capitalization........................................................... $ 624.8
------
------
</TABLE>
- ------------------------
(1) The Company has an additional $102 million in revolving credit commitments
available.
35
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The selected consolidated financial data as of and for the two years ended
December 31, 1998 are derived from our audited consolidated financial statements
included in this prospectus. They have been audited by Arthur Andersen LLP, our
independent public accountants. The selected consolidated financial data for the
year ended December 31, 1996 are derived from our audited financial statements
included in this prospectus. They have been audited by PricewaterhouseCoopers
LLP, our predecessor independent accountants.
The selected unaudited consolidated financial data as of and for the years
ended December 31, 1994 and December 31, 1995 are derived from our financial
records. The selected consolidated financial data for the six months ended June
30, 1998 and June 30, 1999 are derived from our unaudited consolidated financial
statements included in this prospectus. The unaudited consolidated financial
statements, in our opinion, have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments necessary for a
fair presentation of our financial condition and results of operations for such
periods. The results of operations for the six month period ended June 30, 1999
are not necessarily indicative of results of operations for the full year ending
December 31, 1999.
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and related
notes included in this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994(1) 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues.................................. $ 536,079 $ 527,053 $ 667,084 $ 739,783 $ 931,727 $ 484,751 $ 487,262
Operating expenses:
Cost of sales(2).............................. 439,931 396,802 509,804 549,001 730,954 386,379 387,565
Depreciation and amortization................. 11,240 15,494 17,618 22,035 24,815 11,909 12,334
Research and development expenses............. 1,730 2,925 7,346 6,655 8,741 5,239 4,633
Other operating expenses(3)................... 76,353 68,182 72,483 83,639 83,413 41,322 50,516
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.................... 529,254 483,403 607,251 661,330 847,923 444,849 455,048
--------- --------- --------- --------- --------- --------- ---------
Operating income................................ 6,825 43,650 59,833 78,453 83,804 39,902 32,214
Interest expense, net........................... 16,960 34,954 16,029 21,859 19,985 8,440 16,346
Interest expense pushed down from related
party(4)...................................... 5,006 15,019 19,550 21,635 25,194 11,797 11,601
Other expenses (income)......................... 8,200 (16,764) (2,344) (2,835) (7,814) (5,198) 2,399
--------- --------- --------- --------- --------- --------- ---------
Income before income (loss) taxes............... (23,341) 10,441 26,598 37,794 46,439 24,863 1,868
Income taxes.................................... 15,546 17,129 18,474 21,268 31,790 15,397 7,643
--------- --------- --------- --------- --------- --------- ---------
Income from continuing operations............... (38,887) (6,688) 8,124 16,526 14,649 9,466 (5,775)
Loss from discontinued operations............... 3,500 -- 5,000 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary item................ (42,387) (6,688) 3,124 16,526 14,649 9,466 (5,775)
Extraordinary charge for early retirement of
debt.......................................... -- -- 851 -- -- -- 2,614
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ (42,387) $ (6,688) $ 2,273 $ 16,526 $ 14,649 $ 9,466 $ (8,389)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA (UNAUDITED):
EBITDA(5)....................................... $ 18,065 $ 59,144 $ 77,451 $ 100,488 $ 108,619 $ 51,811 $ 65,548
Capital expenditures............................ 7,739 12,559 25,609 32,096 11,740 5,122 16,843
Ratio of earnings to fixed charges(6)........... N.M. 1.2x 1.7x 1.8x 1.9x 2.1x 1.1x
Ratio of earnings to fixed charges excluding
effect of push down debt(6)................... N.M. 1.7x 3.2x 3.3x 4.0x 4.5x 1.7x
Net cash provided by (used in):
Operating activities.......................... $ (9,170) $ 44,320 $ (52,585) $ 73,732 $ 50,455 $ 11,607
Investing activities.......................... 13,202 (30,338) (71,170) (14,683) (9,252) (26,940)
Financing activities.......................... 18,914 (35,254) 128,349 (49,008) (28,260) 32,173
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents....................... 7,727 $ 30,675 $ 9,403 $ 13,997 $ 24,038 $ 26,940 $ 40,878
Working capital(7).............................. 74,005 146,080 166,679 261,096 203,420 307,247 211,171
Total assets.................................... 626,819 649,368 642,780 820,673 801,755 906,287 835,823
Total debt, excluding pushed down debt.......... 195,000 217,914 210,668 313,251 267,965 318,996 494,134
Long-term debt pushed down from related
party(4)...................................... 143,040 143,040 162,588 184,225 206,500 201,990 --
Stockholder's equity............................ 126,190 183,413 144,539 147,693 102,921 176,272 130,749
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
36
<PAGE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
- --------------------------
(1) The information provided for the year ended December 31, 1994 is not
comparable to the information provided for the Company for the periods
thereafter as a majority of the Company's current subsidiaries were acquired
from its predecessor owner during such period.
(2) Cost of sales for the six months ended June 30, 1999 include a $21.0 million
non-cash inventory charge comprised of $15.0 million to adjust used coach
inventories to reflect a change in asset management strategy implemented by
new management brought in by the equity investors and $6.0 million to
rationalize replacement parts inventories in connection with a revised plan,
developed during the second quarter of 1999, to consolidate the replacement
parts distribution activities into a single location.
(3) Other operating expenses are comprised of selling, general and
administrative expenses and other miscellaneous operating expenses. In 1998,
other operating expenses were offset by $8.5 million for business insurance
recoveries.
(4) As proceeds from the Transactions were used to repay the $206.5 million of
Grupo Dina's senior secured discount notes, our consolidated financial
statements have been adjusted to include the "push down" of the senior
secured discount notes, and the related interest expense, in order to comply
with applicable Securities and Exchange Commission accounting policies.
(5) EBITDA represents income before the second quarter 1999 non-cash inventory
charge, interest expense, income taxes, discontinued operations,
extraordinary items, depreciation and amortization and other non-operating
income and expenses, each of which can significantly affect our results of
operations and liquidity and should be considered in evaluating our
financial performance. EBITDA is included because we understand that such
information is considered to be an additional basis on which to evaluate our
ability to pay interest, repay debt and make capital expenditures. EBITDA is
not intended to represent and should not be considered more meaningful than,
or as an alternative to, measures of performance, profitability or liquidity
determined in accordance with generally accepted accounting principles.
However, management believes that EBITDA is a meaningful measure of
performance but understands that it is not necessarily comparable to
similarly titled amounts of other companies.
(6) For the purpose of this calculation, earnings are defined as income from
continuing operations before income taxes, plus fixed charges. Fixed charges
include interest expense on all indebtedness (including amortization of
deferred financing costs) and the portion of operating lease rental expense
which management believes is representative of the interest factor of rent
expense (approximately one-third of rent expense). In addition, we have
calculated the ratio of earnings to fixed charges excluding the effect of
the long-term debt pushed down from Grupo Dina. Ratios of earnings to fixed
charges are not presented for the predecessor for the year ended December
31, 1994 because the Company believes they would not be meaningful as the
Company was acquired during such year.
(7) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding short-term debt and current
portion of long-term debt).
37
<PAGE>
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following pro forma unaudited condensed consolidated financial
statements assume the consummation of the Transactions, which include the (1)
sale of the Majority Equity Interest in MCII Holdings, (2) the Asset Transfers
and (3) the Financing Transactions. See "Prospectus Summary -- The
Transactions." The pro forma unaudited condensed consolidated statements of
earnings assumes that the Transactions occurred on January 1, 1998 for the
twelve months ended December 31, 1998 and the six months ended June 30, 1999.
The pro forma unaudited condensed consolidated statements of earnings for
the year ended December 31, 1998 reflects the audited income statement of MCII
for the year ended December 31, 1998.
The pro forma unaudited condensed consolidated statements of earnings for
the period ended June 30, 1999 reflects the unaudited income statement of MCII
for the period ended June 30, 1999.
There is no pro forma balance sheet presented as of June 30, 1999 as the
impact of the Transactions is reflected in the historical unaudited June 30,
1999 balance sheet.
The pro forma financial information is a presentation of historical results
with accounting and other adjustments.
THE PRO FORMA STATEMENTS ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND
SHOULD NOT BE CONSTRUED TO BE INDICATIVE OF THE COMPANY'S FINANCIAL POSITION OR
RESULTS OF OPERATIONS HAD THE TRANSACTIONS BEEN CONSUMMATED ON THE DATES ASSUMED
AND DO NOT PROJECT THE COMPANY'S RESULTS OF OPERATIONS FOR ANY FUTURE PERIOD.
38
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCII
MCII ADJUSTMENTS(1) ADJUSTED ADJUSTMENTS PRO FORMA
-------- -------------- -------- --------------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales................................. $483,631 $(10,583) $473,048 $ $473,048
Financial income...................... 3,631 3,631 3,631
-------- -------------- -------- --------------- ---------
487,262 (10,583) 476,679 476,679
-------- -------------- -------- --------------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items
shown separately below)............. 365,210 (8,760) 356,450 356,450
Cost of sales inventory valuation
charge.............................. 21,000 21,000 21,000
Interest expense, finance operations.. 1,355 1,355 1,355
Depreciation and amortization......... 12,334 (258) 12,076 12,076
Research and development expenses..... 4,633 4,633 4,633
Selling, general and administrative
expenses............................ 50,516 (795) 49,721 49,721
-------- -------------- -------- --------------- ---------
455,048 (9,813) 445,235 445,235
-------- -------------- -------- --------------- ---------
Operating income........................ 32,214 (770) 31,444 31,444
-------- -------------- -------- --------------- ---------
Other income and (expense)
Interest (expense).................... (16,346) (176) (16,522) (7,850)(2) (24,372)
Interest (expense) pushed down from
related party....................... (11,601) (11,601) 11,601(2) --
Foreign currency translation gain
(loss).............................. (893) (893) (893)
Other (income)/expenses............... (1,506) (125) (1,631) (1,631)
-------- -------------- -------- --------------- ---------
(30,346) (301) (30,647) 3,751 (26,896)
-------- -------------- -------- --------------- ---------
Income (loss) before income taxes....... 1,868 (1,071) 797 3,751 4,548
Income taxes (benefit).................. 7,643 -- 7,643 (3,297)(3) 4,346
-------- -------------- -------- --------------- ---------
Income (loss) from continuing
operations............................ $ (5,775) $ (1,071) $ (6,846) $ 7,048 $ 202
-------- -------------- -------- --------------- ---------
-------- -------------- -------- --------------- ---------
</TABLE>
See accompanying notes to pro forma unaudited condensed consolidated financial
statements
39
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
MCII
MCII ADJUSTMENTS(1) ADJUSTED ADJUSTMENTS PRO FORMA
-------- -------------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Sales.................................................. $925,889 $(20,014) $905,875 $ $905,875
Finance income......................................... 5,838 5,838 5,838
-------- -------------- -------- ----------- ---------
931,727 (20,014) 911,713 911,713
-------- -------------- -------- ----------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately
below)............................................... 728,189 (18,003) 710,186 710,186
Depreciation and amortization.......................... 24,815 (1,200) 23,615 23,615
Interest expense, finance operations................... 2,765 -- 2,765 2,765
Research and development expenses...................... 8,741 8,741 8,741
New product start-up costs............................. 981 981 981
Business insurance recoveries.......................... (8,462) (8,462) (8,462)
Selling, general and administrative expenses........... 90,894 (135) 90,759 90,759
-------- -------------- -------- ----------- ---------
847,923 (19,338) 828,585 828,585
-------- -------------- -------- ----------- ---------
Operating income......................................... 83,804 (676) 83,128 83,128
-------- -------------- -------- ----------- ---------
Other income and (expense)
Interest (expense)--net................................ (19,985) 670 (19,315) (29,408)(2) (48,723)
Interest (expense) pushed down from related party...... (25,194) (25,194) 25,194(2)
Other income (expense)................................. (511) 609 98 98
Gain (loss) on equity investments...................... 5,000 5,000 5,000
Foreign currency translation gain (loss)............... 3,325 (520) 2,805 2,805
-------- -------------- -------- ----------- ---------
(37,365) 759 (36,606) (4,214) (40,820)
-------- -------------- -------- ----------- ---------
Income before income taxes............................... 46,439 83 46,522 (4,214) 42,308
Income taxes............................................. 31,790 (157) 31,633 (12,352)(3) 19,281
-------- -------------- -------- ----------- ---------
Income from continuing operations(4)..................... $ 14,649 $ 240 $ 14,889 $ 8,138 $ 23,027
-------- -------------- -------- ----------- ---------
-------- -------------- -------- ----------- ---------
</TABLE>
See accompanying notes to pro forma unaudited condensed consolidated financial
statements
40
<PAGE>
NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following notes identify the pro forma adjustments made to the
historical amounts in the pro forma unaudited condensed consolidated financial
statements.
(1) Represents the net effect of the transfer of certain assets and subsidiaries
and their related results of operations between Grupo Dina and MCII.
(2) Represents interest expense related to the new debt structure as a result of
the Transactions, including the amortization of deferred financing fees of
approximately $22.1 million over the life of the new debt. The new debt
incurred by MCII bears interest at an assumed rate of 8.398% on the term
loans and 11.25% on the subordinated notes. An increase in the assumed
interest rate of 1/8% would decrease net income by approximately $.7 million
and $.4 million for the year ended December 31, 1998 and for the six months
ended June 30, 1999, respectively.
(3) Represents the income tax effects of the pro forma adjustments. The
Company's pro forma effective income tax rate is 46% for the year ended
December 31, 1998 and 96% for the six months ended June 30, 1999.
(4) The SEC's rules require that the pro forma income statement exclude
extraordinary gains/losses. Therefore, the pro forma income statement
excludes an extraordinary charge related to the early extinguishment of debt
of $2.6 million, net of $1.6 million of income taxes.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are the leading designer, manufacturer and marketer of inter-city coaches
and related replacement parts for the North American market. We believe that
strong brand name recognition under the MCI(-Registered Trademark-) logo and a
reputation for quality products have led to our large installed customer base
and lead to new coach purchases and demand for our replacement parts. According
to NATIONAL BUS TRADER, the growth of the inter-city coach industry has been
driven by several factors including the overall strength of the U.S. economy,
the expected increase in coach tourism resulting from the aging of the U.S.
population and the fleet upgrading being undertaken by many inter-city coach
operators. According to NATIONAL BUS TRADER, the general health of the U.S.
economy and the resulting increase in disposable incomes and consumer confidence
has led to increased leisure travel. NATIONAL BUS TRADER also believes that
inter-city coach fleet improvement and modernization may have been the most
significant factor behind new coach unit growth in 1998. Operators are replacing
older 40-foot, manual transmission coaches with newer, 45-foot, automatic
transmission models. In addition, inter-city coach sales have benefited from the
prevailing low interest rates experienced in recent years.
The following discussion of our historical results of operations and
financial condition should be read in conjunction with our consolidated
financial statements and the notes thereto which appear elsewhere in this
prospectus.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 WITH SIX MONTHS ENDED JUNE 30, 1998
OVERVIEW
REVENUE. Revenue of $487.3 million for the six months ended June 30, 1999,
was $2.5 million or 0.5% higher than the comparable period of 1998. The increase
in revenue is due to an increase in coach revenues.
GROSS PROFITS. Gross profits of $99.7 million for the six months ended June
30, 1999, were essentially even with the comparable period of 1998. The impact
of a non-cash inventory charge of $21.0 million taken during the second quarter
of 1999 and lower 1999 used coach pricing were offset by reduced labor costs in
the manufacturing process of the E-coach series which was still in its start-up
phase in early 1998 and benefits realized from other cost improvement
initiatives.
OPERATING INCOME. Operating income of $32.0 million for the six months
ended June 30, 1999 was $7.7 million or 19% lower than the comparable period of
1998, due primarily to higher selling, general and administrative expenses. The
increase in selling, general and administrative expenses is primarily due to
higher sales promotion costs, higher employee related costs and higher
miscellaneous cost associated with the financial restructuring and computer
system upgrades. Operating income margins, exclusive of the non-cash inventory
charge discussed above, improved from 8.2% for the six month period ended June
30, 1998 to 10.9% for the comparable period of 1999.
INTEREST EXPENSE. Interest expense of $27.9 million for the six months
ended June 30, 1999 was $7.7 million higher than the comparable period of 1998.
The higher interest expense is associated with a higher average balance of
outstanding borrowings and higher interest rates charged on the bridge financing
utilized by the Company during the time the financial restructuring plan was
being developed.
FOREIGN CURRENCY TRANSLATION GAIN (LOSS). The Company recognized a $0.9
million foreign currency translation loss for the first six months of 1999
compared to a $2.0 million gain for the same
42
<PAGE>
period of 1998 due to peso fluctuations against the U.S. dollar and changes in
the monetary position of the Company's Mexican subsidiary.
OTHER INCOME (EXPENSE). The Company recognized an expense of $1.5 million
for the first six months of 1999 primarily due to withholding taxes paid on a
Mexican benefit plan fund withdrawal. During the first six months of 1998 the
Company recognized other income of $3.2 million primarily due to gains realized
from the disposal of fixed assets in Mexico.
INCOME TAXES. The effective tax rate for the six months ended June 30, 1999
and 1998 is impacted by the non-tax deductibility of $11.6 and $11.8 million,
respectively, of interest expense associated with the push down of debt
principal and interest payments from the Company's former parent corporation.
EXTRAORDINARY LOSS. The Company recorded an extraordinary loss of $2.6
million net-of-tax ($4.2 million pre-tax) associated with the early retirement
of debt. This charge consists of redemption premiums and other financing costs
partially offset by a gain resulting from the recognition of unamortized swap
accretion credits.
COACH OPERATIONS
REVENUE. Revenues from coach operations of $389.2 million for the six
months ended June 30, 1999 increased $6.6 million or 1.8% over the comparable
period of 1998. Sales of new intercity coaches totaled 1,096 units (909 units in
the United States and Canada) for the first six months of 1999 compared to 1,340
units (900 units in the United States and Canada) during the same period of the
prior year. Units sold in Mexico in 1998 included 209 lower-priced, lower-margin
intercity transit buses during the first quarter of 1998 which did not reoccur
in 1999. Order backlog as of June 30, 1999 was 928 units (604 units in the
United States and Canada) compared to 1,044 units (733 in the United States and
Canada) at the same time last year. Used coach revenue during the first six
months of 1999 increased $4.5 million or 13% over the comparable period of 1998
due primarily to a first-ever inventory clearance sale held during 1999 to
coincide with the opening of the Company's new service center in Dallas. This
increase was generated by an increase of 21% in units sold (from 402 during the
first six months of 1998 to 488 units for the comparable period of 1999) offset
partially by approximately a 7% decline in the average selling price of a used
coach.
GROSS PROFITS. Gross profits for coach operations of $84.1 million for the
six months ended June 30, 1999 increased $5.0 million or 6.3% over the
comparable period of 1998. Operating expenses for the first six months of 1999
include a non-cash inventory charge of $15.0 million to adjust used coach
inventories to reflect a change in asset management strategy implemented by the
new management brought in by the equity investors in response to the changing
dynamics of the marketplace. Exclusive of this charge, gross profits increased
by $20.0 million or 25.3% during 1999 as the gross profit margins increased from
20.7% in 1998 to 25.5% in 1999. The increase in the gross margins is primarily
attributed to a significant reduction in the labor hours per coach produced on
the new E-Series coach which was in a start-up phase during early 1998 and the
implementation of other cost improvement initiatives offset partially by the
impact of the lower used coach pricing.
OPERATING INCOME. Operating income from coach operations of $28.2 million
for the first six months of 1999 decreased $2.5 million or 8% from the same
period last year due to an increase in selling, general and administrative
expenses. The increase in selling, general and administrative expenses is
primarily due to higher sales promotion costs and higher allocated selling,
general and administrative expenses driven by higher employee related cost and
higher miscellaneous costs largely associated with the financial restructuring.
Higher consulting cost associated with the upgrade and/or implementation of new
computer systems also contributed to higher selling, general and administrative
expenses. Operating income margins, exclusive of the $15.0 million non-cash
inventory charge discussed
43
<PAGE>
above, increased from 8.1% for the first six months of 1998 to 11.1% for the
comparable period of 1999.
REPLACEMENT PARTS
REVENUES. Revenues for replacement parts operations of $94.5 million for
the first six months of 1999 were down $2.4 million or 2.5% from the comparable
period of 1998. Effective June 16, 1999, as part of the Transactions, the
Company contributed its Mexican parts company to Grupo Dina which resulted in a
decrease in revenue of approximately $.7 million from a year ago. The balance of
the decrease is primarily due to a lower demand for replacement parts as the
demand tends to be counter-cyclical to sales of new coaches as operators choose
to replace their fleets rather than experience increased maintenance
requirements.
GROSS PROFITS. Gross profits from replacement parts operations of $13.5
million for the first six months of 1999 were $2.2 million or 14% below the same
period of 1998. A non-cash inventory charge of $6.0 million was recorded in 1999
to rationalize inventories in connection with a revised plan developed in the
second quarter of 1999 to consolidate the replacement part distribution
activities into a single location. Exclusive of this charge, gross profits would
have increased $3.8 million or 24% over the prior year as the gross profit
margins increased from 16.2% in 1998 to 20.6% in 1999. The improvement in gross
margin is largely due to higher costs in 1998 incurred by our Mexico
distribution operations which were in a start-up phase in early 1998 and other
benefits realized from cost improvement initiatives undertaken by the company.
OPERATING INCOME. Operating income from replacement parts operations of
$4.2 million was $3.4 million or 44% below the comparable period 1998. Lower
gross profits and higher allocated selling, general and administrative expenses
were the major factors causing the decline in operating income. Operating income
margins, exclusive of the $6.0 million non-cash inventory charge discussed
above, increased from 7.8% for the first six months of 1998 to 10.8% for the
comparable period of 1999.
FINANCE OPERATIONS
REVENUES. Revenues from finance operations of $3.6 million for the first
six months of 1999 declined $1.6 million or 30% from the comparable period of
1998. The decrease in revenues is a direct result of efforts to reduce the total
lease and loan portfolio to generate cash for working capital needs.
GROSS PROFITS. Gross profits from finance operations of $2.2 million for
the first six months of 1999 declined $1.4 million from the same period last
year. The decrease in revenue is the largest factor contributing to the
decrease.
OPERATING LOSS. Operating losses from finance operations totaled $.2
million for the first six months of 1999 compared to approximately $1.6 million
of operating income for the same period of last year. Lower gross profits and
higher allocated selling, general and administrative expenses were the major
factors causing the decline in operating income.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
OVERVIEW
REVENUES. Revenues increased 25.9% in 1998 to $931.7 million from $739.8
million in 1997 due to strong customer demand for new and used coaches. Low
interest rates and solid economic growth in the United States and Canada,
coupled with slowly improving economic conditions in Mexico, allowed for record
sales volumes. In addition, strong customer acceptance of our high-end E-Series
coach, following its initial introduction in late 1997, further stimulated
revenue growth.
44
<PAGE>
GROSS PROFIT. Gross profit increased 5.2% to $200.8 million in 1998 from
$190.8 million in 1997. However, overall gross profit margins declined to 21.5%
in 1998 from 25.8% in 1997. Lower gross margins in 1998 were due primarily to
the mix of new coaches sold in the United States and Canada and depressed used
coach prices.
OPERATING INCOME. Operating income for 1998 was $83.8 million, an increase
of 6.8% over the $78.5 million recorded in 1997. The increase in operating
income resulted from higher new coach sales volumes and improved margins on
replacement parts, partially offset by lower new coach and used coach margins.
Reductions in product development and launch costs also contributed to the
growth in operating income.
COACH OPERATIONS
REVENUES. Our coach operations reported revenues of $736.2 million in 1998,
an increase of 37.1% over the $537.2 million reported in 1997. New coach
deliveries totaled 2,173 units for 1998, compared to 1,732 units in the prior
year. Demand for new coaches in the U.S. and Canadian markets continued to grow
in 1998 due to the availability of low-cost financing and favorable economic
conditions. Our used coach business responded well to management initiatives to
increase inventory turnover, with sales increasing to 779 units, compared to 496
units to 1997.
GROSS PROFIT. Gross profit from coach operations increased to $157.6
million in 1998, a 3.6% increase over the $152.1 million recorded in 1997.
However, gross margins declined to 21.4% in 1998, compared to 28.3% in 1997.
Gross profit was primarily impacted by lower margins on used coaches in the
United States and Canada resulting from the acceleration of fleet replacement
programs by our major new coach customers.
OPERATING INCOME. Operating income for our coach operations declined to
$59.3 million in 1998, or 2.0%, compared to $60.5 million recorded in 1997. The
decline was primarily due to losses associated with used coaches which were
partially offset by approximately $8.5 million in business insurance recoveries
in 1998. In addition, operating income in 1997 was depressed by approximately
$7.3 million of new product start-up costs.
REPLACEMENT PARTS OPERATIONS
REVENUES. Revenues within our replacement parts operations were down 3.8%
to $186.1 million in 1998, compared to $193.4 million in 1997. Historically, the
demand for replacement parts tends to run counter-cyclical to the demand for new
coaches, and this trend continued during 1998 in the U.S. and Canadian markets.
GROSS PROFIT. Gross profit from replacement parts operations increased to
$37.0 million, a 14.7% increase over the $32.3 million recorded in 1997. Gross
margins increased to 19.9% in 1998 compared to 16.7% in 1997, due primarily to
lower operating costs in parts distribution operations.
OPERATING INCOME. Operating income in the replacement parts operations
increased 38.8% to $22.1 million in 1998, compared to $15.9 million in 1997. The
combination of improved gross margins and lower selling, general and
administrative costs contributed to the positive improvement in operating
income.
FINANCE OPERATIONS
REVENUES. Revenues from our finance operations increased marginally to $9.4
million in 1998, compared to $9.2 million in 1997. Flat revenues reflect
management efforts to limit growth of the loan and lease portfolio by referring
financing business to MCII Financial Services, while attempting to maintain
financing support for new coach sales through use of external financing sources.
45
<PAGE>
GROSS PROFIT. Gross profit from finance operations declined to $6.1
million, a 4.4% decrease from $6.4 million in 1997. Gross margins also declined
to 64.9% in 1998, compared to 69.4% in 1997. Finance margins were negatively
impacted by a higher external cost of capital in 1998.
OPERATING INCOME. Operating income from our finance operations increased
19.8% to $2.4 million in 1998, compared to $2.0 million in 1997. Operating
income was impacted favorably by lower selling, general and administrative
costs.
INTEREST EXPENSE
Interest expense increased 3.9% to $45.2 million in 1998, compared to $43.5
million in the prior year. Interest expense includes $25.2 million and $21.6
million, respectively, of interest expense relating to the push down of Grupo
Dina's $206.5 million senior secured discount notes.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
OVERVIEW
REVENUES. Revenues increased 10.9% in 1997 to $739.8 million from $667.1
million in 1996 due to strong customer demand for new and used coaches, despite
the flooding of the Red River in the second quarter of 1997, which effectively
halted production for four weeks.
GROSS PROFIT. Gross profit in 1997 increased 21.3% to $190.8 million from
$157.3 million in 1996. Gross profit margins also increased to 25.8% in 1997,
compared to 23.6% in 1996. Higher gross margins in 1997 were primarily due to
increased leveraging of fixed costs resulting from higher unit sales.
OPERATING INCOME. Operating income for 1997 was $78.5 million, an increase
of 31.3% over the $59.8 million recorded in 1996. The increase in our operating
income resulted from the increased leveraging of fixed costs resulting from
higher unit sales.
COACH OPERATIONS
REVENUES. Revenues from coach operations increased 8.3% in 1997 to $537.2
million from $496.1 million in 1996. New coach deliveries totaled 1,732 units
for 1997, compared to 1,511 units in the prior year. Demand for new coaches
reflected continued strength in the U.S. and Canadian economies and low interest
rates, along with the gradual recovery of the Mexican economy. Used coach unit
sales of 496 units in 1997 decreased from 571 units in 1996. This decrease was
primarily due to the strength of the new coach sales, especially the
VIAGGIO-Registered Trademark- which is priced at levels to compete with used
coaches. We experienced revenue growth in 1997 despite the flooding of the Red
River in the second quarter of 1997, which effectively halted production for
four weeks. In addition, we introduced the E-Series coach which, due to the
flood, experienced product launch difficulties.
GROSS PROFIT. Gross profit from coach operations in 1997 increased 30.3% to
$152.1 million from $116.7 million in 1996. Gross profit margins also increased
to 28.3% in 1997, compared to 23.5% in 1996. Higher gross margins in 1997 were
primarily due to lower used coach margins in 1996, which were driven by large
industry-wide volumes of trade-ins. In addition, the higher gross profit
reflects the increased leveraging of fixed costs resulting from higher unit
sales.
OPERATING INCOME. Operating income from coach operations for 1997 was $60.5
million, an increase of 45.8% over the $41.5 million recorded in 1996. The
increase in our operating income primarily resulted from the increased
leveraging of fixed costs resulting from higher unit sales.
46
<PAGE>
REPLACEMENT PARTS OPERATIONS
REVENUES. Revenues from our replacement parts operations for 1997 was
$193.4 million, an increase of 21.5% over the $159.2 million recorded in 1996.
The increase in our revenues resulted from a full year effect of the acquisition
of the inventory of Flxible Parts, Inc., which was acquired in late 1996.
GROSS PROFIT. Gross profit from our replacement parts operations decreased
1.5% to $32.3 million in 1997 from $32.8 million in 1996. Gross profit margins
also decreased to 16.7% in 1997, compared to 20.6% in 1996. Lower gross margins
in 1997 were primarily due to a higher proportion of lower margin parts sales
for transit buses resulting from the acquisition of Flxible inventory.
OPERATING INCOME. Operating income from our replacement parts operations
increased 12.0% in 1997 to $15.9 million from $14.2 million in 1996 due to a
reduction in selling, general and administrative expenses resulting from cost
synergies from the acquisition of Flxible inventory.
FINANCE OPERATIONS
REVENUES. Revenues from our finance operations decreased 22.0% to $9.2
million in 1997 from $11.8 million in 1996. The decrease in revenues primarily
resulted from the reduction in size of the loan portfolio resulting from the
formation of, and transfer of loans and leases to, MCII Financial Services Inc.
GROSS PROFIT. Gross profit from our finance operations for 1997 was $6.4
million, a decrease of 16.9% from the $7.7 million recorded in 1996. The
decrease in gross profit primarily resulted from the corresponding decline in
revenues. Gross profit margins increased to 69.4% in 1997, compared to 65.2% in
1996.
OPERATING INCOME. Operating income from our finance operations decreased
52.4% in 1997 to $2.0 million from $4.2 million in 1996 primarily due to the
increasing effect of the decline in revenues spread over fixed cost.
INTEREST EXPENSE
Interest expense increased 22.2% to $43.5 million in 1997, compared to $35.6
million in the prior year. Interest expense includes $21.6 million and $19.6
million, respectively, of interest expense relating to the push down of Grupo
Dina's $206.5 million senior secured discount notes, in 1997 and 1996. Interest
expense was also higher due to an increase in bank borrowings at the U.S. and
Canadian operations.
LIQUIDITY AND CAPITAL RESOURCES
We have significant indebtedness and debt service requirements. As a result
of the Transactions, we have significantly increased our cash requirements for
debt service relating to the outstanding notes and our senior credit facility.
As of June 30, 1999, we had long-term debt outstanding of approximately $494.1
million and an additional $102.0 million available under our senior credit
facility. Principal on the term loans issued under our new senior credit
facility is required to be repaid quarterly in annual amounts of $3.3 million
for the first six years and $313.0 million in the seventh year after the
closing. Our intention is to fund those quarterly payments through the senior
secured credit facility. Our principal liquidity requirements are for debt
service requirements under the notes and our senior credit facility and for
working capital and capital expenditures. Historically, we have funded our
capital and operating requirements with a combination of cash on hand, operating
cash flow, proceeds from asset sales and proceeds from credit facilities and
other debt borrowings. We expect to rely on internally
47
<PAGE>
generated funds and, to the extent necessary, borrowings under our senior credit
facility to meet our liquidity needs in the foreseeable future.
Net cash provided by operating activities for the first six months of 1999
was $11.6 million, compared to $50.5 million for the first three months of 1998.
The decrease in cash provided by operating activities was principally due to a
greater increase in accounts receivable as we approach the peak spring selling
season for new coaches with a higher planned production volume. Net cash
provided by operating activities was $73.7 million in 1998, compared to net cash
used in operating activities of $52.6 million in 1997. The increase in cash
provided by operating activities was due principally to reductions in inventory
levels in 1998 following significant increases in inventory and other working
capital requirements during 1997 due to the introduction of the E-Series coach.
Net cash used by investing activities was $26.9 million for the first six
months of 1999, compared to net cash used in investing activities of $9.3
million for the first six months in 1998. The increase in cash provided by
investing activities resulted primarily from an increase of investment in notes
receivable. Net cash used in investing activities was $14.7 million in 1998
compared to $71.2 million in 1997. The decrease in cash used in investing
activities reflects reductions in capital expenditures in 1998 and the initial
investment we made in MCII Financial Services Inc. in 1997 that did not reoccur
in 1998.
Capital expenditures for the first six months of 1999 were $16.9 million
compared to $5.1 million for the same period in 1998. Capital expenditures for
the first six months of 1999 included approximately $7.5 million associated with
the construction of a new replacement parts distribution facility in Louisville,
KY. Proceeds from sale of property and investments for the first six months of
1999 includes approximately $7.9 million of proceeds from the sale of the Des
Plaines replacement parts distribution facility which is currently being leased
back by the Company until such time as the new Louisville, KY facility is fully
operational. Capital expenditures totaled $11.7 million in 1998 compared to
$32.1 million in 1997. Capital expenditures included $1.8 million and $3.8
million for new coach tooling for the E- and G-Series in 1998 and 1997,
respectively.
Net cash provided by financing activities for the first six months of 1999
was $32.2 million compared to $28.3 million used during the same period in 1998.
The change in cash provided/used in financing activities was primarily due to
the impact of the financial restructuring and net changes in the intercompany
payables accounts with related parties. Net cash used in financing activities
was $49.0 million in 1998 compared to net cash provided by financing activities
of $128.3 million in 1997. During 1997, we increased borrowings from our
revolving credit facilities and issued new debt to finance increases in working
capital and product development projects in both the U.S. and Mexico, including
the E-Series. In 1998, cash generated from operations and working capital
reductions was used to service debt principal payments to reduce our borrowings
under our revolving credit facilities.
FINANCIAL RESTRUCTURING
As of December 31, 1998, we had a $170 million U.S. senior revolving credit
facility with a nine-bank syndicate to finance working capital and other general
corporate needs. This facility was scheduled to expire on October 1, 1999, and
the lenders indicated that they were not willing to extend its maturity. In
addition, during 1998, we were required to reduce existing long-term debt
obligations by $50 million, consisting of a $25 million principal payment on our
9.02% senior notes, a $12 million reduction in our Canadian credit facility, and
a $13 million principal payment on Autobuses' pre-export notes due 1999.
As a result of the debt reductions during 1998 and the additional debt
obligations and working capital requirements for 1999, we did not expect to
generate sufficient cash flow from operations to fund both short term
requirements and meet the required expiration of our then existing senior credit
facility.
48
<PAGE>
On March 18, 1999, we engaged CIBC World Markets Corp. (formerly CIBC
Oppenheimer Corp.) and its affiliates ("CIBC"), to act as our lead bank agent,
financial advisor, placement agent, or underwriter to undertake a financial
restructuring of the debt obligations of our company and Grupo Dina.
On April 19, 1999, we executed an agreement with CIBC for the issuance of
$40 million of senior subordinated increasing rate notes due December 31, 1999
(subject to extension to March 31, 2000), which were subsequently paid off in
connection with the Transactions. We used this bridge financing to meet
short-term working capital requirements during the financial restructuring
process.
In addition to the bridge financing, we developed and executed, in
association with CIBC, a financial restructuring plan to refinance substantially
all of the indebtedness of Grupo Dina, our company, and our respective
subsidiaries. See "Prospectus Summary--The Transactions."
YEAR 2000 MATTERS
We have developed a plan to ensure that our systems have the ability to
process transactions in the year 2000. We believe that we have 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
November 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, we believe that we 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.
We believe that the expenses and capital expenditures associated with achieving
year 2000 compliance will not have a material effect on our financial results in
1999.
We are contacting business partners whose year 2000 non-compliance could
adversely affect our operations, employees, or customers. We believe the most
likely worst case scenario would be the failure of a material business partner
to be year 2000 compliant. Therefore, we will continue to work with and monitor
the progress of our partners and formulate a contingency plan if we do not
believe a business partner will be compliant.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of our operations or cash flows due to adverse changes in
financial and commodity market prices and rates. As a result of the financial
restructuring discussed above, we are exposed to market risk in the area of
changes in U.S. interest rates. This exposure is directly related to our normal
operating and funding activities.
Because our obligations under our senior credit facility include interest at
floating rates, based on certain quoted base rates we are sensitive to changes
in prevailing interest rates. An increase of 1% in the applicable base interest
rates, based upon $343 million of borrowings under the facility as of June 30,
1999, would result in addition annual interest expense of approximately $3.4
million ($2.0 million after tax) to us and would not be material to our cash
flow or financial position.
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BUSINESS
We are the leading designer, manufacturer and marketer of inter-city coaches
and related replacement parts for the North American market. We began
manufacturing inter-city coaches and distributing replacement parts in 1933.
Since the late 1970s, we have consistently maintained a market share in excess
of 50% of the United States and Canadian inter-city coach market and estimate
that our 1998 market share was 56%. Our established market position and product
longevity have led to an installed base that, according to a BUS BOOK PUBLISHING
report, exceeds 70% of the estimated 38,000 industry-wide fleet of inter-city
coaches operating in the United States and Canada in 1998. We believe that
strong brand name recognition under the MCI-Registered Trademark- logo and a
reputation for quality products have led to our large installed customer base
and lead to new coach purchases and demand for our replacement parts. We also
believe that we are the largest distributor of replacement parts for inter-city
coaches and transit buses in the United States and Canada with an estimated 33%
of this combined market.
From 1995 to 1998, our annual revenues have grown from $527.1 million to
$931.7 million, representing a 20.9% compound annual growth rate. We attribute
our growth to the successful introduction of new coach models, the upgrading and
expansion of several of our existing product lines and strong industry
fundamentals. Over that same period, our annual EBITDA has increased from $59.1
million in 1995 to $108.6 million in 1998, representing a 22.5% compound annual
growth rate. Our revenues and Adjusted EBITDA for the twelve months ended June
30, 1999 were $934.2 million and $123.0 million, respectively.
Our principal lines of business are:
MANUFACTURING AND SELLING NEW COACHES. We design, manufacture and market
new coaches in the United States, Canada and Mexico. In the United States and
Canada, we sell our coaches under the MCI-Registered Trademark- and
VIAGGIO-REGISTERED TRADEMARK- names and in Mexico and Latin America we sell
under the DINA and VIAGGIO-Registered Trademark- names. Our broad product lines
and comprehensive option offerings target each level of the inter-city coach
market, ranging from high-end charter coaches to lower-cost line-haul coaches.
For the twelve months ended June 30, 1999, new coach sales represented 69% of
our revenues.
MANUFACTURING AND SELLING REPLACEMENT PARTS. We manufacture and/or
distribute throughout North America more than 60,000 replacement parts for
inter-city coaches, approximately 20% of which are our proprietary products.
Besides our OEM products, we also distribute non-OEM replacement parts under our
COACH GUARD-REGISTERED TRADEMARK- and DIESEL GUARD-REGISTERED TRADEMARK- brand
names. For the twelve months ended June 30, 1999, replacement parts represented
20% of our revenues.
To support our principal business lines, we engage in the following related
activities:
USED COACH SALES AND SERVICE. Through our broad sales network, we provide
used coach brokerage and dealership services. Due to our large installed base of
coaches, our extensive maintenance and repair capabilities, longstanding
customer relationships and industry knowledge, we are able to further support
our customers by purchasing and reselling used coaches. In addition, we have one
of the largest coach service center networks, with five centers located
throughout the United States and Canada. We believe our dedicated sales, parts
and service network enhances the high residual values enjoyed by our coaches,
which in turn is a major selling point when marketing new coaches.
LEASING AND FINANCING COACHES. To further support our sales efforts, we
offer a comprehensive package of leasing and financing services to our
customers. Our leasing and financing services allow us to generate incremental
sales and provide us with an additional competitive advantage due to our ability
to assist customers in financing their coach purchases.
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REVENUES AND GROSS PROFIT BY BUSINESS SEGMENT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------- COMPOUND ANNUAL
1995 1996 1997 1998 GROWTH RATE
---------- ---------- ---------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Coach (New and Used).......................... $ 377,661 $ 496,078 $ 537,184 $ 736,216 24.9%
Replacement Parts............................. 140,500 159,201 193,358 186,072 9.8%
Finance and Other............................. 8,892 11,805 9,241 9,439 2.0%
---------- ---------- ---------- ----------
Total..................................... $ 527,053 $ 667,084 $ 739,783 $ 931,727 20.9%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
GROSS PROFIT
Coach (New and Used).......................... $ 91,811 $ 116,695 $ 152,095 $ 157,615 19.7%
Replacement Parts............................. 32,572 32,849 32,278 37,033 4.4%
Finance and Other............................. 5,868 7,736 6,409 6,125 1.4%
---------- ---------- ---------- ----------
Total..................................... $ 130,251 $ 157,280 $ 190,782 $ 200,773 15.5%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
GROSS MARGIN
Coach (New and Used).......................... 24.3% 23.5% 28.3% 21.4%
Replacement Parts............................. 23.2% 20.6% 16.7% 19.9%
Finance and Other............................. 66.0% 65.5% 69.4% 64.9%
---------- ---------- ---------- ----------
Total..................................... 24.7% 23.6% 25.8% 21.5%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
COMPETITIVE STRENGTHS
RECOGNIZED INDUSTRY LEADER. We have been a leading manufacturer of
inter-city coaches and replacement parts in the United States and Canada for
more than 30 years. According to the NATIONAL BUS TRADER, we had the two most
popular, and four of the top six, seated coach models delivered in the United
States and Canada in 1998. We offer our customers what we believe is the
broadest range of parts and provide our customers with prompt delivery,
generally within 24-hours.
