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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 01-12208
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MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 86-0706940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 EAST GOLF ROAD, DES PLAINES, ILLINOIS 60016
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (847) 299-9900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
registrant: None as of March 15, 2000.
The number of shares outstanding of the registrant's Common Stock: 1,000
shares as of March 15, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TABLE OF CONTENTS
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 11
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 11
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 14
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 60
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 60
Item 11. Executive Compensation...................................... 62
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 64
Item 13. Certain Relationships and Related Transactions.............. 67
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on
Form 8-K.................................................. 71
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FORWARD-LOOKING STATEMENTS
We make "forward-looking statements" throughout this form 10-K. 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 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.
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PART I
ITEM I BUSINESS
A. GENERAL
Motor Coach Industries International, Inc. ("MCII") together with its
subsidiaries ("the Company") 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. During the prior 3 years, we have consistently maintained a
market share in the range of 51%-52% of the United States and Canadian
inter-city coach market and estimate that our 1999 market share was 50%. Our
established market position and product longevity have led to an industry-wide
fleet of inter-city coaches operating in the United States and Canada in 1999.
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 32% of this combined market.
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 debt payments and working capital needs and meet the required expiration of
the Senior Credit Facility. In the reorganization, the Parent Company received
$175 million from an investment group lead by Joseph Littlejohn & Levy Fund III,
in exchange for a 61% equity investment in the Parent Company, warrants to
purchase up to an additional 10% of the Common Stock of the Parent Company, on a
fully dilutive basis and $50 million in senior notes 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 Transportation Manufacturing
Operations, Inc. ("TMO") which subsequently changed its name to MCII. 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. As part of the financial restructuring and
reorganization, the Parent Company retained ownership of MCII and Dina
Autobuses, S.A. de C.V. ("Autobuses") and transferred its interest in certain
other immaterial Mexican subsidiaries to Grupo Dina. Autobuses has become a
subsidiary of MCII.
From 1995 to 1999, our annual revenues have grown from $527.1 million to
$911.1 million, representing a 14.7% 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 $97.7 million in 1999, representing a 13.4% compound
annual growth rate. The EBITDA of $97.7 million for 1999 includes a non-cash
inventory charge of $21.0 million and a non-cash net curtailment gain of
$3.2 million. Our adjusted EBITDA, excluding these non-cash items incurred in
1999, was $115.5 million, representing a 18.3% compound growth rate.
B. FINANCIAL INFORMATION ABOUT SEGMENTS
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.
New coach sales represented 67% of our revenues during 1999.
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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. Replacement parts sales represented 18% of our revenues during 1999.
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 eight 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.
For further information on these business segments please see Note 23 to the
Consolidated Financial Statements entitled Business and Geographical Data.
C. NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS
INTER-CITY COACHES
Our current product offerings include five inter-city coach models with
selling prices ranging from $105,000 to $410,000. The majority 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 is also
available in a 45-foot long version. Our deliveries for the D-Series models in
1999 totaled 1,086 units constituting approximately 61% of the Company's gross
new coach units delivered in the United States and Canada. Seating capacity
ranges from 36 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. Once again, 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 1999 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 31% of the Company's gross new coach units
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delivered in 1999 in the United States and Canada with unit deliveries of 556
vehicles. The units have a standard thirty-month warranty, which is the longest
standard warranty currently offered in the industry. The E-Series, launched in
September 1997, was the third most popular seated coach model in the United
States and Canada in 1999 according to NATIONAL BUS TRADER.
F11 and F12. These coaches are popular two axle coaches designed primarily
for the Latin American and Mexican marketplaces which continue to serve our
customers very well. A large version called the F14 utilizes much of the F12
design but is a 3 axle coach with additional seating capacity. The F14 began
limited production during 1999 and will continue to grow in volume this year.
All the preceding coach models are manufactured in our Sahagun, Mexico facility
utilizing MCII technology and coupled with European styling. MCII delivered 247
F series coach into the Mexican market in 1999. All products are sold through
our existing sales force.
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, charter and line-haul vehicle
seats 52 to 56 passengers. The DOT certified model meets all applicable safety
regulations in the United States and Canada. In 1999, we delivered 265
VIAGGIO-REGISTERED TRADEMARK- units. Of these units, 103 were DOT certified
models sold in the United States and Canada constituting approximately 6% of the
Company's gross new coach units sold in 1999 in the United States and Canada. We
also delivered 17 DOT certified models to Greyhound affiliates in Mexico and the
remaining 145 VIAGGIO-REGISTERED TRADEMARK- units were delivered in Mexico.
MC-12. The MC-12 model is a 40-foot long, 96-inch wide line-haul coach. In
1999, we also delivered 28 units of this model, or approximately 2% of gross new
coach units delivered in the United States and Canada. This model is being
phased out by our D-Series coach.
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 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.
NEW PRODUCTS
New coach products that we are currently developing include:
G-Series. The G-Series is being designed for all segments 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. The pilot
production of the G-Series began 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 a warranty
package similar to the one offered by the Company on the D-Series.
Another new entry being introduced into the US and Canadian marketplace this
year is the F35 Series. This coach is a modified and DOT version of the very
successful Mexican F12 coach. This product provides an exciting opportunity for
MCII to expand and serve an untapped niche market for customers seeking a heavy
duty two axle coach with the full backing and support of the MCI
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companies. This product is designed for applications including Charter & Tour,
Limo Operators, Motorhome and Executive conversions. Our F35 will provide a
lower cost alternative to the larger coaches without any compromise on customer
support and durability.
RAW MATERIALS
We have multiple vendors for most of the raw material 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 whenever possible.
Our top vendors include Namasco Limited (steel) and Atlas Ideal Metals
(stainless steel and aluminum) for raw materials, Detroit Diesel for engines,
Allison Transmission for transmissions, Meritor for axles, Astron Seating,
National Seating and American Seating for seats, and Carrier for
air-conditioning units.
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.
SEASONALITY
MCI's independent customer base prefers delivery of their equipment in the
months of March, April and May. The historical challenge for the sales
department has been to flatten out the peaks and valleys of demand throughout
the year, which allows the Company to have a constant level of production at the
manufacturing plants. For instance, we challenge the Public Sector Sales group
to help us fill the demand for new coaches during the second half of the year
when independent demand is lower than the first half of the year. Traditionally
we deliver approximately one-third of our annual volume of new coaches during
the fourth quarter because there are certain tax incentives for purchasing
capital equipment prior to year-end. We typically build new coaches for
customers such as Greyhound and Coach USA during the months of January and
February, prior to the high demand period of the independent marketplace.
Because of the 3-week vacation/plant shutdown during the summer, which is
mandated by the Canadian government, we usually have our lowest volume of
deliveries during the third quarter of the year.
WORKING CAPITAL
The Company's total working capital at December 31, 1999 and 1998 totaled
$254.2 and $203.4 million, respectively. The Company's working capital is
defined as the Company's current assets, excluding cash and cash equivalents
less current liabilities, excluding short-term debt and the current portion of
long-term debt. The Company's current assets consist primarily of receivables
and inventories, while its current liabilities consist primarily of accounts
payable, accrued expenses and a
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current portion of warranty and insurance reserves. For a further discussion of
changes in working capital, please see the discussion of Liquidity and Capital
Resources in the Managements Discussion and Analysis of Financial Condition and
Results of Operations included in Item No. 7 of this report on Form 10-K.
RELIANCE ON MAJOR 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 Corporation and New York City Transit Authority. 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) accounted for approximately 53% of our 1999 new coach unit sales in those
markets. In 1999, we delivered 2,192 new and 788 used coaches to different
customers, or approximately 2.9 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 2.1 units. Our largest customer is Greyhound,
which represented 13.5%, 17.2% and 21.7% of United States and Canadian gross new
coach units delivered in 1997, 1998 and 1999, respectively. We also sell coaches
to Coach USA, which accounted for 12.8% and 5.8% of United States and Canadian
gross new coach units delivered in 1998 and 1999, respectively. Coach USA and
the Company entered into a new 5 year supply agreement as of December 22, 1999,
which obligates Coach USA to purchase at least 75% of its new inter-city Coach
requirements from the Company. In addition, sales to federal and local
governments accounted for approximately 14.8% and 13.3% of total United States
and Canadian gross new coach units delivered in 1998 and 1999, respectively. In
Mexico, our principal customers are line-haul operators, including Greyhound
affiliates in Mexico, and operators of transit buses.
BACKLOG
As of December 31, 1999, we had a backlog of firm orders for 497 units (467
units in our U.S. and Canadian operations), compared with 990 units (778 units
in our U.S. and Canadian operations) at December 31, 1998. Orders are included
in backlog upon receipt from our customers of a signed purchase contract and
deposit. The change in backlog from years 1998 to 1999 was largely impacted by
four significant orders; two from the Public Transit segment and two from the
Tour and Charter segment. The Public Transit segment's coach needs are not as
consistent year over year as the other markets and therefore did not reoccur in
1999. The Tour and Charter orders, one in the Mexican market and one in U.S. and
Canadian markets, were booked late in 1998 and in both cases the timing of these
orders did not reoccur late in 1999. We are continuing to do business with all
of these customers and do not anticipate any decrease in market share from this
customer base.
COMPETITIVE CONDITIONS
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
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leading European coach manufacturer. We estimate that Prevost had a 29% market
share of the U.S. and Canadian 1999 new inter-city coach market. We estimate
that Van Hool had approximately a 16% share of the 1999 new 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 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), Novabus and
BIA in the inter-city and transit segment. Distributors include, International
Coach Parts (a division of 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, entered the replacement parts market in late 1999.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
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.
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 with any degree of certainty the cost of compliance in the future and
such future costs could significantly affect our operations and financial
results.
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,
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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 2000 and 2001 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.
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.
NUMBER OF EMPLOYEES
We had approximately 4,600 employees as of December 31, 1999. Approximately
70% of our total work force is 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 800 Mexican employees
of Autobuses. 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 2000.
We experienced a five-day and four-day labor strike in Mexico in
February 2000 and February 1999, respectively, that resulted in a loss of
production. 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.
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ITEM 2 DESCRIPTION OF PROPERTY
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 and recently received its ISO 9002
certification. 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 semi-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 1,088,100 square
feet of which approximately 710,000 square feet is used for manufacturing and
this facility 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; Louisville,
Kentucky; Loudonville, Ohio; and Newcastle, Ontario. In addition, we have parts
manufacturing locations in Canada and Loudonville, Ohio, and corporate and
divisional offices in Des Plaines, Illinois.
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 as of March 1, 2000.
<TABLE>
<CAPTION>
BUILDING
MANUFACTURING/ASSEMBLY/R&D PLANTS: STATUS SQ. FT. SEGMENT
- ---------------------------------- -------- -------- --------------------------------------------
<S> <C> <C> <C>
1475 Clarence Ave............... Owned 391,000 Shell assembly/research and development
Winnipeg, Manitoba
552 W. Stutsman Ave............. Owned 188,500 Final coach assembly
Pembina, ND
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
BUILDING
MANUFACTURING/ASSEMBLY/R&D PLANTS: STATUS SQ. FT. SEGMENT
- ---------------------------------- -------- --------- ------------------------------------------
<S> <C> <C> <C>
Sahagun, Mexico(1).............. Owned 1,088,100 Coach manufacturing, warehousing and
Autobuses' offices
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/ parts manufacturing
Winnipeg, Manitoba
Building 1081 RHC............... Leased 66,000 Research and development engineering
Roswell, NM
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 parts storage
Pembina, ND
MODIFICATION OR REPAIR FACILITIES:
------------------------------
10 E. Golf Road................. Owned 60,000 Corporate headquarters/used coach/service
Des Plaines, IL center
10850 Portal Drive.............. Leased 50,000 Used coach/service center
Los Alamitos, CA
Boggy Creek Dr.(2).............. Owned 49,000 Used coach/service center
Orlando, FL
Two Harmon Dr................... Leased 28,000 Used coach/service center
Blackwood, NJ
3530 Richelieu Street........... Leased 8,162 Used coach/service center
St. Hubert, Quebec
9787 Clifford Drive............. Leased 36,000 Used coach/service center
Dallas, TX
REPLACEMENT PARTS FACILITIES:
------------------------------
105 E. Oakton................... Leased 36,000 Office UCP Headquarters
Des Plaines, IL
9 Nicholas Court................ Leased 106,000 Parts distribution
Dayton, NJ
260 Toronto Street.............. Owned 44,000 Parts distribution/ manufacturing
Newcastle, Ontario
520 North Spring Drive(4)....... Owned 356,000 Parts distribution/ manufacturing
Loudonville, OH
7001 Universal Coach Drive (3).. Owned 365,000 Parts distribution warehouse
Louisville, KY
</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 purchased approximately 10 acres
of vacant land upon which it intends to build the listed facility for a
planned end of third quarter opening.
