<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended SEPTEMBER 30, 1999
Commission File No. 1-12208
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 86-0830781
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10 EAST GOLF ROAD, DES PLAINES, ILLINOIS 60016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 299-9900
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No X
The number of shares outstanding of the registrant's Common Stock:
1,000 shares as of September 30, 1999.
<PAGE>
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information in accordance with
generally accepted accounting principles, has been condensed or omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Motor Coach Industries
International, Inc. Prospectus dated September 27, 1999. In the opinion of
management, these statements contain all adjustments consisting of only
normal recurring adjustments, necessary to present fairly the financial
position as of September 30 1999, and December 31, 1998, results of
operations for the three and nine month periods ended September 30, 1999 and
September 30, 1998 and cash flows for the nine month periods ended September
30, 1999, and September 30, 1998. The 1999 interim results reported herein
may not necessarily be indicative of results of operations for the full year
1999.
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED INCOME STATEMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
(Dollars In Thousands) 1999 1998 1999 1998
- - - ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 186,226 $180,207 $ 671,870 $ 661,917
Finance income 1,406 1,175 3,024 4,216
--------- -------- --------- ---------
Total Revenues 187,632 181,382 674,894 666,133
--------- -------- --------- ---------
Operating Costs and Expenses:
Cost of Sales (exclusive of items shown 142,205 137,994 507,415 522,963
separately below)
Cost of sales inventory valuation charge -- -- 21,000 --
Interest expense-finance operations 878 679 2,233 2,089
Depreciation and amortization 6,018 6,952 18,352 18,861
Research and development expenses 3,830 2,709 8,463 7,948
Selling, general and administrative expenses 22,526 24,701 73,042 66,023
--------- -------- --------- ---------
Total Operating Costs and Expenses 175,457 173,035 630,505 617,884
--------- -------- --------- ---------
Operating Income 12,175 8,347 44,389 48,249
Other Income (Expense):
Interest (expense) (14,578) (4,561) (30,924) (13,001)
Interest (expense) pushed down from related party -- (6,445) (11,601) (18,252)
Foreign currency translation gain (loss) (748) 1,586 (1,641) 3,576
Gain on sale of investment -- 7,000 -- 7,000
Other income (expense) 996 612 (510) 3,820
--------- -------- --------- ---------
Total Other Income and (Expense) (14,330) (1,808) (44,676) (16,857)
--------- -------- --------- ---------
Income Before Income Taxes (2,155) 6,539 (287) 31,392
Provision for income taxes (1,231) 6,578 6,412 21,975
--------- -------- --------- ---------
Income (loss) before extraordinary item (924) (39) (6,699) 9,417
Extraordinary (loss) (net of tax of $1,568) -- -- (2,614) --
--------- -------- --------- ---------
Net Income (Loss) $ (924) $ (39) $ (9,313) $ 9,417
--------- -------- --------- ---------
--------- -------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars In Thousands) 1999 1998
- - - ---------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,488 $ 24,038
Trade and other accounts receivable, net 123,300 121,966
Current portion of notes receivable 15,808 10,548
Inventories 234,547 225,865
Deferred income taxes 25,494 21,488
Other current assets 6,061 6,086
--------- ---------
Total Current Assets 428,698 409,991
Property, plant and equipment, net 113,202 102,796
Notes receivable 55,589 35,400
Investments in affiliates 23,596 23,116
Intangible assets, net 213,829 215,589
Other non-current assets 36,665 14,863
--------- ---------
Total Assets $ 871,579 $ 801,755
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 85,798 $ 81,890
Accrued salaries and benefits 12,900 13,343
Warranty and insurance reserves 12,443 13,960
Accrued income taxes -- 32,320
Self insurance reserves 5,591 6,365
Net liabilities of discontinued operations 5,297 4,416
Other current liabilities 44,340 30,239
--------- ---------
Total Current Liabilities 166,369 182,533
Long-term debt, net 528,909 267,965
Long-term debt pushed down from related party -- 206,500
Pensions and other benefits 20,669 15,787
Other deferred items and self insurance reserves 14,468 19,059
Deferred income taxes 6,888 6,990
--------- ---------
Total Liabilities 737,303 698,834
--------- ---------
Stockholder's equity
Common stock ($.01 par value 1,000 shares 347,240 241,275
authorized, issued and outstanding) and additional
paid in Capital
Accumulated deficit (186,839) (109,094)
Accumulated other comprehensive income (26,125) (29,260)
--------- ---------
Total Stockholder's Equity 134,276 102,921
--------- ---------
Total Liabilities and Stockholder's Equity $ 871,579 $ 801,755
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
MOTORCOACH INDUSTRIES INTERNATIONAL INC.
UNAUDITED STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Nine Months ended September 30,
(Dollars in Thousands) 1999 1998
- - - --------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows Provided By (Used In) Operating Activities
Net Income $ (9,313) $ 9,417
Adjustments to Reconcile Net Income to Net Cash
Provided By (Used In) Operations:
Depreciation and amortization 18,352 18,861
Extraordinary loss on early retirement of debt 4,182 --
Gain on sale of investment -- (7,000)
Noncash interest expense pushed down from related party -- 18,252
Noncash inventory valuation charge 21,000 --
All other operating activities (49,317) (19,851)
--------- ---------
Net Cash Provided By (Used In) Operating Activities (15,096) 19,679
--------- ---------
Cash Flows Provided By (Used In) Investing Activities
Capital expenditures (19,332) (6,383)
Proceeds from sale of property and investments 12,334 8,040
Change in notes receivable (26,533) 2,246
Investment in unconsolidated affiliate -- (5,000)
Discontinued operations, net changes 1,053 1,989
Investments in assets held for lease (8,040) 5,540
Transfer of Mexican subsidiaries (1,483) --
--------- ---------
Net Cash Provided By (Used In) Investing Activities (42,001) 6,432
--------- ---------
Cash Flow 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 term B loan principal (833) --
Payment of 9.02% senior notes (105,321) --
Payment of senior secured discount notes (206,500) --
Payment of debt issuance costs (25,046) --
Payment of parent company senior notes (35,574) --
Net change in other long-term borrowings (21,774) (74)
Net change in related party receivables, payables (16,702) 8,562
Dividends paid to parent company (74,459) 5
Net change in bank credit facilities (99,594) (1,061)
New paid-in-capital, net of transaction costs 159,270 --
--------- ---------
Net Cash Provided By (Used In) Financing Activities 56,547 7,432
--------- ---------
Net Increase (Decrease) in Cash (550) 33,543
Cash and Cash Equivalents at Beginning of Period 24,038 13,997
--------- ---------
Cash and Cash Equivalents at End of Period $ 23,488 $ 47,540
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Company is an indirect wholly owned subsidiary of MCII Holdings (USA),
Inc. These unaudited financial statements present the accounts of Motor Coach
Industries International Inc. ("MCII" and its subsidiaries together with MCII
referred to as the "Company"). The Company's principal operating subsidiaries
are Motor Coach Industries, Inc. ("MCI-U.S."), Motor Coach Industries Limited
("MCI-Canada"), Hausman Bus Sales, Inc. ("HBSI"), Universal Coach Parts, Inc.