FIRMLY ESTABLISHED RELATIONSHIP WITH GREYHOUND LINES. For over 30 years, we
have been the principal supplier of coaches to Greyhound Lines, Inc. and
Greyhound Lines of Canada, Ltd., which are both owned by Laidlaw Inc., the
largest buyer of coaches in North America. Our coaches currently represent
greater than 90% of the approximately 3,100 vehicles in Greyhound's combined
fleet. We currently have dedicated supplier agreements with Greyhound Lines and
Greyhound Canada for inter-city coaches which requires Greyhound Lines to
purchase at least 80% of its new coaches from us and Greyhound Canada to
purchase at least 75% of its new coaches from us. In addition, we are developing
our next generation line-haul coach, the G-Series, in consultation with
Greyhound Lines. We expect that we will begin pilot production of the G-Series
in late 1999.
FAVORABLE TRENDS. We expect to benefit from several favorable trends in the
coach industry, including (1) the resurgence of Greyhound as a national
line-haul operator, and the commitment to the inter-city coach business shown by
Laidlaw's acquisition of Greyhound, (2) the growth of Coach USA, the leading
tour and charter operator in the United States, adding stability in the tour and
charter segment of the industry, and (3) the acceleration of the fleet
replacement cycle for our top two customers, Greyhound and Coach USA.
CONTINUED MANUFACTURING EFFICIENCY IMPROVEMENTS. During 1998, we decreased
per unit manufacturing costs. We have improved our manufacturing capacity while
reducing costs through improved product design and manufacturing process
improvements. For example, the new E-Series
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RENAISSANCE-REGISTERED TRADEMARK- coach was introduced during 1997 and is built
using approximately one-third fewer parts than previous models. The advanced
design of the E-Series coach significantly reduces production labor hours and is
intended to increase product quality.
COMPLEMENTARY PRODUCT LINES MITIGATE CYCLICAL MARKETS. Our operations
combine the new coach manufacturing business, which performs best in a strong
general economic environment, with the replacement parts, used coach sales and
service businesses, which have historically performed more favorably during
general economic downturns. Replacement parts and service sales tend to increase
during an economic downturn as customers defer new coach purchases and extend
the useful lives of their existing fleets. The complementary nature of our
businesses tends to mitigate the impact of reduced new coach sales during
periods of economic downturns.
BARRIERS TO ENTRY. To be competitive, potential participants looking to
enter the inter-city coach manufacturing industry would need to make significant
capital investments in plant and equipment and hire from a limited pool of
experienced engineering, manufacturing and R&D personnel. We believe that
further barriers include our brand recognition and customer loyalty that result
from our leading market position and significant installed customer base. A
successful coach manufacturer must make significant capital investments to
support its customers through a large inventory of replacement parts and
nationwide service centers. Furthermore, switching coach manufacturers is
expensive and time consuming for fleet operators, as drivers and maintenance
personnel would need to be retrained and replacement parts would need to be
restocked in order to service and maintain multiple coach brands.
STATE-OF-THE-ART DESIGNS. The E-Series RENAISSANCE-Registered Trademark-,
which was introduced in 1997, has been well received by customers and the
inter-city coach industry. The E-Series was the co-winner of the 1996 Concurrent
Engineering Award for new product design given jointly by Structural Dynamics
Research Corporation and MACHINE DESIGN magazine. The E-Series was engineered to
maximize manufacturing efficiencies by requiring fewer assembly hours and parts.
We believe that the E-Series' patented spiral staircase, advanced audio systems
and larger overhead luggage racks and lavatories are innovative features that
have contributed to its success. Our G-Series coach incorporates the engineering
advances and lessons learned from the development of the E-Series.
BUSINESS STRATEGY
Our business objective is to profitably grow our position as the leading
North American manufacturer of inter-city coaches. In order to do so, we will
pursue the following strategies:
CONTINUE NEW PRODUCT INTRODUCTIONS AND REFINEMENTS. In the last two years,
we have introduced two new model lines, the E-Series
RENAISSANCE-REGISTERED TRADEMARK- coach, for use in the luxury tour and charter
markets, and the F-Series coach, a lower cost line-haul model initially designed
for the Mexican marketplace. Each unit is highly competitive within its specific
market, and customer acceptance of both units was high in 1998. In late 1999, we
intend to begin pilot production of our G-Series coach. The all-new G-Series is
being designed in consultation with Greyhound primarily to serve the needs of
the U.S. line-haul market. Going forward, we intend to refine existing and new
product lines to meet the needs of our customers.
LEVERAGE LOW COST MANUFACTURING. We continue to seek to improve our margins
by lowering our manufacturing costs. In particular, we have an opportunity to
utilize available production capacity at our ISO 9001 certified facility in
Sahagun, Mexico. This process began in a limited manner with the introduction of
the DOT certified VIAGGIO-REGISTERED TRADEMARK- 1000 model, which addresses the
lower-cost niche in the United States and Canadian markets. As part of our
long-term strategy, we plan to use our Sahagun facility to manufacture the new
F- and G-Series models. We expect that this will allow us to manufacture these
vehicles at a lower unit cost than they could be produced in our existing U.S.
and Canadian facilities due to significantly lower labor costs in Mexico.
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SEEK NEW MARKET NICHES. In the near term, we intend to build on the success
of recently launched model lines. In the United States, we will increase our
marketing of E-Series coaches in shell form into the high-end motor home
conversion segment. In the longer term, we are considering marketing the
F-Series unit to select U.S. niche markets, including the motor home conversion
and airport transfer markets.
CONTINUE TO IMPROVE SERVICE OFFERINGS. We believe that our success is
largely attributable to our dedication to customer service. Our full-service
approach is applied to all segments of our business, including new coach sales,
used coach sales, replacement parts, service, financing and leasing. Since the
beginning of 1998, we opened new service facilities in Dallas, Montreal and Los
Angeles, and further service facilities are under consideration. We also
recently announced plans to consolidate our existing parts facilities into a new
single facility to be built in Louisville, Kentucky. The strategic location of
this facility will permit us to accept orders later than our current
capabilities for next day delivery. In addition to increasing customer service,
the Louisville facility is expected to significantly reduce overall operating
costs and benefit from local government tax incentives.
FURTHER RATIONALIZE OPERATIONS. We believe we can continue to reduce costs
through further process and manufacturing re-engineering. In the U.S. and
Canadian coach business, we improved our operating margin through reductions in
support personnel and the elimination of redundancies. We continue to
re-engineer our manufacturing processes and component designs in order to
increase parts standardization and reduce manufacturing costs. We believe that
parts standardization will result in faster parts delivery to our customers and
increased profitability and market penetration due to higher product quality.
INDUSTRY OVERVIEW
INTER-CITY COACH INDUSTRY
The domestic market for inter-city coaches is broad and diverse. The primary
customers for inter-city coaches are independent coach operators, national coach
fleet operators, government agencies that use coaches for public transit
services and custom coach converters. Based on a BUS BOOK PUBLISHING report, our
installed base exceeds 70% of the estimated 38,000 industry-wide fleet of inter-
city coaches operating in the United States and Canada in 1998. We estimate the
United States and Canadian market for new inter-city coaches to have exceeded
$1.0 billion of which we had an estimated 56% market share in 1998.
U.S. AND CANADIAN
NEW INTER-CITY COACH DELIVERIES(1)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Total MCII Units(2)............................................................ 1,492 1,797
Total Industry Units........................................................... 2,769 3,200
MCII Market Share.............................................................. 54% 56%
Industry Growth................................................................ 22% 16%
</TABLE>
- --------------------------
SOURCE: BASED ON DATA PUBLISHED BY NATIONAL BUS TRADER
(1) In addition to the amounts in the table, we delivered 232 and 325 inter-city
coaches in Mexico for each of the two years in the period ending December
31, 1998. Inter-city coach deliveries do not include shells delivered for
the conversion market.
(2) Includes 50 and 37 coaches during each of the two years in the period ending
December 31, 1998 that we delivered to customers leasing their coaches from
the Company's leasing subsidiary.
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<PAGE>
Since the late 1970s, we have consistently maintained a market share in
excess of 50% of the U.S. and Canadian inter-city coach market, and have
historically maintained a market share that more than doubles our next largest
competitor. The total new coach market deliveries have increased between 1994
and 1998 at a compound annual growth rate of 18.7%, while our unit deliveries
have increased at a compound annual growth rate of 14.5% over the same time
period. In 1997, our market share fell to 54% reflecting the four week plant
closure caused by the flooding of the Red River. The significant delivery delays
during the peak demand season caused many of our customers to cancel orders. We
fully rebounded in 1998 delivering a record 1,797 units.
According to NATIONAL BUS TRADER, a leading industry publication, the growth
of the inter-city coach industry has been driven by several factors including
the overall strength of the U.S. economy, the expected increase in coach tourism
resulting from the aging U.S. population and the fleet upgrading being
undertaken by many inter-city coach operators. According to NATIONAL BUS TRADER,
the general health of the U.S. economy and the resulting increase in disposable
incomes and consumer confidence has led to increased leisure travel. NATIONAL
BUS TRADER also believes that inter-city coach fleet improvement and
modernization may have been the most significant factor behind new coach unit
growth in 1998. Operators are replacing older 40-foot, manual transmission
coaches with newer 45-foot, automatic transmission models. NATIONAL BUS TRADER
believes that this fleet improvement and modernization trend will continue to
drive demand in 1999. In addition, inter-city coach sales have benefited from
the prevailing low interest rates experienced in recent years.
REPLACEMENT PARTS INDUSTRY
The inter-city and transit bus replacement parts market is highly fragmented
and is comprised of many regional manufacturers and distributors. We estimate
that we maintain an approximate 33% share of the estimated $550 million market
for replacement parts in the United States and Canada. Our three next largest
competitors each maintain an approximate 5% to 8% share. We believe that the
demand for replacement parts is related to the number of inter-city and transit
buses currently in operation, the average level of usage for each bus and the
average age of the bus fleet. We believe the inter-city coach replacement parts
market segment will remain relatively flat partially due to the planned
reduction in fleet age for major line-haul and tour and charter operators such
as Greyhound and Coach USA, and that the recent pricing pressure will continue
as small local competitors enter the market and try to establish market share.
In addition, we believe that the transit market will be a flat to down market as
federal budget cuts will continue to put pressure on order volume and on
pricing.
COMPETITIVE ENVIRONMENT
In the inter-city coach market, we compete on the basis of the quality of
our products, features and services. We believe that our full product array of
both new and used coaches, our leasing and financing packages, and the
nationwide presence of our replacement parts business (which gives us the
ability to supply customers with replacement parts in a timely fashion,
generally within 24 hours) and service business give us distinct advantages over
our competitors. In the replacement parts market, we compete on the basis of
availability of product, speed of delivery and price. We are refining our
replacement parts delivery system to be more efficiently provided by a single
centralized parts distribution center that feeds our service centers and
customers directly.
Competitors within the coach market include: (1) Prevost Car, a subsidiary
of Volvo Bus Corporation; (2) Van Hool, one of the leading European coach
manufacturers; and (3) Setra, another leading European coach manufacturer. We
estimate that Prevost had a 25% market share of the U.S. and Canadian 1998
inter-city coach market. We estimate that Van Hool had approximately a 15% share
of the 1998 inter-city coach market in the United States and Canada. Van Hool
distributes its products through ABC Bus, Inc. Setra, the brand name for Evobus
GmbH, was formed through the merger of Kassbohrer Fahrzeugwerke GmbH and
Mercedes-Benz AG. Although Setra has not historically had a
54
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strong North American presence, the new business combination could potentially
strengthen the financial and/or competitive position of Setra.
Competitors within the replacement parts market include both OEMs and parts
distributors. OEM participants include Prevost, Neopart (Neoplan) and BIA in the
inter-city and transit segment. Distributors include ABC, the representative for
Van Hool in both the coach and the replacement parts business, and Mohawk.
Competitors in the transit parts market include Neopart and North American Bus
Industries. Novabus, a transit bus maker, may enter the replacement parts market
beginning in November 1999.
RELATIONSHIP BETWEEN THE NEW COACH INDUSTRY AND REPLACEMENT PARTS INDUSTRY
The new coach manufacturing industry, which performs best in a strong
general economic environment, and the replacement parts, used coach sales and
service industries, which have historically performed more favorably during
general economic downturns, are complementary. Replacement parts and service
sales tend to increase during an economic downturn as customers defer new coach
purchases and extend the useful lives of their existing fleets. The
complementary nature of these businesses tends to mitigate the impact of reduced
new coach sales during periods of economic downturns.
PRODUCTS
INTER-CITY COACHES
Our current product offerings include five inter-city coach models with
selling prices ranging from $105,000 to $395,000. Substantially all of our
coaches are built to order with over 2,000 options available. We also have the
ability to custom engineer our products to meet the specific design needs of our
customers. Options include engine and transmission alternatives, specified
seating configurations, interior appointments, driver ergonomics, exterior paint
schemes, safety features and handicap accessibility packages. In addition, we
offer several higher-end options including a compressed natural gas engine, a
global positioning satellite navigation system and various audio/video systems.
D-SERIES. The D-Series, designed for both the line-haul and tour and
charter markets, consists of a 40-foot long, 102-inch wide, three-axle coach and
a 45-foot long version. Our deliveries for the D-Series models in 1998 totaled
1,100 units constituting 59.5% of gross new coach units delivered in the United
States and Canada. Seating capacity ranges from 43 to 61 passengers depending on
the model and configuration. The increased seating capacity on the 45-foot
version allows for lower per passenger operating costs than the 40-foot version.
The units have a standard twenty-four month warranty. The 45-foot version was
the most popular and the 40-foot version was the sixth most popular seated coach
model in the United States and Canada in 1998 according to NATIONAL BUS TRADER.
E-SERIES. The E-Series, also known as the RENAISSANCE-REGISTERED TRADEMARK-
coach, was developed for the tour and charter market. The E-Series is a 45-foot
long, 102-inch wide, three-axle coach. In developing the E-Series, we utilized
customer input to include standard features desired by tour and charter
operators, such as more window glass for improved viewing, as well as extensive
option packages. The E-Series represents the top of our product line in terms of
comfort and styling. The seating capacity totals 54 to 56 passengers. The
E-Series accounted for approximately 27.6% of gross new coach units delivered in
1998 in the United States and Canada with unit deliveries of 510 vehicles. The
units have a standard thirty month warranty, which is the longest warranty
currently offered in the industry. The E-Series, launched in September 1997, was
the second most popular seated coach model in the United States and Canada in
1998 according to NATIONAL BUS TRADER.
F-SERIES. This low-cost, two-axle coach has been designed primarily for the
Latin American and Mexican marketplaces. In the future, we plan to introduce
products based on the F-Series coach
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product in select U.S. niche marketplaces, including the motor home and airport
transfer markets. The F-Series coach is 36.5 feet long and 102 inches wide. The
coach is manufactured using our latest technology and European styling. We plan
to use our existing new coach sales force to market the F-Series for airport
transfer and use dealerships to penetrate the motor home market. We delivered
170 F-Series units in Mexico in 1998.
VIAGGIO-REGISTERED TRADEMARK-. The VIAGGIO-REGISTERED TRADEMARK- coach is a
43-foot long, 102-inch wide coach manufactured and assembled at our Sahagun,
Mexico production facility utilizing a body manufactured by Marcopolo, a
Brazilian manufacturer. This lower priced tour and charter and line-haul vehicle
seats 54 to 56 passengers. The DOT certified model meets all applicable safety
regulations in the United States and Canada. In 1998, we delivered 314
VIAGGIO-REGISTERED TRADEMARK- units. Of these units, 159 were DOT certified
models sold in the United States and Canada constituting 8.6% of gross new coach
units sold in 1998 in the United States and Canada. We also delivered 38 DOT
certified models to Greyhound affiliates in Mexico and the remaining 117
VIAGGIO-REGISTERED TRADEMARK- units were delivered in Mexico. The DOT certified
units have a standard twenty-four month warranty. The DOT certified
VIAGGIO-REGISTERED TRADEMARK- was the fifth most popular seated coach model in
the United States and Canada in 1998 according to NATIONAL BUS TRADER.
MC-12. The MC-12 model is a 40-foot long, 96-inch wide line-haul coach
initially developed for Greyhound, but is now primarily manufactured for the
prisoner transport market. In 1998, we delivered 79 units of this model, or 4.3%
of gross new coach units delivered in the United States and Canada. This model
is being phased out by our D-Series coach and will eventually be replaced by the
G-Series which we expect to begin pilot production in late 1999.
New coach products that we are currently developing include:
G-SERIES. The G-Series is being designed for the line-haul segment of the
market and will include 41-foot and 45-foot long versions. Like the E-Series, we
sought design input from our customers, in this case primarily Greyhound. We
anticipate that pilot production of the G-Series will begin in late 1999. The
G-Series, having been developed in collaboration with Greyhound, is expected to
replace older models over time. This coach is being designed to have mass market
appeal, lower operating costs and improved fuel economy. The G-Series will have
an enhanced thirty-six month warranty, which exceeds any standard warranty
currently available in the market.
RESIDUAL VALUE
We believe that our coaches enjoy among the highest residual values in the
industry. For example, our D-Series coach retained a higher average resale value
over the past 10 years as a percentage of 1997's average resale price than our
competitors' comparable coaches according to the OFFICIAL BUS BOOK MARKET
REPORT-TM-. We believe that this is attributable to several factors, including
the quality of our coach manufacturing, the depth of our distribution network
for spare parts and our customer service and support network. We believe that
higher residual values imply that customers benefit from a higher trade-in value
upon resale and more favorable financing options, which in turn facilitates
their decision to purchase our new coaches.
REPLACEMENT PARTS
We have one of the broadest product lines in the industry with more than
60,000 OEM and non-OEM parts. We believe that the current strength of our parts
business is in providing a broad array of OEM parts that are either manufactured
by us or acquired from the original equipment manufacturer. In an effort to
leverage further the competitive strength of our replacement parts business and
distribution facilities, we have developed our own brand of alternate, non-OEM
parts under the COACH GUARD-REGISTERED TRADEMARK- name. More than 75 products
have been introduced for this segment since its inception in 1993. We also
market diesel engine parts under the name DIESEL GUARD-REGISTERED TRADEMARK-. In
addition, we
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have developed a line of remanufactured parts and components. We believe that
the availability of remanufactured parts will permit us to access new markets
that are currently served by local and regional parts rebuilders.
MANUFACTURING OPERATIONS
During 1998, we produced a record number of motor coaches, while at the same
time decreasing per unit manufacturing costs. We have improved our manufacturing
capacity while reducing costs through improved product design and production
improvements. For example, during the E-Series product launch period, September
1997 to December 1997, we averaged 3,472 labor hours per unit produced, while in
1998, we further improved by averaging 1,788 labor hours per E-Series unit
produced. This trend continued in the three months ended March 31, 1999, when we
averaged 1,555 labor hours per E-Series unit produced.
We have reduced manufacturing costs through improved product design and
production improvements. These company-wide improvements have resulted in
lowered production costs, stabilized margins and increased customer
satisfaction. The manufacturing efficiencies realized as a result of the
E-Series' mechanical and structural simplicity, demonstrates our commitment to
streamlining operations and rationalizing costs. The new E-series coach design
includes fewer parts and greatly refines the manufacturing process by creating
an environment that is less prone to error. We build the new E-Series model
using approximately one-third fewer parts than previous models, which in turn,
results in a significant reduction in production labor hours. These successful
results will serve as an example for all future coach model production lines,
including the new G-Series which will incorporate many of the manufacturing and
engineering design processes.
The new E-, F- and G-Series coaches have been designed for greater
reliability and shorter maintenance cycles, thereby improving customers'
utilization and efficiency ratios. By eliminating parts, we can create a coach
that is much easier to both mechanically and structurally build and maintain. We
believe that this type of innovative development will continue to reduce costs
and increase capacity.
MANUFACTURING CAPACITY
We do not anticipate needing additional manufacturing facilities in order to
bring the G-Series to market in the United States and Canada, which is expected
to occur in late 1999. As part of our long term strategic plan, we will use our
ISO 9001 certified facility in Sahagun, Mexico to manufacture the F- and G-
Series coaches. We estimate that manufacturing these coaches in Mexico should
result in lower manufacturing costs than those we incurred in the United States
and Canada, and thus, should improve gross profit margins. Currently, we have
the capacity to produce approximately 2,000 coaches per year in the United
States and Canada, and our Sahagun, Mexico facility has the physical capacity to
produce in excess of 3,500 coaches per year. We believe our current plants are
more than adequate to meet our foreseeable production needs.
SALES AND MARKETING
In the United States and Canada, we rely on our direct-sales force to market
the MCI-REGISTERED TRADEMARK- and VIAGGIO-Registered Trademark- 1000 coaches. We
have 18 full-time new and used coach sales representatives who make regular
visits to both current and potential customers and attend major industry trade
shows. We believe that the product knowledge, attentiveness and visibility of
our sales force among coach operators enhance our ability to sell coaches.
We rely on a combination of direct sales, telemarketing, and direct mail
solicitation to market our replacement parts. We have 14 full-time sales
representatives with sales territories in the United States and Canada who call
on existing and potential accounts each week of the year. Our marketing group
handles direct mail efforts to our customer base. In addition, we also have 39
full-time customer service
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representatives to accept orders from customers. Outbound telemarketing is
performed within this group to certain market segments. Orders are also received
from customers through electronic transmission from three hundred customer-based
terminals, supplied by us, as well as through telephone, fax and mail.
CUSTOMERS
The customer base in the inter-city coach market in the United States and
Canada is highly diversified. The primary customers include independent coach
operators, national coach fleet operators, including Greyhound and Coach USA,
and government agencies that use coaches for public transit services, including
New Jersey Transit Authority and New York City Transit Authority. We estimate
that in the United States and Canada, independent regional operators of regular
route or tour and charter operations, i.e., operators other than Greyhound and
Coach USA, account, on average, for approximately 52.3% of our annual coach unit
sales. In 1998, we delivered 1,848 new and 779 used coaches to 702 different
customers, or approximately 3.7 units per customer. Our average order size
(excluding Greyhound and Coach USA orders) for any single operator in the past
three years has been approximately 2.9 units. Our largest customer is Greyhound,
which represented 16.0%, 13.5% and 17.2% of United States and Canadian gross new
coach units delivered in 1996, 1997, and 1998, respectively. We also sell
coaches to Coach USA, which accounted for 12.9% of United States and Canadian
gross new coach units delivered in 1998. Coach USA is obligated to use us as its
primary source of new coaches (estimated to be 75% of its requirements) through
1999. In addition, sales to federal and local governments accounted for
approximately 14.7% of total United States and Canadian gross new coach units
delivered in 1998. In Mexico, our principal customers are line-haul operators,
including Greyhound affiliates in Mexico, and operators of transit buses.
We have identified certain criteria used by purchasers of our coaches and
have endeavored to design our coaches to satisfy these criteria. We believe that
independent regional operators and operators of tour and charter operations
consider a number of factors when purchasing new coaches, including service and
parts availability, trade-in availability, operating costs, resale value,
financing terms, curbside appeal and interior amenities. With respect to
governmental agencies, we believe that the primary buying criterion for these
customers is the initial price for a given set of design specifications, while
overall lifecycle costs are a secondary concern. In contrast, we believe
line-haul operators' primary buying criterion is overall lifecycle costs, while
initial coach purchase price is a secondary concern.
MARKET SEGMENT ANALYSIS
End users of inter-city coaches consist of four categories:
- tour and charter segment, consisting mostly of Coach USA and small
regional operators;
- the line-haul segment, consisting mostly of Greyhound, regional companies
owned by Laidlaw and Coach USA;
- the public segment, including all government transit orders, as well as
prisoner transport buses; and
- the conversion/other segment.
The tour and charter segment has experienced significant growth since 1995,
primarily as a result of the growth of Coach USA, as well as the aging of the
population and the resultant growth in the touring segment of the industry. The
line-haul segment has also expanded as a result of Greyhound's lowering the age
of its fleet.
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GREYHOUND LINES AND GREYHOUND CANADA. We maintain close relationships with
the Greyhound entities. Laidlaw, Inc. acquired Greyhound Lines in March 1999,
which resulted in common ownership of both Greyhound Lines and Greyhound Canada.
Our coaches currently represent greater than 90% of the approximately 3,100
vehicles in Greyhound's combined fleet. For the years ended 1996, 1997 and 1998,
Greyhound accounted for 11.1%, 9.5%, and 8.0%, respectively, of our consolidated
revenue in the United States and Canada. We currently have a dedicated supply
agreement with Greyhound Lines, that provides that Greyhound Lines will purchase
from us at least 80% of its annual requirements for new coaches. Greyhound Lines
has regularly exceeded this requirement. We have entered into a similar
agreement with Greyhound Canada that provides that Greyhound Canada will
purchase from us at least 75% of its annual requirements for new coaches. The
agreements with Greyhound Lines and Greyhound Canada expire in 2007 and 2002,
respectively, however, the Greyhound Lines agreement can be terminated at the
end of any calendar year by either party upon 180 days prior notice.
COACH USA. From its inception in September 1995, Coach USA has grown
through acquisition and internal growth to become 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. Coach USA
operates across the United States, servicing a broad customer base with a
growing fleet of over 4,500 coaches. For the years ended 1996, 1997 and 1998,
sales to Coach USA accounted for 1.8%, 8.6% and 9.2% respectively, of our
consolidated revenue. In June 1997, Coach USA agreed that we would be its
primary supplier, estimated to be 75%, of Coach USA annual new coach
requirements for the period through 1999. Coach USA was recently acquired by
Stagecoach Holdings Plc, Great Britain's largest independent bus and railroad
operator. We are not able to predict what effect, if any, that the acquisition
of Coach USA will have on negotiations to renew Coach USA's contract with us, or
on their status as a customer generally.
GOVERNMENT AGENCIES. Government-funded public transportation agencies
utilize a variety of commuter, wheelchair-lift compatible and other specialty
coaches. We believe that the primary buying criterion for such customers is
initial price for a given set of design specifications, while overall lifecycle
costs are 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, and in any given year such customers may
represent over 10% of our sales of new coaches. For example, in 1998, we
delivered 180 coaches to the New York City Transit Authority representing 9.7%
of 1998 gross new coach units delivered.
REPLACEMENT PARTS. We have approximately 7,000 active replacement parts
customers, including primarily operators of coaches and transit buses. We
benefit from having the largest installed base, which is estimated to be over
70% of the approximately 38,000 inter-city coaches operating in the United
States and Canada in 1998, according to a BUS BOOK PUBLISHING report. We offer a
comprehensive line of replacement parts and industry-leading distribution and
support services. Our distribution network is comprised of four strategically
located distribution centers in Dayton, New Jersey; Loudonville, Ohio; Des
Plaines, Illinois; and Newcastle, Ontario. We also recently announced plans to
consolidate our existing parts facilities into a new single facility to be built
in Louisville, Kentucky. We have five customer service centers in: Blackwood,
New Jersey; Des Plaines, Illinois; Dallas, Texas; Los Angeles, California; and
Montreal, Quebec, with a planned expansion facility in Orlando, Florida. In
addition to servicing used coaches, our custom service centers carry inventory
of selected parts which may be shipped to customers for immediate availability.
The combination of these facilities enables us to quickly supply parts to our
customers, generally within 24 hours. We staff a toll-free customer service line
more than 60 hours a week, including Saturdays, that enables customers to place
orders and verify pricing. We also offer a toll-free 24-hour fax line for
placing orders and a 24-hour emergency hotline. We cater to our most important
customers by installing our Customer Order Assistance Computerized Handling
System (C.O.A.C.H.) order-entry terminals in their offices to facilitate parts
ordering and minimize turnaround time. We believe that our efficiency and
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responsiveness allow customers to minimize inventory holding costs and to
increase fleet utilization ratios.
We believe that our customers in the inter-city coach segment base their
purchasing decisions on the quality of parts purchased as well as the speed and
efficiency provided by their parts suppliers. In the transit bus segment, we
believe that our customers are more price-sensitive and less service sensitive
than our 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.
In addition, we provide inventory management services to Greyhound. Under
this arrangement, we stock our own inventory in 13 Greyhound warehouses
throughout the United States. We have on-site representatives in four of
Greyhound's facilities to monitor the inventory and assist in inventory
management.
BACKLOG
As of June 30, 1999, we had a backlog of firm orders for 928 units, 604
units in our U.S. and Canadian operations, compared with 1,044 units, 733 units
in our U.S. and Canadian operations, at June 30, 1998. Orders are included in
backlog upon receipt from our customers of a signed purchase contract and
deposit. The June 30, 1998 amount included the 180 coaches ordered by the New
York City Transit Authority that were delivered in 1998. We expect each of the
backlog orders to be filled by the end of 1999.
SUPPLIERS; RAW MATERIALS AND COMPONENTS
We have multiple vendors for most of the raw and component inventory sourced
for both the new coach and replacement part businesses. We often find it more
economical to rely on a single component provider, but alternate providers are
generally available to provide the same components, if necessary.
In manufacturing new coaches, raw materials, including steel, aluminum and
wiring, are sourced from multiple vendors for use in manufacturing the coach
shell. Once the shell is completed, component inventory, including chassis,
drive trains, seating, electronics, and air conditioning units, are sourced from
multiple vendors.
Our top vendors include Namasco Limited (steel) and Atlas Alloys (aluminum)
for raw materials, Detroit Diesel and Cummins Engine for engines, Allison
Transmission for transmissions, Meritor for axles, National Seating and American
Seating for seats, and Carrier for air-conditioning units. See "Risk Factors."
EMPLOYEES
We had approximately 4,500 employees as of June 30, 1999. Approximately
3,400 employees of our total work force are represented by labor unions. The
largest contracts are with the International Association of Machinists and
Aerospace Workers at Winnipeg, Manitoba and Pembina, North Dakota. Our labor
agreements with the Machinists Association covering substantially all of our
Canadian and United States employees at our Winnipeg, Manitoba and Pembina,
North Dakota facilities, run through September 2000. The Independent Union of
Workers in the Automotive and Related Industries represents approximately 845
Mexican employees of Autobuses. Generally, labor agreements in Mexico
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have economic terms and non-economic terms for one-year and two-years,
respectively. We negotiated both economic and non-economic terms in February
1998, and economic terms in February 1999.
We experienced a one day labor strike in Mexico in February 1994 which
resulted in a loss of one day's production. During February 1999, we also
experienced a four day strike at our Sahagun manufacturing plant. These strikes
were resolved when we entered into collective bargaining agreements with the
automotive workers union. Work stoppages could occur again in the future in
connection with labor agreement negotiations and we cannot predict the financial
impact of such a stoppage. Currently, we believe that relations with the unions
are good.
MANUFACTURING AND DISTRIBUTION
We own manufacturing and assembly plants and own or lease various
replacement parts and repair facilities in the United States, Canada and Mexico.
COACH MANUFACTURING FACILITIES
WINNIPEG, MANITOBA. We own or lease several facilities in Winnipeg that
are utilized for the conversion of raw materials into the proprietary coach
bodies or "shells." The manufacturing process entails shaping, welding and
riveting raw metal into an exterior shell and then attaching a limited number of
preliminary components, including the front windshield, interior carpeting, and
portions of the lavatory and air conditioning equipment. Production of the
shells takes approximately four to five days after which they are shipped to
Pembina, a distance of approximately 90 miles. The D-and E-Series shells are
manufactured at this location.
PEMBINA, NORTH DAKOTA. We own an assembly facility in Pembina, which totals
approximately 188,500 square feet. This facility is responsible for completing
the coach manufacturing process. Once the shells are delivered to the Pembina
facility they enter the production line where they are integrated with component
materials supplied by outside vendors. This process yields a monocoque, or
one-piece, coach body that is more durable than a body-on-chassis design within
the inter-city coach market. Once the body of the coach is assembled, the
interior is installed, including all necessary electrical wiring, electronics,
seating, air conditioning, parcel racks, and lavatory units as stipulated by the
customer in the purchase order or, in the case of units produced without
purchase orders, to a standard option package frequently requested by customers.
Once this process is completed, the units are either painted to customer
specifications or, in the case of coaches built for inventory, plain white. We
outsource some painting and final delivery preparation functions when necessary.
SAHAGUN, MEXICO. Our Sahagun facility is approximately 1,246,000 square
feet and is ISO 9001 certified. This facility is responsible for all aspects of
new coach manufacturing, including the manufacturing of the shells and the
assembly of the interior. The majority of the coaches currently manufactured in
this facility are produced to specifications. We currently manufacture the
VIAGGIO-REGISTERED TRADEMARK- and F-Series models in this facility. The Sahagun
facility currently has excess manufacturing capacity. However, as we begin to
manufacture the F-Series coaches for sale in the United States and introduce the
G-Series coach, the facility will become integral to our future operations.
OTHER PROPERTIES
We distribute products from locations strategically located across the
United States, Canada and Mexico, with sites in Dayton, New Jersey; Des Plaines,
Illinois; Loudonville, Ohio; and Newcastle, Ontario. In addition, we have parts
manufacturing locations in Canada and Loudonville, Ohio.
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We believe that our facilities are adequate for our present needs and that
our properties are generally in good condition, well maintained and suitable for
their intended use. The following table is a summary of our primary facilities
and the approximate square footage of such facilities.
<TABLE>
<CAPTION>
BUILDING
STATUS SQ. FT. SEGMENT
------------------ --------- ------------------------
<S> <C> <C> <C>
MANUFACTURING/ASSEMBLY/R&D PLANTS:
1475 Clarence Ave. ..................................... Owned 391,000 Shell assembly/ research
Winnipeg, Manitoba and development
552 W. Stutsman Ave. ................................... Owned 188,500 Final coach assembly
Pembina, ND
Sahagun, Mexico(1) ..................................... Owned 146,000 Coach manufacturing
150 S. 5th Street ...................................... Owned 35,400 Final paint facility
Pembina, ND
1149 St. Matthews Ave. ................................. Owned 118,000 Parts manufacturing
Winnipeg, Manitoba
841 & 850 Erin Street .................................. Owned 75,000 Parts manufacturing
Winnipeg, Manitoba
140 Otter Street ....................................... Owned 144,000 Warehousing/
Winnipeg, Manitoba parts manufacturing
Building 1081 RHC ...................................... Leased 66,000 Research and development
Roswell, NM engineering
350 Archibald Street ................................... Leased 28,000 Parts manufacturing
Winnipeg, Manitoba
400 Archibald Street ................................... Owned 36,000 Parts manufacturing
Winnipeg, Manitoba
422 W. Stutsman Ave. ................................... Owned 3,200 Service response center
Pembina, ND
553 W. Stutsman Ave. ................................... Leased 6,000 Warehousing/ warranty
Pembina, ND parts storage
5th Street ............................................. Leased 6,250 New parts warehousing
Pembina, ND
MODIFICATION OR REPAIR FACILITIES:
10 E. Golf Road ........................................ Owned 60,000 Corporate headquarters/
Des Plaines, IL used coach/service
center
10850 Portal Drive ..................................... Leased 50,000 Used coach/service
Los Alamitos, CA center
Boggy Creek Dr.(2) ..................................... Owned 45,000 Used coach/service
Orlando, FL center
Two Harmon Dr. ......................................... Leased 28,000 Used coach/service
Blackwood, NJ center
3530 Richelieu Street .................................. Leased 8,162 Used coach/service
St. Hubert, Quebec center
</TABLE>
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<TABLE>
<CAPTION>
BUILDING
STATUS SQ. FT. SEGMENT
------------------ --------- ------------------------
<S> <C> <C> <C>
9787 Clifford Drive .................................... Leased 36,000 Used coach/service
Dallas, TX center
REPLACEMENT PARTS FACILITIES:
105 E. Oakton .......................................... Leased 180,000 Parts distribution
Des Plaines, IL
9 Nicholas Court ....................................... Leased 106,000 Parts distribution
Dayton, NJ
260 Toronto Street ..................................... Owned 44,000 Parts distribution/
Newcastle, Ontario manufacturing
520 North Spring Drive(4) .............................. Owned 356,000 Parts distribution/
Loudonville, OH manufacturing
10500 Freeport Dr.(3) .................................. Owned 365,000 Parts distribution
Louisville, KY warehouse
</TABLE>
- --------------------------
(1) Consists of property owned by Dina Autobuses, S.A. de C.V. and property
owned by Grupo Dina entities that will be transferred to Dina Autobuses
under existing contracts.
(2) Our subsidiary, Hausman Bus Sales, Inc. has entered into a contract to
purchase approximately 9.6 acres of vacant land upon which it intends to
build the listed facility. Contract is subject to due diligence.
(3) This facility is under construction and scheduled for an October completion.
When completed and fully operational, operations at Des Plaines, Dayton and
Londonville will be discontinued on a phased basis.
(4) This property has been listed for sale with a national real estate brokerage
firm.
RESEARCH AND DEVELOPMENT
We devote significant resources to developing new products and proprietary
technology in order to lower our production costs, improve quality and serve the
needs of our customers in the coach market. We conduct engineering, testing and
design at our facilities located in Winnipeg, Manitoba; Roswell, New Mexico; and
Sahagun, Mexico. In addition, we contract with other engineering, testing and
design companies. We spent $7.3 million, $6.7 million and $8.7 million on
research and development in the fiscal years ended December 31, 1996, 1997 and
1998, respectively, and expect to incur an additional approximate $10.3 million
in expenses to complete the development of all of our current projects which
primarily consist of the development of the G-Series and extensions to the
F-Series coaches.
TRADEMARKS AND PATENTS
We manufacture and sell our coaches under the MCI-REGISTERED TRADEMARK- and
RENAISSANCE-Registered Trademark- trademarks and manufacture and sell
replacement parts under the COACH GUARD-REGISTERED TRADEMARK-, DIESEL
GUARD-REGISTERED TRADEMARK- and FLXIBLE-REGISTERED TRADEMARK- trademarks. In
addition, we own patents on several products used in components of our coaches.
We operate under licenses for numerous patents relating to products and
their manufacture held by third parties and pay royalties under these licenses.
While many of these patents are considered to be important to particular
products, we consider no particular patent or group of related patents to be
essential to our business as a whole.
GOVERNMENT REGULATION
As a manufacturer of coaches and replacement parts, our operations and
products are subject to many laws and regulations applicable in the United
States, Canada and other countries, including environmental laws, motor vehicle
safety standards, laws governing access for the disabled and local content laws.
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Our failure to comply with one or more regulations could result in the
imposition of sanctions. Such sanctions could include the closing of all or a
portion of our facilities for an indeterminate period of time or the recall of
products that were improperly manufactured, either of which could have a
material adverse effect on us and our results of operations. Likewise, we cannot
predict for you with any degree of certainty the cost of compliance in the
future and such future costs could significantly affect our operations and
financial results.
ENVIRONMENTAL MATTERS
Our facilities, operations and products are subject to a wide variety of
increasingly complex and stringent United States federal, state and local, and
foreign environmental laws and agency regulations, including those governing the
use, storage, handling, generation, treatment, emission, release, discharge and
disposal of certain materials and wastes, the remediation of contaminated soil
and groundwater, damage to natural resources, and the health and safety of
employees.
In the United States, the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, and similar state laws,
provide for responses to and liability for releases of certain hazardous
materials into the environment. Such liability may be imposed on the current and
prior owners or operators of property or businesses, among others, without
regard to fault or knowledge of the condition or action causing the liability,
and may be joint and several. Certain federal environmental laws, including the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, the Emergency Planning and Community Right to Know
Act, each as amended, and similar state and local environmental laws, regulate
air emissions, water discharges, hazardous materials and wastes, and require
public disclosure related to the use of various hazardous materials. Our
operations are also governed by environmental laws relating to workplace safety
and worker health, primarily pursuant to the Occupational Safety and Health Act.
Similar regulatory schemes exist in Canada and Mexico, where we also have
facilities.
Compliance with environmental laws may require the acquisition of permits or
other authorizations for certain activities and compliance with various
standards or procedural requirements. We believe our facilities and operations
are in material compliance with current environmental laws. The environmental
laws are subject to frequent amendment and have historically become increasingly
stringent. The sanction for failure to comply with such environmental laws can
include significant civil and criminal penalties, injunctive relief and denial
or loss of, or imposition of significant restrictions on, environmental permits.
In addition, we could be subject to suit by third parties in connection with
violations of or liability under environmental laws.
For each of the last three fiscal years, our environmental capital
expenditures have not been material, and we currently estimate that
environmental capital expenditures for fiscal years 1999 and 2000 will also not
be material. However, because environmental laws have historically become
increasingly more stringent, costs and expenses relating to environmental
control and compliance may increase in the future.
The nature of our current and former operations, and those of our
predecessors in interest, expose us to the risk of claims with respect to
environmental matters and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims.