(3) This facility was completed in October 1999. Des Plaines warehouse
operations have been moved and operations at Dayton and Loudonville will be
discontinued on a phased basis.
(4) This property has been listed for sale with a national real estate brokerage
firm.
9
<PAGE>
ITEM 3 LEGAL AND ADMINISTRATIVE PROCEEDINGS
In the ordinary course of our business, we are party to various employment,
product liability 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 several of the
lawsuits arising out of this accident, which generally allege that the coach was
not crashworthy. 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 Canada Customs and Revenue Agency ("CCRA"), 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. CCRA'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 CCRA with respect to the 1985 return. We have
filed a notice of objection for 1985. In the event of an adverse judgment, as of
December 31, 1999 the additional income taxes for 1982 through 1992 could amount
up to US$24 million plus interest of approximately US$56 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 CCRA 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 based on its review of
current information, including the advice of outside counsel, the Company is of
the opinion that CCRA's arguments are without merit. 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. Also, pursuant to
the investment agreement between JLL and Grupo Dina signed as part of the
financial restructuring transaction (see discussion in Note 3 to the
Consolidated Financial Statements), Grupo Dina is obligated to indemnify the
Company in the event and to the extent that the amount we are required to pay
exceeds the amount reserved for such loss on the Company's 1998 Balance Sheet.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None.
10
<PAGE>
PART II
ITEM 5 MARKET DATA
N/A
ITEM 6 SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The selected consolidated financial data as of and for the three years ended
December 31, 1999 are derived from our audited consolidated financial statements
included elsewhere in this Form 10-K. Those financial statements 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 consolidated financial statements audited by PricewaterhouseCoopers
LLP, our predecessor independent accountants.
The selected unaudited consolidated financial data as of and for the year
ended December 31, 1995 are derived from our financial records. 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.
11
<PAGE>
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 form 10-K.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues............................ $527,053 $667,084 $739,783 $931,727 $911,113
Operating expenses:
Cost of sales(1)...................... 396,802 509,804 549,001 730,954 704,117
Depreciation and amortization......... 15,494 17,618 22,035 24,815 23,527
Research and development expenses..... 2,925 7,346 6,655 8,741 10,648
Other operating expenses(2)........... 68,182 72,483 83,639 83,413 98,637
Total operating expenses.......... 483,403 607,251 661,330 847,923 836,929
Operating income.......................... 43,650 59,833 78,453 83,804 74,184
Interest expense, net..................... 34,954 16,029 21,859 19,985 44,113
Interest expense pushed down from related
party(3)................................ 15,019 19,550 21,635 25,194 11,601
Other expenses (income)................... (16,764) (2,344) (2,835) (7,814) 4,197
Income before income taxes................ 10,441 26,598 37,794 46,439 14,273
Income taxes (benefit).................... 17,129 18,474 21,268 31,790 (1,936)
Income from continuing operations......... (6,688) 8,124 16,526 14,649 16,209
Loss from discontinued operations......... -- 5,000 -- -- --
Income before extraordinary item.......... (6,688) 3,124 16,526 14,649 16,209
Extraordinary charge for early retirement
of debt................................. -- 851 -- -- 2,614
Net income................................ $ (6,688) $ 2,273 $ 16,526 $ 14,649 $ 13,595
OTHER DATA (UNAUDITED):
EBITDA(4)................................. $ 59,144 $ 77,451 $100,488 $108,619 $115,543
Capital expenditures...................... 12,559 25,609 32,096 11,740 28,204
Ratio of earnings to fixed charges(5)..... 1.2x 1.7x 1.8x 1.9x 1.2x
Ratio of earnings to fixed charges
excluding effect of push down debt(5)... 1.7x 3.2x 3.3x 4.0x 1.5x
Net cash provided by (used in):
Operating activities.................. $ (9,170) $ 44,320 $(52,585) $ 73,732 $(23,204)
Investing activities.................. 13,202 (30,338) (71,170) (14,683) (48,117)
Financing activities.................. 18,914 (35,254) 128,349 (49,008) 62,913
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents................. $ 30,675 $ 9,403 $ 13,997 $ 24,038 $ 15,630
Working capital(6)........................ 146,080 166,679 261,096 203,420 254,223
Total assets.............................. 649,368 642,780 820,673 801,755 891,274
Total debt, excluding pushed down debt.... 217,914 210,668 313,251 267,965 536,534
Long-term debt pushed down from related
party(3)................................ 143,040 162,588 184,225 206,500 --
Stockholder's equity...................... 183,413 144,539 147,693 102,921 155,117
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
12
<PAGE>
NOTES TO SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(1) Cost of sales for the year ended December 31, 1999 includes 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.
(2) Other operating expenses are comprised of selling, general and
administrative expenses and other miscellaneous operating expenses. Other
operating expenses were offset by $8.5 million for business insurance
recoveries in 1998 and $3.2 for a net curtailment gain in 1999.
(3) As proceeds from the financial restructuring 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) EBITDA represents income before the second quarter 1999 non-cash inventory
charge, the fourth quarter 1999 net curtailment gain, 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.
(5) 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.
(6) 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).
13
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
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
Grupo Dina.
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, 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 Parent 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 termination date.
The tender offers expired on June 14, 1999, and virtually all of the notes were
tendered and purchased in conjunction with the tender offer.
14
<PAGE>
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"), warrants to purchase up to an additional 10% of the common stock of
the Parent Company on a fully dilutive basis and $50 million in senior notes
issued by the Parent Company, due 2010, (b) the Company entering into a new
senior credit facility in an approximate amount of $445 million and (c) TMO
issuing approximately $152.3 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 secured discount 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 12 on long term debt. Finally, the Parent Company
(USA), Inc. transferred its Dina Autobuses, S.A. de C.V. subsidiary to MCII.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's total debt to equity ratio decreased from 82% as of
December 31, 1998 to 78% at December 31, 1999 as a result of the financial
restructuring. The Company incurred $28.2 and $11.7 million in capital
expenditures during 1999 and 1998 respectively. These expenditures were largely
financed through the use of additional debt. The Company's working
capital,excluding cash and cash equivalents also increased from $203.4 million
at the end of 1998 to $254.2 million at the end of 1999. As of December 31,
1999, the Company had the ability to borrow an additional $49 million under the
revolving credit facility.
Net cash used in operating activities during 1999 totaled $23.2 million
compared to $73.7 million of net cash provided by operating activities for 1998
and net cash used in operating activities of $52.6 in 1997. A major cause for
the change in cash from operating activities is due to the Company's income tax
payments which resulted in a decrease in accrued income taxes payable of
$27.6 million during 1999 and an increase in deferred income tax assets of
$19.1 million during 1999. The Company had an increase in accounts receivable of
$29.6 million, driven largely by a 3 year installment sale contract with a
leading Mexican coach operator, and also had an increase in inventories of
$15.9 million. The Company received a refund of approximately $6.2 million of
previously paid 1999 estimated tax payments during the first quarter of 2000.
Net cash provided by operating activities improved in 1998 from 1997 primarily
due 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 in investing activities of $48.1 million for 1999 increased
from $14.7 used in 1998. The increase in capital expenditures from
$11.7 million in 1998 to $28.2 million in 1999 is primarily due to approximately
$19.9 million of additions to the replacement parts division. This
$19.9 million is primarily associated with the construction of a new
distribution facility in Louisville, Kentucky and the cost of a new computer
system. Proceeds from the sale of property and investments for 1999 include
approximately $5.5 million of proceeds from the sale of the Des Plaines,
Illinois replacement parts distribution facility. A portion of this Des Plaines
facility is currently being leased back by the Company as office space for the
replacement parts group. The balance of the proceeds received in 1999 is from
the sale of investment in assets held for lease. Proceeds from the sale of
property and investments for 1998 include $5.0 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
approximately $9.5 million in 1999 for additions to its investments in assets
held for lease compared to $4.3 million used in 1998. The other major factor
resulting in a use of cash from investing activities during 1999 is a
$29.3 million increase in the investment of notes receivable, compared to a
15
<PAGE>
$0.8 million net decrease in the investment in notes receivable during 1998.
This change was generated primarily by an increase in the volume of notes
receivable issued during 1999 and the sales of notes receivable in 1998 that did
not reoccur during 1999. The Company's reduction in cash used in investing
activities from $71.2 million in 1997 to $14.7 million in 1998 reflects
reductions in capital expenditures in 1998, and the initial investment made in
MCII Financial Services in 1997 that did not reoccur in 1998.
Net cash provided by financing activities in 1999 of $62.9 was primarily
caused by the impact of the financial restructuring. Net cash used in financing
activities of $49.0 million in 1998 was caused by the Company paying down its
long-term debt obligations. Net cash provided by financing activities of
$128.3 million in 1997 was generated by additional borrowings needed to fund its
acquisition of MCII Financial Services and cash needed to fund significant
increases in its inventory and other working capital requirements and capital
expenditures as the Company introduced its new E-Series coaches.
The Company expects to be able to fund its expected liquidity requirements
in 2000 through cash generated from operations and through use of additional
borrowings under its current credit facilities.
RESULTS OF OPERATIONS:
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
OVERVIEW:
Revenues for the year ended December 31, 1999 were $911.1 million, a
decrease of $20.6 million from $931.7 million in 1998. Included in 1998 revenues
were approximately $8.5 million realized from June 16, 1998 through
December 31, 1998 from subsidiary operations that were contributed to Grupo
Dina, as part of the financial restructuring plan completed on June 16, 1999.
The year-over-year revenue decline excluding this 1998 revenue, would have been
$12.1 million or 1.3%.
Gross profit for the year ended December 31, 1999, was $207.0 million, an
increase of $6.2 million or 3.1% from $200.8 million in 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 21.5% in 1998 to 25.0% in 1999.
Business insurance recoveries of $8.5 million were realized in 1998 from the
settlement of insurance claims seeking recovery of various out-of-pocket costs
and business interruption losses at the Company's Pembina, North Dakota and
Winnipeg, Manitoba facilities as a result of 1997 flooding along the Red River.
Selling, general and administrative expenses for the year ended
December 31, 1999 of $101.8 million increased 12.0% from $90.9 million for 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 expense for the year ended December 31, 1999 increased
$10.5 million or 23.3% from 1998 due primarily to higher average effective
interest rates associated with the new borrowings.
Foreign currency translation losses of $3.8 million for 1999 compared to a
$3.3 million gain for 1998 was largely due to peso fluctuations against the US
dollar and changes in the monetary position of the Company's Mexican subsidiary
and the impact of the fluctuation of the Canadian dollar against the US dollar
on the receivable/payable balances owed between the Company's U.S. and Canadian
entities.
The $5.0 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") recognized in 1998.
16
<PAGE>
The Company recognized other non-operating expense of $0.4 million for 1999
primarily due to withholding taxes paid on a Mexican benefit plan fund
withdrawal. During 1998, the Company recognized other non-operating expenses of
$0.5 million primarily due to disposal of other assets in Mexico.
Income taxes in 1999 decreased by $33.7 million from 1998 as the Company
recorded an income tax benefit of $1.9 million in 1999 compared to an income tax
expense of approximately $31.8 million in 1998. The decrease in income taxes is
primarily due to a reduction of pre-tax income, a reduction in the income tax
valuation allowance attributable to Mexico operations as a result of the
financial restructuring and the impact of a reduction of $13.6 million in
non-deductible interest expense associated with the pushdown 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 $736.0 million for the year ended
December 31, 1999 were essentially unchanged from 1998. Revenue from the sale of
new coaches increased $22.1 million or 3.7% as sales of new inter-city coaches
totaled 2192 units (1783 units in the United States and Canada) in 1999 compared
to 2156 units (1829 units in the United States and Canada) during 1998. Used
coach revenue during 1999 decreased $22.4 million or 15.6% from 1998 due
primarily to used coach pricing and product mix. The number of used coaches sold
of 788 units in 1999 was relatively unchanged from the 779 units sold in 1998.