("UCP"), and Dina Autobuses S.A. de C.V. ("Autobuses").
All significant inter-company balances and transactions have been eliminated
upon consolidation. Prior period amounts include all reclassifications
necessary to conform to current presentations.
<PAGE>
NOTE 2 - FINANCIAL RESTRUCTURING & REORGANIZATION
As of December 31, 1998, Transportation Manufacturing Operations, Inc.
("TMO"), a principal indirect wholly owned subsidiary of MCII Holdings (USA),
Inc., had a $170 million US revolving credit agreement ("the Senior Credit
Facility") with a nine-bank syndicate to finance working capital and other
general corporate needs. This credit facility was due to expire on October 1,
1999, and the lenders had indicated that they were not willing to extend the
maturity of this agreement. In addition, during 1998, the Company was
required to reduce existing long-term debt obligations by $50 million,
consisting of a $25 million principal payment on TMO's senior term notes due
2002, a $12 million reduction in 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 Oppenheimer Corp. and its
affiliates ("CIBC Oppenheimer") to act as the Company's lead bank agent,
financial advisor, initial purchaser, placement agent, and underwriter to
undertake a financial restructuring of the debt obligations of the Company
and its parent company.
On April 19, 1999, TMO executed an agreement with CIBC Oppenheimer 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 the Company to meet short-term working
capital requirements while the financial restructuring process was being
completed.
In addition to the bridge financing, the Company, in association with CIBC
Oppenheimer, had developed a financial restructuring plan to refinance all of
the material debt obligations of the parent, the Company, and their
respective subsidiaries.
On May 14, 1999, Consorcio G Grupo Dina, S.A. de C.V. ("Grupo Dina") which,
at the time, indirectly owned 100% of the stock of the Company, commenced a
tender offer and consent solicitation relating to all of approximately
$206,500,000 aggregate principal amount of outstanding senior secured
discount notes due 2002 (the "Discount Notes") issued by Grupo Dina and the
Company. Grupo Dina also commenced a tender offer and consent solicitation
relating to all of the $35,000,000 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.
In connection with the tender offers, Grupo Dina solicited consents to (a)
defer payment of interest on the Discount Notes until the earlier of July 15,
1999 or settlement of the tender offer and (b) adopt amendments to the
indentures under which the Discount Notes and Guaranteed Notes were issued to
eliminate substantially all restrictive covenants and certain event of
default provisions.
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. The consent payment was paid only for tendered Notes for
which consents were validly delivered and not revoked prior to the term date.
The tender offers expired on June 14, 1999 and virtually all the notes were
tendered and purchased in conjunction with the tender offer.
The tender offers were part of the overall plan to recapitalize and
restructure substantially all of the indebtedness of Grupo Dina and its
subsidiaries through a series of dependent transactions, with (a) a $175
million investment made by an investment group led by Joseph Littlejohn &
Levy Fund III in the Company, consisting of a $125 million equity investment,
in exchange for an equity interest of 61% in MCII Holdings (USA) Inc., (the
"Parent Company") and $50 million in senior notes issued by the Parent
Company with warrants, due 2010, (b) the Company entering into a new senior
credit facility in an approximate amount of $445 million and (c) TMO issuing
approximately $152 million of senior subordinated notes due 2009. In addition
to the debt repurchased pursuant to the tender offers, TMO repaid
substantially all of its outstanding indebtedness including, but not limited
to, the IRN's, the existing US and Canadian revolving credit facilities and
the 9.02% senior term notes due 2002. Also, TMO changed its' name to Motor
Coach Industries International, Inc. For further information on the details
of the debt repayment and the current outstanding debt under the new credit
facility see note 7 on long term debt. Finally, MCII Holdings (USA), Inc.
transferred its' Dina Autobuses, S.A. de C.V. subsidiary to MCII.
<PAGE>
NOTE 3 - INVENTORY 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 4 - EXTRAORDINARY LOSS
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 5 - GAIN ON SALE OF INVESTMENT
In December, 1995, the Company purchased a 10% ownership interest in Mexicana
de Autobuses, S.A. de C.V. ("MASA"), a Mexican coach manufacturing company,
from Grupo Dina for $1.2 million. In 1996, the Company evaluated the
relizability 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 $1.2 million. During the three
months ended September 30, 1998 the Company sold its interest in MASA for
$7.0 million. During the fourth quarter of 1998 the Company reimbursed Grupo
Dina $2.0 million for expenses incurred in conjunction with this transaction.
NOTE 6 - INVENTORIES
Inventories consisted of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw Material $ 35,687 $ 38,287
Work in process 42,721 42,487
Finished goods 181,827 171,501
--------- ---------
260,235 252,275
Inventory reserves (25,688) (26,410)
--------- ---------
Total $ 234,547 $ 225,865
========= =========
</TABLE>
<PAGE>
NOTE 7 - LONG-TERM DEBT
Below is a schedule of outstanding debt as of September 30,1999 and
December 31, 1998:
<TABLE>
<CAPTION>
September 30, December 31,
(dollars in thousands) 1999 1998
- - - ---------------------------------------------------------------------------------
<S> <C> <C>
11-1/4% senior subordinated notes, due 2009 $ 152,250 $ --
Borrowings under senior secured credit facility:
Term loan B, due 2006 332,167 --
Revolving credit agreement, due 2005 46,000 --
Senior secured discount notes, due 2002 -- 206,500
United States back 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 notes payable 597 371
--------- ---------
Total 531,014 474,465
Less unamortized discount on 11-1/4%
senior subordinated notes (2,105)
--------- ---------
Total $ 528,909 $ 474,465
========= =========
</TABLE>
The long-term debt as of September 30, 1999 is due as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
2000 $ -
2001 -
2002 -
2003 -
2004 -
2005 and thereafter 531,014
-----------
Total $ 531,014
===========
</TABLE>
On June 16, 1999, the Company completed a major financial restructuring where
it issued $152.2 million of senior subordinated notes and also entered into a
$445 million secured credit agreement.