Based upon our experience to date, we believe that the future cost or
compliance with existing environmental laws, and liability for known
environmental claims pursuant to such laws, will not have a material adverse
effect on our business, financial condition or results of operation. However,
future events, such as new information, changes in existing environmental laws
or their interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that could be
material. See "Risk Factors."
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HANDICAPPED ACCESSIBILITY STANDARDS FOR COACHES
We are subject to the Americans With Disabilities Act's handicapped
accessibility standards for coaches, as promulgated by the Department of
Transportation. On September 28, 1998, the Department of Transportation issued
final regulations regarding coach accessibility requirements. The rules require,
among other things, that all new 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 final regulations will be effective for
operators with larger fleets in October 2000 and to operators with smaller
fleets in October 2001. We cannot predict with any degree of certainty the
effect these regulations may have on our business, financial condition and
operating results.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
In the ordinary course of our business, we are party to various employment
and other legal actions, as plaintiff or defendant. We are not involved in any
litigation or arbitration proceedings which, if determined adversely to us,
individually or in the aggregate would, in our opinion, have a material adverse
effect on us or our operations, nor, so far as we are aware, are any such
proceedings threatened.
We are subject to various product liability lawsuits in the United States
and Canada for personal injuries and property damage allegedly relating to the
use of products manufactured or sold by us. We consider litigation of this
nature to be in the ordinary course of our business and unrelated to any fault
on our part. For example, on May 9, 1999, a coach manufactured by us was
involved in an accident in New Orleans, Louisiana, which resulted in 22
fatalities and several injuries. To date, we have been named in 13 lawsuits
arising out of this accident, which generally allege that the coach was not
crash worthy. While we intend to vigorously defend such lawsuits, we cannot
presently determine the ultimate outcome of these lawsuits, or potential future
lawsuits. We maintain product liability insurance in customary amounts, but we
cannot assure you that such insurance will be sufficient to satisfy any such
lawsuits or that such insurance will be available in the future or on terms
acceptable to us.
The Canadian income tax returns of Motor Coach Industries Limited, our
Canadian subsidiary, for the years 1982 through 1992 are currently under review
by Revenue Canada, the Canadian tax authority, which is reviewing the profit
allocation procedures between MCI Canada and Motor Coach Industries, Inc., a
wholly owned U.S. subsidiary of MCII. Revenue Canada's position is that, under
such procedures, insufficient income was allocated to MCI Canada, and that, as a
result, Canadian income taxes were underpaid. A formal reassessment has been
issued by Revenue Canada with respect to the 1985 return. We have filed a notice
of objection for 1985. In the event of an adverse judgment, as of June 30, 1999
the additional income taxes for 1982 through 1992 could amount up to US$24
million plus interest of approximately US$51 million and, in addition, we may be
subject to potential reassessments for years subsequent to 1992 on the same
basis which could result in additional income taxes and interest, all before
recoveries of U.S. Federal income taxes which may be available to offset a
portion of any additional taxes paid to Canada. We have submitted an advance
transfer pricing agreement to Revenue Canada and the Internal Revenue Service
which may apply to the years 1995 through 2000. Although we are still in the
process of obtaining additional information, we are currently negotiating to
resolve these claims and expect that the resolution will not be material to our
financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
We are an indirect, wholly owned subsidiary of MCII Holdings. MCII Holdings
is a corporation whose affairs are governed by a board of directors. The
following table sets forth certain information about the directors of MCII
Holdings and our executive officers and their ages as of June 30, 1999. There
are seven members of the board of directors of MCII Holdings. Pursuant to the
terms of a stockholders agreement, the board is comprised of three
representatives from Grupo Dina, including the Chief Executive Officer of MCII
Holdings and MCII, Mr. James P. Bernacchi, and four representatives from JLL.
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- ----------- ----------------------------------------------------
<S> <C> <C>
James P. Bernacchi............... 53 Chief Executive Officer and Director
Horst Sieben..................... 60 Chief Financial Officer
Michael Graham................... 41 Senior Vice President, Finance and Treasurer
Alexander C. Baker............... 53 Vice President, Sales and Marketing
Valente Espinosa................. 37 Vice President, Corporate Procurement
Pablo Fierros.................... 44 Vice President, General Manager
Mario Gonzalez................... 47 Chief Operating Officer
Timothy J. Nalepka............... 43 Vice President and General Counsel
Harold Zuschlag.................. 55 Vice President, Customer Care
Rafael Gomez Flores.............. 42 Director, Chairman of the Board
Gamaliel Garcia Cortes........... 46 Director
Paul S. Levy..................... 51 Director
Jeffrey Lightcap................. 40 Director
David Ying....................... 44 Director
Frank Rodriguez.................. 27 Director
</TABLE>
JAMES P. BERNACCHI. Mr. Bernacchi became Chief Executive Officer in
December 1998. Prior to his current position, Mr. Bernacchi was the Chief
Operating Officer and Chief Executive Operating Officer from February 1996. From
August 1995 until February 1996, he was Executive Vice President-- Operations,
responsible for the manufacturing operations of Grupo Dina in Mexico. From
December 1991 until August 1995, Mr. Bernacchi held the position of Vice
President--Group Procurement and worked on various special projects for MCII and
various of its subsidiaries. Mr. Bernacchi joined MCII in 1988 and has held
numerous manufacturing positions. Prior to joining MCII, Mr. Bernacchi held
positions at American Motors Corporation for 17 years and J. I. Case Company for
three years.
HORST SIEBEN. Mr. Sieben became Chief Financial Officer on June 16, 1999.
During the last eleven years, Mr. Sieben served as Chief Financial Officer of a
number of portfolio companies controlled by JLL. From 1994 through May 1997, Mr.
Sieben was Senior Vice President and Chief Financial Officer of Foodbrands
America Inc. (formerly Doskocil Inc.), and after the sale of Foodbrands to IBP
Inc. he assumed the same position at Freedom Chemical Company where he served
until it was sold to BF Goodrich Chemical Company in March 1998.
MICHAEL L. GRAHAM. Since June 1999 Mr. Graham has been responsible for the
corporate finance and treasury functions, including the recent financial
restructuring of MCII. Prior to taking on this role Mr. Graham served as the
Chief Accounting Officer for the Company from June 1998 to June 1999. He has
held previous positions with the principal coach manufacturing subsidiaries of
the Company from December 1986 through March 1995, including the roles of
Director--Operating Systems Development, Controller and Manager of Financial
Planning and Analysis. Mr Graham left the
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Company briefly for the period from April 1995 through March 1997, during which
time he was employed in the roles of Director of Finance with Wilson Auto and as
Chief Financial Officer for a division of Buhler Industries International. Mr.
Graham returned to MCII in March 1997 in the role of Controller of the Company's
principal coach manufacturing subsidiaries.
ALEXANDER C. BAKER. Mr. Baker has been Vice President of Sales and
Marketing since October of 1993, except for an 11-month period during 1996 and
1997 when he was Vice President of Sales and Marketing for Metrotrans
Corporation. Mr. Baker joined us in June 1979 in school bus and small commercial
vehicle sales.
VALENTE ESPINOSA. Mr. Espinosa has been Vice President of Corporate
Procurement and a director of Grupo Dina since 1996. From 1992 to 1996, Mr.
Espinosa served as Vice President of Aftermarket and Product Support of Detroit
Diesel Allison of Mexico.
PABLO FIERROS. Mr. Fierros has been the Vice President and General Manager
of Universal Coach Parts since August 1997. Previously, Mr. Fierros was Vice
President of Branch Operations for Detroit Diesel Allison Mexico since March
1997. From 1993 through 1996, Mr. Fierros held various positions with Detroit
Diesel Allison Mexico.
MARIO GONZALEZ. Mr. Gonzalez was recently appointed Chief Operating
Officer, and prior to that was Vice President of Plant Operations since
September 1996. From April 1995 to September 1996, Mr. Gonzalez was appointed
Vice President of Plant Operations (Dina Camiones and Autobuses). From October
1994 to April 1995, Mr. Gonzalez was employed as a consultant for Grupo Dina.
Prior to October 1994, Mr. Gonzalez was a consultant to a company in the
manufacturing industry.
TIMOTHY J. NALEPKA. Mr. Nalepka has been the Vice President and General
Counsel since November 1998. Previously, Mr. Nalepka, who joined MCII in January
1997, served as senior counsel. Prior to joining MCII, Mr. Nalepka was employed
from 1989 to 1996 as senior counsel for Sears, Roebuck and Co.
HAROLD ZUSCHLAG. Mr. Zuschlag has been a Vice President since 1982. His
varied assignments have included plant operations management, division
acquisition & relocation, product engineering management, plant & facilities
construction, product planning & customer relations, division operating
executive, and product design & operations launch of our recently introduced
E-Series RENAISSANCE-REGISTERED TRADEMARK- coach. His current focus is the
launch of the G-Series coach and on product integrity and customer support
operations.
RAFAEL GOMEZ FLORES. Mr. Gomez Flores has been Chairman and President since
1996, and has been Chairman and President of Grupo Dina, and the holding company
of Grupo Dina, Grupo Empresarial G, for the past ten years. Mr. Gomez Flores
maintains full executive and board member responsibilities with Grupo Dina and
maintains board member responsibilities with MCII. Mr. Gomez Flores is a
director of Grupo Empresarial G's other companies including Grupo Minsa, the
second largest corn flour manufacturer in Mexico, and Grupo Immobiliario G, a
real estate development company engaged in the construction and sale of housing
units, office buildings, commercial malls, hotels, sports clubs, and industrial
complexes. Prior to his current activities at the holding company and its
subsidiaries, Mr. Gomez Flores was Chairman and Chief Executive of Arrendadora
Financiera Dina, a lease finance company.
GAMALIEL GARCIA CORTES. Mr. Garcia Cortes has been Chief Executive Officer
of Grupo Dina for Mexico and Latin America since December 1996. From August 1996
until December 1996, he was the Chief Operating Officer of Grupo Dina for Mexico
and Latin America. From July 1996 until August 1996, he was the Sales, Marketing
and Operations Vice President of Grupo Dina for Mexico and Latin America. From
July 1995 until July 1996, Mr. Garcia Cortes was a Commercial Director for Grupo
Dina. From April 1995 until July 1995, he was a transportation sub-director for
Grupo Dina. Prior to
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joining Grupo Dina, Mr. Garcia Cortes was Chief Executive Officer for Premium
Internacional, S.A. de C.V. since June 1994.
PAUL S. LEVY. Mr. Levy was appointed a director on June 16, 1999. Mr. Levy
has been a partner of JLL since its formation in May 1988. Mr. Levy serves on
the boards of directors of Hayes Lemmerz International, Inc., BSL Holdings,
Inc., Jackson Automotive Group, Inc., Fairfield Manufacturing Company, Inc. and
New World Pasta Company.
JEFFREY LIGHTCAP. Mr. Lightcap was appointed a director on June 16, 1999.
Mr. Lightcap is a partner of JLL, which he joined in 1997. From 1993 to 1997, he
was a Managing Director and head of leveraged buyout firm coverage for the
mergers and acquisitions group at Merrill Lynch & Co., Inc. Mr. Lightcap serves
on the boards of directors of Hayes Lemmerz International, Inc., Jackson
Automotive Group, Inc. and New World Pasta Company.
DAVID YING. Mr. Ying was appointed as a director on June 16, 1999. Mr. Ying
is a partner of JLL, which he joined in 1997. He was previously a Managing
Director at Donaldson, Lufkin & Jenrette, Inc., which he joined in January 1993
and the head of its restructuring department. Mr. Ying serves on the boards of
directors of Hayes Lemmerz International, Inc., BSL Holdings, Inc. and New World
Pasta Company.
FRANK RODRIGUEZ. Mr. Rodriguez was appointed as a director on June 16,
1999. Mr. Rodriguez is a Vice President of JLL, which he joined in 1995. He was
formerly a member of the Merchant Banking Group of Donaldson, Lufkin and
Jenrette which he joined in 1992. Mr. Rodriguez serves on the board of directors
of Jackson Automotive Group, Inc.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued by us during 1998 to our chief executive officer and each of our
executive officers whose total annual salary and bonus for such fiscal year
exceeded $100,000 for the year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
ALL OTHER
SALARY COMPENSATION
NAME AND PRINCIPAL POSITION ($) BONUS ($) ($)
- ---------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
Rafael Gomez Flores,
Chairman of the Board................................... 427,080 2,612,338 6,928
James P. Bernacchi,
Chief Executive Officer................................. 257,040 372,845 58,875
Alexander C. Baker,
Vice President, Sales and Marketing..................... 109,615 204,660 1,873
Mario Gonzalez,
Vice President, Plant Operations........................ 148,174 152,375 75,251
Harold Zuschlag,
Vice President, Customer Care........................... 171,335 130,000 21,546
</TABLE>
BENEFIT PLANS
We sponsor various retirement plans for most full-time employees, with
benefits generally based on years of service and employees' compensation. For
executive employees, we have had a supplemental
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employee retirement plan and executive incentive compensation plan. For detailed
information regarding pension costs, benefit obligations, plan assets and other
related information, please see notes 15 and 16 in the notes to our consolidated
financial statements included in this prospectus.
COMPENSATION OF DIRECTORS
Directors who are not our employees are not compensated for serving on the
board. All directors will receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with meetings of the board.
EMPLOYMENT AGREEMENTS
We have entered into an employment agreement with Mr. Gomez Flores, who is
chairman of the board, that provides for total annual compensation of $1.5
million, which represents a $1.6 million reduction from 1998 compensation of
$3.1 million. The employment agreement provides that Mr. Gomez Flores will
receive a lump sum payment of $6.0 million upon consummation of a change of
control of the Company. The initial term of the employment agreement is five
years and is automatically renewable each year thereafter in the sole discretion
of Mr. Gomez Flores unless previously terminated by us for cause. The agreement
also contains a non-compete covenant for Mr. Gomez Flores for a three year
period after the expiration or termination of the employment agreement.
MANAGEMENT OPTIONS
Certain key senior executives of MCII Holdings and MCII, including their
chairman, Mr. Gomez Flores, either have been or will be allocated options to
purchase MCII Holdings' common stock. The options that were granted concurrently
with the consummation of the Transactions represent approximately 20% of the
fully-diluted equity value of MCII Holdings with an exercise price equivalent to
the value per share at which the equity investors invested in MCII Holdings. The
grant was designed as an incentive to selected employees or directors to acquire
a proprietary interest in MCII Holdings, to continue to perform services for
MCII Holdings, to increase their efforts on behalf of MCII Holdings and to
promote the success of the business. The stock options vest ratably commencing
on the first anniversary of grant and annually thereafter until the fifth
anniversary of grant. Pursuant to this plan, Mr. Gomez Flores was granted
options to purchase 214,285 shares of MCII Holdings common stock. The remaining
options previously granted have not yet been allocated to the other senior
executives.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MCII Holdings, through its wholly-owned subsidiary MCII Holdings, Inc., owns
all of the issued and outstanding stock of MCII. The following table sets forth
certain information regarding the beneficial ownership of the issued and
outstanding stock of MCII Holdings as of June 16, 1999.
For descriptions of certain voting and other arrangements among such
holders, see "Certain Transactions; Relationship with Grupo Dina" beginning on
page 73.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(a)
------------------------------------------------------------------------------------
NUMBER OF NUMBER OF TOTAL
SHARES OF PERCENTAGE OF SHARES OF NUMBER OF TOTAL PERCENTAGE
VOTING VOTING NON-VOTING SHARES OF OF
BENEFICIAL OWNER COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK COMMON STOCK
- ----------------------------------------- -------------- ----------------- -------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
JLL Fund III(b)
450 Lexington Avenue
Suite 3350
New York, New York 10017............... 645,303.85 59.21% -- 645,303.85 56.46%
Consorcio G Grupo Dina,
S.A. de C.V.(c)
Tlacoquemecatl 41
Colonia Del Valle
03100, Mexico D.F., Mexico............. 390,000 35.79% -- 390,000 34.13%
CIBC(d)
161 Bay Street,
PP Box 500,
M51258, Toronto, Canada................ 54,478.20 4.99% 53,074.96 107,553.16 9.41%
James P. Bernacchi....................... -- -- -- -- --
Horst Sieben............................. -- -- -- -- --
Alexander C. Baker....................... -- -- -- -- --
Valente Espinosa......................... -- -- -- -- --
Pablo Fierros............................ -- -- -- -- --
Mario Gonzalez........................... -- -- -- -- --
Timothy J. Nalepka....................... -- -- -- -- --
Harold Zuschlag.......................... -- -- -- -- --
Rafael Gomez Flores(c)................... 390,000 35.79% -- 390,000 34.13%
Paul S. Levy(b).......................... 645,303.85 59.21% -- 645,303.85 56.46%
Jeffrey Lightcap(b)...................... 645,303.85 59.21% -- 645,303.85 56.46%
David Ying(b)............................ 645,303.85 59.21% -- 645,303.85 56.46%
Frank Rodriguez(b)....................... -- -- -- -- --
All directors and officers as a group
(13 persons)(e)........................ 1,305,303.85 95.00% -- 1,305,303.85 90.59%
</TABLE>
- --------------------------
(a) "Beneficial ownership" generally means any person who, directly or
indirectly, has or shares voting or investment power with respect to a
security or has the right to acquire such power within 60 days. Unless
otherwise indicated, we believe that each holder has sole voting and
investment power with regard to the equity interests listed as beneficially
owned.
(b) Includes warrants to purchase 122,448.45 shares of common stock, which
together with the warrants issued to the other equity investors, represents
10% of the fully diluted common stock of MCII Holdings. Messrs. Levy,
Lightcap, Ying and Rodriguez are all associated with JLL Fund III, which
owns 56.46% of the total common stock, 59.21% of the voting common stock, of
MCII Holdings. Mr. Rodriguez disclaims any beneficial ownership of such
common stock. Messrs. Levy, Lightcap and Ying are general partners of JLL
Associates III, LLC, the general partner of JLL Fund III, and, as a result,
each of them may be deemed to beneficially own all of the shares of common
stock held directly or indirectly by JLL Fund III. Includes 10,980 shares of
common stock and warrants to purchase 2,571.43 shares of common stock owned
by Coaches, LLC, an entity
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controlled by JLL. Coaches' members include certain executive officers of
the Company. Pursuant to the Coaches operating agreement, the members have
granted an irrevocable proxy to JLL and are prohibited from transferring
their interests in Coaches to any entity or individual, other than Coaches,
without the prior written consent of JLL. Messrs. Levy, Lightcap and Ying
are the Managers of Coaches and as a result of such may be deemed to
beneficially own all of the securities owned by Coaches.
(c) Based upon information available as of March 31, 1999, Grupo Empresarial G,
S.A. de C.V., a Mexican corporation, is the only person known to Grupo Dina
to be the beneficial owner of more than 5% of Grupo Dina. Grupo Empresarial
owns 127,912,420 shares, or 62.8%, of Grupo Dina's common stock. Grupo
Empresarial is a holding company owned by Mr. Rafael Gomez Flores and the
following members of his family: O. Raymundo Gomez Flores, Armando Gomez
Flores, Alfonso Miguel Gomez Flores and Guillermo Gomez Flores. Since each
of the named members of the Gomez Flores family has voting power or shares
voting power and/or investment power over the shares owned of record by
Grupo Empresarial, each such family member may be deemed to be the
beneficial owner of all 127,912,420 shares of Grupo Dina owned by Grupo
Empresarial. In addition, Mr. Rafael Gomez Flores and each of the foregoing
named family members each individually own approximately 1,666,300 shares,
or 0.8%, of Grupo Dina's common stock.
(d) Andrew R. Heyer, Jay R. Bloom and Dean C. Kehler, who are employees of an
affiliate of CIBC, have shared power to vote and dispose of the shares of
common stock reported in the table. The business address of Messrs. Heyer,
Bloom and Kehler is 425 Lexington Avenue, 7th Floor, New York, New York
10017. Share amounts include warrants to purchase 20,408.55 shares of
nonvoting common stock, which for calculation purposes are assumed to be
converted to voting common stock to the maximum level currently permissible
under regulatory requirements and the terms of such warrants. Together with
the warrants issued to JLL, such warrants represent 10% of the fully diluted
common stock of MCII Holdings.
(e) No director or officer of MCII directly owns any shares of common stock. Mr.
Rafael Gomez Flores may be deemed to beneficially own 34.13% of MCII
Holdings' total common stock, 35.79% of the voting common stock (see
footnote (c) above), and each of Messrs. Levy, Lightcap and Ying may be
deemed to beneficially own 56.46% of MCII Holdings' total common stock,
59.21% of the voting common stock (see footnote (b) above).
MCII HOLDINGS EQUITY STRUCTURE
MCII is an indirect, wholly-owned subsidiary of MCII Holdings. MCII Holdings
has authorized two classes of common stock, a voting and nonvoting class. The
voting common stock has one vote per share for the election of directors and all
other corporate matters. Except as provided by law, the nonvoting common stock
will have no vote on any matter and will not be included in determining the
number of shares voting or entitled to vote. Each holder of nonvoting common
stock is entitled to convert any or all of its nonvoting shares into an equal
number of voting common stock, unless as a result of such conversion, such
holder or its affiliates would own a greater quantity of securities than it is
permitted to own under any law, regulation order, rule or other requirement of
any governmental authority. According to the investment agreement, the
stockholders agreement will contain certain provisions relating to the
governance of MCII and restrictions on, and rights in the event of, the transfer
of MCII Holdings' common stock. See "Certain Transactions; Relationship with
Grupo Dina-- Stockholders Agreement."
MANAGEMENT OPTIONS
Pursuant to the investment agreement, certain key executives of MCII
Holdings and MCII have been granted stock options to purchase up to 20% of MCII
Holdings' fully diluted common stock. See "Management--Management Options."
WARRANTS
In connection with the equity investment, the equity investors purchased $50
million in senior notes from MCII Holdings, which were accompanied by warrants
to purchase up to 10% of the fully diluted common stock of MCII Holdings. The
warrants are immediately exercisable at a price equivalent to the value per
share at which the equity investors invested in MCII Holdings.
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CERTAIN TRANSACTIONS; RELATIONSHIP WITH GRUPO DINA
GENERAL
Prior to the consummation of the Transactions, we and Autobuses were
indirect wholly-owned subsidiaries of Grupo Dina. Grupo Dina is a leading
manufacturer of trucks and buses listed both on Bolsa Mexicana de Valores, the
Mexican Stock Exchange, and the New York Stock Exchange. In the ordinary course
of business, we and Autobuses have routinely made purchases and sales of goods
and services from Grupo Dina and other affiliated companies. For more
information about these historical transactions, see note 24 to our consolidated
financial statements and note 9 to our unaudited consolidated financial
statements included in this prospectus.
JLL owns in excess of 50% of MCII Holdings and MCII Holdings indirectly owns
all of the outstanding common stock of MCII. Consequently and subject to the
terms of the stockholders agreement described below, JLL is able to
significantly influence such actions as the election of directors of MCII
Holdings, the approval of matters submitted for stockholders approval or
preventing a potential takeover.
Prior to the consummation of the Transactions, our Autobuses subsidiary
obtained certain services from, and provided certain services to, Grupo Dina,
and was included as part of Grupo Dina's consolidated group for income tax
purposes. In connection with the Transactions, MCII Holdings and we entered into
agreements with Grupo Dina that cover transition services, sales, benefit
administration services, data center and software administration services,
procurement services, purchasing services, transfer of employees and general
management services. These agreements resulted from an "arm's-length"
negotiation and are on terms that we believe are at least as favorable as the
terms that could be obtained by us in comparable transactions made on an
arm's-length basis between unaffiliated parties. Grupo Dina and its subsidiaries
also have a first right and obligation to supply substantially all non-major
component parts to MCII Holdings and its subsidiaries for a period of 15 years,
so long as
(1) they are sold at a discount below any U.S. or Canadian supplier, and
(2) they meet quality and delivery standards.
Grupo Dina has agreed not to sell products to MCII Holdings' competitors.
Additionally, in connection with the Transactions, Autobuses entered into an
agreement with Grupo Dina or with one or more of its subsidiaries regarding the
exchange of certain of Autobuses' unimproved real property at the Sahagun
facility for certain of Grupo Dina's property, general maintenance and security
services at the Sahagun facility, and certain administrative and employee
services. These agreements resulted from an "arm's-length" negotiation and are
on terms that we believe are at least as favorable as the terms that could be
obtained by us in comparable transactions made on an arm's-length basis between
unaffiliated parties.
In connection with the Transactions, we made a final distribution to Grupo
Dina of approximately $71.4 million. See "Prospectus Summary--The Transactions."
ASSET TRANSFERS
Concurrent with the consummation of the Transactions, Grupo Dina made
certain transfers of its assets and subsidiaries in order to concentrate its
core coach business assets at or under us. Specifically:
- MCII Holdings transferred its Dina Autobuses, S.A. de C.V. subsidiary to
us and Autobuses then became our subsidiary. The financial position and
results of Autobuses and us are set forth in the consolidated financial
statements included elsewhere in this prospectus.
- MCII Holdings transferred its Mexicana de Manufactures Especiales, S.A. de
C.V., subsidiary to Grupo Dina.
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- Autobuses transferred the following immaterial subsidiaries to Grupo Dina,
Autopartes Hidalguenses, S.A. de C.V. and Carroceria Sahagun, S.A. de
C.V. Carroceria Sahagun is a dormant company with virtually no operations
or assets. As at and during the year ended December 31, 1998, Autopartes
had revenues, excluding intercompany, operating loss and total assets of
approximately $3.7 million, ($0.5 million) and $3.6 million, respectively.
- Autobuses exchanged certain of its unimproved property in Mexico for
unimproved property and two facilities of a Grupo Dina subsidiary.
- Autobuses transferred to Grupo Dina a group of 240 transit buses that are
leased to a company affiliated with Grupo Dina, together with the related
lease rights. As at and during the year ended December 31, 1998,
Autobuses' financial statements reflected revenues, operating income and
net book value of approximately $1.5 million, $0.3 million and $3.0
million, respectively, relating to these leased transit buses.
- We transferred our Universal Coach Parts Mexico, S.A. de C.V. subsidiary
to Grupo Dina and canceled a $7.3 million receivable. As at and during the
year ended December 31, 1998, UCP Mexico had revenues, excluding
intercompany, operating income and total assets of $17.4 million, $0.6
million and $9.9 million, respectively.
In addition, Autobuses canceled certain intercompany advances due from Grupo
Dina of approximately $115 million which had been previously charged against
equity on Autobuses' financial statements.
LICENSE AGREEMENTS
In connection with the Transactions, MCII Holdings licensed from Grupo Dina
certain trademarks, trade names and service marks with respect to the name
"Dina" for a perpetual term which is exclusive and royalty-free in the United
States, Mexico, Canada, Argentina and Brazil.
OMNIBUS AGREEMENT
ST. MATTHEWS FACILITY
In connection with the Transactions, one of our Canadian subsidiaries
entered into a sale-leaseback transaction with Grupo Dina for certain tooling
and equipment located at the manufacturing facility of Motor Coach Industries
Limited, a wholly owned subsidiary of ours, at St. Matthews Avenue, Winnipeg,
Manitoba. The purchase price and lease payment were for nominal amounts and the
estimated market value of the tooling and equipment is between $2 million and $4
million. We will lease the tooling and equipment for a period of up to three
years and prior to the expiration of such lease, we will transfer the
manufacturing operations at this facility to a wholly-owned subsidiary of Grupo
Dina, who will then manufacture parts for us at this facility.
LATIN AMERICA RIGHTS
In the event MCII Holdings determines (i) not to manufacture, distribute or
sell its products in any country in Latin America and (ii) that the business
should be conducted by a third party, it will offer to Grupo Dina the right to
manufacture, distribute, and sell MCII Holdings' products in such country to the
extent permitted by law.
DINA DISTRIBUTION RIGHTS
In addition, MCII Holdings has a right of first refusal to distribute any of
Grupo Dina's body-on-chassis bus products in the United States and Canada that
are not distributed by Grupo Dina itself. The rights are on terms and conditions
no less favorable to MCII Holdings and MCII than any other distribution rights
granted by Grupo Dina with respect to its products.
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MME INVESTMENT
The equity investors have the right to purchase 20%, and under certain
conditions up to 50% of Mexicana de Manufacturas Especiales, S.A. de C.V., for a
price and other terms that are mutually agreeable to the parties.
MCII FINANCIAL SERVICES INC.
In 1997, MCII and Mr. Gomez Flores and members of his family formed MCII
Financial Services Inc., a coach finance company. MCII acquired 25% of the
voting common stock and 15,000,000 shares of non-voting preferred stock for
$250,000 and $15,000,000 respectively. The remaining 75% of the voting common
stock was acquired by the Gomez Flores family members. In 1998, MCII increased
its investment by $7,650,000. Financial Services operates independently from
MCII and provides conditional sales contracts and operating leases to MCII's
customers. Financial Services was created to provide attractive financing
alternatives to our coach customers. As an independent company, Financial
Services is expected to have better access to funding on competitive terms.
Financial Services' initial transaction was the purchase of $19,406,000 of
loans and $12,742,000 of leases from certain subsidiaries of MCII. MCII has
guaranteed the full and prompt collection of the loans sold to Financial
Services. MCII 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. Financial Services will in the future engage in loan and leasing
activities involving MCII and others in the motor coach and other industries.
During 1998, Financial Services purchased additional loans of $35,519,000 and
leases of $3,216,000 from MCII.
The terms of the business arrangement between MCII and certain of our
subsidiaries and Financial Services are governed by a finance services agreement
dated as of May 6, 1998. Pursuant to the agreement, Financial Services provides
advice and assistance to MCII in marketing MCI-REGISTERED TRADEMARK- coaches, in
analyzing the creditworthiness of the MCII's customers who are seeking
financing, and in documenting financing transactions that are approved by
Financial Services. The agreement further provides that MCII will not direct or
refer potential customers to any source of financing other than Financial
Services. MCII is obligated to pay Financial Services a one percent origination
fee for each MCII sale financed by Financial Services.
MCII is also required under the agreement to remarket motor coaches
designated by Financial Services. MCII earns a five percent remarketing fee to
be paid out of resale proceeds after MCII's lien has been satisfied. Financial
Services has the option to require MCII to repurchase any item of equipment that
has been remarketed for more than 150 days, the repurchase price being the
greater of (a) fair market value times 95%, or (b) the original invoice price
less one percent for each month that has elapsed from the original delivery date
to the date MCII receives possession of the equipment. The remarketing
obligation expires upon the later of (a) the expiration of the agreement, or (b)
the expiration of all outstanding finance documents, plus one year.
The finance services agreement has an initial term of ten years, and
Financial Services has the right and option to extend the agreement for an
additional ten years.
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STOCKHOLDERS AGREEMENT
In connection with the Transactions, Grupo Dina and the equity investors
entered into a stockholders agreement governing their ownership of MCII
Holdings. The following is a summary of the material terms included in the
stockholders agreement. The parties have agreed to modify certain provisions of
the stockholders agreement in the event of an initial public offering.
- The stockholders agreement provides that the board of directors will have
seven members, composed of three representatives of Grupo Dina, one of
which shall include the CEO of MCII Holdings, and four representatives of
JLL Fund III.
- Subject to certain exceptions, no stockholder other than JLL Fund III may
transfer any of its shares prior to June 16, 2004.
- Certain extraordinary transactions must be approved by at least six
directors.
- Following an initial public offering, the stockholders are entitled to an
unlimited number of "piggyback registrations," which allow them to include
shares of common stock held by them in certain registrations of common
shares by MCII Holdings.
- All parties to the stockholders agreement have a right to participate
proportionately in any sale by JLL Fund III or any permitted sale by Grupo
Dina of MCII Holdings' common stock.
- Grupo Dina entered into certain non-competition agreements with MCII
Holdings and its subsidiaries, including MCII, upon any sale of MCII
Holdings.
- Prior to an initial public offering, the stockholders have the right to
participate on a pro rata basis in any future private offerings of common
stock.
- Grupo Dina has a right of first offer to purchase the shares held by the
equity investors in any permitted sale by JLL Fund III of all of its
shares.
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DESCRIPTION OF THE SENIOR CREDIT FACILITY
In connection with the Transactions, we entered into a senior credit
facility. Under the senior credit facility, we can borrow up to $445 million,
consisting of $333 million in term loans and $112 million in revolving loans
from a syndicate of lenders, including the Canadian Imperial Bank of Commerce,
as agent.
The term loan is repayable in 28 quarterly installments of principal and
interest over a period of seven years, beginning approximately three months
after the date of the of the Transactions. Principal on our senior credit
facility is required to be repaid quarterly in annual amounts of $3.3 million
for the first six years and $313.0 million in the seventh year after the
closing. The term loan accrues interest at either LIBOR plus 3.25% or adjusted
base rate plus 2.25%.
The revolving loans accrue interest at either LIBOR plus 2.75% or adjusted
base rate plus 1.75%. The revolving loans mature six years after the date of the
closing of the Transactions.
The senior credit facility:
- is secured by a pledge of substantially all of our tangible and intangible
domestic assets;
- requires us to meet customary financial tests; and
- limits our ability to pay dividends, repurchase stock, redeem our other
debt, sell assets, make loans or investments, enter into transactions with
our affiliates, or merge or consolidate with other companies.
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DESCRIPTION OF THE EXCHANGE NOTES
Except as otherwise indicated below, the following summary applies to both
the outstanding notes and the exchange notes. For this section, the term "Notes"
means both the outstanding notes and the exchange notes unless otherwise
indicated. MCII issued the outstanding notes, and will issue the exchange notes,
under an indenture, dated as of June 16, 1999, by and among itself, the
guarantors and IBJ Whitehall Bank & Trust Company, as trustee. The terms of the
Notes include those stated in the indenture and those made part of the indenture
by reference to the Trust Indenture Act of 1939, as in effect on the date of the
indenture. The notes are subject to all such terms, and holders of the Notes are
referred to the indenture and the Trust Act for a statement of them. The
following is a summary of the material terms and provisions of the Notes. This
summary does not purport to be a complete description of the Notes and is
subject to the detailed provisions of, and qualified in its entirety by
reference to, the Notes and the indenture, including the definitions contained
therein. A copy of the form of indenture may be obtained from MCII by any holder
or prospective investor upon request. Definitions relating to certain
capitalized terms are set forth under "--Certain Definitions." Capitalized terms
used but not otherwise defined in this summary have the meanings given them in
the indenture and are incorporated to this summary by reference.
The terms of the exchange notes are nearly identical to the outstanding
notes in all material respects, including interest rate and maturity, except
that the exchange notes will not be subject to:
- the restrictions on transfer; and
- the registration rights agreement's covenants regarding registration.
GENERAL
The Notes will be limited in aggregate principal amount to $152.25 million
and one or more additional series of Notes to be issued from time to time in
aggregate principal amounts of not less than $25 million per series, subject to
compliance with the covenant described below under "Certain
Covenants--Limitation on Additional Indebtedness" and provided that no Default
or Event of Default exists under the indenture at the time of issuance or would
result therefrom. The Notes will be general unsecured obligations of MCII,
subordinated in right of payment to Senior Indebtedness of MCII and senior in
right of payment to any current or future subordinated Indebtedness of MCII.
The guarantors, together with each other Domestic Restricted Subsidiary of
MCII which guarantees payment of the pursuant to the covenant described under
"--Certain Covenants-- Limitation on Creation of Subsidiaries", will jointly and
severally Guarantee the Notes, on a senior subordinated basis, as to payment of
principal, premium, if any, and interest.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on May 1, 2009. The Notes will bear interest at a rate
of 11.25% per annum from the Issue Date until maturity. Interest is payable
semi-annually in arrears on each May 1 and November 1 commencing November 1,
1999, to holders of record of the Notes at the close of business on the
immediately preceding April 15 and October 15, respectively. The interest rate
on the Notes is subject to increase, and such Additional Interest will be
payable on the payment dates set forth above, in certain circumstances, if the
Notes, or other securities substantially similar to the Notes, are not
registered with the Commission within the prescribed time periods. See "Exchange
Offer; Registration Rights."
OPTIONAL REDEMPTION
MCII may redeem the Notes at its option, in whole at any time or in part
from time to time, on or after May 1, 2004 at the following redemption prices,
which are expressed as percentages of the
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principal amount thereof, together, in each case, with accrued and unpaid
interest, if any, to the redemption date, if redeemed during the twelve-month
period beginning on May 1 of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2004.............................................................................. 105.625%
2005.............................................................................. 103.750%
2006.............................................................................. 101.875%
2007 and thereafter............................................................... 100.000%
</TABLE>
Notwithstanding the foregoing, MCII may redeem in the aggregate up to 35% of
the original principal amount of Notes at any time and from time to time prior
to May 1, 2002 at a redemption price equal to 111.25% of the aggregate principal
amount so redeemed, plus accrued and unpaid interest, if any, to the redemption
date out of the Net Proceeds of one or more Equity Offerings; PROVIDED that
(1) at least 65% of the principal amount of Notes originally issued
remains outstanding immediately after the occurrence of any such redemption
and
(2) any such redemption occurs within 90 days following the closing of
any Equity Offering.
In the event of a redemption of fewer than all of the Notes, the trustee
shall select the Notes to be redeemed in compliance with the requirements of the
principal national securities exchange, if any, on which such Notes are listed,
or if such Notes are not then listed on a national securities exchange, on a PRO
RATA basis, by lot or in such other manner as the trustee shall deem fair and
equitable. The Notes will be redeemable in whole or in part upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
registrar of the Notes. On and after any redemption date, interest will cease to
accrue on the Notes or portions thereof called for redemption unless MCII shall
fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of MCII. As of March 31, 1999, after giving PRO FORMA effect
to the Transactions, the principal amount of outstanding Senior Indebtedness of
MCII, on a consolidated basis, would have been $334.7 million.
In the event of any
(1) bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to MCII or to its creditors, as such, or to its assets;
(2) liquidation or dissolution or other winding-up of MCII;
(3) assignment for the benefit of creditors of MCII; or
(4) marshalling of assets or liabilities of MCII;
(all of the foregoing events described in clauses (1) through (4) referred to
herein individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy
Proceedings"), the holders of Senior Indebtedness of MCII will be entitled to
receive payment and satisfaction in full in cash of all amounts due on or in
respect of all Senior Indebtedness of MCII before the holders of the Notes are
entitled to receive or retain any payment or distribution of any kind on account
of the Notes. By reason of such subordination, in the event of any such
Bankruptcy Proceeding, creditors of MCII who are holders of
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Senior Indebtedness may recover more, ratably, than other creditors of MCII,
including holders of the Notes.
If a Payment Default on Designated Senior Indebtedness occurs, no payment or
distribution of any kind or character, including, without limitation, cash,
property and any payment or distribution which may be payable or deliverable by
reason of the payment of any other indebtedness of MCII being subordinated to
the payment of the Notes by MCII, may be made by or on behalf of MCII or any
Restricted Subsidiary of MCII, including, without limitation, by way of set-off
or otherwise, for or on account of the Notes, or for or on account of the
purchase, redemption or other acquisition of any Notes, and neither the trustee
nor any holder or owner of any Notes shall take or receive from MCII or any
Restricted Subsidiary of MCII, directly or indirectly in any manner, payment in
respect of all or any portion of Notes commencing on the date of receipt by the
trustee of written notice from the representative of the holders of Designated
Senior Indebtedness of the occurrence of any Payment Default, and in any such
event, such prohibition shall continue until any Payment Default is cured,
waived in writing or otherwise ceases to exist. At such time as the prohibition
set forth in the preceding sentence shall no longer be in effect, subject to the
provisions of the following paragraph, MCII shall resume making any and all
required payments in respect of the Notes, including any missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any kind or character, including,
without limitation, cash, property and any payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of
MCII being subordinated to the payment of the Notes by MCII, may be made by MCII
or any Restricted Subsidiary of MCII, including, without limitation, by way of
set-off or otherwise, for or on account of the Notes, or for or on account of
the purchase, redemption or other acquisition of any Notes, and neither the
trustee nor any holder or owner of any Notes shall take or receive from MCII or
any Restricted Subsidiary of MCII, directly or indirectly in any manner, payment
in respect of all or any portion of the Notes for a period (a "Payment Blockage
Period") commencing on the date of receipt by the trustee of written notice from
the representative of such Non-Payment Event of Default unless and until,
subject to any blockage of payments that may then be in effect under the
preceding paragraph, the earliest of
(1) more than 179 days shall have elapsed since receipt of such written
notice by the trustee,
(2) such Non-Payment Event of Default shall have been cured or waived in
writing or otherwise shall have ceased to exist or such Designated Senior
Indebtedness shall have been paid in full or
(3) such Payment Blockage Period shall have been terminated by written
notice to MCII or the trustee from such representative,
after which, in the case of clause (1), (2) or (3), MCII shall resume making any
and all required payments in respect of the Notes, including any missed
payments. Notwithstanding any other provision of the indenture, in no event
shall a Payment Blockage Period commenced in accordance with the provisions of
the indenture described in this paragraph extend beyond 179 days from the date
of the receipt by the trustee of the notice referred to above (the "Initial
Blockage Period"). Any number of additional Payment Blockage Periods may be
commenced during the Initial Blockage Period; PROVIDED, HOWEVER, that no
additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment Blockage
Period may be commenced until at least 180 consecutive days have elapsed from
the last day of the Initial Blockage Period. Notwithstanding any other provision
of the indenture, no Non-Payment Event of Default with respect to Designated
Senior Indebtedness which existed or was continuing on the date of the
commencement of any Payment Blockage Period initiated by the representative
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by the representative, whether or not
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within the Initial Blockage Period, unless such Non-Payment Event of Default
shall have been cured or waived for a period of not less than 90 consecutive
days.