Gross profits for coach operations of $172.0 million for 1999 increased
$14.4 million or 9.1% over 1998. Operating expenses for 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 $29.4 million or 18.7% during 1999 as the gross profit margins
increased from 21.4% in 1998 to 25.4% 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 from coach operations of $69.0 million for 1999 increased
$7.8 million or 12.8% from 1998 as operating income margins increased from 8.3%
for 1998 to 9.4% for 1999. Operating income in 1998 was favorably impacted by
approximately $8.5 million in business insurance recoveries realized from the
1997 flooding along the Red River. Operating income margins, exclusive of the
$15.0 non-cash inventory charge in 1999 and the $8.5 of business insurance
recoveries realized in 1998 increased from 7.2% in 1998 to 11.4% in 1999.
REPLACEMENT PARTS:
Revenues for replacement parts operations of $166.5 million for 1999
declined by $19.6 million or 10.5% 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 $6.6 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.
17
<PAGE>
Gross profits from replacement parts operations of $29.9 million for 1999
were $7.1 million or 19.3% 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 parts distribution
activities into a single location. Exclusive of this charge, gross profits would
have decreased $1.1 million or 3.1% from the prior year while the gross profit
margins would have increased from 19.9% in 1998 to 21.6% 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 from replacement parts operations of $8.9 million for 1999
was $11.4 million or 56% below 1998 as operating income margins declined from
10.9% for 1998 to 5.2% for 1999. Operating income margins, exclusive of the
$6.0 million non-cash inventory charge discussed above, were 8.9% for 1999 which
is lower than the 10.9% in 1998 due largely to higher selling, general and
administrative expenses in 1999 caused primarily by the implementation of a new
computer system and the relocation of its distribution operations from Des
Plaines, IL to Louisville, KY.
FINANCE OPERATIONS:
Revenues from finance operations of $8.6 million for 1999 declined
$0.8 million or 8.5% from 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 $5.1 million for 1999 declined
$1.0 million or 17.0% from 1998. The decrease in revenue is the largest factor
contributing to the decrease.
Operating losses from finance operations of $3.7 million for 1999 were
recorded compared to approximately $2.3 million of operating income for 1998. A
change in estimates of the reserves needed for the prior year sales of notes
receivable with recourse is the largest factor contributing to the decline in
operating income.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
OVERVIEW:
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.
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.
Selling, general and administrative expenses of $90.9 million increased by
$15.0 million or 20% from 1998, due primarily to higher selling and marketing
expenses and higher personnel related costs.
New product start-up costs and R&D costs combined decreased from
$14.0 million in 1997 to $9.7 million in 1998, as the Company experienced higher
cost in 1997 in conjunction with the introduction of the E-Series Coach, and
difficulties caused by the 1997 flooding along the Red River.
Business insurance recoveries of $8.5 million and $0.5 million were realized
in 1998 and 1997, respectively from the settlement of insurance claims seeking
recovery of various out-of pocket costs and business interruption losses at the
Company's Pembina, North Dakota and Winnipeg, Manitoba facilities as a result of
1997 flooding along the Red River.
18
<PAGE>
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.
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.
The company realized a $5.0 million net gain from the sale of its 10%
ownership interest in Mexicana de Autobuses S.A. de C.V. ("MASA") a Mexican
coach manufacturing company, which it sold for $7.0 million less $2.0 million of
transaction related expenses. The Company had written off its investment in MASA
in 1996 after experiencing continued MASA operating losses which resulted in a
$1.2 million change to income.
The Company experienced a $3.3 million foreign currency translation gain
primarily as a result of peso fluctuations against the US dollar and changes in
the monetary position of the Company's Mexican subsidiary.
COACH OPERATIONS:
Revenues for our coach operations were $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 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 for our coach operations declined to $61.1 million in 1998,
or 2.1%, compared to $62.5 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 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 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 in the replacement parts operations increased 44.7% to
$20.3 million in 1998, compared to $14.0 million in 1997. The combination of
improved gross margins and lower selling, general and administrative costs
contributed to the positive improvement in operating income.
19
<PAGE>
FINANCE OPERATIONS:
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.
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 from our finance operations increased 20.7% to
$2.3 million in 1998, compared to $1.9 million in 1997. Operating income was
impacted favorably by lower selling, general and administrative costs.
YEAR 2000 MATTERS:
We developed and executed a plan to ensure that our systems had the ability
to process transactions in the year 2000. We identified and documented all
applications and completed and tested all modifications made on mission critical
systems. This project was completed in 1999 at a total cost of approximately
$1.2 million. We also contacted business partners and received documentation
from all but one non-critical supplier that indicate they were year 2000
compliant.
Subsequent to year-end we have not experienced any year 2000 related
problems with either our systems or with those of our suppliers or customers.
ITEM 7A. 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
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 $386.3 million of borrowings under the facility as of
December 31, 1999, would result in additional annual interest expense of
approximately $3.9 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-K. 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 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.
20
<PAGE>
ITEM 8
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AND RELATED NOTES
21
<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, 1999 and December 31, 1998 and the related consolidated statements
of income, stockholder's equity and cash flows for the years ended December 31,
1999, 1998 and 1997. 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 in the United States. 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, 1999 and December 31, 1998, and the consolidated
results of their operations and cash flows for the years ended December 31,
1999, 1998 and 1997 in conformity with generally accepted accounting principles
in the United States.
Arthur Andersen LLP
Chicago, Illinois
March 30, 2000
22
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Sales..................................................... $906,647 $925,889 $735,210
Finance income............................................ 4,466 5,838 4,573
-------- -------- --------
Total revenues: 911,113 931,727 739,783
-------- -------- --------
Operating costs and expenses:
Cost of sales (exclusive of items shown separately
below).................................................. 679,980 728,189 546,607
Cost of sales, non-cash inventory charge.................. 21,000 -- --
Depreciation and amortization............................. 23,527 24,815 22,035
Interest expense, finance operations...................... 3,137 2,765 2,394
Research and development and new product start-up costs... 10,648 9,722 13,988
Business insurance recoveries............................. -- (8,462) (500)
Selling, general and administrative expenses.............. 101,805 90,894 76,806
Curtailment gain, net..................................... (3,168) -- --
-------- -------- --------
Total operating costs and expenses.......................... 836,929 847,923 661,330
-------- -------- --------
Operating income............................................ 74,184 83,804 78,453
-------- -------- --------
Other income and (expense):
Interest (expense)........................................ (44,113) (19,985) (21,859)
Interest (expense) pushed down from related party......... (11,601) (25,194) (21,635)
Other income (expense).................................... (439) (511) 2,920
Gain on equity investments................................ -- 5,000 --
Foreign currency translation gain (loss).................. (3,758) 3,325 (85)
-------- -------- --------
Total other income and (expense)............................ (59,911) (37,365) (40,659)
-------- -------- --------
Income before income taxes and extraordinary items.......... 14,273 46,439 37,794
Income tax provision (benefit).............................. (1,936) 31,790 21,268
-------- -------- --------
Income before extraordinary item............................ 16,209 14,649 16,526
Extraordinary loss (net of tax of $1,568)................... (2,614) -- --
-------- -------- --------
Net income.................................................. $ 13,595 $ 14,649 $ 16,526
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE INFO)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 15,630 $ 24,038
Trade and other accounts receivable, net of allowance of
$8,560 and $10,316...................................... 145,691 121,966
Current portion of notes receivable....................... 17,483 10,548
Inventories............................................... 217,083 225,865
Deferred income taxes..................................... 25,489 21,488
Other current assets...................................... 4,751 6,086
--------- ---------
Total Current Assets.................................. 426,127 409,991
Property, plant, and equipment, net......................... 110,470 102,796
Notes receivable............................................ 57,771 35,400
Investments in affiliates................................... 23,820 23,116
Intangible assets, net...................................... 212,723 215,589
Deferred income taxes-noncurrent............................ 19,975 --
Other non-current assets.................................... 40,388 14,863
--------- ---------
Total Assets.......................................... $ 891,274 $ 801,755
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable.......................................... $ 90,183 $ 81,890
Accrued compensation...................................... 9,149 13,343
Accrued warranties........................................ 13,365 13,960
Accrued income taxes...................................... 4,695 32,320
Self insurance reserves................................... 3,101 6,365
Net liabilities of discontinued operations................ 3,949 4,416
Other current liabilities................................. 31,832 30,239
--------- ---------
Total Current Liabilities............................. 156,274 182,533
Long-term debt.............................................. 536,534 267,965
Long-term debt pushed down from related party............... -- 206,500
Pensions and other benefits................................. 16,689 15,787
Deferred income taxes....................................... 11,893 6,990
Other deferred items and self insurance reserves............ 14,767 19,059
--------- ---------
Total Liabilities..................................... 736,157 698,834
Committments and Contingencies (Note 25)
Stockholder's Equity:
Common stock, ($.01 par value, 1,000 shares authorized,
issued, and outstanding) and additional capital......... 341,813 241,275
Accumulated deficit....................................... (167,250) (109,094)
Accumulated other comprehensive income.................... (19,446) (29,260)
--------- ---------
Total Stockholder's Equity............................ 155,117 102,921
--------- ---------
Total Liabilities and Stockholder's Equity............ $ 891,274 $ 801,755
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE>
MOTORCOACH INDUSTRIES INTERNATIONAL INC.
STATEMENT OF CONSOLIDATED CASH FLOWS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows Provided By (Used In) Operating Activities
Net Income................................................ $ 13,595 $14,649 $ 16,526
Adjustments to Reconcile Net Income to Net Cash Provided
By (Used In) Operations:
Depreciation and amortization........................... 23,527 24,815 22,035
Deferred income taxes................................... (19,073) (4,754) 1,373
Extraordinary loss on early retirement of debt.......... 4,182 -- --
Gain on sale of property and notes receivable........... -- (1,188) (92)
Gain (loss) on sale of investment....................... -- (5,000) --
Provision for relocation of corproate office............ -- -- 886
Noncash interest expense pushed down from related
party.................................................. -- 25,194 21,635
Noncash inventory valuation charge...................... 21,000 -- --
Other non-cash interest expense......................... 6,543 1,689 1,326
Other non-cash items.................................... (796) 6,919 1,052
Net curtailment gain.................................... (3,168) -- --
All other operating activities.......................... (69,014) 11,408 (117,326)
-------- ------- --------
Net Cash Provided By (Used In) Operating Activities......... (23,204) 73,732 (52,585)
-------- ------- --------
Cash Flows Provided By (Used In) Investing Activities
Capital expenditures.................................... (28,204) (11,740) (32,096)
Proceeds from sale of property and investments.......... 18,629 1,247 57,372
Change in notes receivable.............................. (29,306) 762 (16,503)
Investment in unconsolidated affiliate.................. -- 5,000 (25,708)
Discontinued operations, net changes.................... (467) 2,187 2,140
Purchase of, investment in, business.................... -- (7,860) --
Investments in assets held for lease.................... (9,543) (4,279) (56,375)
Transfer of Mexican subsidiaries........................ 774 -- --
-------- ------- --------
Net Cash Provided By (Used In) Investing Activities......... (48,117) (14,683) (71,170)
-------- ------- --------
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 term B loan principal........................ (1,665) -- --
Payment of 9.02% senior notes........................... (105,321) -- --
Payment of senior secured discount notes................ (206,500) -- --
Payment of debt issuance costs.......................... (22,503) -- --
Payment of parent company senior notes.................. (35,574) -- --
Net change in other long-term borrowings................ (22,371) (37,573) (149)
Net change in related party receivables, payables....... (22,792) -- --
Dividends paid to parent company........................ (71,751) (3,500) (12,448)
Net change in bank credit facilities.................... (90,594) (7,935) 136,910
New paid-in-capital, net of transaction costs........... 158,904 -- 4,036
-------- ------- --------
Net Cash Provided By (Used In) Financing Activities......... 62,913 (49,008) 128,349
-------- ------- --------
Net Increase (Decrease) in Cash............................. (8,408) 10,041 4,594
Cash and Cash Equivalents at Beginning of Period............ 24,038 13,997 9,403
-------- ------- --------
Cash and Cash Equivalents at End of Period.................. $ 15,630 $24,038 $ 13,997
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE
INCOME
COMMON -----------------------
STOCK ACCUMULATED UNFUNDED CUMULATIVE TOTAL
COMPREHENSIVE AND 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, 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 gain............. 61 -- -- 61 -- 61
Unrealized translation loss....... (10,161) -- -- -- (10,161) (10,161)
--------
Comprehensive income.................. $ 4,549
========
Net Receivable from affiliate
(Note 8)............................ (42,907) -- -- -- (42,907)
Adjustment (Note 20).................. (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
Comprehensive income 1999:
Net income 1999..................... $ 13,595 -- 13,595 -- -- 13,595
Other comprehensive income:
Unfunded pension gain............. 509 -- -- 509 -- 509
Unrealized translation gain....... 9,305 -- -- -- $ 9,305 9,305
--------
Comprehensive income.................. $ 23,409
========
Net Receivable from affiliate
(Note 8)............................ (58,366) -- -- -- (58,366)
Dividends on common stock............. -- (71,751) -- -- (71,751)
Capital contribution.................. 158,904 -- -- -- 158,904
--------- --------- ----- -------- ---------
BALANCE, DECEMBER 31, 1999............ $ 341,813 $(167,250) $ (7) $(19,439) 155,117
========= ========= ===== ======== =========
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS
The Company is the leading designer, manufacturer and marketer of new
inter-city coaches and related replacement parts for the North American market.