The 11.25% senior subordinated notes were issued at a discount of 98.5755 so
as to yield cash 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 September 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 September 30, 1999.
<PAGE>
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 $310.5 million 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 September 30, 1999 the average effective interest rate on $332.2
million of outstanding borrowings was 8.8%.
The $112 million revolving credit agreement due 2005 provides the Company
with the ability to borrow funds as needed at variable rates of interest
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 pays a 0.5%
facility fee on the unused portion of the revolving credit agreemtnt. As of
September 30, 1999, the Company had $46 million in outstanding borrowings at
an average effective interest rate of 9.6%.
As of September 30, 1999, the Company had approximately $3.9 million of
current outstanding debt that the Company 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. Outstanding debt at
December 31, 1998 has been classified in accordance with the terms and
provisions of the new debt outstanding as of June 16, 1999.
On April 19, 1999 the Company executed an agreement with CIBC Oppenheimer for
the issuance of $40 million of senior subordinated increasing rate notes
("IRN's") due December 31, 1999. These IRN's were repaid along with
approximately $.2 million of accrued interest and approximately $.2 of
million premium as part of the financial restructuring.
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 the senior notes along with approximately $.4 million of
accrued interest and a prepayment premium of approximately $5.3 million.
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, and $.6 million of
accrued interest as a part of the financial restructuring.
As of December 31, 1998 the Company had borrowings of approximately $8.6
million under a $30 million dollar credit facility to Dina Autobuses S.A. de
C.V. ("Autobuses"), a wholly owned subsidiary, at the time, of Grupo Dina,
for the purpose of financing export sales, through the National Bank Foreign
Trade S.N.C. ("Bancomext"). On June 16, 1999 the Company repaid its current
outstanding borrowings of $14.0 million in addition to $.1 million of accrued
interest.
NOTE 8 - 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, MCII Holdings (USA), Inc. was
a wholly owned subsidiary of "Grupo Dina". On June 16, 1999, as a part of the
financial restructuring, 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, the
investment group led by JLL also purchased $50 million in Senior Notes from
MCII Holdings (USA) which were accompanied by warrants to purchase up to 10%
of the fully diluted common stock of MCII Holdings (USA). These warrants are
immediately exercisable at a price of $204.918 per share which is equivalent
to the price per share that JLL invested in MCII Holdings (USA) Inc.
<PAGE>
NOTE 9 - REVENUES, OPERATING INCOME AND ASSET SUPPLEMENTARY INFORMATION
Revenues and operating income by reportable segment for the three and nine
months ended September 30, 1999 and 1998 were as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Coach and support $142,783 $131,364 $531,940 $514,004
Replacement parts 42,208 47,714 136,682 144,639
Finance 2,641 2,304 6,272 7,490
-------- -------- -------- --------
$187,632 $181,382 $674,894 $666,133
======== ======== ======== ========
Operating income (loss):
Coach and support $ 8,798 $ 845 $ 36,974 $ 31,562
Replacement parts 3,198 6,752 7,415 14,357
Finance 179 750 -- 2,330
-------- -------- -------- --------
$ 12,175 $ 8,347 $ 44,389 $ 48,249
======== ======== ======== ========
</TABLE>
Total asset information by reportable segment as of September 30, 1999 and
December 31, 1998 was as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Assets:
Coach and support $578,723 $536,659
Replacement parts 193,264 184,325
Finance 99,592 80,771
-------- --------
$871,579 $801,755
======== ========
</TABLE>
NOTE 10 - COMPREHENSIVE INCOME
For the nine months ended September 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 $3,135,000 for the nine months ended September
30, 1999 compared to a $8,325,000 foreign currency translation loss recorded
for the comparable period of 1998. Minimum pension liability losses totaled
$0 and $126,000 for the nine months ended September 30, 1999 and 1998
respectively. Therefore, comprehensive income (loss) was ($6,178,000) for the
nine months ended September 30, 1999 and $966,000 for the comparable period
of 1998.
NOTE 11- RELATED PARTY TRANSACTIONS
Related party transactions for the three and nine months ended September 30,
1999 and 1998 were as follow:
(dollars in thousands)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Purchases from affiliated companies:
Goods $ 1,005 $ 1,901 $ 5,090 $ 6,205
Services 1,425 4,851 7,120 16,043
-------- ------- -------- ---------
$ 2,430 $ 6,752 $ 12,210 $ 22,248
======== ======= ======== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Sales to affiliated companies:
Goods $ 666 $ 1,519 $ 3,175 $ 5,127
Services - 3,188 - 9,079
------- ------- ------- --------
$ 666 $ 4,707 $ 3,175 $ 14,206
======= ======= ======= ========
Fees Paid to Grupo Dina
Royalties - 3,114 2,013 9,087
Management fee $ - $ 250 $ 417 $ 750
======= ======= ======= ========
Total charges paid to Dina $ - $ 3,364 $ 2,430 $ 9,837
======= ======= ======= ========
</TABLE>
NOTE 12 - CHANGES IN OTHER OPERATING ACTIVITIES
Changes in other operating activities for the nine months ended September 30,
1999 and 1998 consisted of:
(dollars in thousands)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Decrease (increase) in accounts receivable $ (5,090) $ (45,133)
Decrease (increase) in inventories (28,134) 22,689
Increase (decrease) in accounts payable 6,589 (8,432)
Increase (decrease) in accrued income taxes (32,006) 8,315
All other changes, net 9,324 2,710
---------- ---------
Changes in other operating activities $ (49,317) $ (19,851)
========== =========
</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 $54,000,000 through
September 30, 1999 and, in addition, the Company may be subject to potential
reassessments for the years subsequent to 1992 on the same basis which could
result in additional income taxes and interest. These amounts are all before
recoveries of U.S. federal income taxes which may be available to offset a
portion of any additional taxes paid to Canada, as these years are still open
for U.S. Federal income tax purposes. In accordance with SFAS No. 109,
"Accounting for Income Taxes," a portion of any ultimate liability owed as a
result of this issue would be treated as an adjustment of Dina's purchase
price on acquiring the Company, resulting in an increase of purchase
goodwill. (If the ultimate liability was $78,000,000, then approximately
$48,000,000 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 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 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.