In the event that, notwithstanding the foregoing, the trustee or any holder
of Notes receives any payment or distribution of assets of MCII of any kind,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness
of MCII is paid and satisfied in full in cash, then such payment or distribution
will be held by the recipient in trust for the benefit of holders of Senior
Indebtedness and will be immediately paid over or delivered to the holders of
Senior Indebtedness or their representative or representatives to the extent
necessary to make payment in full of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Senior Indebtedness.
Each Guarantee will, to the extent set forth in the indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of the respective Guarantor and will be subject to the rights of
holders of Designated Senior Indebtedness of such Guarantor to initiate blockage
periods, upon terms substantially comparable to the subordination of the Notes
to all Senior Indebtedness of MCII.
If MCII or any Guarantor fails to make any payment on the Notes or any
Guarantee, as the case may be, when due or within any applicable grace period,
whether or not on account of payment blockage provisions, such failure would
constitute an Event of Default under the Indenture and would enable the holders
of the Notes to accelerate the maturity thereof. See "--Events of Default."
A holder of Notes by its acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the trustee, on its behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the indenture and appoints the trustee its
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The indenture contains, among others, the following covenants:
LIMITATION ON ADDITIONAL INDEBTEDNESS
MCII will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, incur, as defined, any Indebtedness, including Acquired
Indebtedness, PROVIDED that MCII or any of the Guarantors may incur
Indebtedness, including Acquired Indebtedness, if after giving effect to the
incurrence of Indebtedness and the receipt and application of the proceeds
thereof, MCII's Consolidated Fixed Charge Coverage Ratio is at least 2.0 to 1.
Notwithstanding the foregoing, MCII and its Restricted Subsidiaries may
incur Permitted Indebtedness; PROVIDED that MCII will not incur any Permitted
Indebtedness that ranks junior in right of payment to the Notes that has a
maturity or mandatory sinking fund payment prior to the maturity of the Notes.
Notwithstanding any other provision of this "Limitation on Additional
Indebtedness" covenant,
- the maximum amount of Indebtedness that MCII or a Restricted Subsidiary
may incur pursuant to this covenant shall not be deemed to be exceeded,
with respect to any outstanding Indebtedness, due solely to the result of
fluctuations in the exchange rates of currencies and
- in the event that an item of Indebtedness meets the criteria of more than
one of the categories of Permitted Indebtedness or is otherwise entitled
to be incurred pursuant to this covenant, MCII may, in its sole
discretion, classify, or reclassify, such item of Indebtedness in any
manner
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that complies with this covenant and such items of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or
pursuant to the first paragraph hereof.
Accrual of interest or accretion of accreted value will not be deemed to be
an incurrence of Indebtedness for purposes of this covenant. Accruals of
dividends or the payment of dividends through the issuance of additional shares
of the same class of Capital Stock in accordance with the provisions thereof
permitting such pay-in-kind dividends will not be deemed an issuance of Capital
Stock for purposes of this covenant.
LIMITATION ON OTHER SENIOR SUBORDINATED INDEBTEDNESS
MCII will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, incur, contingently or otherwise, any Indebtedness,
other than the Notes and the Guarantees, as the case may be, that is both
(1) subordinated in right of payment to any Senior Indebtedness of MCII or
any of its Restricted Subsidiaries, as the case may be, and
(2) senior in right of payment to the Notes and the Guarantees, as the case
may be.
For purposes of this covenant, Indebtedness is deemed to be senior in right
of payment to the Notes or the Guarantees, as the case may be, if it is not
explicitly subordinated in right of payment to Senior Indebtedness at least to
the same extent as the Notes and the Guarantees, as the case may be, are
subordinated to such Senior Indebtedness.
LIMITATION ON RESTRICTED PAYMENTS
MCII will not make, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make, any Restricted Payment, unless:
(1) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to a Restricted Payment;
(2) immediately after giving PRO FORMA effect to a Restricted Payment,
MCII could incur $1.00 of additional Indebtedness, other than Permitted
Indebtedness, under "--Limitation on Additional Indebtedness" above; and
(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of
(a) 50% of MCII's Cumulative Consolidated Net Income or minus 100% of
any cumulative deficit in Consolidated Net Income,
(b) 100% of the aggregate Net Proceeds received by MCII from the
issue or sale after the Issue Date of Capital Stock, other than any
Disqualified Capital Stock, Designated Preferred Stock, or Capital Stock
of MCII issued to any Subsidiary of MCII, of MCII or any Indebtedness or
other securities of MCII convertible into or exercisable or exchangeable
for Capital Stock, other than Disqualified Capital Stock or Designated
Preferred Stock, of MCII which have been so converted, exercised or
exchanged, as the case may be,
(c) without duplication of any amounts included in clause (3)(b)
above, 100% of the aggregate Net Proceeds received by MCII from any
equity contribution from a holder of MCII's Capital Stock, excluding, in
the case of clauses (3)(b) and (c), any Net Proceeds from an Equity
Offering to the extent used to redeem the Notes, and
(d) without duplication, the sum of
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(i) the aggregate amount returned in cash on or with respect to
Investments, other than Permitted Investments, made subsequent to the
Issue Date whether through interest payments, principal payments,
dividends or other distributions;
(ii) the net proceeds received by MCII or any of its Restricted
Subsidiaries from the disposition, retirement or redemption of all or
any portion of such Investments,other than to a Subsidiary of MCII;
and
(iii) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the net assets of
such Subsidiary,
PROVIDED, HOWEVER, that the sum of clauses (i), (ii) and (iii) above shall not
exceed the aggregate amount of all such Investments made subsequent to the Issue
Date.
For purposes of determining under clause (3) above, the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount thereof
and property other than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit
(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would
comply with the provisions of the indenture,
(2) the repurchase, redemption or other acquisition or retirement of any
shares of Capital Stock of MCII or Indebtedness subordinated to the Notes by
conversion into, or by or in exchange for, shares of Capital Stock of MCII,
other than Disqualified Capital Stock, or out of the Net Proceeds of the
substantially concurrent sale, other than to a Subsidiary of MCII, of other
shares of Capital Stock of MCII, other than Disqualified Capital Stock,
(3) the redemption or retirement of Indebtedness of MCII subordinated to
the Notes in exchange for, by conversion into, or out of the Net Proceeds of
a substantially concurrent sale or incurrence of, Indebtedness of MCII,
other than any Indebtedness owed to a Subsidiary, that is Refinancing
Indebtedness,
(4) the retirement of any shares of Disqualified Capital Stock of MCII
by conversion into, or by exchange for, shares of Disqualified Capital Stock
of MCII, or out of the Net Proceeds of the substantially concurrent sale,
other than to a Subsidiary of MCII, of other shares of Disqualified Capital
Stock of MCII,
(5) the declaration and payment of regularly accruing dividends to
holders of any class or series of Disqualified Capital Stock of MCII or its
Restricted Subsidiaries issued after the Issue Date in accordance with the
"Limitation on Additional Indebtedness" covenant,
(6) the declaration and payment of regularly accruing dividends to
holders of any class or series of Designated Preferred Stock of MCII issued
after the Issue Date; PROVIDED that at the time of such issuance, and after
giving effect to such issuance on A PRO FORMA basis, for purposes of making
determinations on A PRO FORMA basis pursuant to this clause (6), treating
all dividends which will accrue on such Designated Preferred Stock during
the four full fiscal quarters immediately following such issuance, as well
as all other Designated Preferred Stock then outstanding, as if same will in
fact be, or have in fact been, paid in cash, MCII would have been able to
incur at least $1.00 of additional Indebtedness, other than Permitted
Indebtedness, pursuant to the "Limitation on Additional Indebtedness"
covenant,
(7) Restricted Payments in aggregate amount not to exceed $25 million,
(8) payments made under any Permitted Tax Sharing Agreement,
(9) payments made to effect the Transactions on the Issue Date, and
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(10) repurchases by MCII of Capital Stock, other than Disqualified
Capital Stock, or options therefor, of MCII from directors, officers or
employees of MCII or any of its Restricted Subsidiaries or their authorized
representatives upon the death, disability or termination of employment of
such officers or employees, in an aggregate amount not to exceed, in any
calendar year, $2 million; PROVIDED that unused amounts in any calendar
year, beginning with calendar year 1999, may be carried forward and used to
make repurchases as described above in this clause (10) in any succeeding
calendar year, PROVIDED FURTHER that the aggregate amount expended pursuant
to this clause (10) in any calendar year, both pursuant to the immediately
preceding proviso and the portion of this clause (10) which precedes said
proviso, does not exceed $4 million in any calendar year.
In calculating the aggregate amount of Restricted Payments made subsequent
to the Issue Date for purposes of clause (3) of the first paragraph above,
amounts expended pursuant to clause (1) of the immediately preceding paragraph
shall be included in such calculation.
For purposes of determining compliance with this "Limitation on Restricted
Payments" covenant, in the event that a Restricted Payment meets the criteria of
more than one of the types of Restricted Payments described in the above
clauses, MCII, in its sole discretion, may order and classify, and from time to
time may reclassify, such Restricted Payment if it would have been permitted at
the time such Restricted Payment was made and at the time of such
reclassification.
LIMITATION ON INVESTMENTS
MCII will not, and will not permit any of its Restricted Subsidiaries to,
make any Investment other than
(1) a Permitted Investment, or
(2) an Investment that is made after the Issue Date as a Restricted
Payment in compliance with the "Limitation on Restricted Payments" covenant.
LIMITATION ON LIENS
MCII will not, and will not permit any of its Restricted Subsidiaries to,
create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind securing Indebtedness other than Senior Indebtedness upon any
property or asset of MCII or any of its Restricted Subsidiaries or any shares of
Capital Stock or Indebtedness of any Restricted Subsidiary of MCII which owns
property or assets, now owned or hereafter acquired, unless:
(1) if such Lien secures Indebtedness which is subordinated to the
Notes, any such Lien shall be subordinated to the Lien granted to the
holders of the Notes to the same extent as such Indebtedness is subordinated
to the Notes; and
(2) in all other cases, the Notes are equally and ratably secured.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
MCII will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or suffer to exist any transaction or series
of related transactions, including, without limitation, the sale, purchase,
exchange or lease of assets, property or services, with any Affiliate or extend,
renew, waive or otherwise modify the terms of any Affiliate transaction entered
into prior to the Issue Date unless
(1) such Affiliate transaction is between or among MCII and its
Restricted Subsidiaries; or
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(2) the terms of such Affiliate transaction are fair and reasonable to
MCII or such Restricted Subsidiary, as the case may be, and the terms of
such Affiliate transaction are at least as favorable as the terms which
could be obtained by MCII or such Restricted Subsidiary, as the case may be,
in a comparable transaction made on an arm's-length basis between
unaffiliated parties.
In any Affiliate transaction, or any series of related Affiliate
transactions which are similar or part of a common plan, involving an amount or
having a fair market value in excess of $5 million which is not permitted under
clause (1) above, MCII must obtain a resolution of the board of directors of
MCII certifying that such Affiliate transaction complies with clause (2) above.
In any Affiliate transaction, or any series of related Affiliate transactions
which are similar or part of a common plan, involving an amount or having a fair
market value in excess of $10 million which is not permitted under clause (1)
above, MCII must obtain a favorable written opinion as to the fairness of such
transaction or transactions, as the case may be, from an Independent Financial
Advisor.
The foregoing provisions will not apply to
(1) any Restricted Payment that is not prohibited by the provisions
described under "--Limitation on Restricted Payments" above or any Permitted
Investment,
(2) reasonable fees and compensation paid to, and indemnity provided on
behalf of, officers, directors or employees of MCII or any Restricted
Subsidiary of MCII as determined in good faith by MCII's board of directors
or senior management,
(3) any agreement as in effect as of the Issue Date, including, without
limitation, any agreement entered into on the Issue Date in connection with
the Transactions, or any amendment thereto or any transaction contemplated
thereby (including pursuant to any amendment thereto) in any replacement
agreement thereto so long as any such amendment or replacement agreement is
not more disadvantageous to the holders in any material respect than the
original agreement as in effect on the Issue Date,
(4) transactions with a Receivables Subsidiary in connection with
Permitted Receivables Financing,
(5) any transaction between MCII and any of its Affiliates involving
ordinary course of business investment banking, commercial banking,
financial advisory services and related activities,
(6) the payment of management fees to any Affiliate of MCII not to
exceed in the aggregate to all Affiliates, in any calendar year, $1 million,
(7) customer financing and financing services transactions between MCII
or any of its Restricted Subsidiaries on the one hand and MCII Financial
Services on the other hand occurring in the ordinary course of business,
PROVIDED that the terms of each such transaction are at least as favorable
as the terms which could be obtained by MCII or such Restricted Subsidiary
in a comparable transaction made on an arm's-length basis between
unaffiliated parties,
(8) issuances of Capital Stock of MCII, other than Disqualified Capital
Stock, to the extent otherwise permitted under the Indenture,
(9) the existence of, or the performance by MCII or any of its
Restricted Subsidiaries of its obligations under the terms of, any
stockholders agreement, including any registration rights agreement or
purchase agreement related thereto, to which it is a party as of the Issue
Date and any similar agreements which it may enter into thereafter, in each
case subject to compliance with the other provisions of the indenture;
PROVIDED, HOWEVER, that the existence, or the performance by MCII or any of
its Restricted Subsidiaries of obligations under any future amendment to any
such existing agreement or under any similar agreement entered into after
the Issue Date shall only be permitted by this clause (9) to the extent that
the terms, taken as a whole, of any such amendment
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or new agreement are not otherwise disadvantageous to the holders of the
Notes in any material respect, and
(10) payments made under any Permitted Tax Sharing Agreement.
LIMITATION ON CREATION OF SUBSIDIARIES
MCII will not create or acquire, and will not permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than
(1) a Restricted Subsidiary existing as of the Issue Date,
(2) a Restricted Subsidiary that is acquired or created after the Issue
Date;
(a) PROVIDED, HOWEVER, that each Domestic Restricted Subsidiary
acquired or created pursuant to this clause (2) shall have executed a
guarantee, pursuant to which such Domestic Restricted Subsidiary will
become a Guarantor;
(b) PROVIDED, FURTHER, in the event MCII or any of its Restricted
Subsidiaries incurs Acquired Indebtedness, assuming such incurrence is in
accordance with the "Limitation on Additional Indebtedness" covenant, as
a result of the acquisition of a Restricted Subsidiary and as long as the
terms of such Acquired Indebtedness prohibit the Guarantee of the Notes
by such newly-acquired Restricted Subsidiary or such newly-acquired
Restricted Subsidiary would be in breach or default of the terms of the
Acquired Indebtedness as a result of such Guarantee, such Restricted
Subsidiary will not be required to execute a Guarantee;
(c) PROVIDED that, until such Restricted Subsidiary executes and
delivers a Guarantee in accordance with this covenant,
(i) none of MCII or any other Restricted Subsidiary of MCII will
transfer any assets, other than in the ordinary course of business,
to such newly-acquired Restricted Subsidiary,
(ii) such newly-acquired Restricted Subsidiary will not transfer
such Acquired Indebtedness to MCII or any other Restricted Subsidiary
and
(iii) neither MCII nor any Restricted Subsidiary of MCII shall
provide any guarantee of, or similar credit support for, or otherwise
become directly or indirectly liable for any Indebtedness of such
newly-acquired Restricted Subsidiary, or
(3) an Unrestricted Subsidiary.
As of the Issue Date, MCII will have no Domestic Restricted Subsidiaries,
other than the Guarantors. See "Description of the Notes--General."
LIMITATION ON CERTAIN ASSET SALES
MCII will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless
(1) MCII or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal
to the fair market value of the assets sold or otherwise disposed of, as
determined in good faith by the board of directors of MCII, and evidenced by
a board resolution;
(2) not less than 75% of the consideration received by MCII or such
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents other than in the case where the Company or such Restricted
Subsidiary is undertaking a Permitted Asset Swap; PROVIDED that this
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clause (2) shall not apply to any Asset Sale, or series of related Asset
Sales, involving assets that accounted for less than one percent of MCII's
EBITDA during the period of the most recent four consecutive full fiscal
quarters ending prior to the date of such Asset Sale for which consolidated
financial statements of MCII are available; and PROVIDED, FURTHER, that the
amount of
(a) any liabilities, as shown on MCII's or such Restricted
Subsidiary's most recent balance sheet, of MCII or any of its Restricted
Subsidiaries, other than contingent liabilities and liabilities that are
by their terms subordinated to the Notes, that are assumed by the
transferee of any such assets shall be deemed to be cash for purposes of
this clause (2); and
(b) any promissory notes and other non-cash consideration received by
MCII or any Restricted Subsidiary of MCII from such Asset Sale that are
converted by MCII or such Restricted Subsidiary into cash within 180 days
of the applicable Asset Sale shall be deemed to be cash for purposes of
this clause (2).
(3) the Asset Sale Proceeds received by MCII or such Restricted
Subsidiary are applied:
(a) to the extent MCII or any such Restricted Subsidiary, as the case
may be, elects, or is required, to prepay, repay or purchase Indebtedness
under any then existing Senior Indebtedness of MCII or any such
Restricted Subsidiary within 365 days following the receipt of the Asset
Sale Proceeds from any Asset Sale; PROVIDED that any such repayment shall
result in a permanent reduction of the commitments thereunder in an
amount equal to the principal amount so repaid;
(b) to the extent MCII elects, to an investment in assets, including
Capital Stock or other securities purchased in connection with the
acquisition of Capital Stock or property of another Person, used or
useful in a Permitted Business; PROVIDED that such investment occurs or
MCII or any such Restricted Subsidiary enters into contractual
commitments to make such investment, subject only to customary
conditions, within 365 days following receipt of such Asset Sale
Proceeds, provided that such investment shall in any event be consummated
no later than 90 days following such 365th day; and
(c) if on such 365th day in the case of clauses (3)(a) and (3)(b), or
on such 90th day in the case of the proviso to clause (3)(b), with
respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10
million, MCII shall apply an amount equal to the Available Asset Sale
Proceeds to an offer to repurchase the Notes, at a purchase price in cash
equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date (an "Excess Proceeds Offer").
Notwithstanding the foregoing, in the event that a Restricted Subsidiary
that is not a Wholly Owned Restricted Subsidiary dividends or distributes to all
of its stockholders on A PRO RATA basis any proceeds of an Asset Sale to MCII or
another Restricted Subsidiary, MCII or such Restricted Subsidiary need only
apply its share of such proceeds in accordance with the preceding clauses (a),
(b) and (c).
If an Excess Proceeds Offer is not fully subscribed, MCII may retain the
portion of the Available Asset Sale Proceeds not required to repurchase Notes.
If MCII is required to make an Excess Proceeds Offer, MCII shall mail,
within 30 days following the date specified in clause (3)(c) above, a notice to
the holders stating, among other things:
(1) that such holders have the right to require MCII to apply the
Available Asset Sale Proceeds to repurchase such Notes at a purchase price
in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date;
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(2) the purchase date, which shall be no earlier than 30 days and not
later than 60 days from the date such notice is mailed;
(3) the instructions that each holder must follow in order to have such
Notes purchased; and
(4) the calculations used in determining the amount of Available Asset
Sale Proceeds to be applied to the purchase of such Notes.
In the event of the transfer of substantially all of the property and assets
of MCII and its Restricted Subsidiaries as an entirety to a Person in a
transaction permitted under "--Merger, Consolidation or Sale of Assets" below,
the successor Person shall be deemed to have sold the properties and assets of
MCII and its Restricted Subsidiaries not so transferred for purposes of this
covenant, and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale.
MCII will comply with the requirements of Rule 14e-1 under the Exchange Act
and other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes pursuant
to an Excess Proceeds Offer. To the extent that the provisions of any securities
laws or regulations conflict with the "Asset Sale" provisions of the indenture,
MCII shall comply with the applicable securities laws and regulations and shall
not be deemed to have breached its obligations under the "Asset Sale" provisions
of the indenture by virtue thereof.
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
MCII will not permit any of its Restricted Subsidiaries to issue any
Preferred Stock, except Preferred Stock issued to MCII or a Wholly Owned
Restricted Subsidiary of MCII, or permit any Person, other than MCII or a Wholly
Owned Restricted Subsidiary of MCII, to hold any such Preferred Stock unless
such Restricted Subsidiary would be entitled to incur or assume Indebtedness
under "--Limitation on Additional Indebtedness" above, other than Permitted
Indebtedness, in the aggregate principal amount equal to the aggregate
liquidation value as of the date of issuance thereof of the Preferred Stock to
be issued.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
MCII will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary of MCII to
(1) pay dividends or make any other distributions to MCII or any
Restricted Subsidiary of MCII
(a) on its Capital Stock or
(b) with respect to any other interest or participation in, or
measured by, its profits or
(2) repay any Indebtedness or any other obligation owed to MCII or any
Restricted Subsidiary of MCII,
(3) make loans or advances or capital contributions to MCII or any of
its Restricted Subsidiaries or
(4) transfer any of its properties or assets to MCII or any of its
Restricted Subsidiaries,
except for such encumbrances or restrictions existing under or by reason of
(1) encumbrances or restrictions existing on the Issue Date to the
extent and in the manner such encumbrances and restrictions are in effect on
the Issue Date,
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(2) the indenture, the Notes and the Guarantees,
(3) applicable law,
(4) contracts to which any Person who is acquired in accordance with the
terms of the indenture is a party, including any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, including any Subsidiary of
the Person, so acquired,
(5) customary non-assignment provisions in leases or other agreements
entered in the ordinary course of business and consistent with past
practices,
(6) Refinancing Indebtedness; PROVIDED that such restrictions are no
more restrictive than those contained in the agreements governing the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded,
(7) customary restrictions in Capitalized Lease Obligations, security
agreements or mortgages securing Indebtedness of MCII or a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such Capitalized Lease Obligations, security agreements
and mortgages,
(8) customary restrictions with respect to a Restricted Subsidiary of
MCII pursuant to an agreement that has been entered into for the sale or
disposition of any Capital Stock or assets of such Restricted Subsidiary,
but only to the extent such encumberance or restriction applies only to the
Capital Stock or assets being sold or otherwise disposed of,
(9) contracts entered into in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the
aggregate, detract from the value of property or assets of MCII or any
Restricted Subsidiary in any manner material to MCII or any Restricted
Subsidiary,
(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts (not evidencing or relating to Indebtedness)
entered into in the ordinary course of business,
(11) customary provisions in joint venture agreements and other similar
agreements, in each case relating solely to the respective joint venture or
similar entity or the equity interests therein, entered into in the ordinary
course of business,
(12) customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of MCII or any
Restricted Subsidiary, or
(13) with respect to a Receivables Subsidiary, an agreement relating to
Indebtedness of such Receivables Subsidiary which is permitted under
"Limitation on Additional Indebtedness" above or pursuant to an agreement
relating to a Permitted Receivables Financing by such Receivables
Subsidiary.
LIMITATION ON CONDUCT OF BUSINESS
MCII and its Restricted Subsidiaries will not engage in any business other
than a Permitted Business.
CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, MCII shall be obligated to make
an offer to purchase each holder's outstanding Notes at a purchase price equal
to 101% of the principal amount
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thereof plus accrued and unpaid interest, if any, to the Change of Control
Payment Date in accordance with the procedures set forth below.
Within 30 days of the occurrence of a Change of Control, MCII shall send by
first-class mail, postage prepaid, to the trustee and to each holder of the
Notes, at the address appearing in the register maintained by the registrar of
the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment;
(2) the Change of Control purchase price and the purchase date, which
shall be a Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed;
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless MCII defaults in the payment of the Change of Control
purchase price, any Notes accepted for payment pursuant to the Change of
Control offer shall cease to accrue interest after the Change of Control
payment date;
(5) that holder accepting the offer to have their Notes purchased
pursuant to a Change of Control offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
payment date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control payment date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered;
(8) any other procedures that a holder must follow to accept a Change of
Control offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control payment date, MCII shall, to the extent lawful,
(1) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control offer,
(2) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so tendered and
(3) deliver or cause to be delivered to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
tendered to MCII.
The Paying Agent shall promptly mail to each holder of Notes so accepted payment
in an amount equal to the purchase price for such Notes, and MCII shall execute
and issue, and the Trustee shall promptly authenticate and mail to such holder,
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered; PROVIDED that each such new Note shall be issued in an original
principal amount in denominations of $1,000 and integral multiples thereof.
The indenture requires that if the Senior Credit Facility is in effect, or
any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the second preceding paragraph, MCII covenants to
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(1) repay in full all obligations and terminate all commitments under or
in respect of the Senior Credit Facility and all other Senior Indebtedness
the terms of which require repayment upon a Change of Control or offer to
repay in full all obligations and terminate all commitments under or in
respect of the Senior Credit Facility and all such Senior Indebtedness and
repay the Indebtedness owed to each such lender who has accepted such offer
or
(2) obtain the requisite consents under the Senior Credit Facility and
all such other Senior Indebtedness to permit the repurchase of the Notes as
described above.
MCII must first comply with the covenant described in the preceding sentence
before it shall be required to purchase Notes in the event of a Change of
Control; PROVIDED that, notwithstanding the foregoing, MCII's failure to
consummate a Change of Control offer in accordance with the provisions of this
covenant due to the covenant described in the immediately preceding sentence
shall constitute an Event of Default described in clause (3) under "--Events of
Default" below if not cured within 30 days of the last date on which MCII would
have been required to consummate the Change of Control offer without giving
effect to the convenant described in the immediately preceding sentence. As a
result of the foregoing, a holder of the Notes may not be able to compel MCII to
purchase the Notes unless MCII is able at the time to refinance all of the
obligations under or in respect of the Senior Credit Facility and all such other
Senior Indebtedness or obtain requisite consents under the Senior Credit
Facility and all such other Senior Indebtedness.
The Indenture further provides that
(1) if MCII or any Restricted Subsidiary thereof has issued any
outstanding
(a) Indebtedness that is subordinated in right of payment to the
Notes or
(b) Preferred Stock, and MCII or such Restricted Subsidiary is
required to make a change of control offer or to make a distribution with
respect to such subordinated indebtedness or Preferred Stock in the event
of a change of control, MCII shall not consummate any such offer or
distribution with respect to such subordinated indebtedness or Preferred
Stock until such time as MCII shall have paid the Change of Control
purchase price in full to the holders of Notes that have accepted MCII's
change of control offer and shall otherwise have consummated the change
of control offer made to holders of the Notes and
(2) MCII will not issue Indebtedness that is subordinated in right of
payment to the Notes or Preferred Stock with change of control provisions
requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Notes tendered pursuant to a Change of Control offer in the
event of a Change in Control under the indenture.
MCII will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of Notes
pursuant to a Change of Control offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Change of Control" provisions
of the indenture, MCII shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Change of Control" provisions of the indenture by virtue thereof.
MERGER, CONSOLIDATION OR SALE OF ASSETS
MCII will not and will not permit any of its Restricted Subsidiaries to
consolidate with, merge with or into, or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of the assets of MCII and its
Restricted Subsidiaries, as an entirety or substantially as an entirety in one
transaction or a series of related transactions, to any Person unless:
(1) MCII or such Restricted Subsidiary, as the case may be, shall be the
continuing Person, or the Person, if other than MCII or such Restricted
Subsidiary, formed by such consolidation or
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into which MCII or such Restricted Subsidiary, as the case may be, is merged
or to which the properties and assets of MCII or such Restricted Subsidiary,
as the case may be, are sold, assigned, transferred, leased, conveyed or
otherwise disposed of shall be a corporation organized and existing under
the laws of the United States or any State thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture, executed
and delivered to the trustee, in form satisfactory to the trustee, all of
the obligations of MCII or such Restricted Subsidiary, as the case may be,
under the indenture, the Notes and the Guarantees, and the obligations
thereunder shall remain in full force and effect;
(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and
(3) immediately after giving effect to such transaction on a PRO FORMA
basis MCII or such Person could incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, under "--Certain
Covenants--Limitation on Additional Indebtedness" above; PROVIDED that
(x) a Guarantor may merge into MCII or another Person that is a
Guarantor without complying with this clause (3) and
(y) MCII may merge with an Affiliate that has no material assets or
liabilities and that is incorporated or organized for the purpose of
reincorporating or reorganizing MCII in another jurisdiction to realize
tax benefits without complying with this clause (3) PROVIDED,in the case
of a transaction pursuant to this subclause (y), immediately after giving
effect to such transaction on A PRO FORMA basis, the Consolidated Fixed
Charge Coverage Ratio of the surviving Person is not less than the
Consolidated Fixed Charge Coverage Ratio of MCII immediately prior to
such transaction.
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, MCII shall deliver, or cause to be delivered, to
the trustee, in form and substance reasonably satisfactory to the trustee, an
Officers' Certificate, each stating that such consolidation, merger or transfer
and the supplemental indenture in respect thereto comply with this provision and
that all conditions precedent herein provided for relating to such transaction
or transactions have been complied with.
For purposes of the foregoing, the transfer, by lease, assignment, sale or
otherwise, in a single transaction or series of transactions, of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of MCII the Capital Stock of which constitutes all or substantially
all of the properties and assets of MCII, shall be deemed to be the transfer of
all or substantially all of the properties and assets of MCII.
GUARANTEES
The Guarantors will Guarantee the Notes on a senior subordinated basis. All
payments pursuant to the Guarantees by the Guarantors are subordinated in right
of payment to the prior payment in full of all Senior Indebtedness of each
respective Guarantor, to the same extent and in the same manner that all
payments pursuant to the Notes are subordinated in right of payment to the prior
payment in full of all Senior Indebtedness of MCII.
The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor, including, without limitation, any guarantees of Senior Indebtedness,
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a PRO RATA
amount based on the Adjusted Net Assets of each Guarantor.
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A Guarantor shall be released from all of its obligations under its
Guarantee if all of its assets or Capital Stock is sold or the Capital Stock of
its direct or indirect parent company is sold, in each case in a transaction in
compliance with "--Certain Covenants--Limitation on Certain Asset Sales" above,
or the Guarantor merges with or into or consolidates with, or transfers all or
substantially all of its assets in compliance with "Merger, Consolidation or
Sale of Assets" above, and such Guarantor has delivered to the trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent herein provided for relating to such transaction have been
complied with.
EVENTS OF DEFAULT
The following events are defined in the indenture as "Events of Default":
(1) default in payment of any principal of, or premium, if any, on the
Notes whether at maturity, upon redemption or otherwise, whether or not such
payment shall be prohibited by the subordination provisions of the
indenture;
(2) default for 30 days in payment of any interest on the Notes;
(3) default by MCII or any Restricted Subsidiary in the observance or
performance of any other covenant in the Notes or the indenture for 30 days
after written notice from the trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding, except in the case
of a default with respect to the "Change of Control" or "Merger,
Consolidation or Sale of Assets" covenants which shall constitute an Event
of Default with such notice requirement but without such passage of time
requirement;
(4) failure to pay when due principal, interest or premium with respect
to any Indebtedness of MCII or any Restricted Subsidiary thereof, which
failure to pay, other than a failure to pay principal at the final maturity
thereof, shall not be cured, waived or postponed pursuant to an agreement
with the holders of such Indebtedness within 60 days after written notice as
provided in the indenture, or the acceleration of any such Indebtedness,
which acceleration shall not be rescinded or annulled within 20 days after
written notice as provided in the indenture, if the aggregate amount of such
Indebtedness, together with the amount of any other such Indebtedness in
default for failure to pay principal, interest or premium or which has been
accelerated, aggregates $10 million or more at any time;
(5) any final judgment or judgments not covered by insurance which can
no longer be appealed for the payment of money in excess of $10 million
shall be rendered against MCII or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive days during which a
stay of enforcement shall not be in effect;
(6) certain events involving bankruptcy, insolvency or reorganization of
MCII or any Significant Restricted Subsidiary thereof; and
(7) any of the Guarantees of a Guarantor that is a Significant
Restricted Subsidiary ceases to be in full force and effect or any of the
Guarantees of a Guarantor that is a Significant Restricted Subsidiary is
declared to be null and void and unenforceable or any of the Guarantees of a
Guarantor that is a Significant Restricted Subsidiary is found to be invalid
or any of the Guarantors that is a Significant Restricted Subsidiary denies
its liability under its Guarantee, other than by reason of release of a
Guarantor in accordance with the terms of the indenture.
The indenture provides that the trustee may withhold notice to the holders
of the Notes of any default, except in payment of principal or premium, if any,
or interest on the Notes, if the trustee considers it to be in the best interest
of the holders of the Notes to do so.
The indenture provides that if an Event of Default, other than an Event of
Default with respect to MCII of the type described in clause (6) above, shall
have occurred and be continuing, then the trustee or the holders of not less
than 25% in aggregate principal amount of the Notes then outstanding may declare
to be immediately due and payable the entire principal amount of all the Notes
then outstanding plus accrued interest to the date of acceleration
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(1) and the same shall become immediately due and payable or
(2) if there are any amounts outstanding under the Senior Credit
Facility, shall become immediately due and payable upon the first to occur
of an acceleration under the Senior Credit Facility or five business days
after receipt by MCII and the representative under the Senior Credit
Facility of a notice of acceleration;
PROVIDED, HOWEVER, that after such acceleration but before a judgment or decree
based on acceleration is obtained by the trustee, the holders of a majority in
aggregate principal amount of outstanding Notes may, under certain
circumstances, rescind and annul such acceleration if
(1) all Events of Default, other than nonpayment of principal, premium,
if any, or interest that has become due solely because of the acceleration,
have been cured or waived as provided in the Indenture,
(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid,
(3) if MCII has paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances and
(4) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the above Events of Default, the trustee
shall have received an Officers' Certificate and an opinion of counsel that
such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default with respect to MCII of the type
described in clause (6) of the first paragraph above shall occur, the principal,
premium and interest amount with respect to all of the Notes shall be due and
payable immediately without any declaration or other act on the part of the
trustee or the holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the trustee, subject to
certain limitations provided for in the indenture and under the TIA.
No holder of any Note will have any right to institute any proceeding with
respect to the indenture or for any remedy thereunder, unless such holder shall
have previously given to the trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the trustee to institute such proceeding as trustee, and unless the
trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.
DEFEASANCE AND COVENANT DEFEASANCE
The indenture provides that MCII may elect either
(1) to defease and be discharged from any and all of its and any
Guarantor's obligations with respect to the Notes, except for the
obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an
office or agency in respect of the Notes and to hold monies for payment in
trust, ("defeasance") or
(2) to be released from its obligations with respect to the Notes under
certain covenants contained in the indenture ("covenant defeasance")
upon the deposit with the Trustee, or other qualifying trustee, in trust for
such purpose, of money and/ or non-callable U.S. government obligations which
through the payment of principal and interest in
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accordance with their terms will provide money, in an amount sufficient to pay
the principal of, premium, if any, and interest on the Notes, on the scheduled
due dates therefor or on a selected date of redemption in accordance with the
terms of the indenture. Such a trust may only be established if, among other
things,
(1) MCII has delivered to the trustee an opinion of counsel, as
specified in the indenture
(a) to the effect that neither the trust nor the trustee will be
required to register as an investment company under the Investment
Company Act of 1940, as amended, and
(b) describing either a private ruling concerning the Notes or a
published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income
tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had
not occurred;
(2) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from bankruptcy,
insolvency or reorganization events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(3) such defeasance or covenant defeasance shall not result in a breach
or violation of, or constitute a default under the indenture or any other
material agreement or instrument to which MCII or any of its Subsidiaries is
a party or by which MCII or any of its Subsidiaries is bound;
(4) MCII shall have delivered to the trustee an Officers' Certificate
stating that the deposit was not made by MCII with the intent of preferring
the holders of the Notes over any other creditors of MCII or with the intent
of defeating, hindering, delaying or defrauding any other creditors of MCII
or others;
(5) MCII shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel, each stating that all conditions precedent
provided for or relating to the defeasance or the covenant defeasance have
been complied with;
(6) MCII shall have delivered to the trustee an opinion of counsel to
the effect that
(a) the trust funds will not be subject to any rights of holders of
Senior Indebtedness, including, without limitation, those arising under
the indenture, and
(b) assuming no intervening bankruptcy shall occur and that no holder
is an insider of MCII, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; and
(7) certain other customary conditions precedent are satisfied.
MODIFICATION OF INDENTURE
From time to time, MCII, the Guarantors and the trustee may, without the
consent of holders of the Notes, amend or supplement the indenture for certain
specified purposes, including providing for uncertificated Notes in addition to
certificated Notes, and curing any ambiguity, defect or inconsistency, or making
any other change that does not, in the opinion of the trustee, materially and
adversely affect the rights of any holder. The indenture contains provisions
permitting MCII, the Guarantors and the trustee, with the consent of holders of
at least a majority in principal amount of the outstanding Notes, to modify or
supplement the indenture, except that no such modification shall, without the
consent of each holder affected thereby,
(1) reduce the amount of Notes whose holders must consent to an
amendment, supplement, or waiver to the indenture,
(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Note,
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(3) reduce the principal of or premium on or change the stated maturity
of any Note or change the date on which any Notes may be subject to
redemption or repurchase or reduce the redemption or repurchase price
therefor,
(4) make any Note payable in money other than that stated in the Note or
change the place of payment from New York, New York,
(5) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Note,
(6) make any change in provisions of the indenture protecting the right
of each holder of Notes to receive payment of principal of and interest on
such Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount of Notes to
waive Defaults or Events of Default,
(7) amend, change or modify in any material respect the obligation of
MCII to make and consummate a Change of Control offer in the event of a
Change of Control or make and consummate an Excess Proceeds Offer with
respect to any Asset Sale that has been consummated or modify any of the
provisions or definitions with respect thereto,
(8) modify or change any provision of the indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the holders of Notes, or
(9) release any Guarantor from any of its obligations under its
Guarantee or the indenture otherwise than in accordance with the terms of
the indenture.
REPORTS TO HOLDERS
So long as MCII is subject to the periodic reporting requirements of the
Exchange Act, it will continue to furnish the information required thereby to
the Commission and to the holders of the Notes. The indenture provides that even
if MCII is entitled under the Exchange Act not to furnish such information to
the Commission or to the holders of the Notes, it will nonetheless continue to
furnish such information to the Commission and holders of the Notes.
COMPLIANCE CERTIFICATE
MCII will deliver to the trustee on or before 90 days after the end of
MCII's fiscal year an Officers' Certificate stating whether or not the signers
know of any Default or Event of Default that has occurred. If they do, the
certificate will describe the Default or Event of Default, its status and the
intended method of cure, if any.
THE TRUSTEE
The trustee under the indenture will be the Registrar and Paying Agent with
regard to the Notes. The indenture provides that, except during the continuance
of an Event of Default, the trustee will perform only such duties as are
specifically set forth in the indenture. During the existence of an Event of
Default, the trustee will exercise such rights and powers vested in it under the
indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
indenture. The Registrar under such indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the indenture. The registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.
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The Notes will be issued in a transaction exempt from registration under the
Securities Act and will be subject to the restrictions on transfer described in
"Notice to Investors."
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
indenture. Reference is made to the indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or is merged into or consolidated
with any other Person or which is assumed in connection with the acquisition of
assets from such Person and, in each case, not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary or such merger, consolidation or acquisition.
"ADJUSTED NET ASSETS" of any Person at any date shall mean the lesser of the
amount by which
(1) the fair value of the property of such Person exceeds the total
amount of liabilities, including, without limitation, contingent
liabilities, after giving effect to all other fixed and contingent
liabilities, but excluding liabilities under the Guarantee of such Person at
such date and
(2) the present fair salable value of the assets of such Person at such
date exceeds the amount that will be required to pay the probable liability
of such Person on its debts, after giving effect to all other fixed and
contingent liabilities and after giving effect to any collection from any
Subsidiary of such Person in respect of the obligations of such Person under
the Guarantee of such Person, excluding Indebtedness in respect of the
Guarantee of such Person, as they become absolute and matured.
"AFFILIATE" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control," including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with", as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement or
otherwise; PROVIDED that, for purposes of the covenant described under
"--Certain Covenants--Limitation on Transactions with Affiliates," beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.
"ASSET ACQUISITION" means
(1) an Investment by MCII or any Restricted Subsidiary of MCII in any
other Person pursuant to which such Person shall become a Restricted
Subsidiary of MCII, or shall be merged with or into MCII or any Restricted
Subsidiary of MCII or
(2) the acquisition by MCII or any Restricted Subsidiary of MCII of the
assets of any Person, other than a Restricted Subsidiary of MCII, which
constitute all or substantially all of the assets of such Person or comprise
any division or line of business of such Person or any other properties or
assets of such Person other than in the ordinary course of business.