To support these activities, the Company also sells and services used coaches
and offers a comprehensive package of leasing and financing services to its
customers.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
On June 16, 1999, in conjunction with the financial restructuring discussed
in Note 3 to the consolidated financial statements, Transportation Manufacturing
Operations, Inc. changed its corporate name to Motor Coach Industries
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 3 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 predominately to a diversified customer base, including
independent operators, national fleet operators and government agencies.
As a result of the financial restructuring discussed in Note 3 to the
consolidated financial statements, MCII Holdings contributed its Dina Autobuses,
S.A. de C.V. subsidiary ("Autobuses") to the Company at historical cost and some
immaterial Mexican subsidiaries were transferred by the Company to Grupo Dina.
The Company's consolidated financial statements include Autobuses for all
periods presented, as this is a reorganization of entities under common control.
All significant inter-company transactions have been eliminated.
Certain reclassifications have been made to the financial statements of
prior periods to conform to 1999 classifications.
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 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
27
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, that 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 was not material in
any year. The Company did not enter into any such hedge transactions during 1998
or 1999.
INTANGIBLES
Intangibles, which consist primarily of goodwill, are carried at cost less
accumulated amortization of $33,631,000 at December 31, 1999 and $26,925,000 at
December 31, 1998. 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. Inventory of used coach are
valued based on Managements estimates of current market value. The inventory
value is reviewed periodially and adjusted as necessary.
NOTES RECEIVABLE
Notes receivable 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 post-retirement benefit cost for the
Company is based on the provisions of SFAS No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions."
28
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 use 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, 1999 and 1998
was $0 and $1,543,000 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. 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 1999 and 1998, the Company did
not enter into any transactions that require deferral.
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 and adjustments are recorded if necessary.
In Mexico the suppliers of components pay most warranty costs. Accordingly,
the exposure is not material.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"), which provides guidance
for determining whether computer software is internal-use software and on
accounting for the proceeds of computer software originally developed or
obtained for internal use and then subsequently sold to the public. It also
provides guidance on capitalization of the costs incurred for computer software
developed or obtained for internal use. SOP 98-1 is effective for fiscal years
beginning after December 31, 1998. The adoption of SOP 98-1 did not have a
material effect on the Company's consolidated financial statements.
29
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
is required to be adopted in years beginning after June 15, 1999. In July 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133", which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. This statement is effective for the Company
beginning January 1, 2001. The Company anticipates that the adoption of SFAS
No. 133 will not have a significant effect on the results of operations or
financial condition of the Company.
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 expired
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 in 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.
30
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Fund
III"), a private equity partnership, made an equity contribution of
$125 million in MCII Holdings. MCII Holdings also issued warrants to JLL
Fund III to purchase up to an additional 10% of its common stock on a fully
dilutive basis. In addition, MCII Holdings issued senior notes 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 a 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. Additionally, a $112 million revolving
credit facility due 2005 is available. 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. A final principal payment
of $310,522,500, plus accrued interest, is due 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.
31
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 was 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 Dina 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 on 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;
(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. COST OF SALES 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.
32
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5. 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 6. GAIN ON SALE OF 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.
NOTE 7. 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.
NOTE 8. NET RECEIVABLE FROM AFFILIATES
In 1999, as a result of the financial restructuring, the Company forgave
$58,366,000 of net receivables due it from Grupo Dina companies and MCII
subsidiaries that were contributed to Grupo Dina as part of the restructuring.
The forgiveness resulted in a $58,366,000 charge against additional capital in
stockholder's equity.
During 1998 the Company took a net charge of $42,907,000 against additional
capital in stockholder's equity to reflect the write off of net receivables from
Grupo Dina.
NOTE 9. INVENTORIES
Inventories at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Raw materials........................................... $ 42,865 $ 38,287
Work in process......................................... 41,513 42,487
Finished goods.......................................... 163,634 171,501
-------- --------
248,012 252,275
Inventories reserve..................................... (30,929) (26,410)
-------- --------
$217,083 $225,865
======== ========
</TABLE>
33
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. NOTES RECEIVABLE
Notes receivable at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Notes receivable, at contract amount.................... $77,074 $47,693
Less: allowance for uncollectible contracts............. (1,820) (1,745)
------- -------
Notes receivable, net................................... 75,254 45,948
Less current portion.................................... (17,483) (10,548)
------- -------
Long-term notes receivable.............................. $57,771 $35,400
======= =======
</TABLE>
Scheduled annual maturities of note receivables at December 31, 1999, were:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
2005 AND
2000 2001 2002 2003 2004 THEREAFTER
- ---- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
$17,483 $ 9,453 $ 9,244 $ 9,109 $ 9,243 $ 22,542
</TABLE>
NOTE 11. PROPERTY, PLANT & EQUIPMENT
Property, Plant and equipment at December 31, consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)]
<S> <C> <C>
Land........................................... $ 7,567 $ 5,183
Building and Improvements...................... 51,996 45,831
Machinery and Equipment........................ 66,973 60,657
Assets held for lease.......................... 31,514 31,132
------------ ------------
158,050 142,803
Less accumulated depreciation and
amortization................................. (47,580) (40,007)
------------ ------------
$ 110,470 $ 102,796
============ ============
</TABLE>
Depreciation and amortization expense for property, plant and equipment was
$16,990,000 $17,001,000 and $14,072,000 for the years ended December 31, 1999
1998 and 1997, respectively.
34
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. LONG-TERM DEBT
Below is a schedule of outstanding debt as of December 31,1999 and 1998:
<TABLE>
<CAPTION>
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................................. 331,335 --
Revolving credit agreement, due 2005.................. 55,000 --
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 notes payable..................................... -- 371
-------- --------
Total................................................... $538,585 $474,465
Less unamortized discount on 11 1/4% senior subordinated
notes................................................. (2,051) --
-------- --------
Total................................................... $536,534 $474,465
======== ========
(DOLLARS IN THOUSANDS)
</TABLE>
<TABLE>
<S> <C>
The long-term debt as of December 31, 1999 is due:
2000...................................................... $ --
2001...................................................... --
2002...................................................... --
2003...................................................... --
2004...................................................... --
2005 and thereafter....................................... 536,534
--------
Total....................................................... $536,534
========
</TABLE>
On June 16, 1999, the Company completed a major financial restructuring
where the Company issued $152.3 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 are twice a year,
on each May 1 and November 1, and began on 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. These
notes contain certain non-financial covenants for which the Company was in
compliance at December 31, 1999.
The $445 million secured credit agreement consists of $333 million of term
loans and a $112 million revolving credit facility. The Company has pledged
substantially all of its assets under these agreements. This agreement contains
financial covenants that the Company will not exceed certain leverage ratios or
fall below certain interest coverage ratios. As of December 31, 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
35
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the loans made under the revolving credit agreement. The Company has reviewed
the formula and does not have an additional prepayment required as of
December 31, 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, which began on September 30, 1999 and will end on March 31, 2006. A
final principal payment of $310.5 million, plus accrued interest, is due on
June 16, 2006. The variable rate of interest is based upon certain formulas
stated in the agreement, which includes a base rate of interest and an
applicable margin based upon a calculation of the Company's consolidated total
leverage ratio. As of December 31, 1999, the average effective interest rate on
$331.3 million of outstanding borrowings was 9.38%.
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 agreement. As of December 31, 1999,
the Company had $55 million in outstanding borrowings at an average effective
interest rate of 10.1%.
As of December 31, 1999, the Company had approximately $3.3 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 $0.2 million of accrued interest and with approximately a
$0.2 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 $0.4 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 $35.0 million of the Dina Truck Notes and
$0.6 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 $0.1 million of accrued
interest.
Interest paid in the years ended December 31, 1999, 1998 and 1997 was
$49,802,000, $24,858,000 and $26,067,000.
36
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments have been determined by using available market information and the
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 methodologies may have a material
effect on the estimated fair value amounts.
The carrying values of cash and cash equivalents, accounts receivable and
accounts payable approximate fair values due to the short-term maturities of
these instruments. The carrying value of the notes receivable approximates fair
value because a significant portion of the notes receivable is 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>
1999 1998
---------------------------- ----------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt....................... $536,534 $538,103 $474,645 $445,284
</TABLE>
The fair value of the 11.25% Senior Subordinated Notes was estimated by
using the value the notes were priced at on December 31, 1999. The carrying
value of the other long term debt approximates fair value because the debt is
based on variable rates of interest.
NOTE 14. 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.
Income (loss) before taxes and extraordinary items in the United States,
Canada, and Mexico for the years ended December 31, was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
United States.................................. $(15,298) $ 33,163 $ 21,753
Canada......................................... 34,792 41,145 23,671
Mexico......................................... 6,380 (2,675) 14,005
Non deductible interest from push down of
debt......................................... (11,601) (25,194) (21,635)
-------- -------- --------
Total income before income taxes............... $ 14,273 $ 46,439 $ 37,794
======== ======== ========
</TABLE>
37
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. INCOME TAXES (CONTINUED)
Income tax expense (benefit) for the years ended December 31 was comprised
of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
United States:
Federal..................................... $ (9,026) $14,661 $ 8,435
State....................................... (1,213) 3,665 1,806
Foreign....................................... 17,259 18,288 9,654
-------- ------- -------
7,020 36,614 19,895
-------- ------- -------
Deferred:
United States:
Federal..................................... 8,224 (3,812) (351)
State....................................... 1,108 (706) (195)
Foreign....................................... (18,288) (306) 1,919
-------- ------- -------
(8,956) (4,824) 1,373
-------- ------- -------
Total income tax expense........................ $ (1,936) $31,790 $21,268
======== ======= =======
</TABLE>
A reconciliation of the provision for income taxes and the amount computed
using statutory federal income tax rates on income before income taxes is set
forth below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Computed income tax provision at statutory rate
of 35%........................................ $ 4,996 $16,254 $13,228
Non deductible interest expense from push down
of debt....................................... 6,891 8,818 7,572
State income taxes.............................. (80) 1,923 1,057
Canadian tax differences........................ 2,179 2,601 1,126
Mexican tax differences......................... (17,836) 690 (3,970)
Foreign dividend received....................... -- -- 1,160
Intangible amortization......................... 1,482 1,778 1,425
Other, net...................................... 432 (274) (330)
-------- ------- -------
Total income tax expense (benefit).............. $ (1,936) $31,790 $21,268
======== ======= =======
</TABLE>
38
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. INCOME TAXES (CONTINUED)
Deferred income tax assets and liabilities included in the Consolidated
Balance Sheet at December 31 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Property, plant, and equipment....................... $ 8,860 $ 6,767
Pension and other benefits........................... 6,859 7,650
Allowances and reserves for losses................... 21,425 21,500
Net operating loss carry forward..................... 23,530 15,040
Alternative minimum tax carry forward................ -- 7,901
Deferred state income taxes.......................... 1,643 1,876
Inventories.......................................... 3,112 4,062
Other................................................ 1,106 4,938
-------- --------
Total gross deferred tax assets........................ 66,535 69,734
Valuation allowance.................................. (15,070) (37,711)
-------- --------
Total deferred tax assets.............................. $ 51,465 $ 32,023
-------- --------
Deferred tax liabilities:
Property, plant, and equipment....................... (7,721) (6,996)
Intangibles.......................................... (7,462) (5,964)
Installment sales.................................... (303) (309)
Deferred start-up costs.............................. (2,349) (3,792)
Other................................................ (59) (464)
-------- --------
Total gross deferred tax liabilities................... (17,894) (17,525)
-------- --------
Net deferred tax asset................................. $ 33,571 $ 14,498
======== ========
</TABLE>
SFAS No. 109, "Accounting for Income Taxes," requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that
some portion or the entire deferred tax asset will not be realized. Prior to the
fourth quarter of 1999, the Company had a valuation allowance against the entire
net deferred tax asset for Mexico as it was more likely than not that the
deferred tax asset would not be realized. The Company reduced the valuation
allowance in the fourth quarter of 1999, as it now believes that a portion of
the deferred tax asset will be realized. The Mexico net operating loss remains
fully reserved.