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30,1999
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenue $ - $151,127 $78,776 $(42,271) $187,632
Cost of sales (exclusive of items shown separately below) - 122,572 63,627 (43,994) 142,205
Interest expense, finance operations - 833 45 - 878
Depreciation & amorization expense 76 2,382 3,560 - 6,018
Research and development expenses - 2,510 1,320 - 3,830
Selling, general and marketing expenses (1,244) 21,134 2,636 - 22,526
------ ------- ------ ------- -------
Operating income (loss) 1,168 1,696 7,588 1,723 12,175
------ ------- ------ ------- -------
Interest (expense) income (9,251) (3,861) (1,466) - (14,578)
Foreign currency translation gain (loss) - - (748) - (748)
Other income (expense) (64) (486) 1,546 - 996
------ ------- ------ ------- -------
(9,315) (4,347) (668) - (14,330)
------ ------- ------ ------- -------
Income (loss) before income taxes (8,147) (2,651) 6,920 1,723 (2,155)
Income taxes (3,466) (285) 2,520 - (1,231)
------ ------- ------ ------- -------
Net income (loss) $(4,681) $ (2,366) $ 4,400 $ 1,723 $ (924)
====== ======= ====== ======= =======
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED SEPTEMBER 30,1998
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenue $ - $165,898 $76,704 $(61,220) $181,382
Cost of sales (exclusive of items shown separately below) - 134,772 68,034 (64,812) 137,994
Interest expense, finance operations - 623 56 - 679
Depreciation & amorization expense 77 2,967 3,908 - 6,952
Research and development expenses - 827 3,382 (1,500) 2,709
Selling, general and marketing expenses 3,128 24,107 (2,534) - 24,701
------- -------- ------- -------- --------
Operating income (loss) (3,205) 2,602 3,858 5,092 8,347
------- -------- ------- -------- --------
Interest (expense) income (369) (3,838) (671) 317 (4,561)
Interest expense pushed down from related party (6,445) - - - (6,445)
Foreign currency translation gain (loss) - - 1,586 - 1,586
Gain on sale of investment 7,000 - - - 7,000
Other income (expense) 43 169 400 - 612
------- -------- ------- -------- --------
229 (3,669) 1,315 317 (1,808)
------- -------- ------- -------- --------
Income (loss) before income taxes (2,976) (1,067) 5,173 5,409 6,539
Income taxes 1,190 1,349 4,039 - 6,578
------- -------- ------- -------- --------
Net income (loss) $(4,166) $ (2,416) $ 1,134 $ 5,409 $ (39)
======= ======== ======= ======== ========
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30,1999
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenue $ - $547,492 $280,331 $(152,929) $674,894
Cost of sales (exclusive of items shown separately below) - 424,180 234,827 (151,592) 507,415
Inventory revaluation charge - 21,000 - - 21,000
Interest expense, finance operations - 2,090 143 - 2,233
Depreciation & amorization expense 198 7,110 11,044 - 18,352
Research and development expenses - 5,196 3,267 - 8,463
Selling, general and marketing expenses (1,076) 75,307 (1,189) - 73,042
------- ------- ------- -------- -------
Operating income (loss) 878 12,609 32,239 (1,337) 44,389
------- ------- ------- -------- -------
Interest (expense) income (17,726) (11,888) (1,310) - (30,924)
Interest expense pushed down from related party (11,601) - - - (11,601)
Foreign currency translation gain (loss) - - (1,641) - (1,641)
Other income (expense) 90 (1,202) 602 - (510)
------- ------- ------- -------- -------
(29,237) (13,090) (2,349) - (44,676)
------- ------- ------- -------- -------
Income (loss) before income taxes (28,359) (481) 29,890 (1,337) (287)
Income taxes 6,345 (1,255) (11,502) - (6,412)
------- ------- ------- -------- -------
(22,014) (1,736) 18,388 (1,337) (6,699)
Extraordinary loss (2,614) - - - (2,614)
------- ------- ------- -------- -------
Net income (loss) $(24,628) $ (1,736) $ 18,388 $ (1,337) $(9,313)
======= ======= ======= ======== =======
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14- GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30,1998
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Revenue $ - $559,256 $281,554 $(174,677) $666,133
Cost of sales (exclusive of items shown separately below) - 449,632 247,989 (174,658) 522,963
Interest expense, finance operations - 1,924 165 - 2,089
Depreciation & amorization expense 262 8,325 10,274 - 18,861
Research and development expenses - 3,042 4,906 - 7,948
Selling, general and marketing expenses 6,817 55,521 3,685 - 66,023
------ ------- ------- -------- --------
Operating income (loss) (7,079) 40,812 14,535 (19) 48,249
------ ------- ------- -------- --------
Interest (expense) income (2,435) (11,359) 793 - (13,001)
Interest expense pushed down from related party - - (18,252) - (18,252)
Foreign currency translation gain (loss) - - 3,576 - 3,576
Gain on sale of investment 7,000 - - - 7,000
Other income (expense) 134 335 3,351 - 3,820
------ ------- ------- -------- --------
4,699 (11,024) (10,532) - (16,857)
------ ------- ------- -------- --------
Income (loss) before income taxes (2,380) 29,788 4,003 (19) 31,392
Income taxes (1,551) 12,599 10,927 - 21,975
------ ------- ------- -------- ---------
Net income (loss) $ (829) $ 17,189 $ (6,924) $ (19) $ 9,417
====== ======= ======= ======== =========
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,1999
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 10,098 $ 1,342 $ 12,048 $ - $ 23,488
Trade and other accounts receivable 7,290 82,916 33,094 - 123,300
Intercompany receivables (payables) 806,052 (597,386) 775 (209,441) -
Current portion of notes receivable - 15,257 551 15,808
Inventories - 184,613 53,369 (3,435) 234,547
Deferred income taxes 10,834 14,850 (190) - 25,494
Other current assets 2,215 2,764 1,082 - 6,061
------- -------- ------- -------- -------
Total Current Assets 836,489 (295,644) 100,729 (212,876) 428,698
Property plant & equipment 725 57,763 57,182 (2,468) 113,202
Notes receivable - 52,570 3,019 - 55,589
Investments in affiliates 98,941 - 1,346 (76,691) 23,596
Intangibles assets 2,433 142,408 68,988 - 213,829
Other assets 22,310 4,757 4,552 5,046 36,665
Total Assets $960,898 $ (38,146) $235,816 $(286,989) $871,579
======= ======== ======= ========= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilites:
Accounts payable $ 2,446 $ 43,279 $ 40,073 $ - $85,798
Accrued compensation and other benefits 3,075 4,986 4,839 - 12,900
Accrued warranties - 9,552 2,891 - 12,443
Accrued income taxes (1,428) 1,951 372 (895) -
Self insurance reserves 4,863 609 119 - 5,591
Net liabilities of discontinued operations - 5,297 - - 5,297
Other current liabilities 8,884 21,433 14,023 - 44,340
------- -------- ------- -------- -------
Total Current Liabilities 17,840 87,107 62,317 (895) 166,369
Long-term debt 528,612 297 - - 528,909
Pensions and other benefits 16,597 (316) 4,388 - 20,669