"ASSET SALE" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease or other disposition, including any sale and
lease-back transaction, other than to MCII or any of its Restricted
Subsidiaries, in any single transaction or series of related transactions of
(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of MCII; or
(2) any other property or assets of MCII or of any Restricted Subsidiary
thereof other than the sale of MCII's products, including, without
limitation, the sale or lease of buses, in the ordinary course of business;
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PROVIDED that Asset Sales shall not include
(1) a transaction or series of related transactions for which MCII or
its Restricted Subsidiaries receive aggregate consideration of less than $1
million;
(2) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of MCII as permitted under "--Merger,
Consolidation or Sale of Assets;"
(3) any Restricted Payment made in compliance with the "Limitation on
Restricted Payments" covenant, and any making of any Permitted Investment;
(4) surrender or waiver of contract rights or the settlement, release or
surrender of contract, tort or other claims of any kind;
(5) the licensing of intellectual property in the ordinary course of
business;
(6) transfers of Receivables and Related Assets in connection with a
Permitted Receivables Financing;
(7) sales of Cash Equivalents;
(8) granting of Liens not otherwise prohibited by the Indenture; and
(9) leases or subleases to third persons in the ordinary course of
business that do not interfere in any material respect with the business of
MCII or any of its Restricted Subsidiaries.
"ASSET SALE PROCEEDS" means, with respect to any Asset Sale,
(1) cash and Cash Equivalents received by MCII or any Restricted
Subsidiary of MCII from such Asset Sale, including cash or Cash Equivalents
received as consideration for the assumption of liabilities incurred in
connection with or in anticipation of such Asset Sale, after
(a) provision for all income or other taxes measured by or resulting
from such Asset Sale,
(b) payment of all brokerage commissions, underwriting and other fees
and expenses related to such Asset Sale,
(c) provision for minority interest holders in any Restricted
Subsidiary of MCII as a result of such Asset Sale,
(d) repayment of Indebtedness that is secured by the assets subject
to such Asset Sale or otherwise required to be repaid in connection with
such Asset Sale and
(e) deduction of appropriate amounts to be provided by MCII or a
Restricted Subsidiary of MCII as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in
such Asset Sale and retained by MCII or a Restricted Subsidiary after
such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations
associated with the assets sold or disposed of in such Asset Sale, and
(2) promissory notes and other non-cash consideration received by MCII
or any Restricted Subsidiary of MCII from such Asset Sale or other
disposition upon the liquidation or conversion of such notes or non-cash
consideration into cash or Cash Equivalents.
"AVAILABLE ASSET SALE PROCEEDS" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in
accordance with clauses (3)(a) or (3)(b), and which have not yet been the basis
for an Excess Proceeds Offer in accordance with clause (3)(c) of the first
paragraph of "--Certain Covenants--Limitation on Certain Asset Sales."
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations or other equivalents, however designated and whether
or not voting, of corporate stock, partnership or limited liability company
interests or any other participation, right or other interest in the nature of
an equity interest in such Person including, without limitation, Common Stock
and Preferred Stock of such Person, or any option, warrant or other security
convertible into any of the foregoing.
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"CAPITALIZED LEASE OBLIGATIONS" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such obligations
determined in accordance with GAAP.
"CASH EQUIVALENTS" means
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency or
instrumentality thereof and backed by the full faith and credit of the
United States, in each case maturing within one year from the date of
acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation or
Moody's Investors Service, Inc.;
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized under
the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000;
(5) repurchase obligations with a term of not more than 365 days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4) above;
and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through (5)
above.
A "CHANGE OF CONTROL" of MCII will be deemed to have occurred at such time
as
(1) (a) any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), other than a Permitted Holder,
becomes the beneficial owner, as defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, of 50% or more of the total
voting or economic power of the MCII's Capital Stock, and (b) the Permitted
Holders no longer have the power to elect a majority of the directors of the
Board of Directors of MCII,
(2) the occurrence of any sale, lease, exchange or other transfer, in
one transaction or a series of related transactions, of all or substantially
all of the assets of MCII and its Restricted Subsidiaries, taken as a whole,
to any Person or Group, whether or not otherwise in compliance with the
provisions of the indenture, other than to the Permitted Holders,
(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of MCII,
together with any new directors whose election by such board of directors or
whose nomination for election by the shareholders of MCII has been approved
by the Permitted Holders or a majority of the directors then still in office
who either were directors at the beginning of such period or whose election
or recommendation for election was previously so approved, cease to
constitute a majority of the board of directors of MCII, or
(4) the approval by the holders of Capital Stock of MCII of any plan or
proposal for the liquidation or dissolution of MCII, whether or not
otherwise in compliance with the provisions of the indenture.
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"COMMON STOCK" of any Person means all Capital Stock of such Person that is
generally entitled to
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise participate
in the selection of the governing body, partners, managers or others that
will control the management and policies of such Person.
"CONSOLIDATED FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for
the Four Quarter Period. In addition to and without limitation of the foregoing,
for purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a PRO FORMA basis for the
period of such calculation to
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries or the issuance or redemption or other
repayment of Preferred Stock of any such Restricted Subsidiary, and the
application of the proceeds thereof, giving rise to the need to make such
calculation and any incurrence or repayment of other Indebtedness and, in
the case of any Restricted Subsidiary, the issuance or redemption or other
repayment of Preferred Stock, and the application of the proceeds thereof,
other than the incurrence or repayment of Indebtedness in the ordinary
course of business for working capital purposes pursuant to working capital
facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, except that, in determining the Consolidated Fixed Charge
Coverage Ratio as of any Transaction Date, any Permitted Indebtedness that
is incurred at the same time as the Indebtedness giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio shall not be included
for purposes of such calculation, as if such incurrence or repayment or
issuance or redemption or other repayment, as the case may be, and the
application of the proceeds thereof, occurred on the first day of the Four
Quarter Period, and
(2) any Asset Sales or Asset Acquisitions, including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries, including any Person who becomes a Restricted Subsidiary as a
result of the Asset Acquisition, incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any EBITDA, PROVIDED
that such EBITDA shall be included only to the extent includable pursuant to
the definition of "Consolidated Net Income", including any PRO FORMA expense
and cost reductions calculated on a basis consistent with Regulation S-X of
the Exchange Act, attributable to the assets which are the subject of the
Asset Acquisition or Asset Sale during the Four Quarter Period, occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
Asset Sale or Asset Acquisition, including the incurrence, assumption or
liability for any such Acquired Indebtedness, occurred on the first day of
the Four Quarter Period.
If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator but not the numerator
of this "Consolidated Fixed Charge Coverage Ratio":
(1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal
to the rate of interest on such Indebtedness in effect on the Transaction
Date;
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(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of
a prime or similar rate, a eurocurrency interbank offered rate, or other
rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period; and
(3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
one or more Hedging Obligations, shall be deemed to accrue at the rate per
annum resulting after giving effect to the operation of such agreements.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person, for any
period, the sum, without duplication, on a consolidated basis of
(1) Consolidated Interest Expense, plus
(2) the product of
(a) the amount of all dividend and distribution payments on any
series of Disqualified Capital Stock and Preferred Stock of such Person
and its Restricted Subsidiaries paid, other than dividends paid in
Capital Stock, other than Disqualified Capital Stock, accrued or
scheduled to be paid or accrued during such period, times
(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal, state
and local tax rate of such Person, expressed as a decimal.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Restricted Subsidiaries on a
consolidated basis including, but not limited to,
(1) Redeemable Dividends, whether paid or accrued, on Subsidiary
Preferred Stock,
(2) imputed interest included in Capitalized Lease Obligations in
accordance with GAAP,
(3) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing,
(4) the net costs associated with Hedging Obligations,
(5) the interest portion of any deferred payment obligation in
accordance with GAAP,
(6) amortization of discount or premium, if any, and
(7) interest-equivalent costs associated with any Permitted Receivables
Financing, whether accounted for as interest expense or loss on the sale of
Receivables and Related Assets,
plus, without duplication,
(1) all net capitalized interest for such period, and
(2) all interest incurred or paid under any guarantee of Indebtedness,
including a guarantee of principal, interest or any combination thereof, of
any Person.
Notwithstanding the foregoing, the amortization of deferred financing fees and
expenses shall not be included in "Consolidated Interest Expense."
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
PROVIDED, HOWEVER, that:
(1) the Net Income of any Person, other than a Restricted Subsidiary of
the referent Person, shall be included only to the extent of the amount of
dividends or distributions paid to the referent Person or a Restricted
Subsidiary of such referent Person;
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(2) the Net Income of any Restricted Subsidiary of the Person in
question that is subject to any restriction or limitation on the payment of
dividends or the making of other distributions shall be excluded to the
extent of such restriction or limitation;
(3) solely for the purposes of determining the aggregate amount
available for Restricted Payments under clause (3)(a) of the "Limitation on
Restricted Payments" covenant, the Net Income of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition shall be excluded;
(4) any net gain or loss resulting from an Asset Sale by the Person in
question or any of its Restricted Subsidiaries other than in the ordinary
course of business shall be excluded;
(5) all extraordinary gains and losses, non-recurring cumulative effects
of accounting changes and, without duplication, non-recurring or unusual
gains and losses and all restructuring charges shall be excluded;
(6) income or loss attributable to discontinued operations, including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued, shall be excluded;
(7) solely for the purposes of determining the aggregate amount
available for Restricted Payments under clause (3)(a) of the "Limitation on
Restricted Payments" covenant, in the case of a successor to the referent
Person by consolidation or merger or as a transferee of the referent
Person's assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets shall be excluded; and
(8) any non-cash charges attributable to applying the purchase of
accounting in accordance with GAAP shall be excluded.
"CUMULATIVE CONSOLIDATED NET INCOME" means, with respect to any Person, as
of any date of determination, Consolidated Net Income from July 1, 1999 to such
date of determination, taken as a single accounting period.
"DESIGNATED PREFERRED STOCK" means Preferred Stock, not constituting
Disqualified Capital Stock, of the Company, excluding any Preferred Stock issued
on or prior to the Issue Date and any Preferred Stock issued in exchange or
substitution therefor, that is designated as Designated Preferred Stock pursuant
to an Officers' Certificate delivered to the trustee on the issuance date
thereof, the cash proceeds of which are excluded from the calculation set forth
in the clause (3)(b) of the "Limitation on Restricted Payments" covenant.
"DESIGNATED SENIOR INDEBTEDNESS," as to MCII or any Guarantor, as the case
may be, means
(1) any Senior Indebtedness under the Senior Credit Facility, and
(2) after the Senior Credit Facility has been paid in full and
terminated, any other Senior Indebtedness which at the time of determination
exceeds $25 million in aggregate principal amount, or accreted value in the
case of Indebtedness issued at a discount, outstanding or available under a
committed facility, which is specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by
such Person and as to which the trustee has been given written notice of
such designation.
"DISQUALIFIED CAPITAL STOCK" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms, or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder, or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable solely at the option of the holder thereof, in whole or in part,
on or prior to the maturity date of the Notes, for cash or securities
constituting Indebtedness; PROVIDED, HOWEVER, that Preferred Stock of a Person
or any Restricted Subsidiary thereof that is issued with the benefit of
provisions requiring a change of control offer or an asset sale offer to be made
for such Preferred Stock in the event of a change of control of
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or sale of assets by such Person or Restricted Subsidiary which provisions have
substantially the same effect as the provisions of the indenture described under
"Change of Control," and "Limitation on Certain Asset Sales" shall not be deemed
to be Disqualified Capital Stock solely by virtue of such provisions; PROVIDED,
FURTHER, that if such Capital Stock is issued pursuant to any plan for the
benefit of employees of MCII or its Subsidiaries or by any such plan to such
employees, such Capital Stock shall not constitute Disqualified Capital Stock
solely because it may be required to be repurchased by MCII in order to satisfy
applicable statutory or regulatory obligations.
"DOMESTIC RESTRICTED SUBSIDIARY" means any Restricted Subsidiary of MCII
that is organized under the laws of the United States or any State thereof, or
the District of Columbia.
"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to
(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or
profits to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in computing
net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a consolidated
basis, plus
(f) any other non-cash items reducing Consolidated Net Income for
such period (other than any non-cash item requiring an accrual or reserve
for cash disbursements in any future period), minus
(2) all non-cash items increasing Consolidated Net Income for such
period, other than any non-cash item which represents a reversal of an
accrual or reserve initially recorded in anticipation of a cash disbursement
to be made in a future period,
all for such Person and its Restricted Subsidiaries determined on a
consolidated basis in accordance with GAAP; PROVIDED, HOWEVER, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment, other than a Restricted Subsidiary, of such Person
shall be included only
(1) if cash income has been received by such Person with respect to such
Investment during each of the previous four fiscal quarters, or
(2) if the cash income derived from such Investment is attributable to
Cash Equivalents.
"EQUITY OFFERING" means a sale by MCII of shares of its Common Stock,
however designated and whether voting or non-voting, other than Disqualified
Capital Stock, and any and all rights, warrants or options to acquire such
Common Stock.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"FAIR MARKET VALUE" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, between a
willing seller and a willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair market value shall be
determined by the board of directors of MCII acting reasonably and in good faith
and shall be evidenced by a resolution of the board of directors of MCII
delivered to the trustee.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
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"GUARANTEE" means the guarantee of the obligations of MCII with respect to
the Notes by each Guarantor.
"GUARANTOR" means the issuer at any time of a Guarantee, so long as such
Guarantee remains outstanding.
"HEDGING OBLIGATIONS" means, with respect to any Person, the net payment
obligations of such Person under
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements and
(2) other agreements or arrangements entered into in order to protect
such Person against fluctuations in commodity prices, interest rates or
currency exchange rates.
"INCUR" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur, by conversion, exchange or otherwise, assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such Person, and
"incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing; provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"INDEBTEDNESS" means without duplication, with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money, whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof, or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property, excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business, if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included,
(1) any Capitalized Lease Obligations of such Person,
(2) obligations secured by a lien to which the property or assets owned
or held by such Person is subject, whether or not the obligation or
obligations secured thereby shall have been assumed; PROVIDED that, if such
obligations have not been assumed by such Person, the amount of such
Indebtedness shall be the lesser of
(A) the fair market value of such assets at such date of
determination and
(B) the amount of such obligations,
(3) guarantees of items of other Persons which would be included within
this definition for such other Persons, whether or not such items would
appear upon the balance sheet of the guarantor,
(4) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction,
(5) Disqualified Capital Stock of such Person or any Restricted
Subsidiary thereof, and valued at its mandatory maximum redemption price or
liquidation preference plus accrued dividends,
(6) obligations of any such Person under any hedging obligations
applicable to any of the foregoing, if and to the extent such hedging
obligations would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP;
PROVIDED that,
(1) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the principal amount of such Indebtedness less
the remaining unamortized portion of the
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original issue discount of such Indebtedness at such time as determined in
conformity with GAAP; and
(2) Indebtedness shall not include any liability for federal, state,
local or other taxes.
Guarantees of, or obligations with respect to letters of credit supporting,
Indebtedness otherwise included in the determination of such amount shall not be
included as Indebtedness.
"INDEPENDENT FINANCIAL ADVISOR" means an investment banking, financial
advisory, valuation or accounting firm of national reputation in the United
States
(1) which does not, and whose directors, officers and employees or
Affiliates do not, have a direct or indirect financial interest in MCII and
(2) which, in the judgment of the Board of Directors of MCII, is
otherwise independent and qualified to perform the task for which it is to
be engaged.
"INVESTMENTS" means, with respect of any Person, directly or indirectly, any
advance, account receivable, other than an account receivable arising in the
ordinary course of business of such Person, loan or capital contribution to, by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise, the purchase of any Capital Stock,
bonds, notes, debentures, partnership or joint venture interests or other
securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person, but
shall include the repurchase of securities of any Person by such Person.
For the purposes of the "Limitation on Restricted Payments" and "Limitation
on Investments" covenants,
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary,
(2) the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary shall be deemed a repayment of such Investment, and
(3) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by MCII or any of its
Restricted Subsidiaries, without any adjustments for increases or decreases
in value, or write-ups, write-downs or write-offs with respect to such
Investment, reduced by the payment of cash distributions in respect thereof;
PROVIDED, FURTHER, that no such payment of distributions or receipt of any
such other amounts shall reduce the amount of any Investment if such payment
of distributions or receipt of any such amounts would be included in
Consolidated Net Income. If MCII or any Restricted Subsidiary of MCII sells
or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary of MCII such that, after giving effect to any such
sale or disposition such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary of MCII, MCII shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Common Stock of such Restricted Subsidiary not sold or
disposed of.
"ISSUE DATE" means June 16, 1999.
"LIEN" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets, including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing.
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"MCII FINANCIAL SERVICES" means MCII Financial Services Inc., a Delaware
corporation, and any successor Person performing similar functions.
"NET INCOME" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"NET PROCEEDS" means
(1) in the case of any sale of Capital Stock by or equity contribution
to any Person, the aggregate net proceeds received by such Person, after
payment of expenses, commissions and the like incurred in connection
therewith, whether such proceeds are in cash or in property, valued at the
fair market value thereof, as determined in good faith by the board of
directors of the Person, at the time of receipt,
(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of
MCII which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender MCII plus any additional amount required to be paid by the holder
to such Person upon such exchange, exercise, conversion or surrender, less
any and all payments made to the holders, e.g., on account of fractional
shares and less all expenses incurred by such Person in connection
therewith, and
(3) in the case of any issuance of any Indebtedness by MCII or any
Restricted Subsidiary, the aggregate net cash proceeds received by such
Person after the payments of expenses, commissions, underwriting discounts
and the like incurred in connection therewith.
"NON-PAYMENT EVENT OF DEFAULT" means any event, other than a Payment
Default, the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate
signed by the chief executive officer, the president or any vice president and
the chief financial officer or any treasurer of such Person that shall comply
with applicable provisions of the indenture.
"PAYMENT DEFAULT" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of or premium, if any, or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"PERMITTED ASSET SWAP" means, with respect to any Person, the substantially
concurrent exchange of assets of such Person for assets of another Person which
are useful to the business of such aforementioned Person.
"PERMITTED BUSINESS" means any business
(i) which is the same, similar, ancillary or related to or that has
manufacturing processes and technologies similar to any of the businesses
that MCII and its Restricted Subsidiaries are engaged in on the Issue Date
and
(ii) in the transportation industry.
"PERMITTED HOLDERS" means Joseph Littlejohn & Levy, Inc. ("JLL"), investment
funds managed by JLL, partners of JLL, an entity controlled by any of the
foregoing and/or by a trust of the type described hereafter, and/or a trust for
the benefit of any of the foregoing.
"PERMITTED INDEBTEDNESS" means:
(1) Indebtedness of MCII or any Restricted Subsidiary arising under or
in connection with one or more debt facilities, including, without
limitation, the Senior Credit Facility, or commercial paper facilities or
indentures providing for revolving credit loans, term loans, receivables
financing, including through the sale of receivables to lenders or to
special purpose entities formed to borrow from lenders against receivables,
letters of credit or other long-term indebtedness, in each case, as
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amended, restated, modified, renewed, refunded, replaced or refinanced in
whole or in part from time to time, in an aggregate principal amount not to
exceed at any time outstanding the sum of
(A) $333 million, plus
(B) the greater of
(x) $117 million and
(y) the amount equal to the sum of 85% of the net book value of
accounts receivable, 60% of the net book value of inventory,
determined on a first-in-first-out basis, and 50% of the book value
of bus lease and loan portfolio assets, of MCII and its Restricted
Subsidiaries on a consolidated basis at the time such Indebtedness is
incurred, as determined in accordance with GAAP, less
(C) any amounts outstanding under subclause (10) of this definition,
less
(D) in case of clauses (A) and (B), any mandatory prepayments
actually made thereunder, to the extent, in the case of payments of
revolving credit borrowings, that the corresponding commitments have been
permanently reduced, or scheduled payments actually made thereunder,
except to the extent any such prepayments or payments are made in
connection with the refinancing of such Indebtedness;
(2) Indebtedness under
(a) the Notes outstanding on the Issue Date and
(b) the Guarantees;
(3) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(4) Indebtedness of MCII to any Restricted Subsidiary and Indebtedness
of any Restricted Subsidiary to MCII or another Restricted Subsidiary;
(5) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property used or useful in the ordinary course of
business which Purchase Money Indebtedness and Capitalized Lease Obligations
do not in the aggregate exceed at any one time outstanding an amount equal
to the greater of
(a) $25 million and
(b) 3% of the Total Assets of MCII determined on a consolidated
basis, as shown on the balance sheet of MCII as of the end of the most
recent fiscal quarter, in accordance with GAAP;
(6) Hedging Obligations;
(7) Refinancing Indebtedness;
(8) Indebtedness of MCII or any Restricted Subsidiary arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently, except in the case of daylight overdrafts,
drawn against insufficient funds in the ordinary course of business;
PROVIDED, that such Indebtedness is extinguished within five business days
of incurrence;
(9) Indebtedness of MCII or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments, including adjustments in the purchase price related to the
performance or results of any acquired business, in connection with the
acquisition or disposition of assets permitted under the Indenture;
(10) Indebtedness of a Receivables Subsidiary pursuant to a Permitted
Receivables Financing; PROVIDED that after giving effect to the incurrence
thereof, MCII could incur at least $1.00 of
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Indebtedness under subclauses (1)(A) or (1)(B) of this definition in
compliance with the "Limitation on Additional Indebtedness" covenant;
(11) Indebtedness of MCII or any of its Restricted Subsidiaries
represented by letters of credit for the account of MCII or such Restricted
Subsidiary, as the case may be, issued in the ordinary course of business of
MCII or such Restricted Subsidiary, including, without limitation, in order
to provide security for worker's compensation claims or payment obligations
in connection with self-insurance or similar requirements in the ordinary
course of business and other Indebtedness with respect to workers'
compensation claims, self-insurance obligations, performance, surety and
similar bonds and completion guarantees provided by MCII or any Restricted
Subsidiary in the ordinary course of business;
(12) guarantees of Indebtedness otherwise permitted under the indenture;
and
(13) additional Indebtedness of MCII and its Restricted Subsidiaries not
to exceed $65 million in aggregate principal amount at any one time
outstanding.
"PERMITTED INVESTMENTS" means Investments made on or after the Issue Date
consisting of:
(1) Investments by MCII, or by a Restricted Subsidiary thereof, in MCII
or a Restricted Subsidiary;
(2) Investments by MCII, or by a Restricted Subsidiary thereof, in a
Person, if as a result of such Investment
(a) such Person becomes a Restricted Subsidiary of MCII, or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, MCII or a Restricted Subsidiary thereof;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances made to officers and employees of MCII and its
Restricted Subsidiaries in the ordinary course of business not to exceed $5
million in the aggregate at any one time outstanding;
(5) an Investment that is made by MCII or a Restricted Subsidiary
thereof in the form of any Capital Stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to MCII or such Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under "--Certain Covenants--Limitation on Certain Asset Sales"
above;
(6) Hedging Obligations entered into in the ordinary course of MCII's or
its Restricted Subsidiaries' business and not for speculative purposes;
(7) notes or chattel paper received by MCII or a Restricted Subsidiary
as consideration for the ordinary course of business sale or lease of buses;
(8) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers compensation, performance and
similar deposits entered into as a result of the operations of the business
in the ordinary course of business;
(9) Investments in any of the Notes;
(10) receivables owing to MCII or any Restricted Subsidiary created in
the ordinary course of business;
(11) Investments in connection with a Permitted Receivables Financing by
or to any Receivables Subsidiary, including Investments of funds held in
accounts permitted or required by the arrangements governing such Permitted
Receivables Financing or any related Indebtedness;
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(12) Investments in securities of trade debtors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good
faith settlement of delinquent obligations of such trade debtors or
customers;
(13) obligations of one or more officers or other employees of MCII or
any of its Restricted Subsidiaries in connection with such officer's or
employee's acquisition of shares of Common Stock of MCII so long as no cash
is paid by MCII or any of its Restricted Subsidiaries to such officers or
employees in connection with the acquisition of any such obligations;
(14) Investments acquired in exchange for, or out of the Net Proceeds,
which have not, and will not, be included pursuant to clause (3)(b) of the
"Limitation on Restricted Payments" covenant, of a substantially concurrent
offering of, shares of Capital Stock, other than Disqualified Capital Stock,
of MCII, or options, warrants or other rights to acquire such Capital Stock;
(15) Investments in Unrestricted Subsidiaries not to exceed an amount
equal to $20 million in the aggregate at any one time outstanding; and
(16) additional Investments the amount of which when made, when taken
together with the then outstanding amount of other Investments made under
this clause (16), shall not exceed the greater of
(a) $30 million, or
(b) 4% of Total Assets of MCII determined on a consolidated basis, as
shown on the balance sheet of MCII as of the end of the most recent
fiscal quarter, in accordance with GAAP.
"PERMITTED RECEIVABLES FINANCING" means a transaction or series of
transactions, including amendments, supplements, extensions, renewals,
replacements, refinancings or modifications thereof, pursuant to which a
Receivables Subsidiary purchases Receivables and Related Assets from MCII or any
Subsidiary and finances such Receivables and Related Assets through the issuance
of indebtedness or equity interests or through the sale of the Receivables and
Related Assets or a fractional undivided interest in the Receivables and Related
Assets; provided that:
(1) the board of directors shall have determined in good faith that such
Permitted Receivables Financing is economically fair and reasonable to MCII
and the Receivables Subsidiary;
(2) all sales of Receivables and Related Assets to or by the Receivables
Subsidiary are made at fair market value, as determined in good faith by the
board of directors of MCII;
(3) the financing terms, covenants, termination events and other
provisions thereof shall be market terms, as determined in good faith by the
board of directors of MCII;
(4) no portion of the Indebtedness of a Receivables Subsidiary is
guaranteed by or is recourse to MCII or any Restricted Subsidiary, other
than recourse for customary representations, warranties, covenants and
indemnities, none of which shall relate to the collectibility of the
Receivables and Related Assets; and
(5) neither MCII nor any Subsidiary has any obligation to maintain or
preserve the Receivables Subsidiary's financial condition.
"PERMITTED TAX SHARING AGREEMENT" means any agreement between or among MCII
and/or any of its Restricted Subsidiaries and any other Person or Persons which
provides for consolidated federal tax return reporting by the parties thereto;
PROVIDED that any such agreement shall not result in any direct or indirect
payments by MCII and its Restricted Subsidiaries in respect of federal tax
obligations in excess of payments that would have been made in the absence of
such agreement.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government, including any agency or political subdivision
thereof.
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"PREFERRED STOCK" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"PROPERTY" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"PURCHASE MONEY INDEBTEDNESS" means Indebtedness of any Person incurred for
the purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement of, any Property.
"RECEIVABLES AND RELATED ASSETS" means accounts receivable and instruments,
chattel paper, obligations, general intangibles and other similar assets, in
each case relating to such receivables, including interests in merchandise or
goods, the sale or lease of which gave rise to such receivable, related
contractual rights, guarantees, insurance proceeds, collections, other related
assets and proceeds of all of the foregoing.
"RECEIVABLES SUBSIDIARY" means a Wholly Owned Restricted Subsidiary which is
established for the limited purpose of acquiring and financing Receivables and
Related Assets and engaging in activities ancillary thereto.
"REDEEMABLE DIVIDEND" means, for any cash dividend or distribution with
regard to Preferred Stock, the quotient of the dividend or distribution divided
by the difference between one and the maximum statutory federal income tax rate,
expressed as a decimal number between 1 and 0, then applicable to the issuer of
such Preferred Stock.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances or
extends any Indebtedness of MCII outstanding on the Issue Date or other
Indebtedness permitted to be incurred by MCII or its Restricted Subsidiaries
pursuant to the terms of the indenture, but only to the extent that
(1) the Refinancing Indebtedness is subordinated to the Notes to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all,
(2) the Refinancing Indebtedness is scheduled to mature either
(a) no earlier than the Indebtedness being refunded, refinanced or
extended, or
(b) after the maturity date of the Notes,
(3) the portion, if any, of the Refinancing Indebtedness that is
scheduled to mature on or prior to the maturity date of the Notes has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the portion of the Indebtedness being refunded, refinanced or
extended that is scheduled to mature on or prior to the maturity date of the
Notes, and
(4) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the sum of
(a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended,
(b) the amount of accrued and unpaid interest, if any, and premiums
owed, if any, not in excess of preexisting prepayment provisions on such
Indebtedness being refunded, refinanced or extended and
(c) the amount of customary fees, expenses and costs related to the
incurrence of such Refinancing Indebtedness.
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"RESTRICTED PAYMENT" means any of the following:
(1) the declaration or payment of any dividend or any other distribution
or payment on Capital Stock of MCII or any Restricted Subsidiary of MCII or
any payment made to the direct or indirect holders, in their capacities as
such, of Capital Stock of MCII or any Restricted Subsidiary of MCII, other
than
(a) dividends or distributions payable solely in Capital Stock, other
than Disqualified Capital Stock, or in options, warrants or other rights
to purchase such Capital Stock (other than Disqualified Capital Stock),
and
(b) in the case of Restricted Subsidiaries of MCII, dividends or
distributions payable to MCII or to a Restricted Subsidiary of MCII and
pro rata dividends or distributions payable to the other holders of
Common Stock of such Restricted Subsidiary,
(2) the purchase, redemption or other acquisition or retirement for
value of any Capital Stock of MCII or any of its Restricted Subsidiaries,
other than Capital Stock owned by MCII or a Wholly Owned Restricted
Subsidiary of MCII, excluding Disqualified Capital Stock, or any option,
warrants or other rights to purchase such Capital Stock,
(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior
to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to
the Notes, other than subordinated Indebtedness acquired in anticipation of
satisfying a scheduled sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition,
(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment,
(5) any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary, valued at the fair market value of the net assets of such
Restricted Subsidiary on the date of such designation, and
(6) forgiveness of any Indebtedness of an Affiliate of MCII to MCII or a
Restricted Subsidiary of MCII.
"RESTRICTED SUBSIDIARY" means a Subsidiary of MCII other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of MCII existing as
of the Issue Date. The board of directors of MCII may designate any Unrestricted
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action, and treating any Acquired Indebtedness as having been incurred at the
time of such action,
(1) MCII could have incurred at least $1.00 of additional Indebtedness,
other than Permitted Indebtedness, pursuant to "--Certain
Covenants--Limitation on Additional Indebtedness" above and
(2) no Default or Event of Default shall have occurred and be continuing
or result therefrom.
"SENIOR CREDIT FACILITY" means the Credit Agreement dated as of June 16,
1999, among MCII, the lenders party thereto in their capacities as lenders
thereunder and the Canadian Imperial Bank of Commerce, as agent, together with
the related documents thereto, including, without limitation, any guarantee
agreements and security documents, in each case as such agreements may be
amended, including any amendment and restatement thereof, supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring, including
increasing the amount of available borrowings thereunder, PROVIDED that such
increase in borrowings is permitted by the "Limitation on Additional
Indebtedness" covenant, or adding Restricted Subsidiaries of MCII as additional
borrowers or guarantors thereunder, all or any portion of the Indebtedness under
such agreement or any successor or replacement agreement and whether by the same
or any other agent, lender or group of lenders.
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"SENIOR INDEBTEDNESS" means the principal of and premium, if any, and
interest on, and any and all other fees, expense reimbursement obligations and
other amounts due pursuant to the terms of all agreements, documents and
instruments providing for, creating, securing or evidencing or otherwise entered
into in connection with
(1) all Indebtedness of MCII or any Guarantor owed to lenders under the
Senior Credit Facility,
(2) all obligations of MCII or any Guarantor with respect to any Hedging
Obligations,
(3) all obligations of MCII or any Guarantor to reimburse any bank or
other person in respect of amounts paid under letters of credit, acceptances
or other similar instruments,
(4) all other Indebtedness of MCII or any Guarantor which does not
provide that it is to rank PARI PASSU with or subordinate to the Notes or
the Guarantee of such Guarantor, as the case may be, and
(5) all deferrals, renewals, extensions and refundings of, and
amendments, modifications and supplements to, any of the Senior Indebtedness
described above.
Notwithstanding anything to the contrary in the foregoing, Senior
Indebtedness will not include
(1) Indebtedness of MCII or any Guarantor to any of its Subsidiaries, or
to any Affiliate of MCII or such Guarantor or any of such Affiliate's
Subsidiaries,
(2) Indebtedness represented by the Notes and the Guarantees,
(3) any Indebtedness which by the express terms of the agreement or
instrument creating, evidencing or governing the same is junior or
subordinate in right of payment to any item of Senior Indebtedness,
(4) any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business,
(5) Indebtedness incurred in violation of the Indenture, unless such
Indebtedness consists of Indebtedness under the Senior Credit Facility, and
the holder(s) of such Indebtedness and their agents and representatives had
no actual knowledge at the time of incurrence that the incurrence of such
Indebtedness violated the Indenture,
(6) Indebtedness represented by Disqualified Capital Stock and
(7) any Indebtedness to or guaranteed on behalf of, any shareholders,
director, officer or employee of MCII or any Subsidiary of MCII.
"SIGNIFICANT RESTRICTED SUBSIDIARY" means, with respect to any Person, any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02 (w) of Regulation S-X under the
Securities Act, as such Rule is in effect on the Issue Date.
"SUBSIDIARY" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired,
(1) in the case of a corporation, of which more than 50% of the total
voting power of the Capital Stock entitled, without regard to the occurrence
of any contingency, to vote in the election of directors, officers or
trustees thereof is held by such first-named Person or any of its
Subsidiaries; or
(2) in the case of a partnership, limited liability company, joint
venture, association or other business entity, with respect to which such
first-named Person or any of its Subsidiaries has the power to direct or
cause the direction of the management and policies of such entity by
contract or otherwise or if in accordance with GAAP such entity is
consolidated with the first-named Person for financial statement purposes.
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"TOTAL ASSETS" means the total consolidated assets of MCII and its
Restricted Subsidiaries, as set forth on MCII's most recent consolidated balance
sheet.
"TRANSACTIONS" has the meaning provided to such term under "The
Transactions."
"UNRESTRICTED SUBSIDIARY" means
(1) any Subsidiary of an Unrestricted Subsidiary and
(2) any Subsidiary of MCII which is classified after the Issue Date as
an Unrestricted Subsidiary by a resolution adopted by the board of directors
of MCII;
PROVIDED that a Subsidiary may be so classified as an Unrestricted
Subsidiary only if
(a) such classification is in compliance with the "Limitation on
Restricted Payments" covenant, and
(b) neither MCII nor any Restricted Subsidiary shall at any time
(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary, including any undertaking, agreement
or instrument evidencing such Indebtedness,
(ii) be directly or indirectly liable for any Indebtedness of
such Subsidiary or
(iii) be directly or indirectly liable for any other Indebtedness
which provides that the holder thereof may, upon notice, lapse of
time or both, declare a default thereon, or cause the payment thereof
to be accelerated or payable prior to its final scheduled maturity,
upon the occurrence of a default with respect to any other
Indebtedness that is Indebtedness of such Subsidiary, including any
corresponding right to take enforcement action against such
Subsidiary,
except in the case of clause (i) or (ii) to the extent
(i) that MCII or such Restricted Subsidiary could otherwise
provide such a guarantee or incur such Indebtedness, other than as
Permitted Indebtedness, pursuant to "--Certain Covenants--Limitation
on Additional Indebtedness" above and
(ii) the provision of such guarantee and the incurrence of such
Indebtedness otherwise would be permitted under "--Certain
Covenants--Limitation on Restricted Payments" above.
The trustee shall be given prompt notice by MCII of each resolution adopted
by the board of directors of MCII under this provision, together with a copy of
each such resolution adopted.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing
(1) the then outstanding aggregate principal amount of such Indebtedness
into
(2) the sum of the total of the products obtained by multiplying
(a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment
at final maturity, in respect thereof, by
(b) the number of years (calculated to the nearest one-twelfth) which
will elapse between such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" means any Restricted Subsidiary, all of
the outstanding voting securities, other than directors' qualifying shares, of
which are owned, directly or indirectly, by MCII. For purposes of this
definition, any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Restricted Subsidiary.
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BOOK-ENTRY, DELIVERY AND FORM
The exchange notes will be represented by one or more notes in registered,
global form without interest coupons. The global note will be deposited upon
issuance with the trustee as custodian for The Depository Trust Company, in New
York, New York, and registered in the name of DTC or its nominee, in each case
for credit to an account of a direct or indirect participant as described below.
Except as set forth below, the global notes may be transferred, in whole but
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for Notes
in certificated form except in the limited circumstances described under the
caption "--Exchange of Book-Entry Notes for Certificated Notes."
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised MCII that DTC is a limited-purpose trust company created to
hold securities for its participating organizations and to facilitate the
clearance and settlement of transactions in those securities between the
participants through electronic book-entry changes in accounts of the
participants. The participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly. Persons who are
not participants may beneficially own securities held by or on behalf of DTC
only through the participants or the indirect participants. The ownership
interest and transfer of ownership interest of each actual purchaser of each
security held by or on behalf of DTC are recorded on the records of the
participants and the indirect participants.
DTC has also advised MCII that pursuant to procedures established by it, (a)
upon deposit of the global note, DTC will credit the accounts of Participants
with portions of the principal amount of the global note and (b) ownership of
such interests in the global note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC, with
respect to the Participants, or by the participants and the indirect
participants with respect to other owners of beneficial interests in the global
notes.
Upon the issuance of the global note, the DTC will credit, on its book-entry
registration and transfer system, the principal amount at maturity of the notes
represented by such global note, to the accounts of participants. The accounts
to be credited shall be designated by the notes' initial purchasers. Ownership
of beneficial interests in the global note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the global note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
DTC, with respect to participants' interest, and such participants, with respect
to the owners of beneficial interests in the global note other than
participants. The laws of some jurisdictions may require that certain securities
purchasers take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the global note.
So long as the DTC, or its nominee, is the registered holder and owner of
the global note, the DTC or such nominee, as the case may be, will be considered
the sole legal owner and holder of the related notes for all purposes of such
notes and the indenture. Except as set forth below, owners of beneficial
interests in the global note will not be entitled to have the notes represented
by the global note registered in their names, will not receive or be entitled to
receive physical delivery of certificated notes in definitive form, and will not
be considered to be the owners or holders of any notes under the
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global note. MCII understands that under existing industry practice, in the
event an owner of a beneficial interest in the global note desires to take any
action that the DTC, as the holder of the global note, is entitled to take, the
DTC would authorize the participants to take such action, and the participants
would authorize beneficial owners, owning through such participants, to take
such actions, or would otherwise act upon the instructions of beneficial owners
owing through them.
Payments of principal of, and interest on, notes represented by the global
note registered in the name of, and held by, the DTC or its nominee will be made
to the DTC, or its nominee, as the case may be, as the registered owner and
holder of the global note.
MCII expects that the DTC, or its nominee, upon receipt of any payments of
principal of, or interest on, the global note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the global note as shown on the records of
the DTC or its nominee. MCII also expects that payments by participants, to
owners of beneficial interests in the global note held through such
participants, will be governed by standing instructions and customary practices,
and will be the responsibility of such participants. MCII will not have any
responsibility or liability for any aspect of the records relating to, or
payments made on accounts of, beneficial ownership interest in the global note
for any Senior Note, or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests, or for any other aspects of the
relationship between the DTC and its participants, or the relationship between
such participants and the owners of beneficial interests in the global note
owning through such participants.
Unless and until it is exchanged in whole or in part for certificated notes
in definitive form, the global note may not be transferred, except as a whole,
by the DTC to a nominee of such depository, or by a nominee of such depository
to such depository or another nominee of such depository.
Although the DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global note among participants of the
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
trustee nor MCII will have any responsibility for the performance by the DTC or
its participants or indirect participants, of their respective obligations,
under the rules and procedures governing their operations.
CERTIFICATED NOTES
The notes represented by the global note are exchangeable for certificated
notes, in definite form of like tenor as such notes, in denominations of U.S.
$1,000 and integral multiples thereof if:
- the DTC notifies MCII that it is unwilling or unable to continue as
depository of the global note, or if at any time the DTC ceases to be a
clearing agency registered under the Exchange Act and a successor
depository is not appointed by MCII within 90 days;
- MCII in its discretion at any time determines not to have all of the notes
represented by the global note; or
- an event of default has occurred and is continuing. Any global note that
is exchangeable according to the terms of the preceding sentence, it is
exchangeable for certificated notes, issuable in authorized denominations
and registered in such names as the DTC shall direct. Subject to the
foregoing, the global note of the same aggregate denomination to be
registered in the name of the DTC or its nominee. In addition, such
certificates will bear the legend referred to under "Transfer
Restrictions," unless MCII determines otherwise in accordance with
applicable law, subject, with respect to such notes, to the provisions of
such legend.
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MATERIAL FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain material United States
federal income and estate tax considerations relating to the exchange by an
initial beneficial owner of the outstanding notes for exchange notes and of the
ownership and disposition of the exchange notes by an initial beneficial owner
of the exchange notes. This discussion is based upon the Internal Revenue Code
of 1986 as amended (the "Code"), existing and proposed Treasury Regulations, and
judicial decisions and administrative interpretations thereunder, as of the date
hereof, all of which are subject to change, possibly with retroactive effect, or
different interpretations. We cannot assure you that the Internal Revenue
Service will not challenge one or more of the tax considerations described
herein, and we have not obtained, nor do we intend to obtain, a ruling from the
IRS or an opinion of counsel with respect to the United States federal tax
considerations resulting from acquiring, holding or disposing of the notes.
In this discussion, we do not purport to address all tax considerations that
may be important to a particular holder in light of the holder's circumstances,
such as the alternative minimum tax provisions of the Code, or to certain
categories of investors, such as certain financial institutions, insurance
companies, tax-exempt organizations, dealers in securities, persons who hold
notes through partnerships or other pass-through entities, U.S. expatriates, or
persons who hold the notes as part of a hedge, conversion transaction, straddle
or other risk reduction transaction, that may be subject to special rules. This
discussion is limited to initial holders who purchased the outstanding notes for
cash at the original offering price and who hold the exchange notes as capital
assets. This discussion also does not address the tax considerations arising
under the laws of any foreign, state or local jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSIDERATIONS TO YOU OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
EXCHANGE NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR
FOREIGN TAX LAWS.