Income taxes paid in the years ended December 31, 1999, 1998 and 1997 were,
$29,126,000, $12,907,000 and $10,814,000 respectively.
The Company's Canadian income tax returns for 1982 through 1992 are
currently under review by Canada Customs and Revenue Agency ("CCRA").
Authorities have proposed imputing additional income related to transactions
with a U.S. based subsidiary of the Company. CCRA 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 $24,000,000 plus interest of approximately
$56,000,000 through December 31, 1999 and, in addition, the Company may be
subject to potential reassessments for the years subsequent to 1992 on the same
basis which
39
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14. INCOME TAXES (CONTINUED)
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 $80,000,000, 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 CCRA'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. 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.
NOTE 15. 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 Post Retirement Benefits," which the Company adopted as of
December 31, 1998.
The Company, during 1999, terminated the Company's one unqualified pension
plan resulting in a curtailment loss of $179,000 realized in 1999. While the
participants in the plan at the time of termination will continue to receive
benefits, all benefits are frozen and no future benefits will be accrued.
The components of net periodic pension costs are summarized in the following
table:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost benefits earned during the
period.................................. 1,409 $ 1,214 $ 1,028 $ 590 $ 485 $ 475
Interest cost on projected benefit
obligation.............................. 1,874 1,705 1,451 517 427 435
Expected return on plan assets............ (1,752) (1,511) (1,363) (727) (621) (597)
Amortization of prior service cost........ 510 510 510 22 3 4
Amortization of transition obligation..... (11) (11) (11) (2) (2) (2)
Recognized net actuarial loss............. 34 100 (4) 2 17
Curtailment Loss.......................... 179 -- -- -- -- --
------- ------- ------- ------ ------ ------
Net pension cost.......................... $ 2,243 $ 2,007 $ 1,611 $ 402 $ 292 $ 332
======= ======= ======= ====== ====== ======
</TABLE>
40
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. PENSION BENEFITS (CONTINUED)
The following tables summarize pension benefit obligations, plan assets and
funded status as of December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in Pension Benefit Obligation:
Benefit obligation as of January 1....................... $27,060 $22,557 $ 7,081 $6,407
Service cost............................................. 1,409 1,214 590 485
Interest cost............................................ 1,874 1,706 517 427
Actuarial (gain) loss.................................... (3,649) 2,133 (679) 495
Amendments............................................... -- -- 364 --
Plan participant contributions........................... -- -- 28 --
Benefit paid............................................. (928) (550) (454) (280)
Curtailment.............................................. (472) -- -- --
Foreign currency rate change............................. -- -- 433 (453)
------- ------- ------- ------
Benefit obligation as of December 31..................... $25,294 $27,060 $ 7,880 $7,081
======= ======= ======= ======
Change in Plan Assets:
Fair value of plan assets at beginning of year........... $22,472 $18,034 $ 7,763 $7,205
Actual return on plan assets............................. 2,235 4,588 1,213 831
Employer contribution.................................... 618 400 503 510
Plan participants contributions.......................... -- -- 28 --
Benefits paid............................................ (693) (550) (454) (280)
Foreign currency rate change............................. -- -- 499 (503)
------- ------- ------- ------
Fair value of plan assets at end of year................. $24,632 $22,472 $ 9.552 $7,763
======= ======= ======= ======
Funded Status:
Funded status at end of year............................. $ (662) $(4,587) $ 1,672 $ 682
Unrecognized transition obligation....................... (34) (45) 12 9
Unrecognized net actuarial (gain)/loss................... (5,995) (1,357) (930) 256
Unrecognized prior service cost.......................... 2 691 386 32
------- ------- ------- ------
Prepaid (accrued) benefit cost........................... $(6,689) $(5,298) $ 1,140 $ 979
======= ======= ======= ======
</TABLE>
41
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15. 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
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Amounts Recognized in the Statement of Financial Position
Consist of:
Prepaid benefit cost..................................... $ 50 $ 38 $ 1,142 $ 981
Accrued benefit liability................................ (6,750) (6,821) (2) (2)
Intangible asset......................................... -- 691 -- --
Accumulated other comprehensive income (pretax).......... 11 794 -- --
------- ------- ------- -------
Net amount recognized.................................... $(6,689) $(5,298) $ 1,140 $ 979
======= ======= ======= =======
</TABLE>
Weighted average assumptions used were:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Discount rate for obligation....................... 7.8% 6.8% 7.0% 7.5% 6.8% 7.0%
Rate of increase in compensation................... 4.8% 4.0% 4.0% 4.0% 4.0% 4.0%
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, 1999, 1998 and 1997 were
$470,000, $472,000 and $623,000 in the U.S. and $1,133,000, $1,147,000 and
$950,000 in Canada, respectively.
NOTE 16. MEXICAN EMPLOYEE BENEFITS
Net periodic pension cost for the two years ended December 31 included the
following components:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned during the period......... $128 $ 57 $ 96
Interest cost on projected benefit obligation.......... 477 456 574
Expected return on plan assets......................... -- (666) (808)
Net amortization and deferral.......................... (51) (51) (66)
---- ----- -----
Net pension cost....................................... $554 $(204) $(204)
==== ===== =====
</TABLE>
The Company, under Mexican labor laws, is able to withdraw funds from a
pension trust and use them for other purposes. During the first quarter Grupo
Dina withdrew the funds held by the trust and used the funds to pay-off existing
indebtedness of Grupo Dina.
42
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 16. MEXICAN EMPLOYEE BENEFITS (CONTINUED)
The following tables summarize pension benefit obligations, plan assets and
funded status as of December 31:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Change in Pension Benefit Obligation:
Benefit obligation as of January 1....................... $ 2,212 $2,845
Service cost............................................. 128 57
Interest cost............................................ 477 456
Actuarial gain........................................... 56 (612)
Benefits paid............................................ -- (17)
Foreign currency rate change............................. 111 (517)
------- ------
Benefit obligation as of December 31..................... $ 2,984 $2,212
======= ======
Change in Plan Assets:
Fair value of plan assets at beginning of year........... $ 2,999 $3,700
Actuarial gain in rate................................... -- (668)
Actual return on plan assets............................. -- 666
Benefits paid............................................ -- (17)
Foreign currency rate change............................. -- (682)
Withdrawal of plan assets................................ (2,999) --
------- ------
Fair value of plan assets at end of year................. $ -- $2,999
======= ======
Funded Status:
Funded status at end of year............................. $(2,984) $ 787
Unrecognized net actuarial gain.......................... 303 (802)
Unrecognized prior service cost.......................... (802) 52
------- ------
Prepaid (accrued) benefit cost........................... $(3,483) $ 37
======= ======
</TABLE>
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Weighted average assumptions used were:
Discount rate for obligation.............................. 17.4% 24.0%
Rate of increase in compensation.......................... 14.0% 18.6%
Long-term rate of return on assets........................ 19.1% 25.7%
</TABLE>
NOTE 17. POST-RETIREMENT BENEFITS
The Company has defined post retirement benefit 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 Post retirement Benefits," which the company adopted as
of December 31, 1998.
Effective at the end of 1999, the Company terminated its remaining active
post-retirement medical plan covering employees in the replacement parts
division. Any participant receiving benefits under the
43
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. POST-RETIREMENT BENEFITS (CONTINUED)
plan at the time of termination will continue to receive benefits, but no new
people will be eligible to receive benefits under the plan. As a result of the
termination of this plan the Company recorded a gross curtailment gain of
$4,596,000 and a curtailment gain net of current year post-retirement expenses
of $3,347,000 as illustrated in the table below.
The net periodic post retirement benefit cost for the years ended
December 31 included the following components:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost....................................... $ 568 $ 563 $531 $ 17 $21 $24
Interest cost...................................... 634 574 453 18 18 25
Amortization of prior service cost................. (3) (3) (3) -- -- --
Recognized net actuarial (gain)/loss............... -- (39) (5) -- -- 2
Curtailment (gain)/loss............................ (4,546) -- -- -- -- --
------- ------ ---- ---- --- ---
Net periodic benefit cost (income)................. $(3,347) $1,095 $976 $ 35 $39 $51
======= ====== ==== ==== === ===
</TABLE>
The following tables summarize post-retirement benefit obligations and
funded status as of December 31:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in Postretirement Benefit United
States and Canada Obligations:
Benefit obligation as of January 1........... $9,575 $7,942 $ 274 $ 278
Service cost................................. 568 563 17 21
Interest cost................................ 634 574 18 18
Amendments................................... -- (3) -- --
Actuarial (gain)/loss........................ (1,538) 660 (30) --
Benefits paid................................ (161) (161) (14) (25)
Curtailment (gain) loss...................... (4,546) -- -- --
Foreign currency rate change................. -- -- 15 (18)
------ ------ ------ -----
Benefit obligation as of December 31......... $4,532 $9,575 $ 280 $ 274
====== ====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Funded Status:
Funded status at end of year............... $(4,532) $(9,575) $ (280) $(274)
Unrecognized net actuarial (gain)/loss..... (1,463) 87 (22) (21)
Unrecognized prior service cost............ -- (15) -- --
------- ------- ------ -----
Accrued benefit cost....................... $(5,995) $(9,503) $ (302) $(295)
======= ======= ====== =====
</TABLE>
44
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17. POST-RETIREMENT BENEFITS (CONTINUED)
The assumed health care cost trend rate used in measuring the accumulated
post retirement benefit obligation ("APBO") for the Company's U.S. operations
was 9.0% as of December 1999, declining by 1.0% per year to 5.0% by the year
2002 and remaining at that level thereafter for retirees below the age 65, and
6.5% as of December 31, 1998, declining by 0.5% per year to 5.0% by the year
2002 and remaining at that level thereafter for retirees above age 65. A one
percentage-point change in the assumed health-care-cost trend rate would have
the following effects:
<TABLE>
<CAPTION>
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Effect on total of service and interest cost components..... $ 107 $ (83)
Effect on post retirement benefit obligation................ $1,630 $(1,300)
</TABLE>
The post retirement benefit obligation of the Company's Canadian operations
does not contain a health care component.
NOTE 18. 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, 1999, future minimum rental payments with respect to
non-cancelable operating leases with terms in excess of one year were as
follows:
<TABLE>
<CAPTION>
2005 AND
2000 2001 2002 2003 2004 THEREAFTER
- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$5,076,367 $4,520,572 $3,625,757 $2,067,601 $1,763,238 $5,339,116
</TABLE>
Total rental expenses for the years ended December 31, 1999, 1998 and 1997
were $4,354,000, $4,068,000 and $3,384,000 respectively.
NOTE 19. 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 received warrants to
purchase up to 10% of the fully diluted common stock of MCII Holdings
(USA), Inc. 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.
NOTE 20. 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.
45
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21. CHANGES IN OTHER OPERATING ACTIVITIES
Changes in other operating activities as of December 31, 1999, 1998 and 1997
consisted of:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Decrease (increase) in accounts receivable.... $(29,619) $(44,121) $ (25,839)
Decrease (increase) in inventories............ (15,892) 28,263 (69,006)
Increase (decrease) in accounts payable....... 7,549 13,819 26,525
Increase (decrease) in accrued income taxes... (27,625) 25,245 2,916
All other changes, net........................ (3,427) (11,798) (51,922)
-------- -------- ---------
Changes in other operating activities....... $(69,014) $ 11,408 $(117,326)
======== ======== =========
</TABLE>
NOTE 22. RELATED PARTY TRANSACTIONS
Related party transactions for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Purchases from affiliated companies:
Goods.......................................... $ 5,779 $ 4,146 $15,044
Services....................................... 8,932 7,681 21,587
Allocated interest expense..................... -- 3,234 6,978
------- ------- -------
$14,711 $15,061 $43,609
======= ======= =======
Sales to affiliated companies:
Goods.......................................... $ 3,289 $ -- $ 2,973
Services....................................... 75 2,640 7,384
Allocated interest income...................... -- 11,989 8,376
------- ------- -------
$ 3,364 $14,629 $18,733
======= ======= =======
Charges from Affiliated Parties:
MFS Management Services........................ $ 2,168 $ 931 $ --
Grupo Dina Royalties........................... 2,013 3,990 7,396
Grupo Dina Management Fee...................... 417 1,000 1,000
------- ------- -------
$ 4,598 $ 5,921 $ 8,396
======= ======= =======
</TABLE>
Related party balances included in the December 31 balance sheet were:
<TABLE>
<CAPTION>
1999 1998
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Affiliated companies receivables, net................... $6,161 $16,293
</TABLE>
During 1997, Autobuses put 240 transit bus units, with a sales value of
$9,340,000, out on lease to Transportes y Servicios Terrestres G.S.A. de C.V.