Other deferred items & self insurance reserves 8,115 263 - 6,090 14,468
Deferred income taxes (1,525) 2,498 5,932 (17) 6,888
------- -------- ------- -------- -------
Total Liabilites 569,639 89,849 72,637 5,178 737,303
------- -------- ------- -------- -------
Stockholder's Equity
Common stock and additional capital 583,384 37,233 122,311 (395,688) 347,240
Accumulated deficit (191,580) (165,228) 66,388 103,581 (186,839)
Accumulated other comprehensive income (545) - (25,520) (60) (26,125)
------- -------- ------- -------- -------
Total Stockholder's Equity 391,259 (127,995) 163,179 (292,167) 134,276
------- -------- ------- -------- -------
Total Liabilities and Stockholder's Equity $ 960,898 $ (38,146) $ 235,816 $(286,989) $871,579
======= ======== ======= ======== =======
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
--------------------------------------------------------------------------
MCII GUARANTOR NON-GUARANTOR ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
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 & equipment 533 46,320 55,974 (31) 102,796
Notes receivable - 32,126 3,274 - 35,400
Investments in affiliates 98,455 3,632 6 (78,977) 23,116
Intangibles assets 2,470 145,509 67,610 - 215,589
Other assets 2,520 8,696 3,647 - 14,863
------- -------- ------- ------- -------
Total Assets $622,636 $ 5,662 $332,282 $(158,825) $801,755
======= ======== ======= ======== =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilites:
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 & self insurance reserves 12,435 6,624 - - 19,059
Deferred income taxes (2,000) 2,152 6,838 - 6,990
---------- -------- -------- ---------- ---------
Total Liabilites 489,171 100,559 109,104 - 698,834
---------- -------- -------- ---------- ---------
Stockholder's Equity
Common stock and additional capital 234,042 (48,640) 212,789 (156,916) 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 133,465 (94,897) 223,178 (158,825) 102,921
---------- -------- -------- ---------- ---------
Total Liabilities and Stockholder's Equity $ 622,636 $ 5,662 $332,282 $ (158,825) $ 801,755
========== ======== ======== ========== =========
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,1999
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net Income $(24,628) $ (1,736) $ 18,388 $ (1,337) $(9,313)
Adjustments to Reconcile Net Income to Net Cash
Provided By (Used In) Operations:
Depreciation and amortization 198 7,110 11,044 - 18,352
Extraordinary loss on early retirement of debt 4,182 - - - 4,182
Noncash inventory valuation charge - 21,000 - - 21,000
All other operating activities 47,583 (39,776) (58,461) 1,337 (49,317)
------- ------- ------- ----- -------
Net Cash Provided By (Used In) Operating Activities 27,335 (13,402) (29,029) - (15,096)
------- ------- ------- ----- -------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures (350) (16,878) (2,104) - (19,332)
Proceeds from sale of property and investments - 12,275 59 - 12,334
Change in notes receivable - (26,533) - - (26,533)
Discontinued operations, net changes - 1,053 - - 1,053
Investments in assets held for lease - (8,040) - - (8,040)
Transfer of Mexican subsidiaries - - (1,483) - (1,483)
------ ------ ------- ----- -------
Net Cash Provided By (Used In) Investing Activities (350) (38,123) (3,528) - (42,001)
------ ------- ------- ----- --------
Cash 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 term B loan principal (833) - - - (833)
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 (25,046) - - - (25,046)
Payment of parent company senior notes (35,574) - - - (35,574)
Net change in other long-term borrowings (21,774) - - - (21,774)
Net change in related party receivables, payables (104,145) 49,066 38,377 - (16,702)
Dividends paid to parent company (74,459) - - - (74,459)
Net change in bank credit facilities (91,000) - (8,594) - (99,594)
New paid-in-capital, net of transaction costs 159,270 - - - 159,270
------- ------- ------- ----- ---------
Net Cash Provided By (Used In) Financing Activities (22,302) 49,066 29,783 - 56,547
------- ------- ------- ----- ---------
Net Increase (Decrease) in Cash 4,683 (2,459) (2,774) - (550)
Cash and Cash Equivalents at Beginning of Period 5,415 3,801 14,822 - 24,038
------- ------- ------- ----- --------
Cash and Cash Equivalents at End of Period $ 10,098 $ 1,342 $12,048 $ - $ 23,488
======= ======= ======= ===== ========
</TABLE>
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 14 - GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------------
MCII GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- -------------- ---------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities:
Net Income $ (829) $ 17,189 $ (6,924) $ (19) $ 9,417
Adjustments to Reconcile Net Income to Net Cash
Provided By (Used In) Operations:
Depreciation and amortization 262 8,106 10,274 219 18,861
Gain on sale of investment (7,000) - - - (7,000)
Noncash interest expense pushed down from
related party 18,252 - - - 18,252
All other operating activities (26,332) (59,463) 61,255 4,689 (19,851)
------- ------- ------- ------- -------
Net Cash Provided By (Used In) Operating Activities (15,647) (34,168) 64,605 4,889 19,679
------- ------- ------- ------- -------
Cash Flows Provided By (Used In) Investing Activities:
Capital expenditures - - (6,383) - (6,383)
Proceeds from sale of property and investments 7,000 1,040 - - 8,040
Change in notes receivable - 2,246 - - 2,246
Investment in unconsolidated affiliate (5,000) - - - (5,000)
Discontinued operations, net changes - 1,989 - - 1,989
Investments in assets held for lease - 5,540 - - 5,540
------- ------- ------- ------- -------
Net Cash Provided By (Used In) Investing Activities 2,000 10,815 (6,383) - 6,432
------- ------- ------- ------- -------
Cash Provided By (Used In) Financing Activities:
Net change in other long-term borrowings (74) - - - (74)
Net change in related party receivables, payables 38,332 28,740 (53,621) (4,889) 8,562
Dividends paid to parent company 5 - - - 5
Net change in bank credit facilities (1,061) - - - (1,061)
------- ------- -------- ------- -------
Net Cash Provided By (Used In) Financing Activities 37,202 28,740 (53,621) (4,889) 7,432
------- ------- -------- ------- -------
Net Increase (Decrease) in Cash 23,555 5,387 4,601 - 33,543
Cash and Cash Equivalents at Beginning of Period 9,018 5,659 (680) - 13,997
------- ------- -------- ------- -------
Cash and Cash Equivalents at End of Period $ 32,573 $ 11,046 $ 3,921 $ - $ 47,540
======= ======= ======= ======= =======
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
GENERAL
On June 16, 1999, MCII Holdings (USA), Inc. ("the Parent Company") completed
a previously announced plan to financially restructure and reorganize itself.