As used herein, the term "U.S. Holder" means a beneficial owner of a note
that is:
(1) a citizen or resident of the United States for United States federal
income tax purposes, including an alien individual who is a lawful permanent
resident of the United States or meets the "substantial presence" test
prescribed under the Code;
(2) a corporation created or organized in or under the laws of the United
States or of any political subdivision thereof;
(3) an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
(4) a trust, the administration of which is subject to the primary
supervision of a court within the United States and which has one or more United
States persons with authority to control all substantial decisions, or if the
trust was in existence on August 20, 1996 and has elected to continue to be
treated as a United States person.
As used herein, the term "Non-U.S. Holder" means a holder of a note, within
the categories of holders addressed in this discussion, that is not a U.S.
Holder.
THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to this
exchange offer should not constitute a taxable disposition of the outstanding
notes for United States federal income tax purposes because the exchange notes
should not be considered to differ materially in kind or extent from the
outstanding notes. Rather, any exchange notes received by you should be treated
as a continuation of your investment in the outstanding notes. As a result,
neither a U.S. Holder nor a Non-U.S. Holder
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should recognize taxable income, gain or loss on such exchange for United States
federal income tax purposes. Such holder's holding period for the exchange notes
should generally include the holding period for the outstanding notes and such
holder's adjusted tax basis in the exchange notes should generally be the same
as such holder's adjusted tax basis in the outstanding notes for United States
federal income tax purposes.
U.S. HOLDERS
INTEREST ON NOTES. Interest on the notes will be taxable to a U.S. Holder
as ordinary income at the time it is received or accrued, depending on such
holder's method of tax accounting.
SALE, EXCHANGE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE NOTES. Upon
the sale, exchange, retirement or other taxable disposition of a note, a U.S.
Holder will recognize gain or loss equal to the difference between the amount of
money and fair market value of property received in exchange for the note
(except to the extent attributable to the payment of accrued interest that the
holder has not already included in gross income, which amount generally will be
taxable as ordinary income) and the U.S. Holder's adjusted tax basis in the
note.
A U.S. Holder's adjusted tax basis in a note will generally equal the price
paid by the U.S. Holder for the note, decreased by any repayments of principal
received and increased by the amount of accrued unpaid interest that holder has
included in gross income. Gain or loss realized on the sale, exchange or
retirement of a note generally will be capital gain or loss. For U.S. Holders
who are individuals, the gain generally is taxed at ordinary income tax rates if
the note is held for 12 months or less, and at a maximum statutory federal
income tax rate of 20% if the note is held for more than 12 months.
NON-U.S. HOLDERS
In the following discussion, we summarize the principal United States
federal income and estate tax considerations resulting from the ownership and
disposition of the notes by Non-U.S. Holders.
INTEREST ON NOTES. Subject to the discussion below of backup withholding,
interest paid on the notes to a Non-U.S. Holder generally will qualify for the
"portfolio interest exemption" and therefore generally will not be subject to
United States federal income tax if:
(1) such interest is not effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Holder;
(2) the Non-U.S. Holder does not actually or constructively own 10% or more
of the total voting power of all classes of our stock entitled to vote;
(3) the Non-U.S. Holder is not a controlled foreign corporation with respect
to which we are a "related person" within the meaning of the Code;
(4) the Non-U.S. Holder is not a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business; and
(5) the beneficial owner, under penalty of perjury, certifies that the owner
is not a United States person and provides the owner's name and address.
If certain requirements are satisfied, the certification described in clause
(5) above may be provided by a securities clearing organization, a bank, or
other financial institution that holds customers' securities in the ordinary
course of its trade or business.
Under new Treasury Regulations, which generally are effective for payments
made after December 31, 2000, subject to certain transition rules, the
certification described in clause (5) above may also be provided by a qualified
intermediary on behalf of one or more beneficial owners (or other
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intermediaries), provided that such intermediary has entered into a withholding
agreement with the IRS and certain other conditions are met.
A Non-U.S. Holder that is not exempt from tax under these rules will be
subject to United States federal income tax withholding at a rate of 30% unless
(1) the interest is effectively connected with the conduct of a United
States trade or business, in which case the interest will be subject to the
United States federal income tax on net income that applies to United States
persons generally, and, with respect to corporate holders and under certain
circumstances, the branch profits tax; or
(2) the rate of withholding is reduced or eliminated by an applicable income
tax treaty; and
(3) in either case, the Non-U.S. Holder provides us with proper
certification as to the holder's exemption from withholding.
GAIN ON DISPOSITION OF THE NOTES. A Non-U.S. Holder generally will not be
subject to United States federal income or withholding tax on gain realized on
the sale, exchange, redemption, or other disposition of a note, unless:
(1) in the case of an individual Non-U.S. Holder, such holder is present in
the United States for 183 days or more in the year of such sale, exchange or
redemption, and either:
(A) has a "tax home" in the United States and certain other requirements are
met; or
(B) the gain from the disposition is attributable to an office or other
fixed place of business in the United States; or
(2) the gain is effectively connected with the conduct of a United States
trade or business of the Non-U.S. Holder.
U.S. FEDERAL ESTATE TAX. A note held by an individual who at the time of
death is not a citizen or resident of the United States, as specially defined
for United States federal estate tax purposes, will not be subject to United
States federal estate tax if interest on the note is exempt from withholding
under the "portfolio interest exemption" rules discussed above for "Non-U.S.
Holders," "Interest on notes", without regard to the certification requirement.
BACKUP WITHHOLDING AND INFORMATION REPORTING
U.S. HOLDERS. Information reporting will apply to payments of interest on
or the proceeds of the sale or other disposition of the notes made by us with
respect to certain non-corporate U.S. Holders. A U.S. Holder will further be
subject to backup withholding at the rate of 31% with respect to interest,
principal and premium, if any, we pay on a note, unless the holder (1) is an
entity (including corporations, tax-exempt organizations and certain qualified
nominees) that is exempt from withholding and, when required, demonstrates this
fact; or (2) provides us with a correct taxpayer identification number,
certifies that the taxpayer identification number is correct and that the holder
has not been notified by the IRS that it is subject to backup withholding due to
underreporting of interest or dividends, and otherwise complies with applicable
requirements of the backup withholding rules. Any amount withheld under the
backup withholding rules is allowable as a credit against the U.S. Holder's
United States federal income tax liability, provided that the required
information is furnished to IRS.
NON-U.S. HOLDERS. We will, when required, report to the IRS and to each
Non-U.S. Holder the amount of any interest paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld on
such payments. Copies of these information returns may also be made available to
the tax authorities of the country in which the Non-U.S. Holder resides under
the provisions of a specific treaty or agreement.
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Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments of interest on or principal of the notes by
us or our agent to a Non-U.S. Holder if the Non-U.S. Holder certifies as to its
Non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption, provided that neither we nor our agent have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemptions are not
in fact satisfied. The payment of the proceeds on the disposition of notes to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not in
fact satisfied. The proceeds of the disposition by a Non-U.S. Holder of notes to
or through a foreign office of a broker generally will not be subject to backup
withholding or information reporting. However, if such broker is a U.S. person,
a controlled foreign corporation or a foreign person deriving 50% or more of its
gross income from all sources for certain periods from activities that are
effectively connected with the conduct of a United States trade or business,
information reporting requirements will apply unless such broker has documentary
evidence in its files of the holder's status as a Non-U.S. Holder and has no
actual knowledge to the contrary or unless the holder otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's United States federal income tax liability provided that the required
information is furnished to the IRS.
New Treasury Regulations relating to withholding tax on income paid to
Non-U.S. Holders will generally be effective for payments made after December
31, 2000, subject to certain transition rules. In general, these new regulations
do not significantly alter the substantive withholding and information reporting
requirements, but rather unify current certification procedures and forms, and
clarify reliance standards. The new regulations also alter the procedures for
claiming benefits of an income tax treaty and permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners under some circumstances. On January 15, 1999, the
IRS issued Notice 99-8, proposing certain changes to these new withholding
regulations for non-resident aliens and foreign corporations and providing a
model "qualified intermediary" withholding agreement to be entered into with the
IRS to allow certain institutions to certify on behalf of their non-U.S.
customers or account holders who invest in U.S. securities. We strongly urge
prospective Non-U.S. Holders to consult their own tax advisors for information
on the impact, if any, of these new withholding regulations.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
exchange notes where such outstanding exchange notes were acquired as a result
of market-making activities or other trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of exchange
notes and any commissions or concessions received by such persons may be deemed
to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We will promptly send additional copies of this prospectus and any amendment
or supplement to this prospectus to any broker-dealer that requests such
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers and will indemnify original holders of the outstanding
exchange notes, including any broker-dealers, against certain liabilities,
including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered in this prospectus will be passed upon for
us by Winston & Strawn, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Motor Coach Industries
International, Inc. as of December 31, 1997 and 1998, and for each of the two
years then ended, included in this prospectus have been audited by Arthur
Andersen, LLP independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said reports. The
consolidated statements of income, stockholder's equity and cash flows of Motor
Coach Industries International, Inc. for the year ended December 31, 1996
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
UNAUDITED CONSOLIDATED STATEMENTS
Unaudited Consolidated Statements of Income for the six months ended June 30, 1999
and 1998........................................................................... F-2
Consolidated Balance Sheets as of June 30, 1999 (Unaudited) and December 31, 1998.... F-3
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30,
1999 and 1998...................................................................... F-4
Notes to Consolidated Financial Statements (Unaudited)............................... F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................. F-20
Report of Independent Accountants.................................................... F-21
Consolidated Statements of Income for the three years ended December 31, 1998........ F-22
Consolidated Balance Sheets as of December 31, 1998 and 1997......................... F-23
Consolidated Statement of Stockholder's Equity for the three years ended December 31,
1998............................................................................... F-24
Consolidated Statements of Cash Flows for the three years ended December 31, 1998.... F-25
Notes to Consolidated Financial Statements........................................... F-26
</TABLE>
F-1
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Revenues:
Sales................................................................. $ 485,644 $ 481,710
Finance income........................................................ 1,618 3,041
--------- ---------
487,262 484,751
--------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)............. 365,210 384,969
Cost of sales--inventory valuation charge............................. 21,000 --
Interest expense, finance operations.................................. 1,355 1,410
Depreciation and amortization......................................... 12,334 11,909
Research and development expenses..................................... 4,633 5,239
Selling, general and administrative expenses.......................... 50,516 41,322
--------- ---------
455,048 444,849
--------- ---------
Operating income........................................................ 32,214 39,902
--------- ---------
Other income and (expense):
Interest (expense).................................................... (16,346) (8,440)
Interest (expense) pushed down from related party..................... (11,601) (11,797)
Foreign currency translation gain (loss).............................. (893) 1,990
Other income (expense)................................................ (1,506) 3,208
--------- ---------
(30,346) (15,039)
--------- ---------
Income before income taxes.............................................. 1,868 24,863
Provision for income taxes.............................................. 7,643 15,397
--------- ---------
Income (loss) before extraordinary item................................. (5,775) 9,466
Extraordinary (loss) (net of tax of $1,568)............................. (2,614) --
--------- ---------
Net income (loss)....................................................... $ (8,389) $ 9,466
--------- ---------
--------- ---------
</TABLE>
The accompanying footnotes are an integral part of the statements.
F-2
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
JUNE 30, 31,
1999 1998
----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 40,878 $ 24,038
Trade and other accounts receivable........................................ 111,297 121,966
Current portion of notes receivable........................................ 13,975 10,548
Inventories................................................................ 223,190 225,865
Deferred income taxes...................................................... 24,869 21,488
Other current assets....................................................... 6,433 6,086
----------- -----------
Total Current Assets..................................................... 420,642 409,991
Property, plant, and equipment............................................... 97,051 102,796
Notes receivable............................................................. 42,314 35,400
Investments in affiliates.................................................... 23,397 23,116
Intangible assets............................................................ 215,138 215,589
Other assets................................................................. 37,281 14,863
----------- -----------
Total Assets............................................................. $ 835,823 $ 801,755
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable........................................................... $ 88,187 $ 81,890
Accrued compensation and other benefits.................................... 14,099 13,343
Accrued warranties......................................................... 13,507 13,960
Accrued income taxes....................................................... 3,085 32,320
Self insurance reserves.................................................... 6,401 6,365
Net liabilities of discontinued operations................................. 5,085 4,416
Other current liabilities.................................................. 38,229 30,239
----------- -----------
Total Current Liabilities................................................ 168,593 182,533
Long-term debt............................................................... 494,134 267,965
Long-term debt pushed down from related party................................ -- 206,500
Pensions and other benefits.................................................. 20,487 15,787
Other deferred items and self insurance reserves............................. 15,305 19,059
Deferred income taxes........................................................ 6,555 6,990
----------- -----------
Total Liabilities........................................................ 705,074 698,834
----------- -----------
Commitments and contingent liabilities
Stockholder's Equity:
Common stock and additional capital........................................ 346,070 241,275
Accumulated deficit........................................................ (191,943) (109,094)
Accumulated other comprehensive income..................................... (23,378) (29,260)
----------- -----------
Total Stockholder's Equity............................................... 130,749 102,921
----------- -----------
Total Liabilities and Stockholder's Equity............................... $ 835,823 $ 801,755
----------- -----------
----------- -----------
</TABLE>
The accompanying footnotes are an integral part of the statements.
F-3
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
UNAUDITED STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net Income (loss).................................................... $ (8,389) $ 9,466
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization...................................... 12,334 11,909
Deferred income taxes.............................................. (4,184) 3,410
Noncash interest expense pushed down from related party............ -- 11,797
Extraordinary loss on early retirement of debt..................... 4,182 --
Non-cash inventory valuation charge................................ 21,000 --
Other noncash items, net........................................... (863) (6,746)
Change in operating assets and liabilities:........................ (12,473) 20,619
--------- ---------
Net Cash Provided By Operating Activities.............................. 11,607 50,455
--------- ---------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures................................................. (16,843) (5,122)
Proceeds from sale of property and investments....................... 11,392 603
Change in notes receivable........................................... (15,987) 1,587
Investment in unconsolidated affiliate............................... -- (4,750)
Discontinued operations, net changes................................. 669 1,146
Investment in assets held for lease.................................. (6,945) (2,716)
Transfer of Mexican subsidiaries..................................... 774 --
--------- ---------
Net Cash Provided By (Used In) Investing Activities.................... (26,940) (9,252)
--------- ---------
Cash Provided By (Used In) Financing Activities:
Proceeds from issuance of term B loans............................... 333,000 --
Proceeds from issuance of 11 1/4% senior sub notes................... 150,080 --
Payment of 9.02% senior notes........................................ (105,321) --
Payment of senior secured discount notes............................. (206,500) --
Payment of debt issuance costs....................................... (22,876) --
Payment of parent company senior notes............................... (35,574) --
Net change in other long-term borrowings............................. (21,327) (74)
Net change in related party receivables, payables.................... (8,547) (34,005)
Dividends paid to parent company..................................... (74,438) --
Net change in bank credit facilities................................. (135,594) 5,819
New paid-in-capital, net of transaction costs........................ 159,270 --
--------- ---------
Net Cash Provided By (Used In) Financing Activities.................... 32,173 (28,260)
--------- ---------
Net Increase in Cash................................................... 16,840 12,943
Cash and Cash Equivalents at Beginning of Period....................... 24,038 13,997
--------- ---------
Cash and Cash Equivalents at End of Period............................. $ 40,878 $ 26,940
--------- ---------
--------- ---------
</TABLE>
The accompanying footnotes are an integral part of the statements.
F-4
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements are unaudited, but have
been prepared in accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The interim combined consolidated
financial statements contained herein do not include all of the footnotes and
other information required by generally accepted accounting principles for
complete financial statements, as provided at year end. The financial statement
should be read in conjunction with the audited financial statements and notes
thereto appearing in this document. The 1999 interim results may not necessarily
be indicative of the results for the completed fiscal year.
NOTE 2--PRINCIPLES OF CONSOLIDATION AND PRESENTATION
In conjunction with the financial restructuring discussed in Note 3,
Transportation Manufacturing Operations, Inc. changed its corporate name to
Motor Coach Industries International, Inc. ("MCII"), and MCII Holdings (USA),
Inc. ("MCII Holdings") contributed its Dina Autobuses S.A. de C.V. subsidiary
("Autobuses") to MCII at historical cost. The accompanying unaudited financial
statements for MCII and its subsidiaries ("the Company") include Autobuses for
all periods presented, as this is a reorganization of entities under common
control. All significant intercompany balances have been eliminated.
NOTE 3--FINANCIAL RESTRUCTURING
As of December 31, 1998, MCII had a $170 million U.S. senior revolving
credit facility ("the Senior Credit Facility") with a nine-bank syndicate to
finance working capital and other general corporate needs. This facility was due
to expire on October 1, 1999, and the lenders indicated that they were not
willing to extend its maturity. 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 MCII's Senior Term Notes due
2002, a $12 million reduction in its Canadian bank credit facility, and a $13
million principal payment on the Pre-Export Notes due 1999.
As a result of the debt reductions during 1998 and the additional debt
obligations and working capital requirements for 1999, the Company did 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 World Markets Corp. (formerly
CIBC Oppenheimer Corp.) and its affiliates (collectively "CIBC") to act as the
Company's lead bank agent, financial advisor, placement agent, and/or
underwriter to undertake a financial restructuring of the debt obligations of
the Company and Grupo Dina.
On April 19, 1999, MCII executed an agreement with CIBC for the issuance of
$40 million of Senior Subordinated Increasing Rate Notes ("IRNs"), due December
31, 1999, (subject to extension to March 31, 2000). This bridge financing was
used by MCII to meet its short-term working capital requirements during the
financial restructuring process.
F-5
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3--FINANCIAL RESTRUCTURING (CONTINUED)
In addition to the bridge financing, the Company, in association with CIBC,
developed and executed a financial restructuring plan to refinance substantially
all of the indebtedness of Consorcio G. Grupo Dina S.A. de C.V. ("Grupo Dina"),
the Company, and their respective subsidiaries.
On May 14, 1999, Grupo Dina commenced a tender offer and consent
solicitation relating to all of the approximately $206.5 million aggregate
principal amount of outstanding Senior Secured Discount Notes due 2002 (the
"Discount Notes") issued by Grupo Dina and MCII Holdings. Grupo Dina also
commenced a tender offer and consent solicitation relating to all of the $35.0
million aggregate principal amount of outstanding Senior Secured Guaranteed
Notes due 2000 (the "Guaranteed Notes") issued by its wholly-owned subsidiary,
Dina Trucks (USA), L.L.C., and guaranteed by Grupo Dina and Dina Camiones, S.A.
de C.V.
The consideration for each Discount Note and Guaranteed Note tendered and
accepted for payment was (a) $980 per $1,000 of Notes, plus (b) a consent
payment of $20 per $1,000 of Notes, plus (c) accrued interest through the
settlement date.
On June 16, 1999, holders of approximately 99.97% of the outstanding
Discount Notes tendered their notes for payment pursuant to the tender offer.
The remaining Discount Notes were redeemed by the Company. On June 16, 1999, all
Guaranteed Notes were tendered for payment pursuant to the tender offer.
On June 16, 1999, the Company also completed a series of transactions to
re-capitalize and restructure substantially all of the indebtedness of the
Company and Grupo Dina and their subsidiaries, including:
(a) MCII Holdings redeemed a portion of its outstanding common stock from Grupo
Dina for total proceeds of $328 million. Grupo Dina used $256.6 million of
the proceeds to conclude the above tender offers and retained $71.4 million
in cash;
(b) An investment group led by Joseph Littlejohn & Levy Fund III L.P., ("JLL") a
private equity partnership, made an equity contribution of $125 million in
MCII Holdings. MCII Holdings also issued Senior Notes with warrants due 2010
in an amount of $50 million to the new equity investors. MCII Holdings
subsequently made a capital contribution of the total proceeds of $175
million to MCII. As a result of the equity investment and redemption, the
investment group led by JLL became the 61% majority owner of MCII Holdings
and Grupo Dina became a 39% minority stockholder;
(c) MCII issued $152.3 million of Senior Subordinated Notes due 2009 at a
discount of 98.5755% to yield total cash proceeds of $150.1 million. The
notes are not secured by any collateral and rank junior to any of the
Company's other senior debt but equal to any future senior subordinated debt
issuance. The Company has a right to buy back some or all of the notes prior
to their due date subject to certain limitations and premium provisions as
specified in the agreement; and
(d) MCII entered into a new Senior Secured Credit Facility in the total amount
of $445 million, consisting of $333 million in Term B loans due 2006 drawn
on the June 16, 1999 closing date, and additional availability in the form
of a $112 million revolving credit facility due 2005. The agreement contains
financial covenants that the Company will not exceed certain leverage ratios
or fall below certain interest coverage ratios as specified in the
agreement. The agreement also contains a mandatory prepayment provision
based upon a free cash flow formula as specified in
F-6
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3--FINANCIAL RESTRUCTURING (CONTINUED)
the agreement. The prepayment provision calls for any prepayment made to be
first applied to the term loans and then to the loans made under the
revolving credit agreement. The facility provides for variable rates of
interest based upon certain specified formulas that include a base rate of
interest and an applicable margin based upon a calculation of the Company's
Consolidated Total Leverage ratio. The Company also pays a 0.5% annualized
facility fee on the daily unused portion of the revolving credit agreement.
The Credit Facility calls for interest payments and payment of the facility
fee to be paid at the end of each calendar quarter. The term loan agreement
also calls for a principal payment of $832,500 due at the end of each
calendar quarter commencing on September 30, 1999 and ending on March 31,
2006 and a final principal payment of $310,522,500 plus accrued interest on
June 16, 2006. It is the Company's intention to fund its quarterly term loan
principal obligations through the Senior Secured Credit Facility. Therefore,
the current portion of this term loan is classified as long term.
In addition to the debt repurchased pursuant to the tender offers, MCII
repaid substantially all of its outstanding indebtedness including:
(a) The $40 million of IRN's along with $0.2 million of accrued interest and
$0.2 million of redemption premiums;
(b) The existing U.S. revolving credit facility in a total amount of $165.5
million (including outstanding letters of credit) due to mature on October
1, 1999; along with $0.5 million of accrued interest and $0.2 million of
redemption premiums;
(c) The $100 million of 9.02% Senior Notes due 2002, along with $0.4 million of
accrued interest and a prepayment premium of approximately $5.3 million.
In connection with the debt refinancings, the following restructuring
transactions and agreements were also consummated:
(a) MCII Holdings, transferred Autobuses to MCII, and a portion of the proceeds
of the refinancing were used to repay Autobuses' outstanding credit
facilities of $14.2 million;
(b) MCII Holdings and certain of its subsidiaries transferred certain indirect
subsidiaries, including Autopartes Hidalguenses, S.A. de C.V.; Carroceria
Sahagun, S.A. de C.V.; Mexicana de Manufacturas Especiales, S.A. de C.V.,
and Universal Coach Parts Mexico, S.A. de C.V. (UCP Mexico), to certain
subsidiaries of Grupo Dino and MCII canceled a $7.3 million receivable from
UCP Mexico;
(c) One of our Canadian subsidiaries entered into a sale-leaseback transaction
with Grupo Dina for tooling and equipment located at the facility at St.
Matthews Street in Winnipeg, Manitoba. The market value of the tooling and
equipment at the facility was between $2 million and $4 million and the
transfer price and lease payments were for nominal amounts.
(d) Autobuses transferred to Grupo Dina a group of transit buses that are leased
to a company affiliated with Grupo Dina, together with the related lease
rights;
(e) Autobuses agreed to transfer certain undeveloped land to a subsidiary of
Grupo Dina in exchange for land and buildings required for ongoing
operations;
(f) MCII acquired certain royalty-free rights to use the Dina name and
trademarks in marketing inter-city coaches;
F-7
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 3--FINANCIAL RESTRUCTURING (CONTINUED)
(g) Grupo Dina, through its subsidiaries, acquired rights, subject to certain
conditions, to supply various manufactured parts and components to the
operating subsidiaries of MCII; and
(h) Grupo Dina agreed to perform certain transitional services for MCII and its
operating subsidiaries.
NOTE 4--INVENTORY VALUATION CHARGE
The Company recorded a non-cash inventory charge of $21.0 million in the
second quarter of 1999. $15.0 million of this charge was recorded to adjust the
inventory of used coaches to reflect a change in asset management strategy
implemented by the new management brought in by the new equity investors in
response to the changing dynamics of the marketplace. The remaining $6.0 million
charge was recorded to rationalize the inventory of replacement parts in
conjunction with a revised plan developed during the second quarter of 1999 to
consolidate the Company's replacement parts distribution activities into a
single location.
NOTE 5--EXTRAORDINARY ITEM
The Company recorded a $2.6 million after-tax ($4.2 million pre-tax)
extraordinary charge associated with the early retirement of debt in connection
with the financial restructuring. The charge consists primarily of early
redemption premiums, and other financing costs incurred partially offset by a
gain resulting from the recognition of unamortized swap accretion deferred
credits.
NOTE 6--LONG TERM DEBT
Below is a schedule of outstanding debt as of June 30, 1999 and December 31,
1998
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
11 1/4% Senior subordinated notes, due 2009........................ $ 152,250 --
Borrowings under Senior Secured Credit Facility:
Term Loan B due 2006............................................. 333,000 --
Revolving credit agreement due 2005.............................. 10,000 --
Senior Secured discount notes, due 2002............................ -- 206,500
United States bank credit facility................................. -- 137,000
9.02% Senior notes due 2002........................................ -- 100,000
Pre-export notes due 1999.......................................... -- 22,000
BancoMext export loan facility..................................... 8,594
Other note payables................................................ 1,044 371
---------- ------------
Total.......................................................... $ 496,294 $ 474,465
Less Unamortized Discount on 11 1/4%
Senior subordinated notes.......................................... $ (2,160) --
---------- ------------
Total.......................................................... $ 494,134 $ 474,465
---------- ------------
</TABLE>
F-8
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 6--LONG TERM DEBT (CONTINUED)
The long-term debt as of June 30, 1999 is due as follows:
<TABLE>
<CAPTION>
(DOLLARS
IN THOUSANDS)
-------------
<S> <C>
2000............................................. $ --
2001............................................. --
2002............................................. --
2003............................................. --
2004............................................. --
2005 and thereafter.............................. 496,294
-------------
Total........................................ $ 496,294
-------------
-------------
</TABLE>
On June 16, 1999, the Company completed a major financial restructuring
where the company issued $152,250,000 of senior subordinated notes and also
entered into a $445,000,000 secured credit agreement.
The 11.25% Senior Subordinated Notes were issued at a discount of 98.5755 so
as to yield proceeds of $150.1 million. Interest payments will be twice a year
on each May 1 and November 1, beginning November 1, 1999. The notes are not
secured by any collateral and rank junior to any of the Company's other senior
debt but equal to any future senior subordinated debt issuance. The Company has
a right to buy back some or all of the notes prior to their due date subject to
certain limitations and premium provisions as specified in the agreement.
The $445 million secured credit agreement consists of $333 million of term
loans and a $112 million revolving credit facility. This agreement contains
financial covenants that the company will not exceed certain leverage ratios or
fall below certain interest coverage ratios as specified in the agreement. As of
June 30, 1999, the Company is in compliance with all such covenants. The credit
agreement also contains a mandatory prepayment provision based upon a free cash
flow formula as specified in the agreement. The Prepayment provision calls for
any prepayments made to be first applied to the term loans and then to the loans
made under the revolving credit agreement. The Company has reviewed the formula
and does not have an additional prepayment required as of June 30, 1999.
The $333 million of the term loans are variable rate loans with accrued
interest plus a principal payment of $832,500 due at the end of each calendar
quarter commencing on September 30, 1999 and ending on March 31, 2006 and a
final principal payment of $310,522,500 plus accrued interest due on June 16,
2006. The variable rate of interest is based upon certain formulas stated in the
agreement that includes a base rate of interest and an applicable margin based
upon a calculation of the Company's Consolidated Total Leverage Ratio. As of
June 30, 1999 the effective interest rate on these borrowings was 10%.
The $112 million revolving credit agreement due 2005 provides the Company
with the ability to borrow funds as needed at variable rates of interests based
upon certain formulas stated in the agreement that includes a base rate of
interest and an applicable margin based upon a calculation of the Company's
Consolidated Total Leverage Ratio. The Company also pay a 0.5% facility fee on
the unused portion of the revolving credit agreement. As of June 30, 1999, the
Company had approximately $10 million in outstanding borrowings at an average
effective interest rate of 9.75%.
F-9
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 6--LONG TERM DEBT (CONTINUED)
As of June 30, 1999, the Company had $4.2 million of current outstanding
debt which it has reclassified to non-current since it is the Company's
intention to refinance the debt and it has the ability to do so under its
revolving credit agreement.
As of December 31, 1998, the Company had approximately $137 million of
outstanding borrowings under a $170 million credit facility. The amount of
borrowings under this credit facility increased to approximately $165.5 million
at June 16, 1999 which the company paid off along with approximately $0.5
million of accrued interest and $0.2 million of premium on this date as part of
the financial restructuring.
As of December 31, 1998 the Company had $100 million of outstanding 9.02%
Senior Notes. As part of the financial restructuring on June 16, 1999, the
Company repaid these notes along with approximately $0.4 million of accrued
interest and a prepayment premium of approximately $5.3 million.
On April 19, 1999 the Company executed an agreement with CIBC Oppenheimer
for the issue of $40 million of Senior Subordinated Increasing Rate Notes
("IRN's") due December 31, 1999. These IRN's were repaid along with
approximately $0.2 million of accrued interest along with approximately a $0.2
million premium as part of the financial restructuring.
As of December 31, 1998 the Company had approximately $206.5 million of
outstanding Senior Secured Discount Notes issued by Consorcio G. Grupo Dina,
S.A. de C.V. ("Grupo Dina") and the Company. On June 16, 1999, the Company
repaid $206.5 million and $14.5 million of accrued interest as part of the
financial restructuring. The Company also repaid $35 million of the Dina Truck
Notes, a wholly owned subsidiary of Grupo Dina along with $0.6 million of
accrued interest as a part of the financial restructuring.
As of December 31, 1998 the Company through the National Bank Foreign Trade
S.N.C. ("Bancomext") had borrowings of approximately $8.6 million under a $30
million dollar credit facility to ("Autobuses"), for the purpose of financing
export sales. The Company had increased its outstanding borrowings to $14.0
million, as of June 16, 1999 which it repaid along with $.1 million of accrued
interest.
NOTE 7--COMMON STOCK
The Company is a wholly owned subsidiary of MCII Holdings, Inc., which is a
wholly owned subsidiary of MCII Holdings (USA), Inc. Prior to the completion of
the financial restructuring/ reorganization, MCII Holdings (USA), Inc. was a
wholly-owned subsidiary of Consorcio G. Grupo Dina, S.A. de C.V. ("Grupo Dina"),
a Mexican corporation. On June 16, 1999, as a part of the financial
restructuring and reorganization, a 61% equity interest of MCII Holdings (USA),
Inc. was purchased by an investment group led by Joseph Littlejohn and Levy Fund
III LP ("JLL"). As part of the transaction JLL purchased $50 million in Senior
Notes from MCII Holdings (USA), Inc. which was accompanied by warrants to
purchase up to an additional 10% of the fully diluted common stock of MCII
Holdings (USA), Inc. These warrants are immediately exercisable at the price
equivalent to the value per share at which JLL invests in MCII Holdings (USA)
Inc.
F-10
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 8--REVENUES, GROSS PROFIT AND OPERATING INCOME, SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Revenues:
Coach and Support................................................................. $ 389,157 $ 382,640
Replacement Parts................................................................. 94,474 96,925
Finance........................................................................... 3,631 5,186
----------- ----------
$ 487,262 $ 484,751
----------- ----------
----------- ----------
Operating Income (loss):
Coach and Support................................................................. $ 28,176 $ 30,717
Replacement Parts................................................................. 4,217 7,605
Finance........................................................................... (179) 1,580
----------- ----------
$ 32,214 $ 39,902
----------- ----------
----------- ----------
Assets:
Coach and Support................................................................. $ 561,959
Replacement Parts................................................................. 183,821
Finance........................................................................... 90,043
-----------
$ 835,823
-----------
-----------
</TABLE>
NOTE 9--COMPREHENSIVE INCOME
For the six months ended June 30, 1999 and 1998, the Company's comprehensive
income included net income, foreign currency translation losses and minimum
pension liability adjustments. The Company recorded a foreign currency
translation gain of $5,882,000 for the six months ended June 30, 1999 compared
to a foreign currency translation loss of $3,144,000 for the same period of
1998. The minimum pension liability expenses totaled $0 and $126,000 for the six
months ended June 30, 1999 and 1998, respectively. Therefore, total
comprehensive income/(loss) was ($2,507,000) for the six months ended June 30,
1999, compared with $6,196,000 for the same period of 1998.
NOTE 10--INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw material........................................................................ $ 34,230 $ 38,287
Work in process..................................................................... 43,748 42,487
Finished goods...................................................................... 168,333 171,501
---------- ------------
246,311 252,275
Inventory reserves.................................................................. (23,121) (26,410)
---------- ------------
$ 223,190 $ 225,865
---------- ------------
---------- ------------
</TABLE>
F-11
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 11--CASH FLOW EFFECT OF CHANGE IN OPERATING ASSETS AND LIABILITIES
Change in operating assets and liabilities (net of acquisitions and
divestitures) consisted of:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
JUNE 30, JUNE 30,
1999 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Decrease (Increase) in Operating Assets:
Receivables........................................................... $ 11,538 $ (46,442)
Inventories........................................................... (3,983) 35,197
Other operating assets................................................ 1,376 449
--------- ---------
8,931 (10,796)
--------- ---------
Increase (Decrease) in Operating Liabilities:
Accounts payable...................................................... (1,445) 18,828
Accrued income taxes.................................................. (29,133) 2,099
Other operating liabilities........................................... 9,174 10,488
--------- ---------
(21,404) 31,415
--------- ---------
Net Cash Flow Effect.................................................... $ (12,473) $ 20,619
--------- ---------
--------- ---------
</TABLE>
NOTE 12--RELATED PARTY TRANSACTIONS
Related party transactions for the six months ended June 30 were as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Purchases from affiliated companies:
Goods................................................................. $ 4,085 $ 4,304
Services.............................................................. 5,695 11,192
--------- ---------
$ 9,780 $ 15,496
--------- ---------
--------- ---------
Sales to affiliated companies:
Goods................................................................. $ 2,509 $ 3,608
Services.............................................................. -- 5,891
--------- ---------
$ 2,509 $ 9,499
--------- ---------
--------- ---------
Charges for Grupo Dina management services.............................. $ 417 $ 500
--------- ---------
--------- ---------
</TABLE>
NOTE 13--COMMITMENTS AND CONTINGENT LIABILITIES
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. A formal reassessment has been issued by Revenue Canada on the 1985
return. A notice of objection has been filed by the Company for 1985. In the
event of an adverse judgment, the additional income taxes for 1982 through 1992
could amount to $24,000,000 plus interest of approximately $51,000,000 through
March 31, 1999 and, in addition, the Company may be subject to potential
reassessments for the years subsequent to 1992 on the same basis which could
F-12
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 13--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
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 Grupo Dina's purchase price on
acquiring MCII Holdings, resulting in an increase of purchase goodwill. (If the
ultimate liability was $75,000,000, then approximately $47,000,000 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.
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS
In connection with the issuance of the Senior Subordinated Notes due 2009
(the "Notes") (See note 3), the Company's U.S. subsidiaries became Guarantors to
these Notes. The following tables present condensed consolidating financial
information for: MCII; Guarantors (U.S. entities); and Non Guarantors (Non-U.S.
entities including Autobuses and MCI, Ltd.). Each of the Guarantors are a direct
or indirect wholly owned subsidiary of MCII. The Guarantors jointly and
severally and fully and unconditionally guarantee the Notes of the Company. The
following condensed consolidating financial information presents the results of
operations, financial position and cash flows of MCII, Guarantors, and Non
Guarantors, and the eliminations necessary to arrive at the information for the
Company on a condensed consolidated basis.