("TSTG"). TSTG is controlled by members of the group consisting of the indirect
controlling shareholders of Grupo Dina.
46
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23. BUSINESS 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>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Coach and Support........................... $735,985 $736,216 $537,184
Replacement Parts........................... 166,487 186,072 193,358
Finance..................................... 8,641 9,439 9,241
-------- -------- --------
$911,113 $931,727 $739,783
======== ======== ========
Gross Profits:
Coach and Support........................... $172,025 $157,615 $152,095
Replacement Parts........................... 29,890 37,033 32,278
Finance..................................... 5,081 6,125 6,409
-------- -------- --------
$206,996 $200,773 $190,782
======== ======== ========
Operating income:
Coach and Support........................... $ 68,979 $ 61,139 $ 62,465
Replacement Parts........................... 8,887 20,325 14,049
Finance..................................... (3,682) 2,340 1,939
-------- -------- --------
$ 74,184 $ 83,804 $ 78,453
======== ======== ========
Depreciation and amortization:
Coach and Support........................... $ 17,118 $ 18,556 $ 14,934
Replacement Parts........................... 4,350 4,089 4,853
Finance..................................... 2,059 2,170 2,248
-------- -------- --------
$ 23,527 $ 24,815 $ 22,035
======== ======== ========
Capital expenditures:
Coach and Support........................... $ 8,663 $ 8,821 $ 29,341
Replacement Parts........................... 19,449 2,907 2,740
Finance..................................... 92 12 14
-------- -------- --------
$ 28,204 $ 11,740 $ 32,096
======== ======== ========
</TABLE>
47
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23. BUSINESS AND GEOGRAPHIC DATA (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assets:
Coach and Support........................... $605,142 $520,678 $552,296
Replacement Parts........................... 189,296 195,437 200,948
Finance..................................... 96,836 85,640 67,429
-------- -------- --------
$891,274 $801,755 $820,673
======== ======== ========
</TABLE>
There are no material inter-segment transactions.
Major customers are generally defined as those which individually account
for more than 10% of the Company's revenue. For the years ended 1999, 1998 and
1997, Greyhound Lines, Inc. ("GLI") accounted for 13.4%, 8.0% and 9.5%,
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 1999, 1998 and 1997, sales to Coach USA, Inc. ("CUI")
accounted for 5.0%, 9.2% and 8.6%, 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. On December 22, 1999, a new
5-year agreement was signed between CUI and the Company.
The Company's Mexican subsidiary, Dina Autobuses S.A. de C.V. (DASA), has a
long-term agreement to purchase Coach part "kits" from Marcopolo (a Brazilian
manufacturer) for its Viaggio coaches manufactured in Mexico. The agreement
required DASA to pay a royalty fee based upon the value of certain "kit" parts
and components purchased from suppliers other than Marcopolo. The royalty fee
ranged from 2.7% to 3.5% of the "kit" value. Royalty fees paid in 1999, 1998,
and 1997 were $135,000, $291,000 and $1,114,000 respectively. DASA has reached
an agreement in principle with Marcopolo (expected to be signed by DASA on or
before March 31, 2000), under which any currently unpaid royalty fees will be
forgiven and all future royalty obligations of DASA will be cancelled. In
exchange, DASA will assign its U.S. Trademark "Viaggio" to Marcopolo. Marcopolo
will continue to supply parts during the remaining term of the agreement and for
a period of five (5) years thereafter. In addition, the revised agreement
contains a non-compete provision barring Marcopolo from marketing in the U.S.
prior to February 21, 2002. Should the non-compete provision be violated,
Marcopolo will have to pay DASA royalties based upon its sales in the U.S.
48
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23. BUSINESS AND GEOGRAPHIC DATA (CONTINUED)
GEOGRAPHICAL DATA
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States............................... $756,644 $770,709 $610,915
Canada...................................... 70,185 79,767 82,898
Mexico...................................... 84,284 81,251 45,970
-------- -------- --------
$911,113 $931,727 $739,783
======== ======== ========
Long-Lived Assets:
United States............................... $310,179 $273,686 $276,222
Canada...................................... 107,291 92,395 97,981
Mexico...................................... 47,677 25,683 41,196
-------- -------- --------
$465,147 $391,764 $415,399
======== ======== ========
</TABLE>
NOTE 24. FINANCIAL INFORMATION WITH OFF-BALANCE SHEET RISK
As an adjunct to its coach business, the Company has entered into repurchase
and first loss agreements with certain companies that 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, 1999 and 1998 were approximately $18,000,000 and
$21,000,000, respectively. The Company has other agreements with customers where
the customers have been guaranteed a residual value. The Company has purchased
residual value insurance to protect it from future loss for the value of these
coaches. Additionally, as a result of certain sales of notes receivable and
leases, the Company is obligated to reimburse the purchaser of such notes and
leases for any losses as a result of defaults up to $2,700,000 and $6,700,000 as
of December 31, 1999 and 1998, respectively. Losses under existing agreements
are not expected to have a material effect on the Company's future financial
position or results of operations.
NOTE 25. COMMITMENTS AND CONTINGENCIES
As a part of the Company's marketing strategy for the 1997 introduction of
the new E-Series inter-city coach model, the "Renaissance", it entered into
trade-in agreement 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, 1999, the Company's final year's commitment under this
program has been reduced to 173 coaches. From past experience management feels
that there is no exposure on this program and has not made any specific
provision.
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
49
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 25. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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,
1999, the total amount of such contributions was $6,891,000 and the Company had
met the employee ratio commitment.
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, 1999 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.
NOTE 26. NON-CONSOLIDATED 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 $695,000 and $210,000 for
1999 and 1998, respectively. MFS will operate independently from the Company and
will provide conditional sales contracts and operating leases to the Company's
customers. MFS is expected to have better access to funding on competitive
terms.
MFS's initial transaction was the purchase of $19,406,000 of loans and
$12,742,000 of leases from certain subsidiaries of the Company. The Company has
guaranteed the full and prompt collection of the loans sold to MFS. The Company
received a fairness opinion from an independent third party as to the basis for
the selling price of these assets. No gain was recognized on the transaction.
MFS will in the future engage in loan and leasing activities involving the
Company and others in the motor coach and other industries. During 1999 and
1998, MFS purchased additional loans of $60,005,748 and $35,519,000 and leases
of $12,723,488 and $3,216,000, respectively from the Company.
NOTE 27. GUARANTOR/NON-GUARANTOR FINANCIAL STATEMENTS
In connection with the issuance of the Senior Subordinated Notes due 2009
(the "Notes") (See note 2), certain of 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 is
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.
50
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT--1999
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................................. $ -- $755,297 $350,240 $(194,424) $911,113
Cost of sales (exclusive of items
shown separately below)............. -- 567,506 307,006 (194,532) 679,980
Cost of sales inventory valuation
charge.............................. -- 21,000 -- -- 21,000
Depreciation and amortization......... 270 9,541 13,716 -- 23,527
Interest expense, financing
operations.......................... -- 3,137 -- -- 3,137
Research and development expenses..... -- 6,753 3,895 -- 10,648
Tax profit allocation MCI/MCI Ltd..... -- 52,699 (52,699) -- --
Selling, general and administrative
expenses............................ (8,636) 71,294 39,147 -- 101,805
Curtailment gain, net................. (3,168) -- -- -- (3,168)
-------- -------- -------- --------- --------
Operating income...................... 11,534 23,367 39,175 108 74,184
-------- -------- -------- --------- --------
Interest expense, net................. (25,837) (15,415) (2,861) -- (44,113)
Interest expense pushed down from
related party....................... (11,601) -- -- -- (11,601)
Other income (expense)................ -- (3,429) 2,990 -- (439)
Foreign currency translation gain..... 125 (2,840) (1,043) -- (3,758)
-------- -------- -------- --------- --------
(37,313) (21,684) (914) -- (59,911)
-------- -------- -------- --------- --------
Income (loss) before income taxes..... (25,779) 1,683 38,261 108 14,273
Income taxes.......................... (4,946) 4,039 (1,029) -- (1,936)
-------- -------- -------- --------- --------
Net income before extraordinary items
(loss).............................. (20,833) (2,356) 39,290 108 16,209
Extraordinary loss.................... (2,614) -- -- -- (2,614)
Net income (loss)..................... $(23,447) $ (2,356) $ 39,290 $ 108 $ 13,595
======== ======== ======== ========= ========
</TABLE>
51
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT--1998
<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 amortization......... 339 10,805 13,671 -- 24,815
Interest expense, financing
operations.......................... -- 2,545 220 -- 2,765
Research and development, and new
product start-up costs.............. -- 5,234 4,488 -- 9,722
Business insurance recoveries......... -- (7,366) (1,096) -- (8,462)
Tax profit
allocation--MCI/MCI Ltd............. -- 44,704 (44,704) -- --
Selling, general and administrative
expenses............................ 8,540 42,054 40,030 270 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>
52
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED INCOME STATEMENT--1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................................. $ -- $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 amortization......... 436 11,494 10,105 -- 22,035
Interest expense, financing
operations.......................... -- 2,184 210 -- 2,394
Research and development and new
product start-up costs.............. -- 2,882 11,106 -- 13,988
Business insurance recoveries......... -- -- (500) -- (500)
Tax profit
allocation--MCI/MCI Ltd............. -- 27,311 (27,311) -- --
Selling, general and administrative
expenses............................ 6,732 41,477 30,292 (1,695) 76,806
-------- -------- -------- --------- --------
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>
53
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET--1999
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------
NON
MCII GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ---------- ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... $ 4,163 $ 2,204 $ 9,263 $ -- $ 15,630
Trade and other accounts
receivable...................... 6,782 91,407 47,502 -- 145,691
Intercompany
receivables/(payables).......... 758,889 (543,678) (5,755) (209,456) --
Current portion of notes
receivable...................... -- 16,924 559 -- 17,483
Inventories....................... -- 163,478 55,105 (1,500) 217,083
Deferred income taxes............. 7,146 16,546 1,797 -- 25,489
Other current assets.............. 653 2,920 1,178 -- 4,751
---------- --------- --------- --------- ---------
Total Current Assets................ 777,633 (250,199) 109,649 (210,956) 426,127
---------- --------- --------- --------- ---------
Property, plant and equipment..... 1,161 52,681 56,659 (31) 110,470
Notes receivable.................. -- 54,833 2,938 -- 57,771
Investments in affiliates......... 160,388 -- -- (136,568) 23,820
Intangible assets................. 1,729 141,374 69,620 -- 212,723
Deferred income taxes--non current 1,483 2,694 15,798 -- 19,975
Other assets...................... 20,811 11,844 7,733 -- 40,388
---------- --------- --------- --------- ---------
Total Assets........................ $ 963,205 $ 13,227 $ 262,397 $(347,555) $ 891,274
========== ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................. $ 2,541 $ 48,034 $ 39,608 $ -- $ 90,183
Accrued compensation.............. 1,195 3,861 4,093 -- 9,149
Accrued warranties................ -- 10,115 3,250 -- 13,365
Accrued income taxes.............. 1,084 (183) 3,794 -- 4,695
Self insurance reserves........... 3,101 -- -- -- 3,101
Net liabilities of discontinued
operations...................... -- 3,949 -- -- 3,949
Other current liabilities......... 7,017 8,811 16,004 -- 31,832
---------- --------- --------- --------- ---------
Total Current Liabilities........... 14,938 74,587 66,749 -- 156,274
Long-term debt.................... 536,534 -- -- -- 536,534
Pensions and other benefits....... 12,393 -- 4,296 -- 16,689
Other deferred items and self
insurance reserves.............. 6,169 8,598 -- -- 14,767
Deferred income taxes............. 853 4,786 6,254 -- 11,893
---------- --------- --------- --------- ---------
Total Liabilities................... 570,887 87,971 77,299 -- 736,157
---------- --------- --------- --------- ---------
Stockholders' Equity:
Common Stock and additional
capital......................... 578,463 98,456 120,623 (455,729) 341,813
Accumulated deficit............... (186,109) (173,200) 83,616 108,443 (167,250)
Accumulated other comprehensive