This move was necessitated because the parent company did not anticipate
being able to generate sufficient cash flow to fund both its short-term
requirements for the debt payments and working capital needs and meet the
required expiration of the Senior Credit Facility. On June 16, 1999 the
Parent Company received $175 million from an investment group led by Joseph
Littlejohn & Levy Fund III, in exchange for a 61% equity investment in the
Parent Company and $50 million in Senior notes with warrant due 2010.
Consorcio G Grupo Dina, S.A. de C.V. ("Grupo Dina"), the Parent Company's
former sole stockholder, now owns a minority interest in the Parent Company.
The Parent Company then made an additional $175 million equity investment in
Motor Coach Industries International, Inc. ("MCII" and together with its
subsidiaries referred to as "the Company"). MCII also secured a $445 million
Senior Secured Credit Facility and issued approximately $152 million of 11
1/4 % Senior Subordinated Notes due 2009 at a discount of 98.575%. The $445
million Senior Secured Credit Facility consists of $333 million variable rate
term loans due in 2006 and a $112 million revolving credit agreement due in
2005. MCII, as of September 30, 1999, had $46 million of outstanding
borrowings under the revolving credit agreement and $10 million reserved
for outstanding letter of credit agreements. As part of the financial
restructuring and reorganization the Parent Company retained ownership of
Transportation Manufacturing Operations ("TMO") and Dina Autobuses, S.A. de
C.V. ("Autobuses") and transferred its interest in its other immaterial
Mexican subsidiaries to Grupo Dina. Autobuses has become a subsidiary of TMO
and TMO's name was officially changed to MCII.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total debt to equity ratio decreased from 82% as of December
31, 1998 to 80% at September 30, 1999 as a result of the financial
restructuring. The Company incurred $19.3 million in capital expenditures
during the first nine months of 1999. These expenditures were largely
financed through the use of additional debt. The Company does not expect any
significant change in its total debt to equity ratio over the balance of
1999. The Company's working capital also increased from $227.5 million at the
end of 1998 to $262.6 million at September 30, 1999 as a result of the
financial restructuring. As of September 30, 1999 the Company had the ability
to borrow an additional $56 million under the revolving credit facility and
it anticipates using a portion of this to fund working capital needs through
the balance of the year.
Net cash used in operating activities during the first nine months of 1999
totaled $15.6 million compared to $19.7 million of cash provided by operating
activities for the comparable period of 1998. The major cause for the change
in cash from operating activities is due to the Company's income tax position
where it had an increase in accrued income taxes payable of $8.3 million
during 1998 and a decrease in accrued income taxes payable of $32.3 million
in 1999. The Company anticipates receiving a refund of approximately $6.5
million of previously paid 1999 estimated tax payments during early 2000.
Net cash used in investing activities totaled $42.0 million for the first
nine months of 1999 compared to $6.4 million in cash provided from investing
activities during the comparable period of 1998. Capital expenditures of
$19.3 million for the first nine months of 1999 include approximately $14.4
million associated with the construction of a new replacement parts
distribution facility in Louisville, Kentucky. Proceeds from the sale of
property and investments for the first nine months of 1999 include
approximately $7.9 million of proceeds from the sale of the Des Plaines,
Illinois replacement parts distribution facility which is currently being
leased back by the Company until such time that the new Louisville, Kentucky
facility is fully operational. Proceeds from the sale of property and
investments for the comparable period of 1998 include $7.0 million from the
sale of its' equity interest in Mexicana de Autobuses S.A. de C.V., a Mexican
coach manufacturing company. The Company also had cash used in investing
activities of $8.0 million for 1999 from the additional leasing of buses to
customers compared to cash provided by investing activities of $5.5 million
for the comparable period of 1998 due to the sale of lease contracts to an
outside finance company. The other major factor resulting in a use of cash
from investing activities during 1999 is a $26.5 million increase in the
investment of notes receivable.
Net cash provided by financing activities of $56.5 for the nine months ended
September 30, 1999 compared to $7.4 million for the comparable of 1998. The
cash provided from financing activities in 1999 is primarily due to the
impact of financial restructuring and net changes in the inter-company
payable accounts with related parties.
<PAGE>
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1998
OVERVIEW
Revenues for the three months ended September 30, 1999 were $187.6 million,
an increase of $6.2 million from $181.4 million in 1998. Included in 1998
revenues was approximately $5.0 million in revenue realized since June 16,
1998 from subsidiary operations that were contributed to Grupo Dina as part
of the financial restructuring plan completed on June 16, 1999.
Quarter-over-quarter revenue growth, excluding this 1998 revenue, would have
been $11.2 million or 6.2% higher in 1999 than 1998.
Gross profit for the three months ended September 30, 1999, was $44.5
million, an increase of $1.8 million or 4.3% from $42.7 million for the
comparable period of 1998. The Company's gross profit margin increased from
23.5% in 1998 to 23.7% in 1999.
Selling, general and administrative expenses for the three months ended
September 30, 1999 of $22.5 million decreased $2.2 million or 8.8% from $24.7
million for the comparable period of 1998. The decrease in selling, general
and administrative expenses is due to approximately $3.4 million in royalty
and management fees charged by Grupo Dina during the three months ended
September 30, 1998 that were eliminated as a result of the financial
restructuring. Partially offsetting this decrease is higher sales promotion
expenses incurred during the third quarter of 1999.
Interest expenses for the Company increased $3.6 million or 32% from the
comparable period of 1998 due primarily to higher effective interest rates
associated with the new borrowings.
Foreign currency translation losses of $.7 million for 1999 compared to a
$1.6 million gain for 1998 is due to peso fluctuations against the US dollar
and changes in the monetary position of the Company's Mexican subsidiary.