F-13
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $ 396,365 $ 201,555 $ (110,658) $ 487,262
Cost of sales (exclusive of items shown
separately below)............................. -- 301,608 171,200 (107,598) 365,210
Cost of sales inventory valuation charge........ -- 21,000 -- -- 21,000
Interest expense, finance operations............ -- 1,257 98 -- 1,355
Depreciation and amortization................... 122 4,728 7,484 -- 12,334
Research and development expenses............... -- 2,686 1,947 -- 4,633
Selling, general and administrative expenses.... 168 54,173 (3,825) -- 50,516
---------- ----------- ----------- ------------ ------------
Operating income (loss)......................... (290) 10,913 24,651 (3,060) 32,214
---------- ----------- ----------- ------------ ------------
Interest (expense) income....................... (8,475) (8,027) 156 -- (16,346)
Interest expense pushed down from related
party......................................... (11,601) -- -- -- (11,601)
Foreign currency translation gain............... -- -- (893) -- (893)
Other income.................................... 154 (716) (944) -- (1,506)
---------- ----------- ----------- ------------ ------------
(19,922) (8,743) (1,681) -- (30,346)
---------- ----------- ----------- ------------ ------------
Income (loss) before income taxes............... (20,212) 2,170 22,970 (3,060) 1,868
---------- ----------- ----------- ------------ ------------
Income taxes.................................... (2,879) 1,540 8,982 -- 7,643
---------- ----------- ----------- ------------ ------------
Income before extraordinary item................ (17,333) $ 630 $ 13,988 $ (3,060) $ (5,775)
Extraordinary (loss)............................ (2,614) -- -- -- (2,614)
---------- ----------- ----------- ------------ ------------
Net income (loss)............................... $ (19,947) $ 630 $ 13,988 $ (3,060) $ (8,389)
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-14
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $ 382,935 $ 198,943 $ (97,127) $ 484,751
Cost of sales (exclusive of items shown
separately below)............................. -- 306,920 174,874 (96,825) 384,969
Interest expense, finance operations............ -- 1,301 109 -- 1,410
Depreciation and amortization................... 185 5,168 6,556 -- 11,909
Research and development expenses............... -- 2,215 1,524 1,500 5,239
Selling, general and administrative expenses.... 3,689 31,414 6,219 -- 41,322
---------- ----------- ----------- ------------ ------------
Operating income (loss)......................... (3,874) 35,917 9,661 (1,802) 39,902
---------- ----------- ----------- ------------ ------------
Interest (expense) income....................... (2,066) (7,521) 1,464 (317) (8,440)
Interest expense pushed down from related
party......................................... (11,797) -- -- -- (11,797)
Foreign currency translation gain............... -- -- 1,990 -- 1,990
Other income.................................... 91 166 2,951 -- 3,208
---------- ----------- ----------- ------------ ------------
(13,772) (7,355) 6,405 (317) (15,039)
---------- ----------- ----------- ------------ ------------
Income (loss) before income taxes............... (17,646) 28,562 16,066 (2,119) 24,863
Income taxes.................................... (2,741) 11,786 6,352 -- 15,397
---------- ----------- ----------- ------------ ------------
Net income (loss)............................... $ (14,905) $ 16,776 $ 9,714 $ (2,119) $ 9,466
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-15
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 26,258 $ 10,720 $ 3,900 $ -- $ 40,878
Trade and other accounts receivable.......... 1,598 85,796 23,903 -- 111,297
Intercompany receivables (payables).......... 760,129 (568,466) 21,207 (212,870) --
Current portion of notes receivable.......... -- 13,401 574 -- 13,975
Inventories.................................. -- 166,980 60,087 (3,877) 223,190
Deferred income taxes........................ 3,462 21,347 60 -- 24,869
Other current assets......................... 968 4,191 1,304 (30) 6,433
---------- ----------- ----------- ------------ ------------
Total Current Assets........................... 792,415 (266,031) 111,035 (216,777) 420,642
Property, plant and equipment................ 722 51,673 44,687 (31) 97,051
Notes receivable............................. -- 39,178 3,136 -- 42,314
Investments in affiliates.................... 98,742 (75,345) -- -- 23,397
Intangible assets............................ 2,445 143,442 69,251 -- 215,138
Other assets................................. 22,957 10,012 4,312 -- 37,281
---------- ----------- ----------- ------------ ------------
Total Assets................................... $ 917,281 $ (97,071) $ 232,421 $ (216,808) $ 835,823
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-16
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.......................... $ 3,095 $ 51,395 $ 33,697 $ -- $ 88,187
Accrued compensation and other benefits... 1,928 5,396 6,775 -- 14,099
Accrued warranties........................ -- 10,375 3,132 -- 13,507
Accrued income taxes...................... (6,112) 7,347 1,850 -- 3,085
Self insurance reserves................... 4,983 1,180 238 -- 6,401
Net liabilities of discontinued
operations.............................. -- 5,085 -- -- 5,085
Other current liabilities................. 3,543 14,450 20,236 -- 38,229
---------- ----------- -------------- ------------ ------------
Total Current Liabilities................... 7,437 95,228 65,928 -- 168,593
---------- ----------- -------------- ------------ ------------
Long-term debt............................ 493,837 297 -- -- 494,134
Pensions and other benefits............... 16,381 (236) 4,342 -- 20,487
Other deferred items and self insurance
reserves................................ 8,940 6,365 -- -- 15,305
Deferred income tax....................... (1,599) 1,648 6,506 -- 6,555
---------- ----------- -------------- ------------ ------------
Total Liabilities........................... 524,996 103,302 76,776 -- 705,074
---------- ----------- -------------- ------------ ------------
Stockholder's Equity:
Common stock and additional capital....... 586,069 (179,592) 123,443 (183,850) 346,070
Accumulated deficit....................... (193,239) (20,512) 54,766 (32,958) (191,943)
Accumulated other comprehensive income.... (545) (269) (22,564) -- (23,378)
---------- ----------- -------------- ------------ ------------
Total Stockholder's Equity.................. 392,285 (200,373) 155,645 (216,808) 130,749
---------- ----------- -------------- ------------ ------------
Total Liabilities and Stockholder's
Equity.................................... $ 917,281 $ (97,071) $ 232,421 $ (216,808) $ 835,823
---------- ----------- -------------- ------------ ------------
---------- ----------- -------------- ------------ ------------
</TABLE>
F-17
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net Income............................................ $ (19,947) $ 630 $ 13,988 $ (3,060) $ (8,389)
Adjustments in reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization....................... 122 4,728 7,484 -- 12,334
Deferred income taxes............................... 1,038 (4,850) (372) -- (4,184)
Extraordinary loss on early retirement of debt...... 4,182 -- -- -- 4,182
Non-cash inventory valuation charge................. -- 21,000 -- -- 21,000
Other noncash items, net............................ (2,415) (2,247) 3,799 (863)
Change in operating assets and liabilities, net..... (9,182) (4,168) (2,183) 3,060 (12,473)
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Operating Activities..... (26,202) 15,093 22,716 -- 11,607
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures.................................. (286) (10,120) (6,437) -- (16,843)
Proceeds from sale of property and investments........ -- 9,218 2,174 -- 11,392
Change in notes receivable............................ -- (16,228) 241 -- (15,987)
Investment in assets held for lease................... -- (7,790) 845 -- (6,945)
Discontinued operations, net change................... -- 669 -- -- 669
Transfer of Mexican subsidiaries...................... -- (1,670) 2,444 -- 774
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Investing Activities..... (286) (25,921) (733) -- (26,940)
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Financing Activities:
Proceeds from issuance of term B loans................ 333,000 -- -- -- 333,000
Proceeds from issuance of 11 1/4% senior sub notes.... 150,080 -- -- -- 150,080
Payment of 9.02% senior notes......................... (105,321) -- -- -- (105,321)
Payment of senior secured discount notes.............. (206,500) -- -- -- (206,500)
Payment of debt issuance costs........................ (22,876) (22,876)
Payment of parent company senior notes................ (35,574) (35,574)
Net change in other long-term borrowings.............. 673 (22,000) (21,327)
Net change in related party receivables, payables..... (23,963) 3,597 11,819 -- (8,547)
Dividends paid to parent company...................... (74,438) (74,438)
Net change in bank credit facilities.................. (127,020) (8,574) (135,594)
New paid-in-capital, net of transaction costs......... 159,270 159,270
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Financing Activities..... 47,331 3,597 (18,755) -- 32,173
--------- ----------- ----------- ------------- ------------
Net Increase (Decrease) In Cash......................... 20,843 (7,231) 3,228 -- 16,840
Cash and Cash Equivalents at Beginning of Period........ 5,415 17,951 672 -- 24,038
--------- ----------- ----------- ------------- ------------
Cash and Cash Equivalents at End of
Period................................................. $ 26,258 $ 10,720 $ 3,900 $ -- $ 40,878
--------- ----------- ----------- ------------- ------------
--------- ----------- ----------- ------------- ------------
</TABLE>
F-18
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14--GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net Income........................................... $ (15,087) $ 16,776 $ 9,896 $ (2,119) $ 9,466
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization...................... 185 5,168 6,556 -- 11,909
Deferred income taxes.............................. 719 2,844 (153) -- 3,410
Non cash interest expense pushed down from related
party............................................ 11,797 -- -- -- 11,797
Gain on sale of property and notes receivable...... -- -- -- -- --
Other noncash items, net........................... (267) 404 (6,883) -- (6,746)
Change in operating assets and liabilities, net.... 2,546 (5,440) 21,394 2,119 20,619
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Operating Activities.... (107) 19,752 30,810 -- 50,455
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures................................. (39) (901) (4,182) -- (5,122)
Proceeds from sale of property and investments....... 1 799 (197) -- 603
Change in notes receivable........................... -- (1,193) 2,780 -- 1,587
Investment in assets held for lease.................. -- (2,716) -- -- (2,716)
Investment in unconsolidated affiliate............... (4,750) -- -- -- (4,750)
Discontinued operations, net changes................. -- 1,146 -- -- 1,146
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Investing Activities.... (4,788) (2,865) (1,599) -- (9,252)
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Financing Activities:
Net change in long-term borrowings................... -- (74) -- -- (74)
Related party receivables/payables................... (8,969) -- (25,036) -- (34,005)
Dividends paid to parent company..................... -- -- -- -- --
Net change in bank credit facilities................. 5,819 -- -- -- 5,819
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Financing Activities.... (3,150) (74) (25,036) -- (28,260)
--------- ----------- ----------- ------------- ------------
Net Increase (Decrease) in Cash........................ (8,045) 16,813 4,175 -- 12,943
Cash and Cash Equivalents at Beginning of Period....... 9,018 5,306 (327) -- 13,997
--------- ----------- ----------- ------------- ------------
Cash and Cash Equivalents at End of Period............. $ 973 $ 22,119 $ 3,848 $ -- $ 26,940
--------- ----------- ----------- ------ ------------
--------- ----------- ----------- ------ ------------
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of Motor Coach Industries International, Inc.:
We have audited the accompanying consolidated balance sheets of Motor Coach
Industries International, Inc., and its subsidiaries (the "Company") as of
December 31, 1998 and December 31, 1997 and the related consolidated statements
of income, 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.
Arthur Andersen LLP
Chicago, Illinois
July 22, 1999
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of Motor Coach Industries International, Inc.:
In our opinion, the accompanying consolidated statements of income, changes
in stockholder's equity and cash flows for the year ended December 31, 1996
present fairly, in all material respects, the results of operations and cash
flows of Motor Coach Industries International, 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 information in Notes 1, 2 and 14
related to the
June 16, 1999 reorganization, as to which the date is June 16, 1999.)
F-21
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Sales....................................................... $ 925,889 $ 735,210 $ 658,823
Finance income.............................................. 5,838 4,573 8,261
--------- --------- ---------
931,727 739,783 667,084
--------- --------- ---------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately below)... 728,189 546,607 506,199
Depreciation and amortization............................... 24,815 22,035 17,618
Interest expense, finance operations........................ 2,765 2,394 3,605
Research and development expenses........................... 8,741 6,655 7,346
New product start-up costs.................................. 981 7,333 --
Business insurance recoveries............................... (8,462) (500) --
Provision for relocation of corporate office................ -- 886 3,000
Selling, general and administrative expenses................ 90,894 75,920 69,483
--------- --------- ---------
847,923 661,330 607,251
--------- --------- ---------
Operating income.............................................. 83,804 78,453 59,833
--------- --------- ---------
Other income and (expense):
Interest (expense)--net..................................... (19,985) (21,859) (16,029)
Interest (expense) pushed down from related party........... (25,194) (21,635) (19,550)
Other income (expense)...................................... (511) 2,920 2,197
Gain (loss) on equity investments........................... 5,000 -- (1,200)
Foreign currency translation gain (loss).................... 3,325 (85) 1,347
--------- --------- ---------
(37,365) (40,659) (33,235)
--------- --------- ---------
Income before income taxes, discontinued operations and
extraordinary item.......................................... 46,439 37,794 26,598
Income taxes.................................................. 31,790 21,268 18,474
--------- --------- ---------
Income from continuing operations............................. $ 14,649 $ 16,526 $ 8,124
--------- --------- ---------
Discontinued operations
(Loss) on disposal of transit manufacturing, net of tax
benefit of $3,130......................................... -- -- (5,000)
--------- --------- ---------
Income before extraordinary item.............................. 14,649 16,526 3,124
Extraordinary (charge) for early retirement of debt, net of
tax benefit of $550......................................... -- -- (851)
--------- --------- ---------
Net income.................................................... $ 14,649 $ 16,526 $ 2,273
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-22
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER DECEMBER
31, 31,
1998 1997
----------- -----------
(DOLLARS IN THOUSANDS)
EXCEPT PER SHARE INFO
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................................ $ 24,038 $ 13,997
Trade and other accounts receivable, less allowance of $10,316 and
$3,244................................................................. 121,966 88,543
Receivables from affiliates (Note 3)..................................... -- 16,293
Current portion of notes receivable...................................... 10,548 6,625
Inventories.............................................................. 225,865 257,795
Deferred income taxes.................................................... 21,488 14,430
Other current assets..................................................... 6,086 7,591
----------- -----------
Total Current Assets................................................... 409,991 405,274
Property, plant, and equipment, net........................................ 102,796 106,845
Notes receivable........................................................... 35,400 42,465
Investments in affiliates.................................................. 23,116 15,253
Intangible assets.......................................................... 215,589 227,367
Other assets............................................................... 14,863 23,469
----------- -----------
Total Assets........................................................... $ 801,755 $ 820,673
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable......................................................... $ 81,890 $ 67,580
Accrued compensation and other benefits.................................. 13,343 12,380
Accrued warranties....................................................... 13,960 10,020
Accrued income taxes..................................................... 32,320 7,251
Self insurance reserves.................................................. 6,365 5,610
Net liabilities of discontinued operations............................... 4,416 2,229
Other current liabilities................................................ 30,239 25,111
Current portion of long-term debt........................................ -- 44,418
----------- -----------
Total Current Liabilities.............................................. 182,533 174,599
Long-term debt............................................................. 267,965 268,833
Long-term debt pushed down from related party.............................. 206,500 184,225
Pensions and other benefits................................................ 15,787 14,037
Other deferred items and self insurance reserves........................... 19,059 24,370
Deferred income taxes...................................................... 6,990 6,916
----------- -----------
Total Liabilities...................................................... 698,834 672,980
----------- -----------
Commitments and contingent liabilities (Note 23)
Stockholder's Equity:
Common stock, $.01 par value, 1,000 shares authorized, issued, and
outstanding and additional capital..................................... 241,275 288,509
Accumulated deficit...................................................... (109,094) (119,800)
Accumulated other comprehensive income................................... (29,260) (21,016)
----------- -----------
Total Stockholder's Equity............................................. 102,921 147,693
----------- -----------
Total Liabilities and Stockholder's Equity............................. $ 801,755 $ 820,673
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-23
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE INCOME
------------------------
COMMON STOCK
AND ACCUMULATED UNFUNDED CUMULATIVE TOTAL
COMPREHENSIVE ADDITIONAL EARNINGS/ PENSION TRANSLATION STOCKHOLDER'S
INCOME CAPITAL (DEFICIT) LOSS ADJUSTMENT EQUITY
------------- --------------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1995..... $ 296,161 $ (96,151) $ -- $ (14,572) $ 185,438
Comprehensive income 1996:
Net income 1996............. 2,273 -- 2,273 -- -- 2,273
Other comprehensive income:
Unfunded pension loss..... (423) -- -- (423) -- (423)
Unrealized translation
loss.................... (1,061) -- -- -- (1,061) (1,061)
-------------
Comprehensive income.......... 789
-------------
-------------
Dividends on Common Stock..... (30,000) -- -- (30,000)
Return of capital to Parent
Co.......................... (13,030) -- -- -- (13,030)
Capital Contribution.......... 1,342 -- -- -- 1,342
--------------- ----------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1996.... $ 284,473 $(123,878) $ (423) $ (15,633) $ 144,539
Comprehensive income 1997:
Net income 1997............. $ 16,526 -- 16,526 -- -- 16,526
Other comprehensive income:
Unfunded pension loss..... (154) -- -- (154) -- (154)
Unrealized translation
loss.................... (4,806) -- -- (4,806) (4,806)
-------------
Comprehensive income.......... $ 11,566
-------------
-------------
Dividends on common stock..... -- (12,448) -- -- (12,448)
Capital contribution.......... 4,036 -- -- -- 4,036
--------------- ----------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1997.... 288,509 (119,800) (577) (20,439) 147,693
Comprehensive income 1998:
Net income 1998............. $ 14,649 -- 14,649 -- -- 14,649
Other comprehensive income:
Unfunded pension loss..... 61 -- -- 61 -- 61
Unrealized translation
loss.................... (10,161) -- -- -- (10,161) (10,161)
-------------
Comprehensive income.......... $ 4,549
-------------
-------------
Net Receivable from affiliate
(Note 3).................... (42,907) -- -- -- (42,907)
Adjustment (Note 5)........... (4,327) (443) -- 1,856 (2,914)
Dividends on common stock..... -- (3,500) -- -- (3,500)
--------------- ----------- ----- ----------- -----------
BALANCE, DECEMBER 31, 1998.... $ 241,275 $(109,094) $ (516) $ (28,744) $ 102,921
--------------- ----------- ----- ----------- -----------
--------------- ----------- ----- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-24
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net Income.................................................. $ 14,649 $ 16,526 $ 2,273
Adjustments to reconcile net income to net cash provided by
(used in) operations:
Depreciation and amortization............................. 24,815 22,035 17,618
Deferred income taxes..................................... (4,754) 1,373 (4,812)
Non cash interest expense related to debt push down....... 25,194 21,635 19,550
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
Loss from discontinued operations......................... -- -- 5,000
Loss from early retirement of debt........................ -- -- 851
Other non cash items, net................................. 8,608 2,378 5,403
Change in operating assets and liabilities................ 11,408 (117,326) (4,099)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........... 73,732 (52,585) 44,320
--------- --------- ---------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures........................................ (11,740) (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)
Proceeds from sale of business.............................. -- -- 1,295
Investment in affiliates.................................... 5,000 (25,708) --
Discontinued operations, net changes........................ 2,187 2,140 6,400
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES........... (14,683) (71,170) (30,338)
--------- --------- ---------
Cash Flows Provided By (Used In) Financing Activities:
Net long-term borrowings (payments)......................... (37,573) (149) (148)
Net change in bank credit facilities........................ (7,935) 136,910 (7,000)
Termination of interest rate swap position.................. -- -- 4,733
Payment of debt issuance costs.............................. -- -- (3,330)
Early retirement of debt.................................... -- -- (851)
Increasing capital.......................................... -- 4,036 1,342
Dividends paid to parent company............................ (3,500) (12,448) (30,000)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........... (49,008) 128,349 (35,254)
--------- --------- ---------
NET INCREASE IN CASH.......................................... 10,041 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...................... $ 24,038 $ 13,997 $ 9,403
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-25
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
On June 16, 1999, in conjunction with the financial restructuring discussed
in Note 2 to the Consolidated Financial Statements, Transportation Manufacturing
Operations Inc. changed its corporate name to Motor Coach Industires
International, Inc. ("MCII"). The accompanying consolidated financial statements
include the accounts of MCII and Subsidiaries ("the Company"), which is an
indirect wholly owned subsidiary of MCII Holdings (USA), Inc. ("MCII Holdings"),
which, as a result of the financial restructuring completed on June 16, 1999 and
more fully discussed in Note 2 to the Consolidated Financial Statements, is 61%
owned by a group of investors controlled by Joseph Littlejohn & Levy Fund III
L.P. ("JLL Fund III") an affiliate of Joseph Littlejohn & Levy, Inc. ("JLL") and
39% owned by Consorcio G. Grupo Dina S.A. de C.V. ("Grupo 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.
As a result of the financial restructuring discussed in Note 2 to the
Consolidated Financial Statements, MCII Holdings contributed its Dina Autobuses,
S.A. de C.V. subsidiary ("Autobuses") to the Company at historical cost. The
Company's Consolidated Financial Statements include Autobuses for all periods
presented as this is a reorganization of entities under common control. All
significant intercompany transactions 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.
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 hedge transactions during 1998.
F-26
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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 $3,325,000 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."
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
F-27
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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>
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-28
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FINANCIAL RESTRUCTURING
As of December 31, 1998, MCII had a $170 million U.S. senior revolving
credit facility ("the Senior Credit Facility") with a nine-bank syndicate to
finance working capital and other general corporate needs. This facility was due
to expire on October 1, 1999, and the lenders indicated that they were not
willing to extend its maturity. 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 MCII's Senior Term Notes due
2002, a $12 million reduction in its Canadian bank credit facility, and a $13
million principal payment on the Pre-Export Notes due 1999.
As a result of the debt reductions during 1998 and the additional debt
obligations and working capital requirements for 1999, the Company did 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 World Markets Corp. (formerly
CIBC Oppenheimer Corp.) and its affiliates (collectively "CIBC") to act as the
Company's lead bank agent, financial advisor, placement agent, and/or
underwriter to undertake a financial restructuring of the debt obligations of
the Company and Grupo Dina.
On April 19, 1999, MCII executed an agreement with CIBC for the issuance of
$40 million of Senior Subordinated Increasing Rate Notes ("IRNs"), due December
31, 1999, (subject to extension to March 31, 2000). This bridge financing was
used by MCII to meet its short-term working capital requirements during the
financial restructuring process.
In addition to the bridge financing, the Company, in association with CIBC,
developed and executed a financial restructuring plan to refinance substantially
all of the indebtedness of Grupo Dina, the Company, and their respective
subsidiaries.
On May 14, 1999, Grupo Dina commenced a tender offer and consent
solicitation relating to all of the approximately $206.5 million aggregate
principal amount of outstanding Senior Secured Discount Notes due 2002 (the
"Discount Notes") issued by Grupo Dina and MCII Holdings. Grupo Dina also
commenced a tender offer and consent solicitation relating to all of the $35.0
million aggregate principal amount of outstanding Senior Secured Guaranteed
Notes due 2000 (the "Guaranteed Notes") issued by its wholly-owned subsidiary,
Dina Trucks (USA), L.L.C., and guaranteed by Grupo Dina and Dina Camiones, S.A.
de C.V.
The consideration for each Discount Note and Guaranteed Note tendered and
accepted for payment was (a) $980 per $1,000 of Notes, plus (b) a consent
payment of $20 per $1,000 of Notes, plus (c) accrued interest through the
settlement date.
On June 16, 1999, holders of approximately 99.97% of the outstanding
Discount Notes tendered their notes for payment pursuant to the tender offer.
The remaining Discount Notes were redeemed by the Company. On June 16, 1999, all
Guaranteed Notes were tendered for payment pursuant to the tender offer.
On June 16, 1999, the Company also completed a series of transactions to
re-capitalize and restructure substantially all of the indebtedness of the
Company and Grupo Dina and their subsidiaries, including:
F-29
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FINANCIAL RESTRUCTURING (CONTINUED)
(a) MCII Holdings redeemed a portion of its outstanding common stock from Grupo
Dina for total proceeds of $328 million. Grupo Dina used $256.6 million of
the proceeds to conclude the above tender offers and retained $71.4 million
in cash;
(b) An investment group led by Joseph Littlejohn & Levy Fund III L.P., ("JLL") a
private equity partnership, made an equity contribution of $125 million in
MCII Holdings. MCII Holdings also issued Senior Notes with warrants due 2010
in an amount of $50 million to the new equity investors. MCII Holdings
subsequently made a capital contribution of the total proceeds of $175
million to MCII. As a result of the equity investment and redemption, the
investment group led by JLL became the 61% majority owner of MCII Holdings
and Grupo Dina became a 39% minority stockholder;
(c) MCII issued $152.3 million of Senior Subordinated Notes due 2009 at a
discount of 98.5755% to yield total cash proceeds of $150.1 million. The
notes are not secured by any collateral and rank junior to any of the
Company's other senior debt but equal to any future senior subordinated debt
issuance. The Company has a right to buy back some or all of the notes prior
to their due date subject to certain limitations and premium provisions as
specified in the agreement; and
(d) MCII entered into a new Senior Secured Credit Facility in the total amount
of $445 million, consisting of $333 million in Term B loans due 2006 drawn
on the June 16, 1999 closing date, and additional availability in the form
of a $112 million revolving credit facility due 2005. The agreement contains
financial covenants that the Company will not exceed certain leverage ratios
or fall below certain interest coverage ratios as specified in the
agreement. The agreement also contains a mandatory prepayment provision
based upon a free cash flow formula as specified in the agreement. The
prepayment provision calls for any prepayment made to be first applied to
the term loans and then to the loans made under the revolving credit
agreement. The facility provides for variable rates of interest based upon
certain specified formulas that include a base rate of interest and an
applicable margin based upon a calculation of the Company's Consolidated
Total Leverage ratio. The Company also pays a 0.5% annualized facility fee
on the daily unused portion of the revolving credit agreement. The Credit
Facility calls for interest payments and payment of the facility fee to be
paid at the end of each calendar quarter. The term loan agreement also calls
for a principal payment of $832,500 due at the end of each calendar quarter
commencing on September 30, 1999 and ending on March 31, 2006 and a final
principal payment of $310,522,500 plus accrued interest on June 16, 2006. It
is the Company's intention to fund its quarterly term loan principal
obligations through the Senior Secured Credit Facility. Therefore, the
current portion of this term loan is classified as long term.
In addition to the debt repurchased pursuant to the tender offers, MCII
repaid substantially all of its outstanding indebtedness including:
(a) The $40 million of IRN's along with $0.2 million of accrued interest and
$0.2 million of redemption premiums;
(b) The existing U.S. revolving credit facility in a total amount of $165.5
million (including outstanding letters of credit) due to mature on October
1, 1999; along with $0.5 million of accrued interest and $0.2 million of
redemption premiums;
(c) The $100 million of 9.02% Senior Notes due 2002, along with $0.4 million of
accrued interest and a prepayment premium of approximately $5.3 million.
F-30
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. FINANCIAL RESTRUCTURING (CONTINUED)
In connection with the debt refinancings, the following restructuring
transactions and agreements were also consummated:
(a) MCII Holdings, transferred Autobuses to MCII, and a portion of the proceeds
of the refinancing were used to repay Autobuses' outstanding credit
facilities of $14.2 million;
(b) MCII Holdings and certain of its subsidiaries transferred certain indirect
subsidiaries, including Autopartes Hidalguenses, S.A. de C.V.; Carroceria
Sahagun, S.A. de C.V.; Mexicana de Manufacturas Especiales, S.A. de C.V.,
and Universal Coach Parts Mexico, S.A. de C.V. (UCP Mexico), to certain
subsidiaries of Grupo Dino and MCII canceled a $7.3 million receivable from
UCP Mexico;
(c) One of our Canadian subsidiaries entered into a sale-leaseback transaction
with Grupo Dina for tooling and equipment located at the facility at St.
Matthews Street in Winnipeg, Manitoba. The market value of the tooling and
equipment at the facility was between $2 million and $4 million and the
transfer price and lease payments were for nominal amounts.
(d) Autobuses transferred to Grupo Dina a group of transit buses that are leased
to a company affiliated with Grupo Dina, together with the related lease
rights;
(e) Autobuses agreed to transfer certain undeveloped land to a subsidiary of
Grupo Dina in exchange for land and buildings required for ongoing
operations;
(f) MCII acquired certain royalty-free rights to use the Dina name and
trademarks in marketing intercity coaches;
(g) Grupo Dina, through its subsidiaries, acquired rights, subject to certain
conditions, to supply various manufactured parts and components to the
operating subsidiaries of MCII; and
(h) Grupo Dina agreed to perform certain transitional services for MCII and its
operating subsidiaries.
3. NET RECEIVABLE FROM AFFILIATES
During the second quarter of 1998, Grupo 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 uncollectability of the December 31, 1998
net receivable balance from Grupo Dina in the amount of $77,945,000. These two
transactions have resulted in a $42,907,000 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-31
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. EQUITY CONSOLIDATION ADJUSTMENT
In 1998, 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. 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 Grupo
Dina as a dividend. In December 1995, the Company repurchased the MASA shares
directly from Grupo 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.
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 Grupo Dina.
7. 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 upon 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.
F-32
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. DISCONTINUED OPERATIONS (CONTINUED)
The summarized balance sheet of the discontinued transit bus manufacturing
segment at December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assets:
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>
8. 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.
9. ACQUISITON
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.
F-33
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CASH FLOW EFFECT OF CHANGES IN OPERATING ASSETS AND LIABILITIES
Change in operating assets and liabilities for the years ended December 31
consisted of:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Decrease (Increase) in operating assets:
Receivables................................. $ (44,121) $ (25,839) $ (21,894)
Inventories................................. 28,263 (69,006) (4,414)
Other operating assets...................... 11,022 (2,854) 3,525
--------- --------- ---------
(4,836) (97,699) (22,783)
--------- --------- ---------
Increase (Decrease) in operating liabilities:
Accounts payable............................ 13,819 26,525 12,724
Accrued income taxes........................ 25,245 2,916 (4,549)
Other operating liabilities................. (22,820) (49,068) 10,509
--------- --------- ---------
16,244 (19,627) 18,684
--------- --------- ---------
Net cash flow effect.......................... $ 11,408 $(117,326) $ (4,099)
--------- --------- ---------
--------- --------- ---------
</TABLE>
11. INVENTORIES
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Raw materials........................................... $ 38,287 $ 48,938
Work in process......................................... 42,487 61,230
Finished goods.......................................... 171,501 170,879
--------- ---------
252,275 281,047
Excess quantity and obsolescence reserve................ (26,410) (23,252)
--------- ---------
$ 225,865 $ 257,795
--------- ---------
--------- ---------
</TABLE>
12. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Land.................................................................. $ 5,183 $ 5,309
Buildings and leasehold improvements.................................. 45,831 43,261
Assets held for lease................................................. 31,132 28,386
Machinery and equipment............................................... 60,657 58,218
---------- ----------
142,803 135,174
Less accumulated depreciation and amortization........................ (40,007) (28,329)
---------- ----------
$ 102,796 $ 106,845
---------- ----------
---------- ----------
</TABLE>
F-34
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PROPERTY, PLANT, AND EQUIPMENT (CONTINUED)
Depreciation and amortization expense for property, plant, and equipment was
$17,001,000, $14,072,000 and $9,964,000, respectively, for the years ended
December 31, 1998, 1997 and 1996 respectively.
13. NOTES RECEIVABLE
Notes receivable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
(DOLLARS IN
THOUSANDS)
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)
---------- ---------
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>
14. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
United States bank credit facility (Note 2)............ $ 137,000 $ 135,000
Canadian bank credit facility.......................... -- 12,033
Bancomext export loan facility (Note 2)................ 8,594 6,496
Pre-Export Notes, due to 1999 (Note 2)................. 22,000 34,203
9.02% of Senior Notes, due 2002 (Note 2)............... 100,000 125,000
Note payable at 7%, due 2001........................... 371 519
--------- ---------
267,965 313,251
Less current portion................................... -- (44,418)
--------- ---------
Long-term debt, excluding debt push down............... 267,965 268,833
Push down of debt Senior Secured Discount Notes, due
2002 (Note 2)........................................ 206,500 184,225
--------- ---------
Long-term debt, including debt push down............... $ 474,465 $ 453,058
--------- ---------
--------- ---------
</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
was available for issuance of standby letters of credit. The facility previously
provided $125,000,000 for borrowing purposes. Borrowings were due to be
available under the bank credit facility on a revolving basis through October 1,
1999. At
F-35
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. LONG-TERM DEBT (CONTINUED)
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 were, 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 provided for
commitment fees. Such spreads and fees can change based on changes in the
Company's financial ratios. On June 16, 1999 all outstanding borrowings under
this facility were repaid as part of the financial restructuring discussed in
Note 2 and the facility terminated.
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 was reserved for certain
specific purposes. Borrowings were scheduled to be available under the bank
credit facility on a revolving basis through October 1, 1999. The interest rates
applicable to borrowings under this agreement were, 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 provided for commitment fees. Such
spreads and fees could change based on changes in the Company's financial
ratios. No additional borrowings can be made against this credit facility as a
result of the refinancing (see Note 2).
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 had $125,000,000 of term notes payable which were due in annual
installments of $25,000,000 beginning in November 1998 and extending through
November 2002. Interest on the notes was 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 $62,500,000 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 was at a fixed rate of 7.3% for 1997 and 1998. As a result of
amendments to the term notes payable agreement, effective April 15, 1999,
interest on the Notes became payable monthly. Additionally, these amendments,
contained changes to certain financial covenants for which the Company would
have been in violation had they not been changed. On June 16, 1999, all
outstanding borrowings were repaid as part of the financial restructuring
discussed in Note 2 to the Consolidated Financial Statements.
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 provided a $30,000,000
credit facility at the Mexican Interbank rate. On June 16, 1999, all outstanding
borrowings were repaid as part of financial restructuring discussed in Note 2 to
the Consolidated Financial Statements.
F-36
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. LONG-TERM DEBT (CONTINUED)
The Senior Secured Discount Notes due 2002 ("Discount Notes") were
co-obligations of Grupo Dina and MCII Holdings, with the specific intention that
Grupo Dina would service and repay the obligation. MCII Holdings' stock was
pledged as collateral for the Discount Notes. The Company was not legally
obligated for the note, or any of its assets pledged as collateral. As of the
acquisition of the Company by Grupo Dina (August 1, 1994) the Company has
recognized the Discount Notes and the predecessor debt to the Discount Notes and
related interest expense in the Company's historical financial statements
because the proceeds from the planned restructuring would repay certain
indebtedness of Grupo Dina (see Note 2). 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. On June 16, 1999, all outstanding
borrowings were repaid as part of the financial restructuring discussed in Note
2 to the Consolidated Financial Statements.
The debt existing at December 31, 1998 has been classified in accordance
with the terms and provisions of the new debt outstanding as of June 16, 1999
(see Note 2).
Interest paid in the years ended December 31, 1998, 1997 and 1996 was
$24,858,000, $26,067,000 and $21,362,000, respectively.
15. 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 note 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
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
---------------- ---------- ---------------- ----------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt............................. $ 474,465 $ 445,284 $ 497,476 $ 492,704
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.
F-37
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES
The U.S. operations of the Company are included in the consolidated and
other applicable U.S. income tax returns of the Company. Tax returns for the
Canadian and Mexican entities are filed separately in Canada and Mexico.
United States, Canadian, and Mexican income before income taxes was as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States.................................... $ 33,163 $ 21,753 21,874
Canada........................................... 41,145 23,671 19,477
Mexico........................................... (2,675) 14,005 4,797
Non deductible interest from push down of debt... (25,194) (21,635) (19,550)
--------- --------- ---------
$ 46,439 $ 37,794 $ 26,598
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense (benefit) for the years ended December 31 was comprised
of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<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........................................ (306) 1,919 (1,764)
--------- --------- ---------
(4,824) 1,373 (4,812)
--------- --------- ---------
Total income tax expense......................... $ 31,790 $ 21,268 $ 18,474
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-38
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES (CONTINUED)
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
--------- --------- ---------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Computed income tax provision at Statutory rate of 35%....... $ 16,254 $ 13,228 $ 9,310
Non deductible interest expense from push down of debt....... 8,818 7,572 6,842
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................................................... (274) (330) 527
--------- --------- ---------
Total income tax expense..................................... $ 31,790 $ 21,268 $ 18,474
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred income tax assets and liabilities included in the Consolidated
Balance Sheet at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<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............................................................... (4,256) (2,804)
---------- ----------
Total gross deferred tax liabilities.................................. (17,525) (16,516)
---------- ----------
Net deferred tax asset................................................ $ 14,498 $ 7,514
---------- ----------
---------- ----------
</TABLE>
F-39
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. INCOME TAXES (CONTINUED)
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.
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 through December 31, 1998
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 Grupo Dina's purchase price on acquiring MCII
Holdings, 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.
17. 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.
F-40
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. PENSION BENEFITS (CONTINUED)
The components of net periodic pension costs are summarized in the following
table:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<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 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>
UNITED STATES CANADA
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN PENSION BENEFIT OBLIGATION
Benefit obligation as of January 1...................................... $ 19,559 $ 15,943 $ 6,407 $ 6,361
Service cost............................................................ 1,214 1,028 485 475
Interest cost........................................................... 1,494 1,262 427 435
Actuarial loss.......................................................... 1,933 1,646 495 35
Benefits paid........................................................... (360) (320) (280) (623)
Foreign currency rate change............................................ -- -- (453) (276)
--------- --------- --------- ---------
Benefit obligation as of December 31.................................... $ 23,840 $ 19,559 $ 7,081 $ 6,407
--------- --------- --------- ---------
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.......................... $ 15,412 $ 12,863 $ 7,205 $ 6,713
Actual return on plan assets............................................ 3,938 2,820 831 969
Employer contribution................................................... 241 49 510 451
Benefits paid........................................................... (360) (320) (280) (623)
Foreign currency rate change............................................ -- -- (503) (305)
--------- --------- --------- ---------
Fair value of plan assets at end of year................................ $ 19,231 $ 15,412 $ 7,763 $ 7,205
--------- --------- --------- ---------
--------- --------- --------- ---------
FUNDED STATUS:
Funded status at end of year............................................ $ (4,609) $ (4,147) $ 682 $ 798
Unrecognized transition obligation...................................... (36) (45) 9 8
Unrecognized net actuarial (gain)/loss.................................. (812) 4 256 (31)
Unrecognized prior service cost......................................... 691 1,201 32 38
--------- --------- --------- ---------
Prepaid (accrued) benefit cost.......................................... $ (4,766) $ (2,987) $ 979 $ 813
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
F-41
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. PENSION BENEFITS (CONTINUED)
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>
UNITED STATES CANADA
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost...................................................... $ 39 $ 9 N/A N/A
Accrued benefit liability................................................. (6,290) (5,044) N/A N/A
Intangible asset.......................................................... 691 1,203 N/A N/A
Accumulated other comprehensive income (pretax)........................... 794 845 N/A N/A
--------- --------- --------- ---
Net amount recognized..................................................... $ (4,766) $ (2,987) N/A N/A
--------- --------- --------- ---
--------- --------- --------- ---
</TABLE>
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.
18. MEXICAN EMPLOYEE BENEFITS
Net periodic pension cost for the two years ended December 31 included the
following components:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<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>
F-42
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. MEXICAN EMPLOYEE BENEFITS (CONTINUED)
The following tables summarize pension benefit obligations, plan assets and
funded status as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
CHANGE IN PENSION BENEFIT OBLIGATION:
Benefit obligation as of January 1......................................... $ 2,845 $ 2,264
Service cost............................................................... 57 96
Interest cost.............................................................. 456 574
Plan participants' contributions........................................... -- --
Amendments................................................................. -- --
Actuarial gain............................................................. (612) --
Benefits paid.............................................................. (17) (22)
Foreign currency rate change............................................... (517) (67)
--------- ---------
Benefit obligation as of December 31....................................... $ 2,212 $ 2,845
--------- ---------
--------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year............................. $ 3,700 $ 3,001
Actuarial gain in rate..................................................... (668) --
Actual return on plan assets............................................... 666 809
Employer contribution...................................................... -- --
Plan participants' contributions........................................... -- --
Benefits paid.............................................................. (17) (22)
Foreign currency rate change............................................... (682) (88)
--------- ---------
Fair value of plan assets at end of year................................... $ 2,999 $ 3,700
--------- ---------
--------- ---------
FUNDED STATUS:
Funded status at end of year............................................... $ 787 $ 855
Unrecognized net actuarial gain............................................ (802) (1,041)
Unrecognized prior service cost............................................ 52 --
--------- ---------
Prepaid (accrued) benefit cost............................................. $ 37 $ (186)
--------- ---------
--------- ---------
Weighted average assumptions used were:
</TABLE>
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Discount rate for obligation............................................... 24.0% 25.4%
Rate of increase in compensation........................................... 18.6% 20.0%
Long-term rate of return on assets......................................... 25.7% 27.2%
</TABLE>
19. 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.
F-43
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
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
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost.................................. $ 563 $ 531 $ 494 $ 21 $ 24 $ 21
Interest cost................................. 475 453 425 18 25 24
Amortization of prior service cost............ (3) (3) (3) -- -- --
Recognized net actuarial (gain)/loss.......... (69) (5) (68) -- 2 2
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>
UNITED STATES CANADA
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CHANGE IN POSTRETIREMENT BENEFIT UNITED STATES AND CANADA OBLIGATIONS:
Benefit obligation as of January 1......................................... $ 7,574 $ 6,066 $ 278 $ 289
Service cost............................................................... 563 531 21 24
Interest cost.............................................................. 475 453 18 25
Amendments................................................................. (3) (3) -- --
Actuarial (gain)/loss...................................................... (457) 583 -- (37)
Benefits paid.............................................................. (69) (56) (25) (11)
Foreign currency rate change............................................... -- -- (18) (12)
--------- --------- --------- ---------
Benefit obligation as of December 31....................................... $ 8,083 $ 7,574 $ 274 $ 278
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
UNITED STATES CANADA
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
FUNDED STATUS:
Funded status at end of year............................................... $ (8,083) $ (7,574) $ (274) $ (278)
Unrecognized net actuarial (gain)/loss..................................... (368) 23 (21) (25)
Unrecognized prior service cost............................................ (15) (18) -- --
--------- --------- --------- ---------
Accrued benefit cost....................................................... $ (8,466) $ (7,569) $ (295) $ (303)
--------- --------- --------- ---------
--------- --------- --------- ---------
</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
F-44
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
19. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
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
POINT INCREASE POINT DECREASE
--------------- --------------
(DOLLARS IN THOUSANDS)
<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 a health care component.
20. 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.
21. 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 materials
being purchased offset gains and losses on the contracts. At December 31, 1998
the Company had no Canadian dollar exchange forward contracts 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
F-45
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
21. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
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 position or results of operations.
22. LITIGATION
The Company and certain of its subsidiaries 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 E-Series model inter-city 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-Series model coaches when
purchasing a new E-Series 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.
During 1996, the Company completed a research and development project in
connection with the development of the E-Series 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 Consolidated Income Statement).
24. NONCONSOLIDATED AFFILIATE
In 1997 a new company was formed, MCII Financial Services ("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.
F-46
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
24. NONCONSOLIDATED AFFILIATE (CONTINUED)
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
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Purchases from affiliated companies:
Goods...................................................... $ 4,146 $ 15,044 $ 4,815
Services................................................... 7,681 21,587 8,229
Allocated interest expense................................. 3,234 6,978 3,172
--------- --------- ---------
$ 15,061 $ 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
--------- --------- ---------
--------- --------- ---------
Charges for Grupo Dina management services................... $ 1,000 $ 1,000 $ 1,000
--------- --------- ---------
--------- --------- ---------
</TABLE>
Related party balances included in the December 31 balance sheet were:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Affiliated companies receivables, net................................... $ -- $ 16,293
</TABLE>
Grupo 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.
F-47
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. BUSINESS SEGMENT AND GEOGRAPHIC DATA
BUSINESS SEGMENT DATA
The Company has three reporting segments, Coach and Support, Replacements
Parts, and Finance. 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 Finance
segment provides financing options for the sale of new and used coaches. The
reportable segments are managed separately because each business has differing
customer selling 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).
Data for these three segments of the years ending December 31 are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Coach and Support...................................... $ 736,216 $ 537,184 $ 496,078
Replacement Parts...................................... 186,072 193,358 159,201
Finance................................................ 9,439 9,241 11,805
---------- ---------- ----------
$ 931,727 $ 739,783 $ 667,084
---------- ---------- ----------
---------- ---------- ----------
Operating income:
Coach and Support...................................... $ 59,276 $ 60,501 $ 41,474
Replacement Parts...................................... 22,098 15,923 14,158
Finance................................................ 2,430 2,029 4,201
---------- ---------- ----------
$ 83,804 $ 78,453 $ 59,833
---------- ---------- ----------
---------- ---------- ----------
Depreciation and amortization:
Coach and Support...................................... $ 18,627 $ 15,053 $ 11,435
Replacement Parts...................................... 4,021 4,739 4,014
Finance................................................ 2,167 2,243 2,169
---------- ---------- ----------
$ 24,815 $ 22,035 $ 17,618
---------- ---------- ----------
---------- ---------- ----------
Capital expenditures:
Coach and Support...................................... $ 8,847 $ 29,399 $ 24,271
Replacement Parts...................................... 2,889 2,697 1,338
Finance................................................ 4 -- --
---------- ---------- ----------
$ 11,740 $ 32,096 $ 25,609
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
F-48
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
26. BUSINESS SEGMENT AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets:
Coach and Support................................................... $ 536,659 $ 567,699
Replacement Parts................................................... 184,325 189,415
Finance............................................................. 80,771 63,559
---------- ----------
$ 801,755 $ 820,673
---------- ----------
---------- ----------
</TABLE>
There are no material intersegment transactions.