income.......................... (36) -- (19,141) (269) (19,446)
---------- --------- --------- --------- ---------
Total Stockholders' Equity.......... 392,318 (74,744) 185,098 (347,555) 155,117
---------- --------- --------- --------- ---------
Total Liabilities & Stockholders'
Equity............................ $ 963,205 $ 13,227 $ 262,397 $(347,555) $ 891,274
========== ========= ========= ========= =========
</TABLE>
54
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED BALANCE SHEET--1998
<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 $ 12,368 $ 6,255 $ $ $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 (236,204) 207,354 (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 $ 79 $337,865 $(79,848) $ 801,755
========= ========= ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................... $ 1,191 $ 47,562 $ 33,137 -- $ 81,890
Accrued compensation............... 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 85,791 76,739 -- 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 94,976 114,687 -- 698,834
--------- --------- -------- -------- ---------
Stockholders' 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 Stockholders' Equity........... 54,488 (94,897) 223,178 (79,848) 102,921
--------- --------- -------- -------- ---------
Total Liabilities & Stockholders'
Equity............................. $ 543,659 $ 79 $337,865 $(79,848) $ 801,755
========= ========= ======== ======== =========
</TABLE>
55
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--1999
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 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.................................. $ (23,447) $ (2,356) $ 39,290 $ 108 $ 13,595
Adjustments to Reconcile Net Income to Net
Cash Provided By (Used In) Operations:
Depreciation and amortization............. 270 9,541 13,716 -- 23,527
Deferred income taxes..................... (1,678) 400 (17,795) -- (19,073)
Extraordinary loss on early retirement of
debt.................................... 4,182 -- -- -- 4,182
Other non-cash interest expense........... 6,543 -- -- -- 6,543
Other non-cash items...................... 2,278 (128) (2,946) -- (796)
Non-cash inventory valuation charge....... -- 21,000 -- -- 21,000
Net curtailment gain...................... (3,168) -- -- -- (3,168)
All other operating activities............ (34,086) (7,972) (26,848) (108) (69,014)
--------- -------- -------- -------- ---------
Net Cash Provided By (Used In) Operating
Activities.................................. (49,106) 20,485 5,417 -- (23,204)
--------- -------- -------- -------- ---------
Cash Flows Provided By (Used In) Investing
Activities
Capital Expenditures...................... (848) (23,221) (4,135) -- (28,204)
Proceeds from sale of property and
investments............................. -- 18,570 59 -- 18,629
Change in notes receivable................ -- (29,306) -- -- (29,306)
Discontinued operations, net changes...... -- (467) -- -- (467)
Investments in assets held for lease...... -- (9,543) -- -- (9,543)
Transfer of Mexican subsidiaries.......... -- -- 774 -- 774
--------- -------- -------- -------- ---------
Net Cash Provided By (Used In) Investing
Activities.................................. (848) (43,967) (3,302) -- (48,117)
--------- -------- -------- -------- ---------
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 loans................... (1,665) -- -- -- (1,665)
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............ (22,503) -- -- -- (22,503)
Payment of parent company senior notes.... (35,574) -- -- -- (35,574)
Net change on other long-term
borrowings.............................. (22,371) -- -- -- (22,371)
Net change in related party receivables,
payables................................ (45,597) 13,318 9,487 -- (22,792)
Dividends paid to parent company.......... (71,751) -- -- -- (71,751)
Net change in bank credit facilities...... (82,000) -- (8,594) -- (90,594)
New paid-in capital, net of transaction
costs................................... 158,904 -- -- -- 158,904
--------- -------- -------- -------- ---------
Net Cash Provided By (Used In) Financing
Activities.................................. 48,702 13,318 893 -- 62,913
--------- -------- -------- -------- ---------
Net Increase (Decrease) in Cash............. (1,252) (10,164) 3,008 -- (8,408)
Cash and Cash Equivalents at Beginning of
Period...................................... 5,415 12,368 6,255 -- 24,038
--------- -------- -------- -------- ---------
Cash and Cash Equivalents at End of
Period...................................... $ 4,163 $ 2,204 $ 9,263 $ -- $ 15,630
========= ======== ======== ======== =========
</TABLE>
56
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--1998
<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
Other non-cash interest expense... 1,689 -- -- -- 1,689
Gain on sale of property and notes
receivable...................... -- (1,188) -- -- (1,188)
Gain on equity investment......... (5,000) -- -- -- (5,000)
Other non cash items.................. 137 6,541 241 -- 6,919
All other operating activities.... 3,152 (43,048) 53,030 (1,726) 11,408
-------- -------- -------- ------ ---------
Net Cash Provided By (Used In)
Operating Activities.............. (3,221) (10,370) 87,323 -- 73,732
-------- -------- -------- ------ ---------
Cash Flows Provided By (Used In)
Investing Activities:
Capital expenditures................ (75) (7,270) (4,395) -- (11,740)
Proceeds from sale of property and
investments....................... -- 906 341 -- 1,247
Change in notes receivable.......... -- (195) 957 -- 762
Discontinued operations, net
changes........................... -- 2,187 -- -- 2,187
Investment in business.............. (7,860) -- -- -- (7,860)
Investment in assets held for
lease............................. -- (4,279) -- -- (4,279)
Investment in affiliate............. 5,000 -- -- -- 5,000
-------- -------- -------- ------ ---------
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) 10,536 3,108 -- 10,041
Cash and Cash Equivalents at
Beginning of Year................. 9,018 1,832 3,147 -- 13,997
-------- -------- -------- ------ ---------
Cash and Cash Equivalents at End of
Year.............................. $ 5,415 $ 12,368 $ 6,255 $ -- $ 24,038
======== ======== ======== ====== =========
</TABLE>
57
<PAGE>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
NOTE 27-GUARANTOR CONDENSED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--1997
<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
Other non-cash interest expense... 1,326 -- -- -- 1,326
Provision for relocating corporate
office.......................... 886 -- -- -- 886
Gain on sale of property and notes
receivable...................... -- (92) -- -- (92)
Other non-cash items, net......... 3,635 5,926 (8,509) -- 1,052
All other operating activities.... (24,852) (62,261) (29,913) (300) (117,326)
-------- -------- -------- ------ ---------
Net Cash Used In Operating
Activities.......................... (24,547) (21,731) (6,307) -- (52,585)
-------- -------- -------- ------ ---------
Cash Flows Provided (Used) By
Investing Activities:
Capital expenditures................ (176) (4,567) (27,353) -- (32,096)
Change in notes receivable.......... -- (14,061) (2,442) -- (16,503)
Proceeds from sale of property and
investment........................ -- 57,372 -- -- 57,372
Discontinued operations, net
changes........................... -- 2,140 -- -- 2,140
Investment in assets held for
sale.............................. -- (56,375) -- -- (56,375)
Investment in affiliate............. (25,708) -- -- -- (25,708)
-------- -------- -------- ------ ---------
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....... 2,834 842 918 -- 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 $ 1,832 $ 3,147 $ -- $ 13,997
======== ======== ======== ====== =========
</TABLE>
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<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The information required here-in is incorporated by reference to the
Company's Form 8-K reports dated October 8, 1999, November 8, 1999 and March 1,
2000.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS AND DIRECTORS
The Company is an indirect, wholly owned subsidiary of MCII Holdings (USA).
MCII Holdings (USA), 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 (USA) and our executive officers and their ages as of
March 1, 2000. 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. C. Roberto Cordaro and four
representatives from JLL.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ----------------------------------
<S> <C> <C>
C. Roberto Cordaro................ 50 Chief Executive Officer and
Director
Mario Gonzalez.................... 47 Chief Operating Officer
Horst O. Sieben................... 62 Chief Financial Officer
Ronald L. Batchelder.............. 58 Vice President and Corporate
Controller
William M. Murray................. 49 Vice President, Finance and
Treasurer
Alexander C. Baker................ 53 Vice President, Sales and
Marketing
Pedro Ferro....................... 41 Vice President and General
Manager, Customer Support Business
Peter Palladino................... 50 Vice President, Marketing
Timothy J. Nalepka................ 44 Vice President, Secretary 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>
C. ROBERTO CORDARO. Mr. Cordaro was elected Chief Executive Officer in
January 2000. Prior to joining the Company, Mr. Cordaro was Executive Vice
President and Group President of the Automotive Group of Cummins Engine since
April of 1996. From 1990 through April of 1996, Mr. Cordaro held the position of
Group Vice President Marketing
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.
HORST SIEBEN. Mr. Sieben became Chief Financial Officer on June 16, 1999.
During the last twelve years, Mr. Sieben served as Chief Financial Officer of a
number of portfolio companies controlled by
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<PAGE>
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 he assumed the same position at Freedom Chemical Company
where he served until it was sold in March 1998. From April 1998 through June
1999 he served as financial consultant to JLL and others.
RONALD L. BATCHELDER. Mr. Batchelder was appointed Vice President and
Corporate Controller in August 1999. Prior to joining the Company, Mr.
Batchelder has been associated with a number of portfolio companies controlled
by JLL in various financial positions including Chief Financial Officer,
Corporate Controller, Vice President of Finance, Division Controller and
Financial Consultant. In addition, Mr. Batchelder is President of Ronald Lee and
Company, a financial consulting firm.
WILLIAM M. MURRAY. Mr. Murray was appointed Vice President, Finance and
Treasurer in February 2000. Prior to joining the Company, Mr. Murray was Vice
President and Treasurer of the Beloit Corporation from 1998 through February
2000 and was Treasurer of the Fuller Company from 1985 through 1997.
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.
PEDRO FERRO. Mr. Ferro was appointed Vice President and General Manager,
Customer Support Business in February 2000. Prior to joining the Company, Mr.
Ferro held the position of Director of Marketing, Federal with Dell Computer
Corporation from June 1999 to February 2000. From 1985 through June of 1999, Mr.
Ferro held several management positions with Cummins Engine Co., most recently
serving as Vice President, Automotive Information Business from 1995 through
June 1999.
PETER PALLADINO. Mr. Palladino was appointed Vice President of Marketing in
February 2000. Prior to joining the Company, Mr. Palladino held several
positions of increasing responsibility with Cummins Engines since joining them
in 1969. Most recently, Mr. Palladino held the positions of Executive Director
of the Truck OEM Business since 1997 and General Manager of the OEM Business
from 1994 through 1997.
TIMOTHY J. NALEPKA. Mr. Nalepka has been the Vice President, Secretary 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 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,
60
<PAGE>
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 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 Senior Managing Director of JLL since its formation in May 1988.
Mr. Levy serves on the boards of directors of Hayes Lemmerz International Inc.,
Builders FirstSource, Inc., Jackson Automotive Group, Inc., Fairfield
Manufacturing Company, Inc., IASIS Healthcare Corp. and New World Pasta Company.
JEFFREY LIGHTCAP. Mr. Lightcap was appointed a director on June 16, 1999.
Mr. Lightcap is a Senior Managing Director 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., IASIS Healthcare Corp. and
New World Pasta Company.
DAVID YING. Mr. Ying was appointed as a director on June 16, 1999.
Mr. Ying is a Senior Managing Director 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., Builders
FirstSource, Inc., IASIS Healthcare Corp. 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 IASIS Healthcare Corp. and Jackson Automotive Group, Inc.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth-certain information regarding compensation
paid or accrued by us during 1999 to our chief executive officer and the next 4
most highly compensated executive officers December 31, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
---------------------- COMPENSATION
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) ($)
- --------------------------- ---------- --------- ------------
<S> <C> <C> <C>
Rafael Gomez Flores, Chairman of the Board................. 1,196,953 0 4,468
James P. Bernacchi, Former Chief Executive Officer......... 346,188 200,000 61,929
Alexander C. Baker, Vice President, Sales and Marketing.... 172,154 105,600 372
Mario Gonzalez, Chief Operating Officer.................... 176,934 152,375 55,570
Harold Zuschlag, Vice President, Customer Care............. 174,198 130,000 18,229
</TABLE>
61
<PAGE>
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 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, 16 and 17 in the notes to our consolidated financial
statements included in Form 10-K.