The $7.0 million gain on sale of investment was the result of a gain on the
sale of the Company's ownership interest in Mexicana de Autobuses S.A. de
C.V. ("MASA"). In 1996, the Company evaluated the realizability of its'
investment in MASA and, due to continuing losses of MASA and prolonged
weakness in the Mexican economy, wrote off its' investment resulting in a
pretax loss of $1.2 million. During the fourth quarter of 1998, the Company
took a $2.0 million charge against this gain for the reimbursement of fees
and expenses associated with the transaction that were incurred by Grupo Dina.
The Company recognized other income of $1.0 million for the three months
ended September 30, 1999 compared to $.6 million for the same period of 1998.
These gains are primarily due to the sale of assets in Mexico.
Income taxes for the three months ended September 30, 1999 decreased $7.8
million from the comparable period of 1998. This decrease is due to a
reduction of $8.7 million in income before taxes on a quarter-over-quarter
basis and the impact of non-deductible interest expense of $6.4 million
incurred during the three months ended September 30, 1998 associated with the
push-down of Parent Company debt.
COACH OPERATIONS
Revenues from coach operations of $142.8 million for the three months ended
September 30, 1999 increased $11.4 million or 8.7% over the comparable period
of 1998. Revenue from new coaches increased by $24.6 million or 23% as sales
of new inter-city coaches totaled 454 units (292 units in the United States
and Canada) compared to 354 units (270 units in the United States and Canada)
during the same period of the prior year. Order backlog as of September 30,
1999 was 868 units (633 units in the United States and Canada) compared to
1138 units (725 units in the United States and Canada) at the same time last
year. Used coach revenue during the three months ended September 30, 1999
decreased $13.2 million or 56% over the comparable period of 1998 due
primarily to a decrease of 57% in the number of used coaches sold.
Gross profits for coach operations of $35.2 million for the three months
ended September 30, 1999 increased $4.6
<PAGE>
million or 15.1% over the comparable period of 1998 as the gross profit
margin increased from 23.3% for the three months ended September 30, 1998 to
24.7% for the same period of 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 1998
and the implementation of other cost improvement initiatives.
Operating income from coach operations of $8.8 million for the three months
ended September 30, 1999 increased $8.0 million from the same period last
year. Operating income margins increased from .6% for the three months ended
September 30, 1998 to 6.1% for the comparable period of 1999. The reduction
in selling, general and administrative expenses from the elimination of Grupo
Dina royalty and management fees coupled with the improved gross profits of
$4.6 million account for the increase in operating income.
REPLACEMENT PARTS
Revenues for replacement parts operations of $42.2 million for the three
months ended September 30, 1999 declined by $5.5 million or 11.5% from the
comparable period of 1998. Effective June 16, 1999, as part of the financial
restructuring, the Company contributed its' Mexican parts company to Grupo
Dina which resulted in a decrease in revenue of approximately $5.0 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 from replacement parts operations of $7.7 million for the three
months ended September 30, 1999 were $3.0 million or 27.6% below the same
period of 1998. Gross margin decreased from 22.3% for the three months ended
September 30, 1998 to 18.3% for the comparable period of 1999. The decrease
in gross margin is largely due to product mix and higher freight costs.
Operating income from replacement parts operations of $3.2 million was $3.6
million or 53% below the comparable period of 1998. Operating income margins
decreased from 14.2% for the three months ended September 30, 1998 to 7.6%
for the comparable period of 1999. The lower operating income margin for 1999
is due primarily to the lower gross profits coupled with higher allocated
selling, general and administrative expenses.
FINANCE OPERATIONS
Revenues from finance operations of $2.6 million for the three months ended
September 30, 1999 increased $.3 million or 16.3% from the comparable period
of 1998. The increase in revenues is due to an increase in lease rental
income.
Gross profits from finance operations of $1.6 million for the three months
ended September 30, 1999 increased $.1 million or 11% from the same period
last year as the gross margins decreased from 63% in 1998 to 61% for the
comparable period of 1999.
Operating income from finance operations for the three months ended September
30, 1999 decreased by $.6 million as the operating income margin of 32.6% for
the three months ended September 30, 1998 decreased to 6.8% for the
comparable period of 1999. The decrease is primarily due to higher allocated
selling, general and administrative expenses.
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1998
OVERVIEW
Revenues for the nine months ended September 30, 1999 were $674.9 million, an
increase of $8.8 million from $666.1 million in 1998. Included with 1998
revenues was approximately $5.7 million in revenue realized since June 16,
1998 from subsidiary operations that were contributed to Grupo Dina as part
of the financial restructuring plan completed on June 16, 1999.
Year-over-year revenue growth, excluding this 1998 revenue, would have been
$14.5 million or 2.2% higher than 1998.
Gross profit for the nine months ended September 30, 1999, was $144.3
million, an increase of $3.2 million or 2.3% from $141.1 million from the
comparable period of 1998. 1999 gross profits include the impact of a $21.0
million non-cash inventory charge taken during the second quarter of 1999.
The Company's gross profit margin, excluding the non-cash inventory charge,
increased from 21.2% in 1998 to 24.5% in 1999.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 of $73.0 million increased 10.6% from $66.0 million for
the comparable period of 1998. The increase in selling, general and
administrative expenses is largely due to an increase in sales promotion
expenses and employee related expenses due to an increase in the number of
employees. Higher costs associated with the financial restructuring
transaction and computer system upgrades were partially offset by lower
royalty and management fees charged by Grupo Dina.
Interest expenses for the Company increased $11.3 million or 36% from the
comparable period of 1998 due primarily to higher average effective interest
rates associated with the new borrowings.
Foreign currency translation losses of $1.6 million for 1999 compared to a
$3.6 million gain for 1998 was due to peso fluctuations against the US dollar
and changes in the monetary position of the Company's Mexican subsidiary.
The $7.0 million gain on sale of investment was the result of a gain on the
sale of the Company's ownership interest in Mexican de Autobuses S.A. de C.V.
("MASA") recognized during the three months ended September 30, 1998.
The Company recognized other non-operating expense of $.5 million for the
first nine months of 1999 primarily due to withholding taxes paid on a
Mexican benefit plan fund withdrawal. During the first nine months of 1998,
the Company recognized other non-operating income of $3.8 million primarily
due to gains realized from the sale of assets in Mexico.
Income taxes of $6.4 million for the first nine month of 1999 decreased $15.6
million or 71% from the comparable period of 1998. The decrease in income
taxes is primarily due to a drop of $31.6 million of pre-tax income and the
impact of a drop of $6.7 million in non-deductible interest expense
associated with the push-down of debt from the Parent Company.