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 Holdings 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. ("CUI")
accounted for 9.2%, 8.6% and 0.9%, respectively, of the Company's consolidated
revenues. Effective June 9th, 1997, CUI and MCII Holdings signed an agreement
pursuant to which CUI agreed that MCII Holdings 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
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States.......................................... $ 770,709 $ 610,915 579,136
Canada................................................. 79,767 82,898 82,157
Mexico................................................. 81,251 45,970 5,791
---------- ---------- ----------
$ 931,727 $ 739,783 $ 667,084
---------- ---------- ----------
---------- ---------- ----------
Long-Lived Assets:
United States.......................................... $ 229,758 $ 222,501
Canada................................................. 101,669 110,965
Mexico................................................. 24,937 39,468
---------- ----------
$ 356,364 $ 372,934
---------- ----------
---------- ----------
</TABLE>
F-49
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS
In connection with the issuance of the Senior Subordinated Notes due 2009
(the "Notes") (See note 2), the Company's U.S. subsidiaries became guarantors to
these Notes. The following tables present condensed consolidating financial
information for MCII Guarantors (U.S. entities); and Non Guarantors (Non-U.S.
entities including Autobuses and MCI, Ltd.). Each of the Guarantors are a direct
or indirect wholly owned subsidiary of MCII. The Guarantors will jointly and
severally and fully and unconditionally guarantee the Notes of the Company. The
following condensed consolidating financial information presents the results of
operations, financial position and cash flows of MCII, Guarantors, and Non
Guarantors, and the eliminations necessary to arrive at the information for the
Company on a condensed consolidated basis.
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales........................................... $ -- $ 772,022 $ 347,742 $ (188,037) $ 931,727
Cost of sales (exclusive of items shown
separately below)............................. -- 615,043 303,179 (190,033) 728,189
Depreciation and amorization.................... 339 10,805 13,671 -- 24,815
Interest expense, financing operations.......... -- 2,545 220 -- 2,765
Research and development expenses............... -- 4,253 4,488 -- 8,741
New product start-up costs...................... -- 981 -- -- 981
Business insurance recoveries................... -- (7,366) (1,096) -- (8,462)
Selling, general and administrative expenses.... 8,540 86,758 (4,674) 270 90,894
---------- ----------- ----------- ------------ ------------
Operating income................................ (8,879) 59,003 31,954 1,726 83,804
---------- ----------- ----------- ------------ ------------
Interest expense, net........................... (2,498) (18,919) 1,432 -- (19,985)
Interest expense pushed down from related
party......................................... (25,194) -- -- -- (25,194)
Other (income) expense.......................... (340) (204) 33 -- (511)
Gain on equity investments...................... 5,000 -- -- -- 5,000
Foreign currency translation gain............... -- -- 3,325 -- 3,325
---------- ----------- ----------- ------------ ------------
(23,032) (19,123) 4,790 -- (37,365)
Income (loss) before income taxes............... (31,911) 39,880 36,744 1,726 46,439
Income taxes.................................... (3,264) 17,072 17,982 -- 31,790
---------- ----------- ----------- ------------ ------------
Net income (loss)............................... $ (28,647) $ 22,808 $ 18,762 $ 1,726 $ 14,649
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-50
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $ 613,426 $ 303,960 $ (177,603) $ 739,783
Cost of sales (exclusive of items shown
separately below)............................. -- 481,923 248,280 (183,596) 546,607
Depreciation and amorization.................... 436 11,494 10,105 -- 22,035
Interest expense, financing operations.......... -- 2,184 210 -- 2,394
Research and development expenses............... -- 2,882 3,773 -- 6,655
New product start-up costs...................... -- -- 7,333 -- 7,333
Business insurance recoveries................... (500) (500)
Provision for relocation of corporate office.... 886 -- -- -- 886
Selling, general and administrative expenses.... 5,846 68,788 2,981 (1,695) 75,920
---------- ----------- ----------- ------------ ------------
Operating income................................ (7,168) 46,155 31,778 7,688 78,453
---------- ----------- ----------- ------------ ------------
Interest expense, net........................... (3,225) (13,613) (5,021) -- (21,859)
Interest expense pushed down from related
party......................................... (21,635) -- -- -- (21,635)
Other (income) expense.......................... 69 (465) 10,704 (7,388) 2,920
Foreign currency translation gain............... -- -- (85) -- (85)
---------- ----------- ----------- ------------ ------------
(24,791) (14,078) 5,598 (7,388) (40,659)
Income (loss) before income taxes............... (31,959) 32,077 37,376 300 37,794
Income taxes.................................... (3,630) 14,012 10,886 -- 21,268
---------- ----------- ----------- ------------ ------------
Net income (loss)............................... $ (28,329) $ 18,065 $ 26,490 $ 300 $ 16,526
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-51
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $ 580,538 $ 267,832 $ (181,286) $ 667,084
Cost of sales (exclusive of items shown
separately below)............................. -- 478,193 206,425 (178,419) 506,199
Depreciation and amortization................... 335 10,523 6,760 -- 17,618
Interest expense, finance operations............ -- 3,123 482 -- 3,605
Research and development expenses............... -- 1,660 5,686 -- 7,346
Provision for relocation of corporate office.... 3,000 -- -- -- 3,000
Selling, general and administrative expenses.... (852) 48,959 21,376 -- 69,483
---------- ----------- ----------- ------------ ------------
Operating income (loss)......................... (2,483) 38,080 27,103 (2,867) 59,833
---------- ----------- ----------- ------------ ------------
Interest expense, net........................... (3,906) (9,843) (2,280) (16,029)
Interest expense pushed down from related
party......................................... (19,550) -- -- -- (19,550)
Loss on sale of equity investments.............. (1,200) -- -- -- (1,200)
Other income.................................... 116 1,102 979 -- 2,197
Foreign currency translation gain............... -- -- 1,347 -- 1,347
---------- ----------- ----------- ------------ ------------
(24,540) (8,741) 46 -- (33,235)
---------- ----------- ----------- ------------ ------------
Income (loss) before income taxes, discontinued
operations and extraordinary item............. (27,023) 29,339 27,149 (2,867) 26,598
Income tax expense (benefit).................... (1,986) 11,721 8,739 -- 18,474
---------- ----------- ----------- ------------ ------------
Income (loss) from continuing operations........ $ (25,037) $ 17,618 $ 18,410 $ (2,867) $ 8,124
---------- ----------- ----------- ------------ ------------
Discontinued operations (net of tax benefit of
$3,130)....................................... -- (5,000) -- -- (5,000)
---------- ----------- ----------- ------------ ------------
Income before extraordinary item................ (25,037) 12,618 18,410 (2,867) 3,124
Extraordinary charge on early retirement of debt
(net of tax benefit of $550).................. (851) -- -- -- (851)
---------- ----------- ----------- ------------ ------------
Net income (loss)............................... $ (25,888) $ 12,618 $ 18,410 $ (2,867) $ 2,273
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-52
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 5,415 $ 17,951 $ 672 $ -- $ 24,038
Trade and other accounts receivable.......... 2,313 98,593 19,365 1,695 121,966
Intercompany receivables/(payables).......... 506,792 (544,249) 117,361 (79,904) --
Current portion of notes receivable.......... -- 10,016 532 -- 10,548
Inventories.................................. -- 165,928 61,545 (1,608) 225,865
Deferred income taxes........................ 4,098 17,006 384 -- 21,488
Other current assets......................... 40 4,134 1,912 -- 6,086
---------- ----------- ----------- ------------ ------------
Total Current Assets........................... 518,658 (230,621) 201,771 (79,817) 409,991
Property, plant, and equipment, net.......... 533 46,320 55,974 (31) 102,796
Notes receivable............................. -- 32,126 3,274 -- 35,400
Investments in affiliates.................... 19,478 3,632 6 -- 23,116
Intangible assets............................ 2,470 145,509 67,610 -- 215,589
Other assets................................. 2,520 8,696 3,647 -- 14,863
---------- ----------- ----------- ------------ ------------
Total Assets................................... $ 543,659 $ 5,662 $ 332,282 $ (79,848) $ 801,755
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-53
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable............................. $ 1,191 $ 53,145 $ 27,554 $ -- $ 81,890
Accrued compensation and other benefits...... 3,635 5,267 4,441 -- 13,343
Accrued warranties........................... -- 10,618 3,342 -- 13,960
Accrued income taxes......................... 3,021 9,867 19,432 -- 32,320
Self insurance reserves...................... 5,067 1,322 (24) -- 6,365
Net liabilities of discontinued operations... -- 4,416 -- -- 4,416
Other current liabilities.................... 7,089 6,739 16,411 -- 30,239
----------- ----------- ----------- ------------ ------------
Total Current Liabilities...................... 20,003 91,374 71,156 -- 182,533
Long-term debt............................... 237,000 371 30,594 -- 267,965
Long-term debt--pushed down from related
party...................................... 206,500 -- -- -- 206,500
Pensions and other benefits.................. 15,233 38 516 -- 15,787
Other deferred items and self insurance
reserves................................... 12,435 6,624 -- -- 19,059
Deferred income taxes........................ (2,000) 2,152 6,838 -- 6,990
----------- ----------- ----------- ------------ ------------
Total Liabilities.............................. 489,171 100,559 109,104 -- 698,834
----------- ----------- ----------- ------------ ------------
Stockholder's Equity:
Common Stock and additional capital.......... 155,065 (48,640) 212,789 (77,939) 241,275
Accumulated deficit.......................... (100,032) (45,988) 38,835 (1,909) (109,094)
Accumulated other comprehensive income....... (545) (269) (28,446) -- (29,260)
----------- ----------- ----------- ------------ ------------
Total Stockholder's Equity..................... 54,488 (94,897) 223,178 (79,848) 102,921
----------- ----------- ----------- ------------ ------------
Total Liabilities & Stockholder's Equity....... $ 543,659 $ 5,662 $ 332,282 $ (79,848) $ 801,755
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
</TABLE>
F-54
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 9,018 $ 5,306 $ (327) $ -- $ 13,997
Accounts receivable, net..................... 92 60,770 27,681 -- 88,543
Intercompany receivables/(payables).......... 512,257 (517,749) 21,785 -- 16,293
Current portion of notes receivable.......... -- 5,973 652 -- 6,625
Inventories.................................. -- 181,642 79,757 (3,604) 257,795
Deferred income taxes........................ 2,735 12,305 (610) -- 14,430
Other current assets......................... 1,773 3,135 2,683 -- 7,591
---------- ----------- ----------- ------------ ------------
Total Current Assets........................... 525,875 (248,618) 131,621 (3,604) 405,274
Property, plant, and equipment............... 748 40,693 65,435 (31) 106,845
Notes receivable............................. -- 38,085 4,380 -- 42,465
Deferred taxes............................... 3,278 (3,739) 461 -- --
Investments in affiliates.................... 15,083 170 -- -- 15,253
Intangible assets, net....................... 3,545 150,448 73,374 -- 227,367
Other assets................................. 3,360 7,211 12,898 -- 23,469
---------- ----------- ----------- ------------ ------------
Total Assets................................... $ 551,889 $ (15,750) $ 288,169 $ (3,635) $ 820,673
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-55
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable............................. $ 3,145 $ 40,182 $ 24,253 $ -- $ 67,580
Accrued compensation and other benefits...... 813 7,079 4,488 -- 12,380
Accrued warranties........................... -- 7,124 2,896 -- 10,020
Accrued income taxes......................... 835 5,021 1,395 -- 7,251
Self insurance reserves...................... 4,667 808 135 -- 5,610
Net liabilities of discontinued operations... -- 2,229 -- -- 2,229
Other current liabilities.................... 3,984 6,875 14,252 -- 25,111
Current portion of long-term debt............ 25,000 148 19,270 -- 44,418
---------- ----------- ----------- ------------ ------------
Total Current Liabilities...................... 38,444 69,466 66,689 -- 174,599
Long-term debt............................... 235,000 371 33,462 -- 268,833
Long-term debt--pushed down from related
party...................................... 184,225 -- -- -- 184,225
Pensions and other benefits.................. 13,083 7,272 (6,318) -- 14,037
Other deferred items and self insurance
reserves................................... 14,624 2,459 7,287 -- 24,370
Deferred income taxes........................ -- -- 6,916 -- 6,916
---------- ----------- ----------- ------------ ------------
Total Liabilities.............................. 485,376 79,568 108,036 -- 672,980
---------- ----------- ----------- ------------ ------------
Stockholder's Equity
Common stock and additional capital.......... 153,973 (50,956) 185,492 -- 288,509
Accumulated deficit.......................... (87,037) (45,010) 15,882 (3,635) (119,800)
Accumulated other comprehensive income....... (423) 648 (21,241) -- (21,016)
---------- ----------- ----------- ------------ ------------
Total Stockholder's Equity..................... 66,513 (95,318) 180,133 (3,635) 147,693
---------- ----------- ----------- ------------ ------------
Total Liabilities & Stockholder's Equity....... $ 551,889 $ (15,750) $ 288,169 $ (3,635) $ 820,673
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
</TABLE>
F-56
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating
Activities:
Net Income..................................... $ (28,647) $ 22,808 $ 18,762 $ 1,726 $ 14,649
Adjustments to reconcile net income to net cash
provided by (used in) operations:
Depreciation and amortization................ 339 10,805 13,671 -- 24,815
Deferred income taxes........................ (85) (6,288) 1,619 -- (4,754)
Non cash interest expense pushed down from
related party.............................. 25,194 -- -- -- 25,194
Gain on sale of property and notes
receivable................................. -- (1,188) -- -- (1,188)
Gain on equity investment.................... (5,000) -- -- -- (5,000)
Other noncash items, net..................... 1,826 6,541 241 -- 8,608
Change in operating assets and liabilities,
net........................................ 3,152 (40,939) 50,921 (1,726) 11,408
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Operating
Activities..................................... (3,221) (8,261) 85,214 -- 73,732
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Investing
Activities:
Capital expenditures........................... (75) (7,270) (4,395) -- (11,740)
Investment in assets held for lease............ -- (4,279) -- -- (4,279)
Proceeds from sale of property and
investments.................................. -- 906 341 -- 1,247
Investment in notes receivable................. -- (57,598) (2,046) -- (59,644)
Collections of notes receivable................ -- 54,653 3,003 -- 57,656
Proceeds from sale of notes receivable......... -- 2,750 -- -- 2,750
Investment in business......................... (7,860) -- -- -- (7,860)
Investment in affiliate........................ 5,000 -- -- -- 5,000
Discontinued operations, net changes........... -- 2,187 -- -- 2,187
--------- ----------- ----------- ------------- ------------
Net Cash Used In Investing Activities............ (2,935) (8,651) (3,097) -- (14,683)
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Financing
Activities:
Net change in long-term borrowings............. (25,000) (148) (12,425) -- (37,573)
Net change in credit facility.................. 2,000 -- (9,935) -- (7,935)
Related party receivables/payables............. 29,053 29,705 (58,758) -- --
Dividends paid to parent company............... (3,500) -- -- -- (3,500)
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Financing
Activities..................................... 2,553 29,557 (81,118) -- (49,008)
--------- ----------- ----------- ------------- ------------
Net Increase (Decrease) in Cash.................. (3,603) 12,645 999 -- 10,041
Cash and Cash Equivalents at Beginning of Year... 9,018 5,306 (327) -- 13,997
--------- ----------- ----------- ------------- ------------
Cash and Cash Equivalents at End of Year......... $ 5,415 $ 17,951 $ 672 $ -- $ 24,038
--------- ----------- ----------- ------------- ------------
--------- ----------- ----------- ------------- ------------
</TABLE>
F-57
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating
Activities:
Net Income....................................... $ (28,329) $ 18,065 $ 26,490 $ 300 $ 16,526
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization.................. 436 11,494 10,105 -- 22,035
Deferred income taxes.......................... 716 5,137 (4,480) -- 1,373
Non cash interest expense pushed down from
related party................................ 21,635 -- -- -- 21,635
Provision for relocating corporate office...... 886 -- -- -- 886
Gain on sale of property and notes receivable.. -- (92) -- -- (92)
Other noncash items, net....................... 4,961 5,926 (8,509) -- 2,378
Change in operating assets and liabilities,
net.......................................... (24,852) (58,787) (33,387) (300) (117,326)
--------- ----------- ----------- ----- ------------
Net Cash Used In Operating Activities............ (24,547) (18,257) (9,781) -- (52,585)
--------- ----------- ----------- ----- ------------
Cash Flows Provided (Used) By Investing
Activities:
Capital expenditures........................... (176) (4,567) (27,353) -- (32,096)
Investment in assets held for sale............. -- (56,375) -- -- (56,375)
Proceeds from sale of property and
investments.................................. -- 57,372 -- -- 57,372
Investment in notes receivable................. -- (43,675) (5,905) -- (49,580)
Collections of notes receivable................ -- 12,233 3,463 -- 15,696
Proceeds from sale of notes receivable......... -- 17,381 -- -- 17,381
Investment in affiliate........................ (25,708) -- -- -- (25,708)
Discontinued operations, net changes........... -- 2,140 -- -- 2,140
--------- ----------- ----------- ----- ------------
Net Cash Used In Investing Activities............ (25,884) (15,491) (29,795) -- (71,170)
--------- ----------- ----------- ----- ------------
Cash Flows Provided By (Used In) Financing
Activities:
Net change in long-term borrowings............. -- (149) -- -- (149)
Net change in bank credit facilities........... 50,000 -- 86,910 -- 136,910
Increase in capital............................ 4,036 -- -- -- 4,036
Related party receivables/payables............. 11,677 38,213 (49,890) -- --
Dividends paid to parent company............... (12,448) -- -- -- (12,448)
--------- ----------- ----------- ----- ------------
Net Cash Provided By Financing Activities........ 53,265 38,064 37,020 -- 128,349
--------- ----------- ----------- ----- ------------
Net Increase (Decrease) in Cash.................. 2,834 4,316 (2,556) -- 4,594
Cash and Cash Equivalents at Beginning of Year... 6,184 990 2,229 -- 9,403
Cash and Cash Equivalents at End of Year......... $ 9,018 $ 5,306 $ (327) -- $ 13,997
--------- ----------- ----------- ----- ------------
--------- ----------- ----------- ----- ------------
</TABLE>
F-58
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ----------- ----------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating
Activities:
Net Income...................................... $ (25,888) $ 12,618 $ 18,410 $ (2,867) $ 2,273
Adjustments to reconcile net income to net cash
provided by operations
Depreciation and amortization................. 335 10,523 6,760 -- 17,618
Deferred income taxes......................... (2,252) 5,751 (8,311) -- (4,812)
Loss from discontinued operations............. 5,000 5,000
Loss from early retirement of debt............ 851 851
Non-cash interest expense
related to debt push down................... 19,550 -- -- -- 19,550
Provision for relocating corporate office..... 3,000 -- -- -- 3,000
Gain on sale of property and notes
receivable.................................. -- (1,664) -- -- (1,664)
Loss on sale of equity investment............. 1,200 -- -- -- 1,200
Other non-cash items, net..................... 12,858 (5,401) (2,054) -- 5,403
Change in operating assets and liabilities,
net......................................... 4,826 (24,291) 12,499 2,867 (4,099)
--------- ----------- ----------- ------------- ------------
Net Cash Provided By Operating Activities......... 14,480 2,536 27,304 -- 44,320
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Investing
Activities:
Capital expenditures............................ (660) (2,547) (22,402) -- (25,609)
Investment in assets held for lease............. -- (54,538) -- -- (54,538)
Proceeds from sale of property and assets held
for lease..................................... -- 50,880 -- -- 50,880
Investment in notes receivable.................. -- (34,087) (6,257) -- (40,344)
Collection of notes receivable.................. -- 4,751 14,093 -- 18,844
Proceeds from sale of notes receivable.......... -- 24,934 -- -- 24,934
Proceeds from sale of business.................. 1,295 1,295
Purchase of business............................ (12,200) -- -- (12,200)
Discontinued operations, net changes............ -- 6,400 -- -- 6,400
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Investing
Activities...................................... 635 (16,407) (14,566) -- (30,338)
--------- ----------- ----------- ------------- ------------
Cash Flows Provided By (Used In) Financing
Activities:
Net change in long-term borrowings.............. -- (148) -- -- (148)
Net change in bank credit facilities............ (7,000) -- -- -- (7,000)
Termination of interest rate swap position...... 4,733 -- -- -- 4,733
Payment of debt issuance costs.................. (3,330) -- -- -- (3,330)
Early retirement of debt........................ (851) -- -- -- (851)
Increase in capital............................. -- -- 1,342 -- 1,342
Related party receivables/payables.............. 25,996 13,345 (39,341) -- --
Dividends paid to parent company................ (30,000) -- -- -- (30,000)
--------- ----------- ----------- ------------- ------------
Net Cash Provided By (Used In) Financing
Activities...................................... (10,452) 13,197 (37,999) -- (35,254)
--------- ----------- ----------- ------------- ------------
Net Increase (Decrease) in Cash................... 4,663 (674) (25,261) -- (21,272)
Cash and Cash Equivalents at Beginning of Year.... 1,521 1,664 27,490 -- 30,675
--------- ----------- ----------- ------------- ------------
Cash and Cash Equivalents at End of Year.......... $ 6,184 $ 990 $ 2,229 -- $ 9,403
--------- ----------- ----------- ------------- ------------
--------- ----------- ----------- ------------- ------------
</TABLE>
28. SUBSEQUENT EVENT
On April 28, 1999, the Company entered into an agreement to sell and
leaseback its primary parts distribution facility. Additionally, it entered into
an agreement with the same party to build a new parts distribution facility.
F-59
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
OFFER TO EXCHANGE ALL OUTSTANDING 11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
($152,250,000 PRINCIPAL AMOUNT)
FOR
REGISTERED 11 1/4% SENIOR SUBORDINATED NOTES DUE 2009
($152,250,000 PRINCIPAL AMOUNT)
PROSPECTUS
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY INFORMATION OR REPRESENT
ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SECURITIES IN ANY
JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT
AS OF SEPTEMBER 27, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED
IN THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a corporation
subject to certain limitations, to indemnify its directors and officers against
expenses, including attorneys' fees, judgments, fines and certain settlements,
actually and reasonably incurred by them in connection with any suit or
proceeding to which they are a party so long as they acted in good faith and in
a manner reasonably to be in or not opposed to the best interests of the
corporation, and, with respect to a criminal action or proceeding, so long as
they had no reasonable cause to believe their conduct to have been unlawful. The
registrant's certificate of incorporation and by-laws provide that the
registrant shall indemnify its directs and such of its officers, employees and
agents as the board of directs may determine from time to time, to the fullest
extent permitted by Section 145 of the Delaware corporate laws:
Section 102 of the Delaware corporate laws permits a Delaware corporation to
include in its certificate of incorporation a provision eliminating or limiting
a director's liability to a corporation or its stockholders for monetary damages
for breaches of fiduciary duty. The enabling statute provides, however, that
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct, or knowing violation of the law, and
the unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. The registrant's certificate of incorporation and By-laws include a
provision which eliminates, to the fullest extent permitted, director liability
for monetary damages for breaches of fiduciary duty.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Purchase Agreement dated June 14, 1999 among Transportation Manufacturing Operations, Inc., the
subsidiary guarantors, CIBC World Market Corp. and Merrill Lynch, Pierce, Fenner & Smith Incorporated
2.1* Investment Agreement dated June 11, 1999 among Joseph Littlejohn & Levy Fund III L.P., CIBC WG Argosy
Merchant Fund 2, L.L.C., Co-Investment Merchant Fund 3, L.L.C., Grupo Dina and MCII Holdings
2.2* First Amendment to Investment Agreement dated June 16, 1999 among JLL Fund III, CIBC Argosy,
Co-Investment Fund 3, Grupo Dina and MCII Holdings
3.1* Certificate of Incorporation of Transportation Manufacturing Operations, Inc.
3.2* Bylaws of Transportation Manufacturing Operations, Inc.
3.3* Certificate of Incorporation of TMO Acquisition Corporation
3.4* Bylaws of BusLease, Inc.
3.5* Certificate of Incorporation of Transit Bus International, Inc.
3.6* Bylaws of Transit Bus International, Inc.
3.7* Certificate of Incorporation of New Hausman Bus Sales, Inc.
3.8* Bylaws of Hausman Bus Sales, Inc.
3.9* Certificate of Incorporation of Motor Coach Industries, Inc.
3.10* Bylaws of Motor Coach Industries, Inc.
3.11* Certificate of Incorporation of Universal Coach Parts, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
3.12* Bylaws of Universal Coach Parts, Inc.
4.1* Indenture dated June 16, 1999 among TMO, the subsidiary guarantors and IBJ Whitehall Bank & Trust
Company
4.2* Registration Rights Agreement dated June 16, 1999 among TMO, the subsidiary guarantors, of CIBC and
Merrill Lynch
5.1* Opinion of Winston & Strawn
10.1* Credit Agreement dated June 16, 1999 among MCII, TMO, The Bank of Nova Scotia, as syndication agent,
General Electric Capital Corporation, as documentation agent, and CIBC, as administrative agent, and
the lenders party thereto
10.2* Stockholders Agreement dated June 16, 1999 among MCII Holdings, JLL Fund III, CIBC Argosy, Co-Investment
Fund 3, Grupo Dina and Rafael Gomez Flores
10.3+ First Amendment to Stockholders Agreement dated July 16, 1999 among MCII Holdings, JLL Fund III, CIBC
Argosy, Co-Investment Fund 3, Grupo Dina and Rafael Gomez Flores
10.4+ Second Amendment to Stockholders Agreement dated August 18, 1999 among MCII Holdings, JLL Fund III, CIBC
Argosy, Co-Investment Fund 3, Grupo Dina and Rafael Gomez Flores
10.5* License Agreement dated June 16, 1999 between Grupo Dina and MCII Holdings
10.6* MCII Holdings (USA), Inc. Management Stock Option Plan
10.7* Non-qualified Stock Option Agreement dated June 16, 1999 between MCII Holdings and Mr. Gomez Flores
10.8* Omnibus Agreement dated June 16, 1999 among MCII Holdings, Grupo Dina, JLL Fund III, CIBC Argosy and
Co-Investment Fund 3
10.9* Employment Agreement dated June 16, 1999 between MCII and Mr. Gomez Flores
12.1* Ratio of Earnings to Fixed Charges
21.1* Subsidiaries of MCII
23.1+ Consent of Arthur Andersen LLP
23.2+ Consent of PricewaterhouseCoopers LLP
24.1* Powers of Attorney for directors of MCII
24.2* Powers of Attorney for directors of BusLease
24.3* Powers of Attorney for directors of Transit Bus
24.4* Powers of Attorney for directors of Hausman
24.5* Powers of Attorney for directors of Motor Coach Industries
24.6* Powers of Attorney of UCP
25.1* Statement of Eligibility and Qualification on Form T-1 of IBJ Whitehall
99.1* Form of Letter of Transmittal
99.2* Form of Notice of Guaranteed Delivery
99.3* Form of Letter to Registered Holders
</TABLE>
- ------------------------
* Previously filed.
+ Filed herewith.
II-2
<PAGE>
(b) Financial Statement Schedules
None.
All schedules are omitted because the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each filing of the registrant's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on September 23, 1999.
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
By: /s/ JAMES P. BERNACCHI
-----------------------------------------
James P. Bernacchi,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant, its general partner or managing member, as the case may be, and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of the Board and September 23, 1999
Rafael Gomez Flores Director
*
- ------------------------------ Director September 23, 1999
Gamaliel Garcia Cortes
/s/ JAMES P. BERNACCHI
- ------------------------------ Chief Executive Officer September 23, 1999
James P. Bernacchi and Director
*
- ------------------------------ Director September 23, 1999
Paul S. Levy
*
- ------------------------------ Director September 23, 1999
Jeffrey Lightcap
*
- ------------------------------ Director September 23, 1999
David Ying
*
- ------------------------------ Director September 23, 1999
Frank Rodriguez
</TABLE>
*By: /s/ JAMES P. BERNACCHI
-------------------------
James P. Bernacchi,
Attorney-in-fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on September 23, 1999.
BUSLEASE, INC.
By: /s/ JAMES P. BERNACCHI
-----------------------------------------
James P. Bernacchi,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant, its general partner or managing member, as the case may be, and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of the Board and September 23, 1999
Rafael Gomez Flores Director
*
- ------------------------------ Director September 23, 1999
Gamaliel Garcia Cortes
/s/ JAMES P. BERNACCHI
- ------------------------------ Chief Executive Officer September 23, 1999
James P. Bernacchi and Director
*
- ------------------------------ Director September 23, 1999
Paul S. Levy
*
- ------------------------------ Director September 23, 1999
Jeffrey Lightcap
*
- ------------------------------ Director September 23, 1999
David Ying
*
- ------------------------------ Director September 23, 1999
Frank Rodriguez
</TABLE>
*By: /s/ JAMES P. BERNACCHI
-------------------------
James P. Bernacchi,
Attorney-in-fact
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on September 23, 1999.
TRANSIT BUS INTERNATIONAL, INC.
By: /s/ JAMES P. BERNACCHI
-----------------------------------------
James P. Bernacchi,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant, its general partner or managing member, as the case may be, and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of the Board and September 23, 1999
Rafael Gomez Flores Director
*
- ------------------------------ Director September 23, 1999
Gamaliel Garcia Cortes
/s/ JAMES P. BERNACCHI
- ------------------------------ Chief Executive Officer September 23, 1999
James P. Bernacchi and Director
*
- ------------------------------ Director September 23, 1999
Paul S. Levy
*
- ------------------------------ Director September 23, 1999
Jeffrey Lightcap
*
- ------------------------------ Director September 23, 1999
David Ying
*
- ------------------------------ Director September 23, 1999
Frank Rodriguez
</TABLE>
*By: /s/ JAMES P. BERNACCHI
-------------------------
James P. Bernacchi,
Attorney-in-fact
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on September 23, 1999.
HAUSMAN BUS SALES, INC.
By: /s/ JAMES P. BERNACCHI
-----------------------------------------
James P. Bernacchi,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant, its general partner or managing member, as the case may be, and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of the Board and September 23, 1999
Rafael Gomez Flores Director
*
- ------------------------------ Director September 23, 1999
Gamaliel Garcia Cortes
/s/ JAMES P. BERNACCHI
- ------------------------------ Chief Executive Officer September 23, 1999
James P. Bernacchi and Director
*
- ------------------------------ Director September 23, 1999
Paul S. Levy
*
- ------------------------------ Director September 23, 1999
Jeffrey Lightcap
*
- ------------------------------ Director September 23, 1999
David Ying
*
- ------------------------------ Director September 23, 1999
Frank Rodriguez
</TABLE>
*By: /s/ JAMES P. BERNACCHI
-------------------------
James P. Bernacchi,
Attorney-in-fact
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on September 23, 1999.
MOTOR COACH INDUSTRIES, INC.
By: /s/ JAMES P. BERNACCHI
-----------------------------------------
James P. Bernacchi,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant, its general partner or managing member, as the case may be, and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of the Board and September 23, 1999
Rafael Gomez Flores Director
*
- ------------------------------ Director September 23, 1999
Gamaliel Garcia Cortes
/s/ JAMES P. BERNACCHI
- ------------------------------ Chief Executive Officer September 23, 1999
James P. Bernacchi and Director
*
- ------------------------------ Director September 23, 1999
Paul S. Levy
*
- ------------------------------ Director September 23, 1999
Jeffrey Lightcap
*
- ------------------------------ Director September 23, 1999
David Ying
*
- ------------------------------ Director September 23, 1999
Frank Rodriguez
</TABLE>
*By: /s/ JAMES P. BERNACCHI
-------------------------
James P. Bernacchi,
Attorney-in-fact
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Chicago, State of
Illinois, on September 23, 1999.
UNIVERSAL COACH PARTS, INC.
By: /s/ JAMES P. BERNACCHI
-----------------------------------------
James P. Bernacchi,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons on behalf of the
registrant, its general partner or managing member, as the case may be, and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
*
- ------------------------------ Chairman of the Board and September 23, 1999
Rafael Gomez Flores Director
*
- ------------------------------ Director September 23, 1999
Gamaliel Garcia Cortes
/s/ JAMES P. BERNACCHI
- ------------------------------ Chief Executive Officer September 23, 1999
James P. Bernacchi and Director
*
- ------------------------------ Director September 23, 1999
Paul S. Levy
*
- ------------------------------ Director September 23, 1999
Jeffrey Lightcap
*
- ------------------------------ Director September 23, 1999
David Ying
*
- ------------------------------ Director September 23, 1999
Frank Rodriguez
</TABLE>
*By: /s/ JAMES P. BERNACCHI
-------------------------
James P. Bernacchi,
Attorney-in-fact
II-9
<PAGE>
Exhibit 10.3
FIRST AMENDMENT
TO
STOCKHOLDERS AGREEMENT
by and among
MCII HOLDINGS (USA), INC.
JOSEPH LITTLEJOHN & LEVY FUND III L.P.
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
CO-INVESTMENT MERCHANT FUND 3, L.L.C.
CONSORCIO G GRUPO DINA, S.A. de C.V.
and
RAFAEL GOMEZ FLORES
dated as of
July 16, 1999
<PAGE>
FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT
FIRST AMENDMENT TO STOCKHOLDERS AGREEMENT (hereinafter referred to
as this "First Amendment"), dated as of July 16, 1999, by and among MCII
Holdings (USA), Inc., a Delaware corporation ("MCII Holdings"), Joseph
Littlejohn & Levy Fund III L.P., a Delaware limited partnership ("JLL"),
CIBC WG Argosy Merchant Fund 2, L.L.C. ("CIBC Argosy"), Co-Investment Merchant
Fund 3, L.L.C. ("CMF"), Consorcio G Grupo Dina, S.A. de C.V., a corporation
organized under the laws of the United Mexican States ("Dina") and Rafael
Gomez Flores.
WHEREAS, MCII Holdings, JLL, CIBC Argosy, CMF, Dina and Rafael Gomez
Flores entered into a Stockholders Agreement dated as of June 16, 1999 (the
"Agreement"); and
WHEREAS, MCII Holdings, JLL, CIBC Argosy, CMF, Dina and Rafael Gomez
Flores desire to amend the Agreement upon the terms and subject to the
conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used and not otherwise
defined herein shall have the respective meanings assigned to them in the
Agreement.
ARTICLE II
AMENDMENT TO ARTICLE IV OF THE AGREEMENT
Section 2.1 AMENDMENT TO SECTION 4.04 OF THE AGREEMENT. The last
sentence of Section 4.04 of the Agreement is hereby amended in its entirety
to read as follows:
<PAGE>
"Notwithstanding the foregoing, the provisions of this Section
4.04 shall not apply to the Transfer by JLL of a maximum of 10,000 Shares to
Coaches, LLC which shall occur within sixty days of the date hereof."
ARTICLE III
AMENDMENT TO ARTICLE VII OF THE AGREEMENT
Section 3.1 AMENDMENT TO SECTION 7.14 OF THE AGREEMENT. Section 7.14
of the Agreement is hereby amended and restated in its entirety to read as
follows:
"The parties acknowledge and agree that JLL intends to Transfer up to
a maximum of 10,000 Shares (the "JLL Transferred Shares") to Coaches, LLC
within sixty days of the date hereof. The parties agree that, following such
Transfer, the provisions of Sections 4.04, 4.05, 4.06, Article V and Section
6.01 shall apply to the JLL Transferred Shares and the holders thereof as if
such Shares continued to be owned by JLL."
ARTICLE IV
MISCELLANEOUS
Section 4.1 AMENDMENT. All references in the Agreement (and in the
other agreements, documents and instruments entered into in connection
therewith) to the "Agreement" shall be deemed for all purposes to refer to
the Agreement, as amended by this First Amendment.
Section 4.2 LIMITED EFFECT. Except as expressly modified herein, the
Agreement shall continue to be, and shall remain, in full force and effect
and the valid and binding obligation of the parties thereto in accordance
with its terms.
Section 4.3 COUNTERPARTS. This First Amendment may be executed in
two or more counterparts, each of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
2
<PAGE>
Section 4.4 GOVERNING LAW. This First Amendment shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed as of the date first written above.
MCII HOLDINGS (USA), INC.
By:
-------------------------------------
Name: James P. Bernacchi
Title: Chief Executive Officer
JOSEPH LITTLEJOHN & LEVY FUND III, L.P.
By: JLL ASSOCIATES III, LLC,
its General Partner
By:
-------------------------------------
Jeffrey C. Lightcap
Managing Member
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By:
-------------------------------------
Jay Levine, authorized signatory
CO-INVESTMENT MERCHANT FUND 3, LLC
By:
-------------------------------------
Jay Levine, authorized signatory
<PAGE>
CONSORCIO G GRUPO DINA, S.A. de C.V.
By:
------------------------------------
Name: Rafael Gomez Flores
Title: President
-----------------------------------
RAFAEL GOMEZ FLORES
<PAGE>
Exhibit 10.4
SECOND AMENDMENT
TO
STOCKHOLDERS AGREEMENT
by and among
MCII HOLDINGS (USA), INC.
JOSEPH LITTLEJOHN & LEVY FUND III L.P.
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
CO-INVESTMENT MERCHANT FUND 3, L.L.C.
CONSORCIO G GRUPO DINA, S.A. de C.V.
and
RAFAEL GOMEZ FLORES
dated as of
August 18, 1999
<PAGE>
SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT
SECOND AMENDMENT TO STOCKHOLDERS AGREEMENT (hereinafter referred to
as this "Second Amendment"), dated as of August 18, 1999, by and among MCII
Holdings (USA), Inc., a Delaware corporation ("MCII Holdings"), Joseph
Littlejohn & Levy Fund III L.P., a Delaware limited partnership ("JLL"), CIBC
WG Argosy Merchant Fund 2, L.L.C. ("CIBC Argosy"), Co-Investment Merchant
Fund 3,LLC("CMF"), Consorcio G Grupo Dina, S.A. de C.V., a corporation
organized under the laws of the United Mexican States ("Dina") and Rafael
Gomez Flores.
WHEREAS, MCII Holdings, JLL, CIBC Argosy, CMF, Dina and Rafael Gomez
Flores entered into a Stockholders Agreement dated as of June 16, 1999 (the
"Agreement"); and
WHEREAS, MCII Holdings, JLL, CIBC Argosy, CMF, Dina and Rafael Gomez
Flores entered into a First Amendment to Stockholders Agreement dated as of
July 16, 1999; and
WHEREAS, MCII Holdings, JLL, CIBC Argosy, CMF, Dina and Rafael Gomez
Flores desire to amend the Agreement, as amended, upon the terms and subject
to the conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned to them
in the Agreement.
<PAGE>
ARTICLE II
AMENDMENT TO ARTICLE IV OF THE AGREEMENT
Section 2.1 AMENDMENT TO SECTION 4.04 OF THE AGREEMENT. The last
sentence of Section 4.04 of the Agreement is hereby amended in its entirety
to read as follows:
"Notwithstanding the foregoing, the provisions of this
Section 4.04 shall not apply to the Transfer by JLL of a maximum of 11,000
Shares to Coaches, LLC which shall occur within seventy-five days of the date
hereof."
ARTICLE III
AMENDMENT TO ARTICLE VII OF THE AGREEMENT
Section 3.1 AMENDMENT TO SECTION 7.14 OF THE AGREEMENT. Section
7.14 of the Agreement is hereby amended and restated in its entirety to read
as follows:
"The parties acknowledge and agree that JLL intends to Transfer
up to a maximum of 11,000 Shares (the "JLL Transferred Shares") to Coaches,
LLC within seventy-five days of the date hereof. The parties agree that,
following such Transfer, the provisions of Sections 4.04, 4.05, 4.06, Article
V and Section 6.01 shall apply to the JLL Transferred Shares and the holders
thereof as if such Shares continued to be owned by JLL."
ARTICLE IV
MISCELLANEOUS
Section 4.1 AMENDMENT. All references in the Agreement (and in
the other agreements, documents and instruments entered into in connection
therewith) to the "Agreement" shall be deemed for all purposes to refer to
the Agreement, as amended by this Second Amendment.
Section 4.2 LIMITED EFFECT. Except as expressly modified
herein, the Agreement shall continue to be, and shall remain, in full force
and effect and the valid and binding obligations of the parties thereto in
accordance with its terms.
2
<PAGE>
Section 4.3 COUNTERPARTS. This Second Amendment may be executed
in two or more counterparts, each of which shall be considered one and the
same agreement and shall become effective when two or more counterparts have
been signed by each of the parties and delivered to the other parties.
Section 4.4 GOVERNING LAW. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of
Delaware without regard to the principles of conflicts of law thereof.
[SIGNATURE PAGE FOLLOWS]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed as of the date first written above.
MCII HOLDINGS (USA), INC.
By:
-----------------------------------
Name: James P. Bernacchi
Title: Chief Executive Officer
JOSEPH LITTLEJOHN & LEVY FUND III, L.P.
By: JLL ASSOCIATES III, LLC,
its General Partner
By:
-----------------------------------
Jeffrey C. Lightcap
Managing Member
CIBC WG ARGOSY MERCHANT FUND 2, L.L.C.
By:
-----------------------------------
Jay Levine, authorized signatory
CO-INVESTMENT MERCHANT FUND 3, LLC
By:
-----------------------------------
Jay Levine, authorized signatory
<PAGE>
CONSORCIO G GRUPO DINA, S.A. de C.V.
By:
-----------------------------------
Name: Rafael Gomez Flores
Title: President
--------------------------------
RAFAEL GOMEZ FLORES
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this
registration statement of our report dated July 22, 1999 included herein
and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
September 22, 1999
Chicago, Illinois
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 (file
no. 333-83917) of our report dated February 28, 1997 (except with respect to
the information in Notes 1, 2 and 14 related to the June 16, 1999
reorganization, as to which the date is June 16, 1999) on our audit of the
consolidated statements of income, changes in stockholder's equity and cash
flows for the year ended December 31, 1996 of Motorcoach Industries
International, Inc. We also consent to the reference to our firm under the
caption "Experts" and "Selected Consolidated Historical Financial Data."
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
September 23, 1999