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 effective June 16, 1999 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 also provided that
Mr. Gomez Flores will receive a lump sum payment of $6.0 million conditioned
upon consummation of a change of control of the Company during the term. The
initial term of the employment agreement is five years and is automatically
renewable each year thereafter unless sooner terminated as provided therein. 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 have not been allocated to the other senior executives.
62
<PAGE>
ITEM 12 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 March 1, 2000.
For descriptions of certain voting and other arrangements among such
holders, see "Certain Transactions; Relationship with Grupo Dina" beginning on
page 66.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF TOTAL
OF VOTING NUMBER OF SHARES NUMBER OF
VOTING COMMON OF NON-VOTING SHARES OF TOTAL PERCENTAGE OF
BENEFICIAL OWNER COMMON STOCK STOCK COMMON STOCK COMMON STOCK COMMON STOCK
- ---------------- ---------------- ------------- ---------------- ------------ -------------------
BENEFICIAL OWNERSHIP( )
<S> <C> <C> <C> <C> <C>
JLL Fund III(b)............ 645,303.85 59.21% -- 645,303.85 56.46%
450 Lexington Avenue
Suite 3350
New York, New York 10017
Consorcio G Grupo Dina,.... 390,000.00 35.79% -- 390,000.00 34.13%
S.A. de C.V.(c)
Tlacoquemecatl 41
Colonia Del Valle
03100, Mexico D.F., Mexico
CIBC(d).................... 54,478.20 4.99% 53,074.96 107,553.16 9.41%
161 Bay Street,
PP Box 500,
M51258, Toronto, Canada
C. Roberto Cordaro......... -- -- -- -- --
Horst Sieben............... -- -- -- -- --
Ronald L. Batchelder....... -- -- -- -- --
Alexander C. Baker......... -- -- -- -- --
Pedro Ferro................ -- -- -- -- --
William Murray............. -- -- -- -- --
Timothy J. Nalepka......... -- -- -- -- --
Peter Palladino............ -- -- -- -- --
Harold Zuschlag............ -- -- -- -- --
Rafael Gomez Flores(c)..... 390,000.00 35.79% -- 390,000.00 34.13%
Gamaliel Garcia -- -- -- -- --
Cortez(e)................
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 (12
persons)(e).............. 1,035,303.85 95.00% -- 1,035,303.85 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.
63
<PAGE>
(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 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 December 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
64
<PAGE>
is permitted to own under any law, regulation order, rule or other requirement
of any governmental authority. The stockholders agreement for MCII Holdings
contains 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 may be granted stock options to purchase up to 20% of MCII
Holdings' fully diluted common stock. See "Executive Compensation--Management
Options."
WARRANTS
In connection with the equity investment, the equity investors received
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.
65
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS; RELATIONSHIP WITH GRUPO DINA
GENERAL
Prior to the consummation of the Financial Restructuring and Reorganization
Transactions ("Transactions"), we and Autobuses were indirect wholly-owned
subsidiaries of Grupo Dina. Grupo Dina is a manufacturer of trucks and is listed
on the Bolsa Mexicana de Valores, 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.
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 until June, 2014, 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 "Note 3 to the Consolidated Financial
Statements.")
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 Form 10-K.
66
<PAGE>
- MCII Holdings transferred its Mexicana de Manufacturas Especiales, S.A. de
C.V., subsidiary to Grupo Dina.
- 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 was 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.
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<PAGE>
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.
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, under certain circumstances, 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. 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 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.
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.
68
<PAGE>
- 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.
69
<PAGE>
PART IV
ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<S> <C>
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. (1.)
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. (1.)
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. (1.)
3.1* Certificate of Incorporation of Transportation Manufacturing
Operations, Inc (1.)
3.2* Bylaws of Transportation Manufacturing Operations, Inc. (1.)
3.3* Certificate of Incorporation of TMO Acquisition Corporation.
(1.)
3.4* Bylaws of BusLease, Inc. (1.)
3.5* Certificate of Incorporation of Transit Bus International,
Inc. (1.)
3.6* Bylaws of Transit Bus International, Inc. (1.)
3.7* Certificate of Incorporation of New Hausman Bus Sales, Inc.
(1.)
3.8* Bylaws of Hausman Bus Sales, Inc. (1.)
3.9* Certificate of Incorporation of Motor Coach Industries, Inc.
(1.)
3.10* Bylaws of Motor Coach Industries, Inc. (1.)
3.11* Certificate of Incorporation of Universal Coach Parts, Inc.
(1.)
3.12* Bylaws of Universal Coach Parts, Inc. (1.)
4.1* Indenture dated June 16, 1999 among TMO, the subsidiary
guarantors and IBJ Whitehall Bank & Trust Company. (1.)
4.2* Registration Rights Agreement dated June 16, 1999 among TMO,
the subsidiary guarantors, of CIBC and Merrill Lynch. (1.)
5.1* Opinion of Skadden Arps. (1.)
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. (1.)
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. (1.)
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
dated September 23, 1999. (2.)
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- ------------------------------------------------------------
<S> <C>
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.
(2.)
10.5* License Agreement dated June 16, 1999 between Grupo Dina and
MCII Holdings. (1.)
10.6* MCII Holdings (USA), Inc. Management Stock Option Plan. (1.)
10.7* Non-qualified Stock Option Agreement dated June 16, 1999
between MCII Holdings and Mr. Gomez Flores. (1.)
10.8* Omnibus Agreement dated June 16, 1999 among MCII Holdings,
Grupo Dina, JLL Fund III, CIBC Argosy and Co-Investment Fund
3. (1.)
10.9* Employment Agreement dated June 16, 1999 between MCII and
Mr. Gomez Flores. (1.)
12.1* Ratio of Earnings to Fixed Charges +
16.1* Letter regarding change in Certifying Accountant. (3.)
16.2* Letter regarding change in Certifying Accountant (4.)
16.3* Letter regarding change in Certifying Accountant (5.)
21.1* Subsidiaries of MCII (1.)
25.1* Statement of Eligibility and Qualification on Form T-1 of
IBJ Whitehall. (1.)
27.1+ Financial Data Schedule.-(Edgar filing only)
99.1* Form of Letter of Transmittal. (1.)
99.2* Form of Notice of Guaranteed Delivery. (1.)
99.3* Form of Letter to Registered Holders. (1.)
</TABLE>
- ------------------------
* Previously filed.
+ Filed herewith.
- ------------------------
1. Previously filed and incorporated herein by reference from Registrant's
prospectus on Form S-4 dated July 28, 1999.
2. Previously filed and incorporated herein by reference from Registrant's
prospectus on amendment number one to Form S-4 dated September 23, 1999.
3. Previously filed and incorporated herein by reference from Registrant's
Form 8-K dated October 15, 1999.
4. Previously filed and incorporated herein by reference from Registrant's
Form 8-K dated November 16, 1999.
5. Previously filed and incorporated herein by reference from Registrant's
Form 8-K dated February 3, 2000.
71
<PAGE>
14(b) Reports on Form 8-K
On October 8, 1999, the Company issued a report on Form 8-K announcing the
dismissal of Arthur Andersen LLP and the hiring of PriceWaterhouseCoopers
LLP as its new independent public accountants and auditors. On November 8,
1999 the Company issued a report on Form 8-K announcing the resignation of
PriceWaterhouseCoopers as its independent public accountants and auditors.
Subsequent to year-end, the Company issued another report on Form 8-K dated
February 3 announcing the appointment of Roberto Cordaro as Chief Executive
Officer and also announcing that on March 1, 2000, Arthur Andersen LLP were
reappointed as the Company's independent public accountants and auditors.
72
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
Date: March 30, 2000 By: /s/ TIMOTHY J. NALEPKA
-----------------------------------------
Timothy J. Nalepka
VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY
</TABLE>
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ C. ROBERTO CORDARO
------------------------------------------- Chief Executive Officer and March 30, 2000
C. Roberto Cordaro Director
/s/ MARIO GONZALEZ
------------------------------------------- Chief Operating Officer March 30, 2000
Mario Gonzalez
/s/ HORST O. SIEBEN
------------------------------------------- Chief Financial Officer March 30, 2000
Horst O. Sieben
/s/ RONALD L. BATCHELDER Vice President and
------------------------------------------- Corporate Controller, March 30, 2000
Ronald L. Batchelder Chief Accounting Officer
/s/ RAFAEL GOMEZ FLORES
------------------------------------------- Chairman of the Board and March 30, 2000
Rafael Gomez Flores Director
/s/ GAMALIEL GARCIA CORTES
------------------------------------------- Director March 30, 2000
Gamaliel Garcia Cortes
/s/ PAUL S. LEVY
------------------------------------------- Director March 30, 2000
Paul S. Levy
/s/ JEFFREY LIGHTCAP
------------------------------------------- Director March 30, 2000
Jeffrey Lightcap
/s/ DAVID YING
------------------------------------------- Director March 30, 2000
David Ying
/s/ FRANK RODRIGUEZ
------------------------------------------- Director March 30, 2000
Frank Rodriguez
</TABLE>
73
<PAGE>
EXHIBIT 12.1
MOTOR COACH INDUSTRIES INTERNATIONAL, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
WITH PUSH-DOWN
Income from continuing operations before provision for
income taxes.............................................. $10,441 $26,598 $37,794 $46,439 $14,273
Add:
Interest expense, including amortization.................. 49,973 35,579 43,494 45,179 55,714
Rent expense (one-third).................................. 1,035 1,147 1,128 1,356 1,451
Finance interest.......................................... 2,658 3,605 2,394 2,765 3,137
------- ------- ------- ------- -------
Earnings, as adjusted................................... $64,107 $66,929 $84,810 $95,739 $74,575
======= ======= ======= ======= =======
Fixed charges:
Interest expense, including amortization.................. 49,973 35,579 43,494 45,179 55,714
Rent expense (one-third).................................. 1,035 1,147 1,128 1,356 1,451
Finance interest.......................................... 2,658 3,605 2,394 2,765 3,137
------- ------- ------- ------- -------
Fixed charges........................................... $53,666 $40,331 $47,016 $49,300 $60,302
======= ======= ======= ======= =======
Ratio of earnings to fixed charges.......................... 1.2 1.7 1.8 1.9 1.2
======= ======= ======= ======= =======
WITHOUT PUSH-DOWN
Income from continuing operations before provision for
income taxes.............................................. $25,460 $46,148 $59,429 $71,633 $25,874
Add:
Interest expense, including amortization.................. 34,954 16,029 21,859 19,985 44,113
Rent expense (one-third).................................. 1,035 1,147 1,128 1,356 1,451
Finance interest.......................................... 2,658 3,605 2,394 2,765 3,137
------- ------- ------- ------- -------
Earnings, as adjusted................................... $64,107 $66,929 $84,810 $95,739 $74,575
======= ======= ======= ======= =======
Fixed charges:
Interest expense, including amortization.................. 34,954 16,029 21,859 19,985 44,113
Rent expense (one-third).................................. 1,035 1,147 1,128 1,356 1,451
Finance interest.......................................... 2,658 3,605 2,394 2,765 3,137
------- ------- ------- ------- -------
Fixed charges........................................... $38,647 $20,781 $25,381 $24,106 $48,701
======= ======= ======= ======= =======
Ratio of earnings to fixed charges.......................... 1.7 3.2 3.3 4.0 1.5
======= ======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED INCOME STATEMENT, BALANCE SHEET, STATEMENT OF CASH FLOW,
STATEMENT OF SHAREHOLDER EQUITY AND RELATED NOTES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 15,630
<SECURITIES> 0
<RECEIVABLES> 171,734
<ALLOWANCES> 8,560
<INVENTORY> 217,083
<CURRENT-ASSETS> 426,127
<PP&E> 158,050
<DEPRECIATION> 47,580
<TOTAL-ASSETS> 891,274
<CURRENT-LIABILITIES> 156,274
<BONDS> 536,534
0
0
<COMMON> 0
<OTHER-SE> 155,117
<TOTAL-LIABILITY-AND-EQUITY> 891,274
<SALES> 906,647
<TOTAL-REVENUES> 911,113
<CGS> 700,980
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 135,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,714
<INCOME-PRETAX> 14,273
<INCOME-TAX> (1,936)
<INCOME-CONTINUING> 16,209
<DISCONTINUED> 0
<EXTRAORDINARY> (2,614)
<CHANGES> 0
<NET-INCOME> 13,595
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