Extraordinary losses of $2.6 million (net of tax benefit of $1.6 million)
were incurred as a result of the early extinguishment of debt associated with
the financial restructuring and reorganization. This charge consisted of
redemption premiums and other financing costs partially offset by a gain
resulting from the recognition of unamortized swap accretion credits.
COACH OPERATIONS
Revenues from coach operations of $531.9 million for the nine months ended
September 30, 1999 increased $17.9 million or 3.4% over the comparable period
of 1998. Revenue from the sale of new coaches increased $31.5 million or 7.0%
as sales of new inter-city coaches totaled 1,550 units (1201 units in the
United States and Canada compared to 1694 units (1,170 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 inter-city transit
buses sold during the first quarter of 1998 which did not reoccur in 1999.
Used coach revenue during the first nine months of 1999 decreased $13.6
million or 21% from the comparable period of 1998 due primarily to used
coach pricing and product mix.
Gross profits for coach operations of $119.3 million for the nine months
ended September 30, 1999 increased $9.5 million or 8.7 % over the comparable
period of 1998. Operating expenses for the first nine months of 1999 include
a non-cash inventory charge of $15.0 million taken during the second quarter
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 $24.5 million or 22% during 1999 as the
gross profit margins increased from 21.4% in 1998 to 25.2% in 1999.
<PAGE>
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 from coach operations of $37.0 million for the first nine
months of 1999 increased $5.4 million or 17.1% from the same period last year
as operating income margins increased from 6.1% for the first nine months of
1998 to 7.0% for the comparable period of 1999. Operating income margins,
exclusive of the $15.0 million non-cash inventory charge discussed above,
increased from 6.1% for the first nine months of 1998 to 10.9% for the
comparable period of 1999.
REPLACEMENT PARTS
Revenues for replacement parts operations of $136.7 million for the first
nine months of 1999 declined by $8.0 million or 5.5 % from the comparable
period of 1998. Effective June 16, 1999, as part of the financial
restructuring, the Company contributed its' Mexican parts company to Grupo
Dina which resulted in a decrease in revenue of approximately $5.7 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 from replacement parts operations of $27.2 million for the
first nine months of 1999 were $5.1 million or 19.5% below the same period of
1998. A non-cash inventory charge of $6.0 million was recorded during the
second quarter of 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 $.9 million or 3.2% above the
prior year as the gross profit margins increased from 18.2% in 1998 to 19.9%
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 from replacement parts operations of $7.4 million was $6.9
million or 48.4 % below the comparable period 1998 as operating income
margins declined from 9.9% for the first nine months of 1998 to 5.4% for
1999. Operating income margins, exclusive of the $6.0 million non-cash
inventory charge discussed above, were 9.8% for the first nine months of 1999
which is relatively unchanged from 1998.
FINANCE OPERATIONS
Revenues from finance operations of $6.3 million for the first nine months of
1999 declined $1.2 million or 16.3% 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 from finance operations of $3.8 million for the first nine
months of 1999 declined $1.2 million or 24.5% from the same period last year.
The decrease in revenue is the largest factor contributing to the decrease.
Operating income from finance operations was at break-even for the first nine
months of 1999 compared to approximately $2.3 million of operating income for
the same period of last year. The revenue decline is the largest factor
contributing to the decrease in operating income.
YEAR 2000 MATTERS
We developed and executed a plan to ensure that our systems will have the
ability to process transactions in the year 2000. We have identified and
documented all applications and have completed and tested all modifications
made on mission critical system. This project was completed on October 1, 1999
at a total cost of approximately $1.2 million. The Company is completing work
on some ancilliary systems that will be completed by year-end 1999 at an
additional cost of approximately $250,000.
We have contacted business partners and have documentation from all but one
non-critical supplier that indicate they are year 2000 compliant.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITIATIVE 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
change 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 rates we are sensitive to changes in
prevailing interest rates. An increase of 1% in the applicable base interest
rates, based upon $378 million of borrowings under the facility as of
September 30, 1999, would result in additional annual interest expense of
approximately $3.8 million ($2.3 million after tax) to us and would not be
material to our cash flow or financial position.
FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this form 10-Q. 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. You are cautioned not to
put undue reliance on any forward-looking statment.
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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the ordinary course of business, the Company is party to various
employment and other legal actions as plaintiff or defendant. We are also
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 business and, while we maintain product
liability insurance in customary amounts to cover such product liability
claims, 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. While the Company cannot determine with certainty,
the ultimate outcome of such lawsuits, it believes that it is not involved in
any current litigation or arbitration proceedings which, if determined
adversely to it, either individually or in the aggregate, would have a
material adverse effect on the Company's Financial condition or results of
operations.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
a) Exhibits
Exhibit 27 Financial Data Schedule (Edgar Filing Only)
b) Reports on Form 8-K
Subsequent to September 30, 1999 but prior to the issuance of this report,
the Company, on October 8, 1999, issued a report on Form 8-K to announce
that, as a result of the change in control of the Company, the Company was
terminating its' relationship with Arthur Andersen, LLP, it's then current
independent public accountants and auditors, and was replacing them with
PricewaterhouseCoopers LLP ("PWC"). On November 16, 1999 the Company issued
another report on Form 8-K , dated November 8, 1999, indicating that PWC had
resigned as the Company's new independent public accountants and auditors and
the Company is currently engaged in the process of hiring a new public
accounting firm to replace PWC.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this 10-Q to be signed on its behalf by the
undersigned, thereunto duly authorized.
MOTOR COACH INDUSTRIES INTERNATIONAL INC.
(Registrant)
November 23, 1999 By /s/ Horst Sieben
-------------------------
Horst Sieben
Chief Financial Officer
15
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED INCOME STATEMENT, BALANCE SHEET AND STATEMENT OF CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 23,488
<SECURITIES> 0
<RECEIVABLES> 194,697
<ALLOWANCES> 0
<INVENTORY> 234,547
<CURRENT-ASSETS> 428,698
<PP&E> 113,202
<DEPRECIATION> 0
<TOTAL-ASSETS> 871,579
<CURRENT-LIABILITIES> 166,369
<BONDS> 528,809
0
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<COMMON> 0
<OTHER-SE> 134,276
<TOTAL-LIABILITY-AND-EQUITY> 871,579
<SALES> 671,870
<TOTAL-REVENUES> 674,894
<CGS> 507,415
<TOTAL-COSTS> 630,505
<OTHER-EXPENSES> 2,151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,525
<INCOME-PRETAX> (287)
<INCOME-TAX> 6,412
<INCOME-CONTINUING> (6,699)
<DISCONTINUED> 0
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